Vail Resorts Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 6, 2024

There are 10 speakers on the call.

Operator

Good afternoon, and welcome to the Vail Resorts Fiscal Third Quarter 2024 Earnings Call. Today's conference is being recorded. I will now turn the call over to Kirsten Lynch, Chief Executive Officer of Vail Resorts.

Operator

You may begin.

Speaker 1

Thank you. Good afternoon, everyone. Welcome to our fiscal 2024 Q3 earnings conference call. Joining me on the call this afternoon is Angela Korch, our Chief Financial Officer. Before we begin, let me remind you that some information provided during this call may include forward looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially.

Speaker 1

Forward looking statements in our press release issued this afternoon along with our remarks on this call are made as of today, June 6, 2024, and we undertake no duty to update them as actual events unfold. Today's remarks also include certain non GAAP financial measures. Reconciliations of these measures are provided in the tables included in our with our press release, which along with our quarterly report on Form 10 Q were filed this afternoon with the SEC and are also available on the Investor Relations section of our website at www.bailresorts.com. Let's turn now to our fiscal 2024 Q3 results. Given the unfavorable conditions across our North American resorts for a large portion of the 2023, 2024 North American ski season, we are pleased to see improved results in March April with visitation across our Western North American Resorts in particular benefiting from improved conditions.

Speaker 1

While past products visitation returned as expected, as we communicated in April, lift ticket visitation did not return to typical historical guest behavior for the spring, primarily at Whistler Blackcomb, which was down significantly relative to the prior year period. Despite these challenges, the company grew resort net revenue and resort reported EBITDA to record levels in the 3rd quarter, supported by the stability created from our advanced commitment strategy, operations, executional excellence and continued strong growth in ancillary spending per skier visit across our ski school, dining and rental businesses at our resorts. Our results through the 2023, 2024 North American ski season highlight both the stability provided by our season pass program and the investments we have made in our resorts and employees. The winter season included significant weather related challenges with approximately 28% lower snowfall for the full winter season across our Western North American resorts compared to the same period in the prior year and limited natural snow and variable temperatures at our Eastern U. S.

Speaker 1

Resorts, which comprise our Midwest, Mid Atlantic and Northeast resorts. For the 2023, 2024 North American and European ski season, total skier visits declined 7.7% as compared to the prior year period, which we believe was driven by a combination of unfavorable conditions and broader industry normalization post COVID following record visitation in the U. S. During the 2022, 2023 ski season. Skier visitation from lift ticket guests, which is refundable and not committed in advance of the season was particularly impacted, declining 17% compared to the prior year period.

Speaker 1

Despite the decline in visitation, ancillary spending was strong across our ski school, dining and rental businesses at our resorts. Resort net revenue for the 2nd and third quarter combined period increased 1% and resort reported EBITDA increased 6% over the prior year, supported by our advanced commitment strategy, strong growth in guest ancillary spending per visit and continued cost discipline. Now I would like to turn the call over to Angela to further

Speaker 2

As Kirsten mentioned, we were pleased to see improved results in March April. Net income attributable to Vail Resorts was $362,000,000 or $9.54 per diluted share for the Q3 of fiscal 2024 compared to net income attributable to Vail Resorts of 3 $25,000,000 or $8.18 per diluted share in the prior year. Net income for the 3rd of fiscal 2024 includes approximately $37,000,000 of pre tax expense associated with the change in the estimated fair value of the contingent consideration liability related to our Park City resort lease compared to approximately $46,000,000 of pretax expense in the Q3 of the prior year. Additionally, net income for the Q3 of fiscal 2024 and fiscal 2023 includes the after tax effect of acquisition and integration related expenses of approximately $1,000,000 $100,000 respectively. Now turning to our outlook for fiscal 2024.

Speaker 2

While late season results improved, we now expect Resort reported EBITDA to be between $833,000,000 $851,000,000 on a comparable basis with our prior guidance issued March 11, 2024, which included $4,000,000 of acquisition related expenses specific to Crohn Montana, but excluded the closing costs, operating results and integration expenses associated with Crohn Montana. The reduction relative to the guidance provided on March 11, 2024, is primarily from lift ticket visitation not returning to typical historical spring behavior as expected in March April period, primarily at Whistler Blackcomb, along with lowered expectations for the Q4 of 9,000,000 dollars primarily related to the demand outlook for our Australian resorts. In addition, with the closing of the acquisition, we now expect Crown Montana to contribute negative $12,000,000 of Resort Reported EBITDA for fiscal 2024, including negative $9,000,000 from the acquisition, closing and integration expenses and negative $3,000,000 from operating results in the 4th quarter. Including the full impact of Chromontana, the company now expects net income attributable to Vail Resorts to be between $224,000,000 $256,000,000 and resort reported EBITDA to be between $825,000,000 8 $43,000,000 Resort EBITDA margin is expected to be approximately 28.9% at the midpoint of the guidance range. Excluding the impact of Grand Montana, resort EBITDA margin would be 29.2% in fiscal 2024 at the midpoint of the guidance range.

