Good afternoon, and welcome to the Vail Resorts Fiscal 2023 Second Quarter Earnings Call. Today's conference is being recorded. Currently, all callers have been placed in a listen-only mode and following management's prepared remarks, the call will be opened up for your questions. [Operator Instructions] I will now turn the call over to Kirsten Lynch, Chief Executive Officer of Vail Resorts. You may begin.

Thank you. Good afternoon, everyone. Welcome to our fiscal 2023 second quarter earnings conference call. I am pleased to have Angela Korch, joining me on the call today, who recently rejoined Vail Resorts as 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, March 9, 2023, 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 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.vailresorts.com. So with that said, let's turn to our fiscal 2023 second quarter results. Overall, we are pleased with the strong guest experience being delivered at our resorts, supported by the investments we made in our resorts and in our employees, which enabled greatly improved staffing levels and employee satisfaction scores, a return to normal operations and strong guest satisfaction scores. Our ancillary businesses, including ski school, dining, and rental and retail, experienced strong growth compared to the prior year period, when staffing shortages constrained capacity of ancillary businesses. We believe these investments in staffing and our commitment to enhancing the guest experience establish a strong foundation for future growth. Improved conditions at our Colorado, Utah and Tahoe resorts enabled select early resort openings and drove strong early season…

Thanks, Kirsten, and good afternoon, everyone. It is great to be back with Vail Resorts and to be speaking with you today. For the second quarter of fiscal 2023, net income attributable to Vail Resorts was $208.7 million, or $5.16 per diluted share, compared to the prior year of $223.4 million, or $5.47 per diluted share. Resort reported EBITDA was $394.8 million in the second fiscal quarter, which compares to resort reported EBITDA of $397.9 million in the same period in the prior year. Turning to our season-to-date metrics. For the period from the beginning of the ski season through Sunday, March 5, 2023 compared to the prior year period through March 6, 2022. The reported ski season metrics are for the company's North American destination mountain resorts and regional ski areas, including the results of Seven Springs, Hidden Valley and Laurel Mountain in both periods and excluding the results of the Australian ski areas and Andermatt-Sedrun in both periods. The data mentioned in this release is interim period data and is subject to fiscal quarter end review and adjustments. We are pleased with the continued growth in visitation and ancillary revenue growth throughout the season. Season-to-date, total skier visits were up 3.6% compared to the fiscal year 2022 season-to-date period. Season-to-date total lift ticket revenue, including an allocated portion of our season pass revenue for each applicable period, was up 2.5% compared to the fiscal year 2022 season-to-date period. For our ancillary results season-to-date ski school revenue was up 27.6%. Dining revenue was up 37.2%. And retail and rental for North American resort and ski area store locations was up 21.2% compared to the prior year period. Season-to-date results at our Eastern U.S. resorts continued to be negatively impacted by periods of both unseasonably warm and extreme cold weather,…

Thank you, Angela. We remain dedicated to delivering an exceptional guest experience and will continue to prioritize reinvesting in the experience at our resorts, including consistently increasing capacity through lift, terrain and food and beverage expansion projects. As previously announced, the company expects to invest approximately $180 million to $185 million, excluding one-time investments related to integration activities, deferred capital associated with the Keystone and Park City projects, $5 million of reimbursable investments associated with insurance recoveries, and $10 million of growth capital investments at Andermatt-Sedrun. At Keystone, we received U.S. Forest Service approvals and plan to complete the transformational lift-served terrain expansion project in Bergman Bowl, increasing lift-served terrain by 555 acres with the addition of a new six-person high speed lift. At Breckenridge, we plan to upgrade the Peak 8 base area to enhance the beginner and children's experience and increase uphill capacity from this popular base area. The investment plan includes a new four-person high speed 5-Chair to replace the existing two-person fixed-grip lift as well as significant improvements, including new teaching terrain and a transport carpet from the base, to make the beginner experience more accessible. At Stevens Pass, we are planning to replace the two-person fixed-grip Kehr's Chair lift with a new four-person lift, which is designed to improve out-of-base capacity and guest experience. At Attitash, we plan to replace the three-person fixed-grip Summit Triple lift with a new four-person high speed lift to increase uphill capacity and reduce guests' time on the longest lift at the resort. These projects are subject to regulatory approvals and are currently planned to be completed in time for the 2023/2024 North American winter season. Additionally, the company plans to expand parking by more than 500 spaces across Heavenly, Mount Sunapee, Liberty and Roundtop to improve the guest experience.…

[Operator Instructions] We'll take our first question from Shaun Kelley of Bank of America.

