Vail Resorts Reports Fiscal 2020 Fourth Quarter and Full Year Results and Provides Preliminary Season Pass Sales Results
Vail Resorts, Inc. reported results for the fourth quarter and fiscal year ended July 31, 2020, which were negatively impacted by COVID-19 and the resulting closure of the Company's North American destination mountain resorts and regional ski areas on March 15, 2020. Fourth quarter results included approximately one month of operations from our North American summer and Australian winter seasons, which were also negatively impacted by certain COVID-19 related limitations, restrictions and closures.
Commenting on the Company's fiscal 2020 results, Rob Katz, Chief Executive Officer, said, "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 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 pass product revenue and related deferred costs to fiscal 2021 as a result of pass holder credits offered to 2019/2020 North American pass holders to encourage renewal for the 2020/2021 season. Following the resort closures and throughout the remainder of the fiscal year, we implemented a number of actions to enhance our liquidity and reduce costs, including raising $600 million through 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 $80-85 million, and executing significant reductions in our operating expenses."
Regarding the Company's fiscal 2020 fourth quarter results, Katz said, "Results for the fourth quarter continued to be negatively impacted by COVID-19, with the majority of our North American summer and Australia ski season operations not opening until late June and early July. In Australia, we opened Perisher on June 24, 2020 and Hotham and Falls Creek on July 6, 2020 and decided to subsequently close Hotham and Falls Creek on July 9, 2020 following the issuance of stay at home orders by the Victorian government on July 8, 2020. At Perisher, our operations were negatively impacted by poor snowfall 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 actions."
Regarding the Company's 2020/2021 North American winter season operating plan, Katz said, "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, following 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 2021 financial results. It is difficult at this time to fully assess the financial impact we may experience related to our operational and capacity plans, 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 impacts from COVID-19."
Balance Sheet & Liquidity
Commenting on the Company's liquidity, Katz stated, "Our total cash and revolver availability as of August 31, 2020 was 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 twelve months Total Reported EBITDA.
"As previously disclosed, on May 4, 2020, we completed an offering of $600 million in 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 Vail Holdings Credit Agreement in its entirety. Additionally, on April 28, 2020, we entered into an amendment to the Vail 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 2021/2022 ski season, even in the event of extended resort shutdowns."
A more complete discussion of our operating results can be found within the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Form 10-K for the fiscal year ended July 31, 2020, which was filed today with the Securities and Exchange Commission. The discussion of operating results below compares the results for the fiscal year ended July 31, 2020 to the fiscal year ended July 31, 2019, unless otherwise noted. The following are segment highlights:
Resort - Combination of Mountain and Lodging Segments
Season Pass Sales
Commenting on the Company's season pass sales for the upcoming 2020/2021 North American ski season, Katz said, "Given the challenging circumstances surrounding the impacts of COVID-19, we are very pleased with the results of our season pass sales to date. 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 through September 20, 2019, with sales dollars for this year reduced by the value of the redeemed credits provided to 2019/2020 North American pass holders. Without deducting for the value of the redeemed credits, sales dollars increased approximately 24% compared to the prior year. Through September 18 we have sold a total of approximately 850,000 passes for the upcoming North American season, which compares to approximately 1,140,000 total passes sold for the North American season last year through December 2, 2019."
Katz continued, "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 credits 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% 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 the pass holder credits offered to 2019/2020 to incent renewal, the introduction of Epic Coverage which provides peace of mind to our guests, the introduction of Epic Mountain Rewards, the additional time provided to our 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 markets, benefiting from our continued momentum from those guests and the first full year of Peak Resorts in our season pass network. We also 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. However, 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 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 pass 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, given the continued uncertainty related to COVID-19 and its impact on the travel market. It is important to remember that we have expanded Epic Coverage for 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, guests who suffer an injury or other qualifying personal claim or if we close one or more of our ski resorts due to events such as COVID-19. Our reported season pass growth rates do not include pending unprocessed transactions associated with approximately 71,000 online forms submitted around the deadline from guests that include transactions that could not be processed online (such as using a credit to purchase a lower priced pass from what the guest had in 2019/2020). 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."
Pass sales results are adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.76 between the Canadian dollar and U.S. dollar in both periods for Whistler Blackcomb pass sales. The season pass revenue deferral is an estimate and the actual amount of pass holder redemptions will differ from the amount of pass credit deferred revenue recognized during fiscal 2021.
Commenting on the Company's outlook for the upcoming 2020/2021 North American ski season, Katz said, "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. 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-pass, 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 destination guests. Food and beverage is also expected to be negatively impacted by capacity constraints on 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 changes, an estimated $6 million of incremental offseason 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 pass 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 will 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 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 and 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 declines 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 and revenue compared to prior year guidance, and excludes any material disruptions or closures of our operations as a result of COVID-19. The above example 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."
The following table reflects the above illustrative Resort Reported EBITDA example for the Company's fiscal year ending July 31, 2021 and reconciles net income attributable to Vail Resorts, Inc. to such Resort Reported EBITDA. The reconciliation is provided for illustration only and is not intended to be considered guidance for fiscal 2021. Actual results could differ materially from the illustrative example provided and we undertake no obligation to update the illustrative example in the future.