Speaker 2

The updated outlook for fiscal 2024 assumes a continuation of the current economic environment and normal weather conditions and operations throughout Australian ski season and North American summer season, both of which begin in our Q4. The guidance assumes an exchange rate of $0.73 between the Canadian dollar and U. S. Dollar related to the operations of Whistler Blackcomb in Canada and an exchange rate of $0.66 between the Australian dollar and the U. S.

Speaker 2

Dollar related to operations of Perisher, Bald Creek and Hotham in Australia and an exchange rate of $1.10 between the Swiss franc and U. S. Dollar related to the operations of Anmermott Sedrun and Krah Montana in Switzerland. Our balance sheet remains strong, including total cash and revolver availability as of April 30, 2024 of approximately $1,300,000,000 with $705,000,000 of cash on hand and $625,000,000 of combined revolver availability across our credit agreements. As of April 30, 2024, our net debt was 2.4x trailing 12 months total reported EBITDA.

Speaker 2

In addition, we opportunistically extended the maturity dates on a substantial amount of our debt subsequent to quarter end. On May 8, 2024, the company completed an offering of $600,000,000 aggregate principal amount of 6.5% senior notes due 2,032. We use the net proceeds from these notes to fund the redemption of the entire amount of $600,000,000 to 6.25% senior notes due 2025 on May 15, 2024. Additionally, the company completed an amendment of its failed holdings credit agreement to extend the maturities of the $969,000,000 term loan and $500,000,000 revolver from 2026 to 2029. The company also repurchased approximately 300,000 shares at an average price of approximately $2.17 for a total of $75,000,000 during the quarter.

Speaker 2

For the 9 months ended April 30, 2024, the company repurchased 600,000 shares for approximately $125,000,000 We have approximately 0.8000000 shares remaining under authorization for share repurchases and remain focused on returning capital to shareholders while always prioritizing long term value of our shares. Additionally, the company declared a quarterly cash dividend on VAIL ResourceMFG common stock of $2.22 per share. Dividend will be payable on July 10, 2024, to shareholders of record as of June 25, 2024. We will continue to be disciplined stewards of our capital and remain committed to prioritizing investments in our guests and employee experience, high return capital projects, strategic acquisition opportunities and returning capital to our shareholders through our quarterly dividend and share repurchase program. As previously announced on May 2, 2024, the company closed on the purchase of its 2nd European resort, Grand Montana, for a purchase price of CHF97.2 million or $106,800,000 after adjustments for certain agreed upon items, including a CHF4 1,000,000 reduction in the purchase price to account for the timing of closing after the winter season.

Speaker 2

The company acquired an 84 percent ownership stake in the entity that controls and operates all the resorts' lifts and supporting mountain operations, including 4 retail and rental locations. The company also acquired full ownership of SportLife AG, increasing from the previously announced 80% ownership stake, which operates 1 of the ski schools located at the resort and full ownership of 11 restaurants located on and around the mountain. This world class resort spans over 1400 meters or approximately 4,600 feet of skiable vertical terrain and 140 kilometers or approximately 87 miles of trails. Located in the Lejuez Canton of Switzerland, Cromantana is approximately 2.5 hours from Geneva and less than 4 hours from Milan and Zurich. Evaluation for the entirety of the resort operations was CHF 118,500,000, including approximately CHF7 million of debt that will remain in place and adjusted for purchase price adjustments to account for seasonality and closing timing.

Speaker 2

Vail Resorts anticipates that the resort will generate approximately CHF 5,000,000 of resort reported EBITDA in the fiscal year ending July 31, 2025, the 1st full year of operations under the company's ownership. We expect significant EBITDA growth over time from the inclusion of the resort on the Epic Pass products, network synergy and investments in the guest experience. Subject to the timing of capital project approvals and completion, Bail Resources is planning to invest approximately CHF 30,000,000 over the next five years in onetime capital spending to elevate the guest experience. Normal annual maintenance capital spending is expected to be approximately CHF 3,000,000. Now I'll turn the call back over to Kirsten.

Speaker 1

Thank you, Angela. Past product sales through May 28, 2024 for the upcoming 2024, 2025 North American ski season decreased approximately 5% in units and increased 1% in sales dollars as compared to the period in the prior year through May 30, 2023. Pass sales dollars are benefiting from the 8% price increase relative to the 2023 2024 season, partially offset by the mix impact from the growth of Epic Day Pass products. Pass product sales are adjusted to eliminate the impact of foreign currency by applying an exchange rate $0.73 between the Canadian dollar and U. S.

Speaker 1

Dollar in both periods for Whistler Blackcomb Pass sales. Pass product sales for this past season, the 2023, 2024 North American ski season, have grown 62% in units and 43% in sales dollars over the past 3 years. Past product pricing has increased 25% from spring 2021 to spring 2024. We believe the spring pass sales results for guests committing for winter 2024 2025 were impacted by the industry decline in visitation following a record 2022, 2023 U. S.

