Vail Resorts Inc Q2 FY2021 Earnings Call

Please standby, we're about to begin. Good day, and welcome to the Vail Resorts Second Quarter 2021 Earnings Call. During today’s call, we will have a question-and-answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO, Robert Katz. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to our fiscal 2021 second quarter 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 that 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 11, 2021, 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 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 2021 second quarter results. Given the challenging operating environment as a result of COVID-19, we are very pleased with our results to this point in the 2020-2021 ski season across our 34 North American resorts. We have welcomed guests to each of our resorts with no major ongoing disruptions, which has been enabled by our focus on the health and safety of our guests, employees, and communities. While our results for the second quarter continued to be negatively impacted by COVID-19, total visitation across our North American destination mountain resorts and regional ski areas were down approximately 5% compared to the same period in the prior year. The strong visitation for the quarter highlights the underlying resiliency of our business, the loyalty of our guests, and the strong appeal of skiing in guests' leisure travel plans. As we moved past the peak holiday period, which was constrained by capacity limitations driven by both COVID-19 and below-average snow conditions, we saw improved results in January, particularly with lift ticket sales. While visitation trends improved throughout the quarter, our ancillary lines of business continue to be negatively impacted by COVID-19-related capacity constraints and limitations, particularly in food and beverage and ski school. We experienced strong results in the quarter from both our local and destination guests with local visitation up slightly compared to the same period in the prior year and destination visitation proving more stable than we expected. Destination guests, including international visitors, modestly declined, comprising 53% of our U.S. destination Mountain Resorts skier visits, excluding complimentary access, which compares to 57% in the same period in the prior year. International visitation, as expected, decreased significantly due to COVID-19-related travel restrictions. Results at Whistler Blackcomb were disproportionately impacted throughout the second fiscal quarter due to the Canadian border remaining closed to international guests, including guests from the U.S., with destination guests, including international visitors, declining to 15% of Whistler Blackcomb visits, excluding complimentary access, which compares to 48% in the same period in the prior year. Our season pass unit sales growth of 20% for fiscal year 2021 created a strong baseline demand heading into the season across our local and destination audience and will be one of the most important drivers of our performance and relative stability for the season. For the fiscal 2021 second quarter, 71% of our visitation came from season pass holders compared to 59% of visitation in the same period in the prior year. Our growth in pass holders this past year also positions us well as we head into the 2021/2022 season. We remain even more committed to the benefits advanced commitment offers our company and intend to remain aggressive in providing the best value to skiers and riders who purchase in advance of the season and continue our strategy to move lift ticket purchases into our Pass program. We are excited to launch our 2021/2022 lineup of Epic Pass products on March 23, 2021. We maintained disciplined cost control throughout the quarter as we operated the business at reduced capacity. Resort reported EBITDA margin for the fiscal 2021 second quarter was 40.3% compared to the prior year period of 40.9%, while resort net revenue decreased $240.1 million over the same period. These results reflect our rigorous approach to cost management, and we exceeded our expectations for profitability at these revenue levels relative to the illustrative model previously outlined in our September 2020 earnings release. Now, I would like to turn the call over to Michael to further discuss our financial results, season-to-date metrics, and fiscal 2021 outlook.