Hi. Good afternoon, everyone. Hi, Kirsten and Angela.

Hi, Shaun.

Just maybe to lead off here, obviously it was a pretty challenging operating environment. So two areas that I'd love to just hit on briefly. One, would be – could you quantify some of the disruption in Lake Tahoe? It seems like you were able or willing to do that in the northeast, but Tahoe, we've all read and seen the headlines. The environment there is pretty dramatic. Is that not material? Or is there a reason maybe because it's ongoing that we haven't? And then secondarily, Kirsten, if you could just comment. There was a change on the executive front as it relates to the operations. Could you just comment a little bit on that and sort of what's being done to maybe adjust the organization to some of the volume levels that we're seeing in the business right now?

Thanks, Shaun. Appreciate your comments. There are a lot of things that we are very pleased about from this season and as you noted, a challenging operating environment and we are incredibly disappointed by the limits to our operations in the east region as well as in the Tahoe area as well. We quantified the east region in particular because of how significant it is that there are 26 resorts in that region, that we – the majority of the impacts occurred after the peak holiday season and we had expected it to improve and instead it actually got worse. The Tahoe storms and impacts of those storms are factored into our guidance and we believe once we get through that cycle, set us up to have a strong spring in Tahoe. As it relates to the operations and – can you repeat your second question, Shaun, just to make sure…

Yes. I mean, I believe the Chief Operating Officer was changed. Bill Rock was obviously promoted up there. Maybe what prompted that change and what will be some of the priorities on the operating front just maybe as we kind of adjust to what the volumes are in the business right now?

Yes. So regarding the President of the Mountain Division, this decision to me is about the right leadership for the future of the Mountain Division. We are incredibly grateful for James and his contributions over the many years he's been with the company, he's had a significant impact across many different businesses, including developing leaders and Bill Rock is the right leader for the future of the Mountain Division and to take that division into the future. Bill brings almost three decades of experience in the industry, incredible expertise and experience and mountain operations and is an incredibly strong leader. So we are very excited to have Bill move into that role effective May 1.

Thank you very much.

Thanks, Shaun.

Our next question is from Ben Chaiken of Credit Suisse. Your line is open.

Hey. How it's going?

Hi, Ben.

Hey. I guess trying Shaun's question a different way. There's a lot of moving parts operationally this year. You have weaker West Coast destination, which was discussed in the January update of Tahoe weather and then poor East Coast snowfall, obviously. And you call it out East Coast being a $43 million contribution margin impact post-holiday. I guess simplistically, after adding back the $43 million of East Coast impact, is the remainder of the delta relative to the January guide Tahoe, or was Colorado, Utah, lighter than expected – lighter than originally expected, if that makes sense?

Yes. The majority of the decrease from the January metrics guidance to our current guidance is the impact that we experienced in the East, which is why we quantify that. The remainder of the guidance adjustment, the most significant driver of it is Tahoe. And of course, we're always looking at every resort and all of the indicators and those are all factored into that. But I think you can interpret it that the part of that being the FX that we already noted. But I think you can interpret that the next biggest driver of the reduction is Tahoe. The East impact is just so significant. We wanted to make sure that we quantified that and it's a combination of demand impacts as well as cost impacts.

Understood. That's very helpful. And then in your prepared remarks, you mentioned some gear rental investments. Can we dig in there of what might be offered next year and then related, I think better capturing ancillary spend as a growth area for you guys? Now that you have a few years of both full season and day pass holder benefits to analyze. Are there any broad strokes you can provide in terms of how penetrated you are of the theoretical TAM? Like is this an eight out 10, two out 10, somewhere between? That color will be great.

We believe – as you know, we believe that ancillary is a big opportunity for us and we believe we've created a foundation with our network and our over 2 million pass holders that we've built of an incredible foundation that enables us to do some things that we haven't been able to do in the past. And ancillary is one of those opportunities. I would anticipate that we will talk more in more detail about that at the upcoming Investor's Conference.

Okay. And then I guess more color on the gear rental investments then, or can we do that? Is that available now?

We're not ready to share anything specific on that as we're continually investing in that business, but anything else that we want to discuss on ancillary, we'll share and talk about in more depth at the Investor conference. But completely agree with you that there is a big opportunity. And on gear rental in particular, it's a very competitive landscape. There are a lot of players in the market and we do believe that there's an opportunity for growth there.

Okay. Thank you very much. I appreciate it.

Thanks, Ben.

Our next question is from Chris Woronka of Deutsche Bank. Your line is open.