Speaker 1

Ski season. The decline in units relative to the prior year season to date results was primarily driven by a decline in new pass holders. The primary source of new passholders in the spring are lift ticket guests that visited in the prior winter season. This past season, lift ticket visitation declined due to weather and did not fully return to typical behavior after conditions improved, creating a smaller audience as the primary source of new pass holders in the spring. For renewing pass holders, company achieved strong unit growth among the company's most loyal tenured renewing passholders, guests who have had a pass for 3 years or more.

Speaker 1

Spring renewals for lower tenured passholders, including 1st time and second year passholders, demonstrated lower renewal rates in the spring, which may reflect delayed decision making to the fall. Overall, renewing passholder product net migration was positive and Epic Day Pass product experienced unit growth modest unit growth driven by the strength in renewing pass holders. The majority of our pass selling season is ahead of us and we believe the full year pass unit and sales dollar trends will be relatively stable as compared to the spring results. We will provide more information about our pass sales results in our September 2024 earnings release. EPIC Australia Pass sales end on June 12, 20 24 and are down approximately 22% in units through May 29, 2024, which we believe is primarily a result of the historically poor conditions during the 2023 ski season in Australia.

Speaker 1

The Epic Australia Pass has grown 43% in units over the past 3 years. Our commitment to reinvesting in our resorts and the guest experience remains one of our highest priorities. As previously announced, we expect our capital plan for calendar year 2024 to be approximately $189,000,000 to $194,000,000 excluding $13,000,000 of incremental capital investments in premium fleet and fulfillment infrastructure to support the official launch of My Epic Gear for the 2024, 2025 winter season at 12 destination and regional resorts across North America, $11,000,000 of growth capital investments at Andurman Sadrune, dollars 1,000,000 of reimbursable capital and investments at Crown Montana, which we expect will include $3,000,000 of maintenance capital expenditures and $2,000,000 associated with integration activities, Including Myopic Gear Premium Fleet, fulfillment infrastructure capital, one time investments and investments at Crown Montana, our total capital plan for calendar year 2024 is now expected to be approximately $219,000,000 to $224,000,000 In closing, we greatly appreciate the loyalty of our guests that visited across all of our mountain resorts this past season and the continued loyalty of our pass holders that have already committed to next season. With the North American and European ski season coming to an end, I would like to especially thank our frontline employees for their passion and dedication to delivering an experience of a lifetime to our guests.

Speaker 1

Our employees are the core of Vail Resorts' mission to create an experience of a lifetime, And we are all looking forward to the ski and ride season at our 3 mountain resorts in Australia. At this time, Angela and I will be happy to answer your questions. Operator, we are ready for questions.

Operator

Thank We'll take our first question from Shaun Kelley with Bank of America.

Speaker 3

Hi, good morning everyone or good evening everyone. Thank you for taking question. Kirsten, Angela, just wondering if we could dig a little deeper on the past behavior that you saw. Specifically wondering if you could just give us a little bit of insight on what feedback are you hearing from the guests that are in that kind of new passover cohort and in the sort of that, I guess, younger cohort that didn't renew this period? Because historically, you've done pretty well on pulling forward and incentivizing activity earlier in this past sales season.

Speaker 3

So we're getting some concerns that whatever trend you're seeing now could actually deteriorate a little bit. So maybe some behavior could give us some sense as to why maybe they waited a little bit. Just what are you kind of what are you hearing back from maybe some feedback from people as you've dug into the behavior that you saw in the early past period here?

Speaker 1

Yes. Thank you, Sean. I think what we see with our renewing pass holders is different behavior depending on their tenure. Very pleased to see that our most loyal and tenured renewing pass holders, those that are 3 years or more had strong unit growth. When we look at the renewals for those lower tenured pass holders, 1st time pass holders or 2nd year pass holders, as I mentioned, they did demonstrate lower renewal rates.

Speaker 1

This particular audience, we tend to see, can be impacted by conditions in their decision making and the timing of when they renew because they had been in many cases accustomed to making their decision about their ski vacations closer to this season. When we look at this group, we tend to see that there is still a strong volume of them that make decisions in the fall. The guest experience scores that we have among this audience are quite strong. So I can't tell you with certainty what decision making they're going to have. What I would say is that it is possible that there is a delayed decision making because we have seen that behavior with this audience in the past.

Speaker 3

That's helpful. And thank you for the extra color there. And then my second my follow-up would just be you mentioned in the release a little bit around post COVID normalization, right? And so a lot of the activity here feels like it was connected to especially with the new pass holders around visitation, you didn't have that base of customers to sell to and obviously a lot of that traces back to weather. But the post COVID normalization piece is a different factor.

Speaker 3

So could you just elaborate on what you meant by that? And kind of again, there's a lot of crosscurrents here. So just how do you kind of separate the 2 if both of those are factors?