Thanks, Rob, and good afternoon, everyone. As Rob mentioned, our results for the second quarter were impacted by COVID-19 and the resulting impacts on our North American mountain resorts. Net income attributable to Vail Resorts was $147.8 million, or $3.62 per diluted share for the second quarter of fiscal 2021, compared to net income attributable to Vail Resorts of $206.4 million, or $5.04 per diluted share in the prior year. Resort reported EBITDA was $276.1 million in the second fiscal quarter, which compares to resort reported EBITDA of $378.3 million in the same period in the prior year. The decrease was primarily a result of the negative impacts of COVID-19. Turning to our season-to-date metrics for the period from the beginning of this ski season through Sunday, March 7, 2021, and for the prior year period through Sunday, March 8, 2020. The reported ski season metrics are for our North American destination mountain resorts and exclude the results of our Australian ski resorts in both periods. The reported ski season metrics include growth for season pass revenue based on estimated fiscal year 2021 North American season pass revenue compared to fiscal year 2020 North American season pass revenue. Fiscal year 2020 season pass revenue was adjusted to exclude the impact of the deferral in Pass product revenue as a result of pass-holder credits offered to 2019/2020 North American pass holders. Fiscal year 2021 season pass revenue does not include the Pass product revenue recognized in the first quarter of fiscal year 2021 as a result of unutilized pass-holder credits. This approach results in a year-over-year comparison of season pass revenue, exclusive of the impact of discounts provided to our 2019/2020 pass holders. The metrics include all North American destination mountain resorts and regional ski areas and are adjusted to eliminate the impact of foreign currency by applying current period exchange rates to the prior period for Whistler Blackcomb results. The data mentioned in this release is interim period data and is subject to fiscal quarter-end review and adjustments. We continue to be pleased with the positive momentum we are seeing in demand as we begin the third quarter with visitation continuing to improve throughout the North American ski season. Season-to-date total skier visits were down 8.2% compared to the prior year season-to-date period. Season-to-date total lift revenue, including an allocated portion of season pass revenue for each applicable period, was down 8.9% compared to the prior year season-to-date period. Season-to-date ski school revenues decreased 43.2%, dining revenue decreased 56.9%, and resort retail and rental revenue decreased 31.6%, all compared to the prior year season-to-date period. Our results continued to improve in January and February as we expanded capacity with more open terrain as conditions improved, and as certain COVID-19 related restrictions eased. Additionally, as more reservations became available following the peak holiday period, we've seen a significant improvement in lift ticket purchases. Our ski school, food and beverage, and retail/rental businesses continue to be more significantly impacted than visitation due to the significant capacity and operating restrictions associated with COVID-19. While our U.S. resorts saw material improvements in financial performance since the peak holiday period, Whistler Blackcomb's financial performance continues to be severely impacted by the continued closure of Canadian borders to international travel, a trend that will likely continue through the rest of the season. Now, turning to our outlook for fiscal 2021. As we approach the end of the North American ski season, we are providing guidance for the 9-month period ending April 30, 2021. We expect net income attributable to Vail Resorts to be between $204 million and $247 million, and Resort Reported EBITDA is expected to be between $560 million and $600 million, assuming current regulations, health and safety precautions and the levels of demand and normal conditions persist through the spring, consistent with current levels. Given the ongoing uncertainty of COVID-19, we will not be providing full year guidance for fiscal 2021 at this time as we continue to evaluate the potential economic and operational impacts of COVID-19 on our fiscal 2021 fourth quarter results, particularly for our three resorts in Australia and our primary summer operations in North America, which we currently anticipate fully opening around our typical opening dates with certain capacity constraints associated with COVID-19. We continue to maintain significant liquidity with total cash and revolver availability as of February 28, 2021, of approximately $2 billion, with $1.4 billion of cash-on-hand, $419 million of U.S. revolver availability under the Vail Holdings Credit Agreement, and $179 million of revolver availability under the Whistler credit agreement. As of January 31, 2021, our net debt was 4.2x trailing 12 months total reported EBITDA. As previously announced, the company raised $575 million of 0% convertible notes in December 2020, which provides added flexibility in terms of our ability to pursue high-impact acquisitions as well as reinvest in our resort portfolio. We remain confident in the strong cash flow generation and stability of our business model, and we will continue to be disciplined stewards of our capital with a focus on high-return capital projects, continuous investment in our people, and strategic acquisition opportunities. While we are not reinstating the dividend this quarter, we remain committed to returning capital to shareholders, and our Board of Directors will continue to closely monitor the economic and public health outlook on a quarterly basis to assess the appropriate time to reinstate the dividend. Now, I'll turn the call back over to Rob.