Hi. Good afternoon, everyone. So I think one of the things in the prepared comments, right, was a mention of trying to get more folks that typically just go to the East Coast into an advanced commitment product. How do you do that? I mean, is that a function of – are you going to have to use price to do that or is there another way to try to get more of those folks into a pass?

Thanks for the question, Chris. The East is quite unique for us and that it over-indexes on lift tickets relative to our other geographies. So when you think about the progress that we've made in building our pass business, we have really transformed our Rockies and our West Region resorts in terms of a commitment in advance to a pass. The East is a little bit different, where there's still a large percentage of the visitation that occurs on lift tickets, and that is part of the reason why we saw an impact from the limitations on our operations and a significant impact because of that reliance on lift tickets. We are very focused on it and we believe that it is a big opportunity for us in terms of stability for the company. And by the way, what happened here with the East is exactly why we have been focused on pass. It is exactly why this strategy of moving as many of our guests into a pass is so critical. In the East in particular, we have products and pricing that are already – have already launched into the marketplace, and the goal is to use our data to really be targeted, segmented and targeted to convey the benefits of moving from a lift ticket into an advanced commitment product. We have a northeast value pass that has been in the market for a couple of years. We also have an Epic Day Pass that is specifically tailored for those local resorts in the Midwest and Mid-Atlantic and East. And our goal is to continue to grow the pass business, really focused on that East area. And at the same time by moving that – those visits out of lift tickets into the pass that we create more stability for the company for situations like this. I certainly think that the significance of what our teams in the East have been dealing with in terms of late openings, early closures, limited terrain, has the significance of what they were dealing with could actually have had – it could have been a much more significant impact on the company than this guidance reduction that we're announcing. And so we're very pleased that with the stability that we have and we believe there's more to be done there.

Okay. Thanks. Super helpful with all the detail. Just as a follow-up and you guys had talked a lot about this last year, employee housing investments. It sounds like there's less pressure there this year, but maybe you can just give us a quick update and rundown of where you are in your initiatives and whether the market conditions are improving or not in that regard on employee housing?

Absolutely. We are so thrilled to have gotten fully staffed and the investments that we made in our employees and wages and benefits really resulted in us getting to a great staffing situation. And affordable housing in our mountain communities is always a challenge. It has been a challenge for a long time and I think it continues to be a challenge, obviously this year. Thankfully it was not, it did not prevent us from getting fully staffed. But what you'll see from us is that we will be continually focused on it and continually looking for opportunities, whether that is building housing on our own land or creating partnerships in our mountain communities to enable projects. So we have a couple of projects, one that came online this year at Park City Mountain, and we have some that are in various stages of the process of getting to approvals or construction. And this just needs to be a continual focus for the company. Is it always going to be something that prevents us from getting staffed? Obviously not since we got fully staffed this year, but that does not mean that we ever take our foot off the gas and trying to make this better because it is such a huge challenge in our mountain communities.

Okay. Very helpful. Thanks, Kirsten.

Our next question is from Laurent Vasilescu of BNP Paribas.

Good afternoon. Thank you very much for taking my question. Kirsten, it's great to hear about the investments in the high speed Chair lift. As you know, these investments have been made over the years. But as we think about this ski season and how just disruptive it was in the East Coast with the warm season, do you think you might need to make some more investments in snowmaking capabilities to potentially offset this long-term headwind?

Yes. I think that's a great question, Laurent. And I think that's something that we absolutely will be looking at and assessing. We have some incredible high efficiency snowmaking in the East and our mountain operations team will be looking at where do we need to make additional investments for the future. I would say in this particular situation with what happened in the East region and this significant impact was related to cold temperatures. These resorts in this grouping of the East are virtually 100% reliant on snowmaking, and in order to do snowmaking you need cold temperatures. And what happened this year is they could not get enough cold temperatures to actually make the snow. And in some cases we're down to grass in some areas as early as January. So yes, on the snowmaking and on pass and the network that we've created and continually moving people out of lift tickets into a pass.

Great. And that maybe a good segue for the hands-free pass. I saw a couple weeks ago, T-Mobile announced a partnership with you to rollout 5G. Is that 5G capability, is that tied to supporting the hands-free pass or is that to maybe rollout future capabilities on the technology front?

We are very proud to have a partnership with T-Mobile and their support and enthusiasm for what we do in creating an experience of a lifetime, and they're very excited to be a part of it. The partnership is not directly related to the innovation that we have created and are launching. Although I know that as partners they want to find ways to actually support that and the overall guest experience to make it strong next year and in ongoing years.