Speaker 1

Yes. Thanks for the question, Sean. We do believe this past season overall that conditions and a post COVID normalization are both material factors impacting this season. And we can see that when we look at the conditions and the guest behavior when conditions were challenging versus when conditions improved and where results improved or did not improve or the behavior was there. And we mentioned this before when it came up in March that very hard to say if there's a normalization given the season is not over.

Speaker 1

With the season being over, it's easier for us to look back and be able to see where, the behavior recovered and where it did not with conditions to say that normalization is a component of that. When we look at the impact on spring pass sales, as I mentioned, the single biggest impact on our spring pass sales is new pass holders and that is driven by lift ticket guests. And that behavior or that size of that audience is down significantly, which is impacting then our ability to convert them into new pass holders. I would also highlight though in this context that that is not the only source of new pass holders. It is the primary source of new pass holders in the spring coming off of the season conversion to lift from lift ticket guests is the primary source.

Speaker 1

As we head into fall though, we also see new pass holders being driven by prospects as well as lapsed pass holders and lapsed lift ticket guests. But for this spring time period, we do believe that the industry normalization is impacting pass sales because it's impacting the size of that audience. We also look at will pass holders who visited during good conditions and during poor conditions and what is their conversion rate to a pass and can see that conditions are a factor, but they are not the primary factor.

Operator

Thank you. Our next question comes from Jeff Stantial with Stifel.

Speaker 4

Hey, great. Good afternoon, Kirsten and Angela. Thanks for taking our questions. Maybe starting off, I'll just try to ask Sean's first question slightly different way. So, Kirsten, you talked a lot about soft lift ticket demand this past season impacting your conversion from Lyft to Epic Passes during the spring selling season.

Speaker 4

To me that seems like more of a spring headwind and going to ease up as the selling season progresses. You also talked about potential for some conversions of less tenured pass holders to accelerate in the summer and in the fall selling seasons. I guess, can you just help us reconcile those two comments with the expectation for trends to remain stable to the levels you just reported through the remainder? In other words, is it fair to conclude you're being a conservative with that comment? Just any color there would be helpful.

Speaker 4

Thanks.

Speaker 1

Thanks, Jeff. Yes, I think there are a lot of different moving factors that happen as you've highlighted in the spring versus the fall in terms of behavior. And I did highlight and it is possible that some of the early tenure pass holders, those first time pass holders or second year pass holders shift their decision making later in the season as we have seen that in the past. I think it is important for us to highlight that the U. S.

Speaker 1

Ski industry decline of 8%, our decline in visits of 8%, which is consistent with that does reduce the pool of guests to transition into a path. And we do believe that it is having an impact and will have an impact through the rest of the selling cycle, which is why we said that we believe that it would remain consistent. There are ebbs and flows. We are seeing a negative impact from lift tickets here in the spring. It's possible we will actually be successful with lapsed and prospect in the fall.

Speaker 1

But overall, right now, we are not projecting a material improvement for the remainder of the selling cycle.

Speaker 4

Okay, perfect. That's very helpful commentary. Thank you for that. And then for my follow-up, I wanted to double click on some of softness in the lift ticket visitation later in the season this year. You called out specifically Wisser Blackcomb as showing the most headwinds here.

Speaker 4

I guess, can you expand on that a little bit more? Is there anything in terms of nuances to that resort that might explain it? Is it higher fly to traffic? Just anything that sort of explains the nuances that you're seeing with that resort versus more of your U. S.

Speaker 4

Resorts?

Speaker 1

Yes. When we were looking at conditions, we saw conditions improve in our U. S. Rockies resorts earlier than we did at Whistler Blackcomb. Those results stayed very challenged for longer.

Speaker 1

So that's number 1. Number 2, this that resort is destination visitation is very important to the success of that resort. And 3, lift ticket visitation is very susceptible to weather conditions. When we started heading into spring, we had noted that conditions were improving and we expected pass visitation because we have the data and we can tell who's pre committed that we believe that then those guests will use their path. And we saw that actually happen, Jeff, that the pre committed guests returned as we expected them to.

Speaker 1

On lift tickets, we didn't expect that we were recouping what had been lost earlier in the season. We had expected typical spring historical guest behavior and we did not see that with the improved conditions and in particular at Whistler where the conditions dragged on longer and the lift ticket visitation is highly susceptible to conditions and variable, which is why we're very oriented to pass, we see the impact. I think there is also border restrictions that impacted Whistler Blackcomb during that post COVID era and could be potentially some normalization impacts happening there as well.

Speaker 4

Makes sense.

Operator

Thank you. Our next question comes from Ben Chaikin with Mizuho.

Speaker 5

Hey, how's it going? You noted the decline in passes was largely driven by lower new pass holders, with that pool being primarily window ticket guests. I guess it's very reasonable that the pool is smaller given the poor weather. But when you look at the penetration of that pool of single day window guests who subsequently decided to purchase a pass, was it consistent with what you would have expected just at a smaller scale, better or worse? Thanks.

Speaker 1

I'm sorry, Ben. Can you reframe your question just to make sure I'm understanding exactly what you're asking me?