Thanks, Michael. Turning to our calendar year 2021 Capital plan, we remain committed to reinvesting in our resorts, creating an experience of a lifetime for our guests and generating strong returns for our shareholders. We plan to maintain a disciplined approach to capital investments, keeping our core capital at a reduced level, given the continued uncertainty due to COVID-19. We have increased our core capital plan by approximately $5 million based on our updated outlook and now expect to invest approximately $115 million to $120 million, excluding one-time items associated with integration of $5 million and $12 million of reimbursable investments in real estate-related capital. As previously announced, the calendar year 2021 capital plan includes several signature investments which were previously deferred from calendar year 2020 as a result of COVID-19 and are subject to regulatory approvals. In Colorado, we are moving forward with the 250-acre lift-served terrain expansion in the signature McCoy park area of Beaver Creek, further differentiating the resort's high-end family-focused experience. We also plan to add a new 4-person high-speed lift at Breckenridge to serve the popular Peak 7, replace the Peru lift at Keystone with a 6-person high-speed chairlift, and replace the Peachtree lift at Crested Butte with a new 3-person fixed-grip lift. At Okemo, we plan to complete a transformational investment, including upgrading the Quantum lift from a 4-person to a 6-person high-speed chair lift and relocating the existing 4-person Quantum lift to replace the Green Ridge 3-person fixed-grip chairlift. These investments will greatly improve uphill capacity, further enhance the guest experience, and complete our $35 million capital plan for Triple Peaks. We remain highly focused on investments that will further our company-wide technology enhancements to support our data-driven approach, guest experience, and corporate infrastructure. As part of these efforts, we are continuing to invest in resources and technology to improve our customer service experience, including significant staffing increases in our call centers and self-service technology that will provide our guests the ability to better manage their own accounts. We will also continue to invest in ongoing maintenance capital to support our infrastructure across our resorts, including one-time items associated with integrations of $5 million and $12 million of reimbursable investments in real estate-related capital. We expect our total capital plan to be approximately $135 million to $140 million. In closing, I want to take a moment to thank all of our employees for their tireless dedication to deliver a safe, exceptional experience for our guests this year despite the challenges of the COVID-19 pandemic. We have had stronger-than-expected financial results, and our employees have been a primary reason for this success. Through recognition of these efforts, we implemented a one-time end-of-season bonus totaling approximately $15 million to thank over 28,000 year-round and seasonal employees who are not part of our other annual bonus programs. I'm deeply grateful for the commitment our teams have demonstrated day in and day out to navigate a truly unusual season. At this time, Michael and I would be happy to answer your questions. Operator, we are now ready for questions.

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

Just wanted to dig in a little bit, Rob. I think you were pretty clear in the prepared remarks that the upside to what you saw really exceeded expectations on the cost side from kind of what you were expecting. I was just hoping you could help us dig in there a little bit more on what some of those levers were. Was mix a factor at all between either destination and local or lift tickets and ancillary, like or lift ticket versus ancillary? Or was it more about specific reductions in targeted areas? And if you could talk about that a little bit more?

Yes. I think we went into the season, obviously, preparing for a very challenging environment. And so I think as we prepared, we took a pretty thoughtful and disciplined approach in terms of where we would set our expense levels. And as we saw revenue kind of greater than expected, we were able to manage through that without necessarily adding a huge amount of expense, a material expense to the season. And I think that was an amazing job by all of our teams across the whole company and also was a challenge. So, I mean, I guess, we shouldn't underestimate that. But I think we feel very good about that and knew that there could be some upside as we went into our original expectations on the revenue side if things go well. Of course, we also knew there could be some downside. And given the volatility you're seeing in the overall COVID environment before the season, we tried to pick a spot that we thought could handle either one.

Are there learnings or efficiencies we can take from this? Can you achieve more with a different cost structure? How do you view the potential for applying these insights to your operating plan for the next season?

