Vail Resorts, Inc.

Good day, and welcome to the Vail Resorts Fourth Quarter Fiscal 2020 Earnings Call. Today's conference is being recorded. If you would like to ask a question, you may press star 1 on your telephone keypad. If you're using a speakerphone, please ensure your mute function is turned off to allow your signal to reach our equipment. If at any point you would like to remove yourself from the queue, you may press star 2. At this time, I would like to turn the conference over to CEO Rob Katz. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to our fiscal 2020 year-end earnings conference call. Joining me on the call this afternoon is Michael Barkin, 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. Forward-looking statements in our press release issued this afternoon along with our remarks on this call are made as of today, September 24, 2020, 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 with our press release, which along with our annual report on Form 10-K were filed this afternoon with the SEC and are also available on the investor relations section of our website, at www.valeresorts.com. So with that said, let's turn to our fiscal 2020 and fourth quarter results. Our results for the full year were negatively impacted by COVID-19 and the resulting closure of our North American destination mountain resorts and regional ski areas beginning on March 15, 2020, a decision we made for the safety of our guests, employees, and resort communities. In addition, Resort reported EBITDA for the year was negatively impacted by the deferral of approximately $118 million of past product revenue and related deferred costs to fiscal 2021 as a result of passholder credits offered to 2019-2020 North American passholders to encourage renewal for the 2020-2021 season. Following the resort closures and throughout the remainder of the year, we implemented a number of actions to enhance our liquidity and reduce costs. including raising $600 million to the issuance of unsecured senior notes, suspending our dividend for a cash savings of over $70 million per quarter, reducing our capital plan for calendar year 2020 by approximately $80 to $85 million, and executing significant reductions in our operating expenses. Our results for the fourth quarter continued to be negatively impacted by COVID-19, with the majority of our North American summer and Australian Thank you for joining us. resulting in limited terrain and, as a result, limited guest capacity for a portion of July. In North America, our U.S. resort communities experienced increasing demand from leisure travelers throughout the month of July, with group demand negatively impacted by COVID-19-related disruptions. At Whistler-Blackcomb, demand in July was below our expectations due in part to travel restrictions, with the Canadian border closed to international guests, including guests from the U.S. We maintained rigorous cost and liquidity controls throughout the quarter. Resort net revenue for the fourth quarter declined $167 million compared to the prior year, while Resort reported EBITDA declined $43 million over the same time period, reflecting $124 million in net cost reductions driven by a combination of reduced seasonal labor and expenses, as well as significant overhead cost-saving action. Turning to our operating plans for the upcoming North American ski season. We were pleased with the visitation we saw this summer at our U.S. resort communities from leisure travelers. We believe this speaks to the current preference of travelers for outdoor experiences, locations they are familiar with, and for many, the option to drive to our resorts. As we approach the 2020-2021 North American ski season, we are committed to providing a comprehensive on-mountain experience that is consistent with our historical practice of opening as many lifts and as much terrain as soon as possible. We will be focused on the guest experience while also prioritizing the health and safety of our guests, employees, and resort communities. On August 27, 2020, we announced an operating plan that we believe will enable us to operate safely and consistently across our 34 North American ski resorts throughout the season, including the implementation of a reservation system for our guests that gives preference to our pass holders, limitations on lift ticket sales, limitations on our dining facilities, and other changes to our operations. We expect these operating plans will help enable a safe and successful ski season, but will also negatively impact our fiscal 21 financial results. It is difficult at this time to fully assess the financial impact we may experience related to our operational and capacity plan, given continued uncertainty regarding the ultimate visitation to our resorts and any positive or negative changes which may be required to our operations based on new information and potential impact from COVID-19. Turning now to our 2020-2021 season pass sales. Given the challenging circumstances surrounding the impact of COVID-19, we are very pleased with the results of our season pass sales today. Season pass sales through September 18, 2020 for the upcoming 2020-2021 North American ski season increased approximately 18% in units, and decreased approximately 4% in sales dollars as compared to the period in the prior year to September 20, 2019, with sales dollars for this year reduced by the value of the redeemed credits provided to 2019-2020 North American Passholders. Without deducting for the value of the redeemed credits, sales dollars increased approximately 24% compared to the prior year, Through September 18th, we have sold a total of approximately 850,000 passes for the upcoming North American ski season, which compares to approximately 1.14 million total