Speaker 5

Sure. Sure. You were saying that one of the larger reasons of the decrease in the past was lower new pass owners. Yes. And that the major pool for that was window guests from the previous season.

Speaker 5

I'm saying it's very reasonable that that pool is smaller given the poor weather, but of the people who did purchase, of the window guests who did subsequently purchase a season pass, is the penetration in line with what you would have expected better or worse? And if that didn't make sense, we can catch up later.

Speaker 1

No, I got it. So it is both impacts. The biggest and largest impact on our year over year pass sales in the spring for new is the size of the audience in the lift ticket guests that there was a decrease. We do also see an impact in conversion relative to what we would have expected, but that is not the primary driver. It is the size of the audience that is the primary driver of the decline year over year.

Speaker 1

Got it. Okay, that's helpful. And then,

Speaker 5

PaaS, I would assume there's been a lot of destination customers who

Speaker 6

are now part of

Speaker 5

the PaaS program, who were not there 3 or 4 years ago. Pass needs to evolve in any way to extend or smooth the season? You think the past needs to evolve in any way to extend or smooth the seasonality of the past? In other words, would it make sense to add partnerships, retail or otherwise that add demand for the past outside of the core season, in essence, extending the demand and utility of the past outside of the core season? Just would what are your thoughts there?

Speaker 5

Thanks.

Speaker 1

Yes. I think to the extent that the company could have advanced commitment for the ski season and other experiences or utilization of the past beyond the ski season, that would be real benefit to our company. We do provide access to summer experience on the past, but I'd say we're constantly always looking, Ben, at new ideas and opportunities to make that proposition even more valuable and compelling to our guests. I do think the dynamics between spring and fall have shifted and changed over time as the composition of our pass holders has changed over time between destination, local decision making, the behavior is different and whether you're long tenured and very loyal versus you're a newer pass holder coming in and that has caused shifts between spring and fall decision

Speaker 2

making.

Operator

Thank you. Our next question comes from Laurent Vasilescu with BNP Paribas.

Speaker 7

Good afternoon. Thank you very much for taking my question. It's noted in the press release that the Epic Australia Pass sales are down 22% in units, primarily due to weather. Kristen, can you provide some context for the audience just how bad the weather was in Australia this season so far? Could this be a leading indicator on how the U.

Speaker 7

S. Might react if bad weather is going could continue for the next few seasons? And are there any learnings from Australia that you could apply when you actually when you will guide for FY 2025 next quarter?

Speaker 1

Yes. Australia has had highly variable seasons. 2 years ago, a record high season of amazing conditions. And then unfortunately, the next year, very, very like worst season in decades. So to tale of 2 extremes over the course of 2 years.

Speaker 1

I think that so yes, I do think that is impacting condition or the decision making about a path in Australia. There's a lot of other unique dynamics happening in Australia related to the economy. I think the unique factor about our business there versus our North American resorts is a lot of our Epic Australia pass holders are visiting our local resorts. And what you see in North America is a lot of optionality. And one of the benefits of the pass is, if things if you live in San Francisco and conditions are challenging in Tahoe, you have a lot of good options to go to Park City or go to Whistler or go to Colorado.

Speaker 1

That level of optionality in Australia when there's poor winter is just more limited. So it's a different, more unique dynamic when it is more oriented to local visitation versus destination guests are not flying unfortunately to Australia to ski at our resorts there and the options in North America are a little bit more dynamic that give us a little bit more sort of geographic Kirsten, Angela, your

Speaker 7

dividend payout ratio is Kirsten, Angela, your dividend payout ratio is at 100% on a trailing 12 month basis. Can you discuss what's the ideal payout ratio going forward? Or ask another way, how do you prioritize your capital allocation strategy across the different avenues for shareholder returns?

Speaker 2

Yes. Thanks, Laurent. We do look at like consistently have looked at, right, our priority for capital allocation and the dividend has been our primary route for that. And we're not looking at a specific payout ratio per se. We've been looking at where do we see the free cash flow generation of the business and the underlying fundamentals have allowed us over time, right, to do all of our capital allocation priorities of reinvesting in our resort experience and the employee experience.

Speaker 2

We think our balance sheet is in a very strong place to be able to do M and A that like what we just did with Crown Montana. But we always look at the return to capital to shareholders and we prioritize the dividend and we've been opportunistic in how we return capital through share repurchase as well like we did this quarter.

Speaker 7

Okay, very helpful. Thank you very much.

Operator

Thank you. Our next question comes from Megan Alexander with Morgan Stanley.

Speaker 6

Hi, good afternoon. Thanks so much for taking our questions. Maybe a follow-up just on the lift ticket visitation again. I think you said it was down 17% from that window lift ticket. It's obviously clear weather was a big headwind to that customer, but I'm just curious your thoughts on whether price is having any impact.