I believe it's a bit premature to draw any definitive insights from this season. We want to wait and see how it ultimately concludes. This is a distinctive moment and a unique season. Clearly, we wouldn't want to repeat this experience year after year. However, there will be lessons that we can carry forward and that can add value as we progress. Many of these practices have been evolving over several years, and this year, many were expedited out of necessity. Some of these changes can be maintained. Yet, it's important to note that much of our operating approach this year is not something we intend to repeat. We aim to restore visitation to a more stable level, similar to what we experienced prior to the pandemic.

Thank you very much.

Okay. Thank you, Shaun.

We'll take our next question from Brandt Montour with JPMorgan. Go ahead.

Good afternoon, everyone. Thanks for taking my questions. I wanted to start with your new pass-holders that maybe you've learned a little bit more about in these last couple of months. Where are they coming from in terms of their history in skiing? Do you think any of them are new skiers? A lot of them are probably pulled forward or pulled over from buying tickets at the window prior to this, but maybe you could give us some of your learnings from that data set now?

Sure. In any given year, we have two types of new pass-holders. The first group includes those in our database, typically representing buyers who had a pass in the previous season. The second group consists of individuals not previously captured in our database, who may have visited our resorts in the past or are completely new. We have observed a trend where ticket buyers convert into pass-holders, leading to an increase in frequency. Historically, we see a rise in renewal rates after launching the Epic 4-Day, and now that it's been two years since we fully introduced the Epic Day Pass product, we're witnessing positive trends. This year, we successfully brought in many new individuals to our pass program. The importance of this program lies in its ability to provide stability to our business, enhance guest frequency and engagement, and increase perceived value and satisfaction scores among guests. While we still need to understand the full story for this season regarding newcomers, it's interesting to note that many are purchasing passes and using them throughout the season. In the past, people primarily bought passes to ski during holidays or early January, but recently, they are drawn to these products for the value they provide and the flexibility to ski all season long. We cannot yet determine their visitation patterns for the remainder of March and Easter, but the trends suggest that these passes are now effectively utilized throughout the entire season. We will gain more insights at the end of the season regarding these pass-holders. Importantly, we see higher return rates from pass-holders after they transition from lift ticket buyers, with even more significant return rates in their second or third years. We feel positive about these developments, reinforcing the idea that this program is fundamental to our success and stability moving forward.

Okay, thanks. That's really helpful. And then my follow-up question is really sort of how you think about pricing heading into a period of potentially extreme pent-up travel demand where your product focuses on its value proposition, but we could be entering a period where your core customer maybe is going to pay a lot more for their vacation than they may have in a long while. So yes, I know you haven't rolled out the official pass price, but just how are you thinking about pricing in general, even on ancillary?

Yes, Brandt, I would say that over time we have aimed to implement more consistent pricing for many of our core mountain products. Our lodging business tends to align with the overall lodging market. However, for our core products, we aim for steady price increases without making drastic changes. That said, we have a different perspective on our advanced commitment products, as a key strategy is to transition customers from lift tickets to these offerings. We focus on providing value in both good and challenging times to encourage more people to choose these products. Looking ahead, we believe there may be unique opportunities with a potentially stronger travel environment, as we've demonstrated with our newer products that we can successfully attract more customers. Overall, we envision a healthier travel market in the future, while our primary focus remains on advancing our commitment products rather than just increasing prices.

Thanks for the thought.

Sure.

We'll go ahead and take our next question from Jeff Stantial with Stifel.

I want to start by touching on Peak Resorts acquisition. We're starting off really on the first full normalized or as normalized if you can really get these days past selling period with those assets in the portfolio, I just wanted to get your updated thoughts on potential tailwinds there now that you've had some time to integrate the database there?