Very helpful. Thank you very much for taking my questions.

Our next question is from David Katz of Jefferies. Your line is open.

Thanks for taking my question. Good morning. Can you just talk for a minute please about skier visits? And in some areas, I think you talked about pressure. But can you talk about areas where it was particularly strong. And in particular the Colorado segment and how those markets are doing in terms of visitation?

Yes. I think – so the Rockies or the Colorado Resorts, I think we continue to be pleased with the results that we're seeing in that segment and believe that we are set up for a strong spring, meaning the conditions are fantastic. The timing of Easter is actually very conducive to vacations occurring over spring break. So I think we're set up in a good spot. The other place that has been very strong and we're really pleased with is Whistler Blackcomb. We have seen a very strong return of destination visitation to Whistler Blackcomb, incredible momentum, a return of international visitation, and all of the trends and indicators continue to support that we should be set up for a strong rest of season at Whistler Blackcomb.

Understood. Am I permitted one quick follow-up? I just wanted to ask on the cost side of things. It's an area we're trying to get our arms around and – are some of the costs increases, it sounds like we're unexpected and we should treat those as really a separate driver beyond the 175 that we talked about last year at Analyst Meeting, right?

Yes. We, as you know, made a very deliberate investment in our employees. We invested $175 million in staffing and wages. And we have not changed that investment. We are fully committed to that investment. We do see other cost impacts though directly related to the severe weather disruptions in the East as well as in Tahoe because the impact of the severe weather when it limits or constraints or impacts our business operations can drive costs up in the form of more snowmaking, more grooming and the related labor associated with that. So that is what I would put into that category of not something we were planning for. We always budget for normal and I would say the East and Tahoe have been dramatically abnormal.

Understood. Appreciate the insights and thanks for taking my questions.

Thanks, David.

Our next question is from Brandt Montour of Barclays. Your line is open.

Hey, everybody. Thanks for taking the question. So first, another one on skier visits. I'm just trying to get my arms around this. This same-store excluding Andermatt of 3.6% growth. But I think on a reported basis, it's up low-teens. Is it fair to assume that that's on – how much of that is Andermatt and so – and how should we think about sort of the rest of the season since it’s a pretty big gap there?

I would say that the biggest drivers of our skier visit number are the momentum that we see with Whistler Blackcomb, the Rockies, and then the negative impacts on demand that you see from the East and Tahoe and the impacts on closures and resort operations that has constrained demand at those resorts. Andermatt has faced some challenging conditions this year, but we do not see that as a material impact on the full-year visitation for the company.

Okay, great. Thank you for that. And then the buyback program, you guys upped the buyback program, but we noticed that you didn't buy any stock back in this quarter. So I guess what kept you out of the market this quarter? And what kind of – are you thinking of something more programmatic or more opportunistic and help us think about how you're thinking about buybacks?

Thanks, Brandt. We did get an authorization to increase our share repurchase authorization from the Board and that’s kind of indicated that we're intend to be more aggressive in our share repurchase programs with that authorization. There's no long-term change to our disciplined approach to capital allocation. We always prioritize high return capital projects, investing in our people strategic acquisitions. And then this is one part of returning excess cash to shareholders and we did both the increase in the dividend and the increase in the share authorization really shows kind of how committed we are and how we still believe in the long-term stability of the business and the growth outlook.

Okay. Thanks so much.

Our next question is from Patrick Scholes of Truist. Your line is open.

Hey. Good afternoon, everyone.

Hi, Patrick.

Hi. There's been some negative media attention both in print and social media about hours for the J-1 in Colorado. I wonder if you can just touch based on that, was that sort of an over hiring situation? And in that regard, do you see less hiring of J-1s going forward, especially in Colorado next year? Thank you.

Thanks, Patrick. J-1s represent less than 10% of our workforce at Vail Resorts. And on average the hours for J-1 employees are on target. The goal that we have as a company is to always be very disciplined about cost and always be flexing and adjusting. And this is normal. We do this every year. It's our responsibility in running the company that we're constantly flexing, adjusting our operations based on demand, based on the business, based on the time of week and based on the time of year. And that's a normal way of how we operate our business. I understand that that may not meet some of the expectations of some of our employees and we try to support them in helping them address that. But to be clear, we do not guarantee hours and we always as operators of ski resorts adjust and flex based on the needs of the business and the demand.

Okay. Thank you. That's it.

Thanks, Patrick.

Our next question is from Omer Sander of JPMorgan.