Speaker 6

And the reason I ask is your largest competitor did recently say something to the tune of you won't see us taking prices on lift tickets anymore. So just bigger picture, would love to kind of get your thoughts on your pricing strategy more broadly and whether you think potentially there could be some room for some changes, maybe something like dynamic pricing. I understand the goal is to push people to the advance commitment, but at the same time, you're talking about the lift ticket guests being in the funnel for that. So I'm just trying to understand how you think about the pricing strategy and the ability to kind of retain and inquire more guests.

Speaker 1

Thanks, Megan. The source for our new pass holders, as I noted in spring, is primarily the prior season less ticket guests. But when we look on a full pass selling cycle basis, it is the source of new pass holders comes from lift ticket guests, but it also comes from our lapsed lift ticket guests, our lapsed pass holders and prospects. And we have, as you know, an extensive database to know those guests and know where they skied, when they skied, how often they skied to be able to connect with them 1 to 1. Related to lift ticket price, our pricing strategy is set very deliberately to move people into advanced commitment because that is what creates stability for us versus the variable decision making that comes from a refundable product like a lift ticket.

Speaker 1

When we we have a product line that enables us to have a very strong transition from lift tickets into a pass called Epic Day Pass that allows people to move into 1 through 7 days. And we've launched this, I believe it was in FY19, if I'm remembering that correctly. We launched that in order to actually capture those guests that are skiing at a lower frequency and have had enormous success in doing that. As I mentioned during the script, we've grown our past product sales 62% units and 43% in sales dollars over the past 3 years. And Epic Day Pass has been a huge portion of that.

Speaker 1

But the other part of our strategy is that we have a diverse portfolio of resorts and some of those are local, some of those are regional and some of those are destination. And when you look at ticket price for a local resort versus a regional resort versus a destination resort, meaning for the people who are starting the sport or taking up the sport, we don't often see them buying a plane ticket and traveling to one of the destination resorts. We have a network that allows a lift ticket purchase at a very reasonable price with first time programs to support them as they start to support at low prices at those local resorts and then as they move to regional and destination. So I think right now, the lift ticket decline, what we see in our data when we look at the lift ticket decline is relative to when the conditions were good versus when the conditions were bad. And there is a conditions impact, but there is also an industry normalization impact based on that behavior.

Speaker 1

I do not at this point believe that 17% decline is related to the price of lift tickets because we tend to move those people into Epic Day Pass versus it just being direct, unleashing the sport.

Speaker 6

That's really helpful. Appreciate the color. And then maybe just a follow-up to what you just said at the end there. How should we think about visitation for 2025? I guess both from an industry perspective and from a veil perspective.

Speaker 6

I guess from the industry, you're going to be lopping a pretty challenging weather season, but perhaps there was some normalization, so you don't necessarily get a full recovery. And then from Vale's perspective, at this point, past units down 5%, you've just less people on the mountain skiing just as a result of that. So I guess just any way to think about how kind of the net of all of these factors should impact next year? Does any one factor kind of have more weight over the others?

Speaker 1

Yes. We think both are meaningful factors on visitation, the weather conditions and the normalization. We're not quantifying those yet. We will provide more information about that as we share guidance in September on the volume and our visitation expectations. On the industry normalization, it's hard to say completely whether or not that is fully done or that continues into next year.

Speaker 1

When I look at what's happening in the travel and leisure industry and the commentary about normalization or I look at the ski industry results and it does look like at least in the ski industry similar to what you're hearing in travel and leisure that it is mostly returning back or close to sort of a normalized trend.

Speaker 6

Got it. Thank you.

Operator

Thank you. Our next question comes from Patrick Scholes with Truist.

Speaker 7

Hi. Good evening, everyone. One thing I've been hearing in the industry the last couple of weeks is how ICON unit sales at least are up or tracking up at least mid single digits year over year. I'm curious as to your opinion why what might account for the difference between where you are and they are? Certainly, part of that is they will have a basin, I think Blue and Camelback were added.

Speaker 7

And then I think Crystal is going back to the unlimited full icon. Anything else to think about between the difference between the 2? Thank you.

Speaker 1

Thanks, Patrick. Yes, I can't really comment on anyone else's past results or ICON's past results since they don't have public disclosures of their results and the drivers. What I can do is share, I think, some context that is always helpful reminder, which is life cycle of a business or a product and where our business was in its early days and the types of guests that we were converting were the high frequency, high committed guests. And now our pass has been in existence for significantly longer than their passes. So I think it would make sense, as you've seen us evolve and launch new products to go after new addressable markets, not just the high frequency, most committed skiers.

Speaker 1

We have expanded dramatically the growth of our Pass business going into less committed or lower frequency skiers and riders. And if for context, if you think about when their path started versus when ours did, I'd say, it's hard to compare the 2 because the where we are in the stage of the product life cycle is dramatically different and the types of guests and the products that we offer are dramatically different. So mostly I'd say it's that life stage piece that I think is likely a key difference.

Speaker 7

Okay. Thank you. And then my follow-up question also, this one's a bit more of a high level question. There's certainly debate in the ski community and subsequently with investors regarding what is the better operating strategy to go with? You folks seem to have more of a centralized out of Broomfield as it relates to mountain operations and HR, whereas your main competitor leaves it up more to the local resort to make decisions.