Yes. I think we feel really good about the contributions that Peak Resorts have made towards our past selling season. I think we also feel good about their contribution they're making this season. And those resorts, generally speaking, have a much higher percentage of paid tickets than some of our larger destination resorts that have been in the portfolio and the programs for quite some time. So we definitely think that there is continued opportunity there to convert lift ticket buyers into pass holders. And I think we're going to be focused on how to aggressively do that. And we think there's some unique opportunities that we're seeing and that we have experienced over the last couple of selling cycles. But I think there is no doubt they're having Peak in our system, both our pass system, our company system, all of our infrastructure is critical this year because there was a lot of business that was done, like that was local, people driving rather than flying, and we were able to pick up those folks in those visits. And I think when people were making a decision about buying the pass, last fall, and there was probably even more anxiety around potentially getting on a plane, knowing that they have the opportunity to also drive to a local resort, I think it's helpful in driving that conversion. And there's no doubt that there is a multiyear opportunity as we convert new guests to come with new resorts. And yes, the question I think for us is can we accelerate that? What can we do to really move that needle even corporate?

Okay, great. That's helpful. Taking a step back and thinking more thematically here. There's a narrative across a broader coverage of a compelling sort of pent-up demand thesis starting to unfold in the back half of the calendar year with folks fancy to get out of the house with more money in their wallet than they had kind of coming in. If you look at the forward indicators that you guys track, whether internal or looking at, call it, other luxury travel type offerings. Are you seeing any evidence of this narrative quite yet or is there too much noise?

Yes. I think it's a bit early for us to determine what will happen in the latter half of the calendar year based on our internal metrics. Right now, our main focus is on finishing this current season and preparing for the summer season, which I believe presents our best opportunity but also carries significant uncertainty. There's no doubt that we've performed better than many other sectors within travel and leisure, indicating there will be pent-up demand for us. While other companies have faced greater challenges over the past few months, we may see a substantial rebound. What stands out to us is the loyalty and stability of our guests, especially our pass holders, during a season filled with uncertainty. Our priority is to maintain that loyalty. We are thinking about next year, but also planning for the next three to five years. Our goal is to continue implementing the changes we've made to our business model and leverage a robust travel environment to help achieve that.

We'll go ahead and take our next question from David Katz with Jefferies.

Good afternoon, everyone. Congrats on your quarter. Well done. One of the topics that always comes up and has been sort of part of the company's DNA is acquisition targets because you have done so nicely with them. It seems natural that there could be some opportunities bubbling up, given some of the turmoil that we've gone through and your financial strength coming out of it. How do you look at that? Could we realistically see some of those things? And is that a fair assessment of what the market is?

Yes, I believe we are always on the lookout for opportunities to expand, particularly in select resorts that can add value to our existing portfolio and improve the experience for our guests. The past nine months, or even a year, have required us to focus internally, making it challenging to look at acquisitions. Additionally, many resort owners are not currently inclined to sell as they tend to concentrate on their immediate circumstances. Historically, as we emerge from disruptions, opportunities tend to arise. We are optimistic about this, but as I've mentioned before, we will remain disciplined. We recognize that our past success with acquisitions was built on maintaining discipline; otherwise, we risk losing focus. For us, it's about identifying the right acquisition at the right time, including prospects in North America and opportunities globally, such as in Asia or Europe, which may require more time to materialize. Nonetheless, we remain committed to the potential benefits that strategic acquisitions in the resort sector can offer, and we are not stepping back from that strategy.

Understood. And if I can just clarify one detail from your remarks about the capital plan. I think you said $135 million to $140 million. Is that a total number? Or is that excluding a maintenance budget?

No, that's total number, including maintenance.

We'll go ahead and take our next question from Ben Chaiken with Crédit Suisse.

This season has been quite unique, and we have seen some strong results so far, with passes up 20% and the pass program set to relaunch on March 23, as you mentioned. I'm interested in your thoughts on how to maintain or even grow that pass number over the next six to eight months. Is it more about the strategy rather than the specific direction? Are you following the traditional playbook, or is there a different approach you’re implementing this year considering the unique circumstances and the significant growth we've experienced in the past few months?