passes sold for the North American season last year through December 2nd, 2019. We remain committed to providing the best value for all skiers and riders through our Epic Pass and Epic Day Pass Advanced Commitment products. As previously disclosed, we offered our 2019-2020 pass holders for the 2020-2021 season, ranging from a minimum of 20% to a maximum of 80% for season pass holders, with no minimum but up to 80% credit for multi-day pass products such as the Epic Day Pass, and deferred approximately $121 million of season pass revenue from fiscal 2020 to fiscal 2021. We believe our results through our September deadline demonstrate the loyalty of our guest base to the experience we offer at our resorts, despite the travel challenges presented by COVID-19. The success of passholder credits offered to 2019-2020 passholders to incent renewal, the introduction of Epic coverage, the introduction of Epic Mountain rewards, the additional time provided to guests to make their purchase decision, and our operating plans demonstrating our commitment to the safety of our guests. Most importantly, we saw very strong unit growth in our destination markets, with particular strength in our Northeast market, benefiting from our continued momentum from those guests and the first full year of peak resorts in our Season Pass Network. We saw solid unit growth in our Colorado, Utah, Northern California, and Whistler markets. The primary driver of our unit growth was from renewing pass holders, and we believe the deadline for utilizing credits clearly drove an earlier Season Pass purchase for many of our renewing guests. and the total units renewed to date are in excess of the total amount of renewals we saw last year. We were also pleased with pass sales to new pass holders, which represent a substantial portion of our sales through the September deadline and, while lower than last year, it is encouraging to see guests move into the program this year, given the current circumstances. Through September 18, 2020, pass holders have used a total of $106 million of the aggregate credits We made available, in comparison to the deferral of past revenue from fiscal 2020, of $121 million. As we enter the final period for season pass sales, we expect unit sales from September 19, 2020 through our December 2020 deadline will be lower than unit sales in the comparable period last year. And we expect our total unit sales will finish at or around last year's sales, setting a very strong foundation of pass holders to drive revenue in the upcoming season. The decline in growth rate for the final period of sales is expected to be primarily driven by the pull forward of renewals to our September 17, 2020 deadline, given the expiration of the renewal credits, and potential declines in new pass holders with the continued uncertainty related to COVID-19 and its impact on the travel market. It is important to remember that we've expanded Epic Coverage this year, and we will see an increase in full or partial refunds based on pass holders who do not get their preferred priority reservations, and many more. Additionally, we received approximately 4,000 online forms requesting refunds of an earlier purchase of a 2020-2021 PASS, which have not yet been processed and are not reflected in our reported PASS growth rates. Collectively, these unprocessed forms could increase the growth rates we are reporting as we complete their requested transactions. Estimates of how these pending transactions will translate to sales are included in the full year expectations we have for the PASS program mentioned above. Past sales results are adjusted to eliminate the impact of foreign currency by applying an exchange rate of 76 cents between the Canadian dollar and U.S. dollar in both periods for Whistler Black Home sales. The season past revenue deferral is an estimate, and the actual amount of pastholder redemptions will differ from the amount of past credit deferred revenue recognized during fiscal 2021. Now I'd like to turn the call over to Michael to further discuss our financial results, liquidity, and fiscal 2021 outlook.

Thanks, Rob, and good afternoon, everyone. As Rob mentioned, our results for the fiscal year were significantly impacted by COVID-19 and the resulting closure of our North American Mountain Resorts. Net income attributable to Vail Resorts was $98.8 million, or $2.42 per diluted share, for the fiscal year 2020, compared to net income of $301.2 million, or $7.32 per diluted share, in the prior fiscal year. Resort reported EBITDA was $503.3 million for fiscal year 2020 compared to Resort reported EBITDA of $706.7 million in the prior fiscal year, primarily as a result of the negative impacts of COVID-19, partially offset by the cost actions implemented. Our liquidity position remains strong, with total cash and revolver availability as of August 31, 2020, of approximately $953 million. with $360 million of cash on hand, $419 million of U.S. revolver availability under the Vail Holdings Credit Agreement, and $174 million of revolver availability under the Whistler Credit Agreement. As of July 31, 2020, our net debt was 4.1 times trailing 12 months total report EBITDA. As previously disclosed, on May 4, 2020, we completed an offering of $600 million, an aggregate principal amount of 6.25% unsecured senior notes due 2025, a portion of which was utilized to pay down the outstanding balance of our U.S. revolver under the Vale Holdings Credit Agreement in its entirety. Additionally, on April 28, 2020, we entered into an amendment to the Vale Holdings Credit Agreement, Providing, among other terms, that we will be exempt from complying with the agreement's financial maintenance covenants for each of the fiscal quarters ending July 31, 2020 through January 