Speaker 7

I guess, in your opinion, why is your methodology the superior one? Thank you.

Speaker 1

Thanks, Patrick. Well, if we're talking about centralized versus decentralized, I think there's something important to clarify about this, because I think there's a misunderstanding or misperception about this. What we have centralized as a company are support functions to our mountain operations support functions. That would be things like HR, finance, marketing, procurement, accounting. What's not centralized is operations.

Speaker 1

Operations decisions are decentralized into the resorts. Our operators are responsible for decisions about terrain, about labor, about safety, about the running of the resorts. That is not centralized for us. And I can't really comment on how that compares to Alterra. But I think it's important to qualify that operations is not centralized for our company.

Speaker 1

That said, why do I think it's good that we have centralized HR, finance, marketing, those functions, because we can have better cost efficiency and provide more support and have consistency in the support that we provide. We don't need every mountain resort to have their own procurement team or accounting team or HR or finance team when we can have a team that really is centralized and is providing the support for every one of our mountain resorts in order to enable the success of our mountain operations. So I do think that that strategy is very successful. And I also think and believe that having our decision making in mountain operations reside in the resorts in mountain operations is also the right approach and I don't anticipate that changing.

Operator

Thank you. Our next question comes from David Katz with Jefferies.

Speaker 4

Afternoon, everyone. Thanks for taking my question. I appreciate it. Can we just drill down a little bit on Switzerland and how we think about expectations for past sales there? Obviously, it's a ramp, but my sense is that you've included some of that in your underwriting and would just love to hear your thoughts there.

Speaker 1

Hi, David. Yes, thank you for the question. I do believe that Switzerland, but all of Europe is a significant opportunity

Speaker 2

for us. And I think it is a

Speaker 1

ramp up for us. Over the last that over the last couple of years, we've got 2 owned and operated resorts there now. And I think important for us to continue to build a strong network in order to fully unlock the potential, not unlike what happened for us in North America, where we started with a few resorts and built out the network and then really started to see the unlock on pass sales. Do I think that we will see some growth from Europe in owning Cron and under Montserrat and having some incredible partnerships in Europe? I do.

Speaker 1

I don't think that that is the trajectory change. I think it will be gradual over time, just like you saw if you go back to the early days of Epic Pass when we only had 6 or 7 resorts and we built it out over time. That is what I would anticipate would happen. And that's the vision that we have and the growth potential that we see because as you know, the skier market in Europe is significant and there are not a lot of network resort networks and there are not a lot of multi resort passes that offer the type of access, value and stability that we are capable of offering, but it is definitely a long term growth strategy that will take time.

Speaker 4

Understood. And as my follow-up, I wanted to ask about the new app and any data points, any learnings, any benefits, anything that's knowable there would be great.

Speaker 1

Thanks. Yes, the new app is on track with our expectations. I'm really pleased with, in particular, one of the most critical innovations that we have in the app is, as you know, mobile and mobile lift ticket, which we believe is important because it actually improves the guest experience and moves guests out of the ticket lines or waiting for their pass or ticket to arrive in the mail. It also reduces plastic and RFID waste and cost. And all of that delivered on track with our expectations in year 1.

Speaker 1

Most importantly, they experienced that the base lift was delivered what we expected for the guest. We're expanding that into Whistler Blackcomb. And my hope and my goal is for next season that we increase adoption also as a key source for information, including My Epic Assistant, which we will be piloting, which will also create cost efficiency for us in the future. So all of the I would say, all of those things are on track with our expectations and I'm excited to see what the 2nd year holds in terms of guest adoption given that people are using their phones for everything now.

Operator

Thank you. Our next question comes from Chris Woronka with Deutsche Bank.

Speaker 8

Hey, thanks. Good afternoon, everyone. So first question is kind of on the hotel side. I know when you guys initially talk about guidance in September, you typically look at what you've got on the books on the hotel side for and I know it's really for peak periods. But as you look back now at the end of the ski season, were those hotel bookings, do they offer the same level of predictive value that they used to or that you expect?

Speaker 8

Or do we just have to say that the weather is impacting things more than the initial hotel bookings?

Speaker 2

Yes. Thanks Chris, for the question. We do when we go into the season, right, we're always looking at our best indicator being pass sales, but also always comment on what we're seeing really kind of more close in, right, for those holiday period lodging bookings. And so it is a factor that we look at and we do kind of keep continuing monitoring that. And I think what you saw for this year is you did see a lot of the resort markets actually not fill in as expected as you went through with the season.

Speaker 2

For both the same factors that we're talking about in terms of some of this normalization and I think travel behavior, but also from the conditions likely impacting the lodging fill in, if you will, from there as well. And for the resort communities, we saw really occupancy declines around 4 points for the winter season.

Speaker 8

Okay. Thanks, Angela. And then follow-up is kind of as we look out to next year and we think about the Epic Gear launch, right, being more fully available. And taking into context your comments about renewal rates and the fact that you're doing better with folks who've been with you for a while. Would that change any of your very preliminary views on what you think about Epic Gear uptake and participation rates?