Yes, I believe it's important to reiterate some of my earlier points. As we entered this season, we faced more uncertainty than ever before. Our pass program has played a crucial role in the results we've achieved. While our lift ticket sales are also essential, they are the most unpredictable and challenging to forecast. The expansion of our pass program presents a great opportunity to shift our business model from a day-of-decision approach based on snow conditions, prevalent 10 to 15 years ago, to a more subscription-based model for how customers engage with and purchase their skiing experiences for the season, whether through an unlimited option or a limited pass like the Epic 3-Day. We see significant potential in aggressively increasing the number of participants in the program, which is something we've been discussing for a couple of years. We now have more data than ever on various methods to achieve this, and we won't stick to a standard playbook. Each season brings new information, which we intend to leverage effectively to boost the program. Looking back at our initiatives like the Epic Day Pass and Epic Mountain Rewards this year, although we faced some challenges with discounts on ski school, food, rentals, and lodging, we've seen enough engagement to recognize their importance as we move forward. Overall, we believe each year presents unique circumstances, and this year has strengthened our resolve to expand the membership in our program.

Got you. That's helpful. I was kind of referring to how to reengage with the customers that bought. So that was helpful. And then on peak, I guess, does it make you think any differently about some of the feeder markets that historically may be viewed as maybe like nontraditional, so maybe I'm thinking of the Mid-Atlantic, for example, I guess, post-peak and having that in the portfolio for the last 12 months, do you come at that with a different view? Or just any comment there?

I believe the positive aspect is that, while it was a departure for us to acquire so many resorts at once, we successfully integrated them, and they had a real impact on our results during our first full year, which was filled with challenges. This demonstrates a promising opportunity. It's worth noting that our primary focus this year was on safety, with efforts to improve guest service as well. Moving forward, we will be able to enhance the guest experience by applying lessons learned from the pandemic, but our focus will remain on safety without the context of a pandemic. The urban and Mid-Atlantic resorts will significantly improve the experience for guests in the coming years, beyond just skiing with a season pass, as they will also have access to Vail and Whistler and see meaningful changes in how they interact with the resorts. Overall, while the timing of our acquisition coincided with the pandemic could have been problematic, it turned out to be a substantial contributor, which bodes well for the future.

We'll go ahead and take our next question from Laurent Vasilescu with Exane BNP Paribas.

I appreciate that you gave us an implied third quarter total EBITDA dollar range. I think rough math to about $380 million to $420 million. Is the range a function of visitations or cost containment? Maybe asked another way, you delivered a 50% EBITDA margin in 3Q '19. I'm trying to think about two years back. Is there any reason why you can't get back to that EBITDA margin considering potential cost containment?

Yes. I think we're trying to set a range that incorporates the continued uncertainty for the remainder of this season and I think we're comfortable putting out a range at this point given that we largely have about a month of the season left. And so it incorporates what we think is a reasonable range of outcomes for the remainder of the season. I think as you saw in Q2, our margin was very consistent with last year, which we felt like demonstrated the cost discipline that we've shown and the great work by our teams throughout the season to manage the business at lower revenue levels. And we'll plan to continue to do that. So certainly anticipating continued strength on the margin side. But yes, consistent with the range that we put out.

Very helpful. If I missed this in the prepared remarks, you mentioned on the last call that $121 million of deferred revenue would be recognized in the second and third quarters. Did you recognize any in the second quarter? And how should we view the third quarter? I know it's probably still early, but do you expect any deferred revenue to carry over into 2022?

Yes. So the deferral of the revenue associated with the incentive credits is recognized primarily across Q2 and Q3 ratably with how we recognize season pass revenue across the quarters, which is roughly split between the two quarters. As it relates to any deferrals into 2022, nothing material that we would call out at this point. And so we are expecting to recognize that this year.

We'll go ahead and take our next question from Paul Golding with Macquarie Capital.