31, 2022, unless we make a one-time irrevocable election to terminate such exemption period prior to such date. We continue to expect to have sufficient liquidity to fund operations through at least the 2021-22 ski season, even in the event of extended resort shutdowns. Moving now to our fiscal 2021 outlook. Given the uncertainty across the economy and the challenge COVID-19 has created for travel demand, and specifically our assessment of the ultimate visitation to our resorts with evolving demand and capacity dynamics, the company will not be providing full year guidance for fiscal 2021 at this time. With that said, we are very pleased with the results of our season pass sales to date. and the indication that may provide on the loyalty and commitment of our guests to our resorts, even in the current environment. Given the broader dynamics in the travel industry, we do expect to see material declines in visitation to our resorts and associated revenue declines in fiscal 2021 relative to our original visitation expectations for fiscal 2020, primarily as a result of expected declines in visitation from non-passed lift ticket purchases. On a relative basis, we do expect stronger visitation from local and drive-to guests this season than guests who traditionally fly to our resorts. We also expect stronger visitation from repeat guests versus new guests and infrequent skiers and riders. We expect more significant declines in international travel, which will have a particularly challenging impact at Whistler Blackcomb, where approximately 50% of visits typically come from outside of Canada. Given the expected outsized impact to destination visitation, we expect material declines for our ancillary lines of business, including ski school, food and beverage, and retail rental, that tend to rely more heavily on our destination guests. Food and beverage is also expected to be negatively impacted by capacity constraints on our dining operations. We are focused on disciplined cost management to efficiently operate the business. As previously mentioned, we plan to operate all of our North American resorts with a full-terrain footprint consistent with historical practices and conditions permitting in order to ensure a comprehensive guest experience to maximize our on-mountain capacity and to invest in the long-term loyalty of our pass holders and lift ticket guests. However, given our lower expected visitation and revenue for the upcoming year, we have continued to actively manage our cost structure. including but not limited to the implementation of cost reductions totaling over $70 million on an annualized basis as compared to our original operating expense expectations for fiscal 2020. We are also actively managing our expenses in the short term where it aligns with our business levels and does not materially impact the guest experience with savings resulting from these efforts expected to be realized in the first quarter of fiscal 2021. In addition, there are unique headwinds this year relative to the midpoint of our original fiscal 2020 resort reported EBITDA guidance range provided on September 26, 2019, including an estimated $13 million impact from additional expenses in fiscal 2021 to address COVID-related operational challenges, an estimated $6 million of incremental off-season EBITDA losses from peak resorts from August 1, 2020 to September 24, 2020, as a result of the transaction closing on September 24, 2019, and the avoidance of those losses in the prior year, and an estimated $20 million impact from the inclusion of Epic coverage in the price of every past product based on the estimated personal injury claims paid, administrative expenses, the elimination of premiums for that coverage, and any associated renewal credits for claims that would be deferred into the 2021-2022 season. The company expects to incur approximately $2 million of acquisition and integration related expenses in fiscal 2021, representing an approximate $12 million reduction in those expenses relative to fiscal 2020. Even with a more efficient approach to our operations, the nature of our business and our approach to guest service creates a high level of fixed costs. In any material revenue declines experienced in fiscal 2021, will have a large percentage decline in our resort-reported EBITDA and will also reduce our resort-reported EBITDA margins. As an illustrative example, relative to our original resort net revenue guidance provided for fiscal 2020, if our resort net revenue declined by 30% for fiscal 2021 to approximately $1.8 billion, we would expect resort-reported EBITDA of approximately $400 million. We would expect that an increase or decrease in revenue within a reasonable range from this example would result in increases or decreases to resort reported EBITDA of approximately 75% of the change in revenue for fiscal 2021. This example is specific to fiscal 2021 and is intended to provide a better understanding of the reduced cost structure under our adjusted operating plan reflecting our expectations for significant declines in visitation revenue compared to prior year guidance and excludes any material disruptions or closures of our operations as a result of COVID-19. The example provided is illustrative in nature only and is not intended to be guidance or interpreted as such. As noted previously, we will not be providing full year guidance for fiscal 2021 at this time, given the significant uncertainty across the economy and the challenge COVID-19 has created for travel demand, operational constraints, and our ability to predict visitation to our resorts. We will look to provide an update in December as we gain additional clarity on pass sales and an updated view on demand and capacity. I'll now turn the call back over to Rob.