Hey, Kirsten, Angela. Thanks for taking my question. I was hoping you can talk on days where your resorts are open and accessible. Can you just talk about what you're seeing from a skier visitation standpoint relative to your initial expectation specifically for the Epic and Epic Local versus some of the day passes?

In terms of utilization of the passes, we don't disclose pass utilization details. What I will say on a macro level is the overall utilization of our passes is up and we feel great about that. It certainly sets us up well going into the next selling cycle. The most obvious reason why utilization would be up is because we had a very poor early season last year where people did not get out and weren't able to ski during that early season time period as we had some challenging snow conditions that led all the way up to Christmas. And so this year, I'm very pleased with what I see on a macro level with our utilization and generally we see that it matters that our pass holders feel like they're getting the use out of the pass, that they're getting out and enjoying the resorts. So I think that puts us in a great position as we head into our pass sales for next year.

Okay. Thank you.

Our next question is from Ryan Sundby of William Blair.

Hey. Thanks for the questions here. I wanted to touch on your comments about dining underperforming expectations somewhat as guest behavior hasn't returned to pre-pandemic levels. Any more color on why you think you're seeing more of a lag there versus some of the other business lines? And is there a geographic or resort specific piece to that? Or is this kind of occurring across all your resorts?

Yes. Our dining is on-mountain, right, predominantly, and we spent two years Ryan basically putting in significant restrictions to that on-mountain dining for our guests and basically “training” our guests to go find other alternatives. The growth in our dining line of business is incredibly strong versus prior year, but it is lagging getting all the way back to where it was. And I think there's just a more work that we need to do to sort of undo the two years of restrictions and sort of training of our guests to find other options and bring them back into those on-mountain dining resorts. I am completely confident that we can actually do that. It's just that we didn't get all the way back to that consumer behavior in this season and I'm quite confident that we will be able to get back there.

Got it. That makes sense. And then I guess as my follow-up on the $40 million in pass revenue that was pulled forward because of some of the resort closures. Just from a modeling standpoint, are there any costs tied to that pass revenue? Or should we think about that dropping straight to the EBITDA and does that then fully reverse in Q3 or is it kind of a back half?

Thanks, Ryan. Yes. The movement in the pass revenue from Q2 into Q3 relates to two things. One that we disclosed in the prior year of the impact from the operating days moving more out of Q2 and into Q3 last year and then this year some of the early openings. And so the combined impact of that is the $40 million that we disclosed and that has some variable cost associated with it, but it's very minor.

Okay. Great. Thank you.

Our next question is from Jeff Stantial of Stifel.

Hi, there. This is Jackson Gibb on for Jeff. Yes. So I wanted to talk about the dividend raise. To us it looks like it's a quarter early and a little bit smaller than it has been historically. Are you planning to raise the dividend again on the third quarter and if not, is there any reason why this raise was a little bit below historical averages?

Yes. This is normally when we would evaluate the quarterly dividend. And so it is actually consistent with when we had historically done it. We had suspended the dividend during COVID and when we reinstated it, it came in at a partial level. And then the level that we've been at the $1.91 per share was an 8% increase from where we were prior to COVID. And so it is consistent with actually what we have done.

Okay, understood. Thank you. And then, if I could one more. On the Epic Pass, early bird pricing looks like about an 8% increase like you mentioned in the prepared remarks. It's a bit more than last years increase and ahead of your pre-COVID pricing pattern season. Should we think of this as a passing through of higher inflation? And if so, should we expect similar patterns and window ticket pricing? Just wanted to get some color on how your balancing price elasticity was trying to drive more advanced commitment conversion into next season?

Yes. We are always looking at the market dynamics, guest behavior dynamics also factoring in the investments we make into the guest experience and what our business objectives are that we're trying to achieve in our pricing decisions. We do have, as you know, a lot of data about our guests, their behavior and price elasticity. When you look back historically for the pass business years and years back, we have historically always priced slightly ahead of inflation and that is what you see us doing this year as well. And I would say we look at it every single month and we are constantly assessing what are – what is the right price and what is the right actions to take. But this 8% price increase I would view is pretty consistent with how we have historically priced our passes. If you exclude sort of the COVID time periods where there were a lot of unusual actions being taken, but historically it's pretty consistent with how we've approached it.

This concludes the Q&A portion of today's call. I'd now like to turn the call back over to Kirsten Lynch for closing remarks.

Thank you, operator. This concludes our fiscal 2023 second quarter earnings call. Thanks to everyone who joined today. Please feel free to contact me or Angela directly should you have any further questions. Thank you for your time this afternoon. Goodbye.

This concludes today's Vail Resorts fiscal second quarter 2023 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day.