Speaker 8

Or do you think you have a lot of confidence in that given that you're doing well with your renewing passholders? Thanks.

Speaker 1

Thanks, Chris. I feel pretty good about our assumptions on My Epic Gear, but of course, we will revisit those and refine those as we get our budget in place for providing guidance for next year. But I think that the beauty of the My Epic Gear business is that they actually that this is the better option for either owning or renting gear because it's a subscription and we have it ready there for you. It's more convenient and you can get the best and latest gear. So I feel that as that is a very compelling idea because everyone needs gear.

Speaker 1

And so when you think about the addressable market for it, the addressable market is large, very large. And that's why I see the potential there. So regardless of high tenured or low tenured, I think is a very compelling proposition. And it's on us to prove that to our guests.

Operator

Thank you. Our next question comes from Brandt Montour with Barclays.

Speaker 9

Hey, good evening everybody. Thanks for squeezing me in here. So on the COVID normalization comments, Kirsten, apologies if you already touched on this. But did that I'm assuming that obviously included sort of a comment on total travel demand, which you definitely alluded to. But does that also include a shift of consumer behavior back to peak travel periods, I.

Speaker 9

E. Weekends and holidays? That was something that was a nice tailwind for you early in COVID. Is that something that it could be a is it already a headwind? Is it something could be a additional headwind creating more load pressure on your business operations?

Speaker 1

We did not see that this past season, Brant, that there was a big shift back into and if you'll recall in the years post COVID, we really as we grew pass sales, we saw shifting people into off peak periods and we still see the dynamic of strength in those periods versus the peak periods. And there are some natural limiters on those peak periods anyway, including price coming during those peak times. I don't really see that, at least I'm not seeing signs of that in our data right now. What I do see is overall, the ski well, I'd say overall consumer travel behavior has changed and shifted year over year pretty dramatically since COVID as you've seen. You've heard a lot of travel and leisure companies talking about seeing signs of normalization and some of them overtly saying off of a peak from last year as a headwind to them.

Speaker 1

And when I look at the ski industry, the ski industry had peak visitation last year. And when we look at the behavior this past season lapping that even when conditions were outstanding, it does we do believe that the capacity is in the down 8% are down 8%, That's consistent with that. But the ski industry, those numbers look for this past year look more in line with what you would consider to be more normalized trend, I would say. At least right now, I'm not seeing that being big shifts between peak and off peak.

Speaker 9

Okay. That's super helpful. And then another question on the competitive landscape, based on publicly available data from your peer, Ultera, it does look like their initial and sort of mid season pass prices are widening out versus yours is the widest level, I think, since they launched. And I guess I'm curious how you think about that from a strategic positioning standpoint. And if there's any concern that they might be trying to position themselves as a higher tiered product than yours?

Speaker 9

And the reason I ask is maybe obviously not every skier is created equal in terms of profitability. And so how do you think about that competitive

Speaker 1

positioning? I feel good about our competitive positioning based on our guest research and the perceptions that our guests have about Epic Pass, which we monitor very closely. I also feel very good about the growth. We grew a very mature business in past 62% in units and 43% in dollars over the past 3 years to get to over 70% of our visits committed in advance. And that is our strategy and that is our focus.

Speaker 1

And I think that is likely different for them. They don't have the same goal in mind for a variety of reasons. But for us, it is really important because of the weather impacts to create that stability and move people into a path. We have a lot of very loyal, long tenured pass holders. We have acquired a lot of new pass holders.

Speaker 1

And our goal, it doesn't change to keep doing that. Related to pass, we know that pass is price sensitive. And the decision making between a lift ticket and purchasing a pass that we have a lot of data on what the price sensitivity is to move them over. Over the even what you've seen us do since the price reset is take price up and Epic Pass price is up about 25% since we did that pass reset. And we will keep doing that, but we are always monitoring what that price elasticity is because the goal is not to move people out of pass and back into list tickets because that creates a highly variable business dynamic for us when we need that revenue stability in a high fixed cost business to deliver the results that you saw this year, 28% less snowfall for the winter and visits down 8%, but still having revenue be able to be up 1% and EBITDA up 6%.

Speaker 1

So yes, I we obviously pay attention to what they're doing, but I think our business strategies and goals are different than what they're trying to accomplish.

Operator

Thank you. And this concludes the Q and A portion of today's call. I would now like to turn the call back over to Kirsten Lynch for closing remarks.

Speaker 1

Thank you, operator. This concludes our fiscal 2024 Q3 earnings call. Thanks to everyone who joined us today. Please feel free to contact me or Angela directly should you have any further questions. Thank you for your time this afternoon.

Speaker 1

Goodbye.

Operator

This concludes today's Vail Resorts fiscal Q3 2024 earnings call and webcast. You may disconnect your lines at any time and have a wonderful day.

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Earnings Conference Call
Vail Resorts Q3 2024
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