I think the first thing I wanted to ask was around just following on to David's question around acquisitions. Has the pandemic and sort of varying degrees of lockdown and just pickup of international visits. Has that changed your perspective around what regions make most sense for acquisitions right now? And then I have a follow-up around cost.

Paul. No, I don't think it really has. I think, certainly, different parts of the world went through the pandemic with different dynamics. And in some cases, right, there were more significant closures. In other cases, resorts were able to be open. But certainly, a resort like Whistler Blackcomb, which had a much tougher so far experience this season because of the border closures that wouldn't change our view, of course, as a long-term value and opportunity. And it's critical, why we think there's one of the benefits of actually having all of these resorts within our company is that some will do better than others at different moments in time. I don't think any of us had thought about a pandemic in that perspective. But obviously, it's played out during the pandemic as well. And so I think the diversity opportunity in terms of having resorts in different locations in different markets, different weather patterns, different economies, different governments. I think that speaks well to our company continuing to broaden. And so that's something that we're not going to back off of. And I don't think the experience of one resort versus another or one region versus another during the pandemic would change our view. I think that our hope, collective hope, is that we, yes, are not going to be going through a situation like this on an ongoing or recurring basis. But again, those are the types of shocks to the system that I think, again, reinforce our view that having a global footprint, having geographic diversity is critical.

Great. Regarding labor costs, I’m trying to understand if there are any insights that can be drawn for the upcoming quarter or next year concerning expenses. Are you indicating that the availability of seasonal labor is affected by international restrictions, which is increasing costs? Or are you observing that other leisure businesses experiencing lower labor demand are creating a more favorable labor environment for you?

This year, our resorts faced a very unique labor environment. We were unable to bring in international workers from outside the U.S. for the season, which was a challenge. However, due to the closures in the travel and leisure sector, we saw an increase in interest from individuals wanting to work in the U.S. at our resorts. Throughout the season, we also had to implement health screenings and a portion of our employees had to stay home mainly due to symptoms, not necessarily because they tested positive. This added to the challenges we faced. Looking ahead to next year, I believe we will encounter a new set of dynamics. It's crucial for us to ensure we have a strong workforce and enough people to deliver the required experiences, as well as sufficient affordable housing for them. While the specifics of next year's environment are uncertain, we are planning for a return to a more normal situation that will likely have a demand for quality individuals across the workforce.

We'll go ahead and take our next question from Alex Maroccia with Berenberg.

I have two more near-term focused ones. But the first on the timing of Easter, we do have an earlier Easter this year versus the last good comparable period in 2019. How much has an early Easter weekend moved the needle in the past, especially at more snowmaking heavy resorts that might be closed in mid-April?

Yes. I don't think we have an exact assessment of that. I think, again, this year is likely to have just these unique dynamics around COVID and the travel system. I think there's no doubt that having an earlier Easter is better than having Easter later in April because we do think it keeps people more engaged in the sport. I think unclear what will happen this year, and it's one of the reasons for the uncertainty in our Q4, which is, on the one hand, obviously, more people are getting vaccinated, restrictions they're easing, more people, I think are looking to travel. On the other hand, whether people decide that if the weather turns nice, they're going to pivot to longer weather opportunity. That's positive too. We're different obviously, during the winter our resorts were one of the only places that you could have a really unique outdoor experience, that will shift as we head into Spring. So I think that's still unclear, but I think that earlier Easter date is absolutely a positive relative to when its April '20 or '21.

Got you. That's helpful. And then the second one is on the Vermont resorts. It's only been two weeks, and it's getting late in the season, but can you give us a sense of how the lack of quarantine for vaccinated folks has benefited out-of-state visitation recently?

I don't have any comments on that right now. It's a bit too soon and I don't have the specific data. Typically, we don't provide detailed information about out-of-state visitors in one particular area over another. However, relaxing restrictions, regardless of location, definitely boosts people's confidence to visit, which is a positive thing. Our Eastern resorts have performed well this year, despite facing various challenges, which is encouraging. Additionally, I believe the Peak acquisition will significantly contribute to our results this season.

We'll go ahead and take our next question from Ryan Sundby with William Blair.

I know it's a tough year to draw conclusion, clearly, but just trying to follow-up on your comments on the Epic Mountain Rewards and how that loyalty program performed this year? I guess, did the discounts offered to the program help things like ski school, I don't know, maybe hold up better than you would have thought, just given the mix of skiers this year? And then any color on just how extensively guests are using the benefits and/or if there's any kind of usage increases that stand out so far that appear to be appealing to skiers this year?

Yes, I think a very tough year to make a lot of these assessments. I think we have absolutely seen engagement. I think though that in terms of whether it help drive business, it's tough to say because so much of the business in both ski school and dining was driven by capacity challenges, right, in terms of how many people we could really have in the lesson or length of the lesson. Obviously, on the dining side, just massive challenges. And I would say that when we look at Epic Mountain Rewards, I think the discount in dining was one that we thought would be a big driver because, obviously, certainly, everyone is on the mountain typically stops in for food and so I don't think we have those learnings. That said, I think we feel some of the data that we've been able to see, but no, we know that it matters to people, and people are using it. And we expect kind of almost a relaunch of it for next season when we'll have all of those businesses kind of able to fully market and leverage that not worried about kind of not having the capacity to live up to the demand. And I think we'll provide more information probably on our next quarterly call about some of our thoughts, and we have a full season of data to be able to look at exactly what happened. So yes, I think we still feel very committed to it, and feel like it will absolutely be a big driver. And yes, this is not the year to really test it out.

We'll go ahead and take our next question from Chris Woronka with Deutsche Bank.

You’ve had the Epic Day Pass for a few years now, and this past year was quite challenging, making it hard to draw conclusions. With the information you have, do you see good pricing potential for the Day Pass moving forward? Are you considering adding features to it to create a bundled product like mentioned earlier? How do you view the Day Pass after a couple of years?

Yes, I believe the Epic Day Pass differs from Epic Mountain Rewards. This year was beneficial for testing it, particularly as it's the second year with the full product lineup. It has performed exceptionally well, even during COVID. We managed to shift many previous lift ticket customers to the pass. The pass requires an upfront commitment, which implies that customers need to feel confident about skiing throughout the season. There are various factors at play this year, including the pandemic and travel uncertainties. We did introduce a reservation system, which may have encouraged some people to opt for the pass. Overall, our observations indicate that in its second year, the pass has made significant progress. Its appeal has grown beyond our initial expectations, as it is being embraced by those planning to ski throughout the season rather than just last-minute holiday skiers. We're seeing much broader engagement with the product, which presents us with an opportunity to be proactive and further develop it. As for Epic Mountain Rewards, we haven't announced any changes yet, but we definitely see value in having it run for a full season. The bundling will likely involve Epic Mountain Rewards along with all our season pass offerings, not just the Epic Day Pass. Both initiatives clearly benefit us. Ultimately, we are giving lift ticket customers, who typically buy for only 1 to 3 days, access to a product at a significant discount, while also enhancing our revenue stability. By encouraging them to commit to more days, we can offset the pricing discounts. This is especially important for our business, as our lift operations are fixed cost. So, while Epic Mountain Rewards didn't provide insights this year, we consider the Epic Day Pass essential to our success.

Okay. Very helpful. I appreciate all those thoughts. And then this would be a difficult question, probably just too early, but given how important California has been to your Western resorts in terms of customer origination, potential outflow from California to other states further away. Is that something you can think about at this point? Or is it just kind of wait and see that impact your initial marketing strategies at all?

At this stage, I don't believe we're witnessing a significant enough shift that would compel us to alter our larger strategic objectives. We have resorts throughout North America, and if skiers relocate from California or are unable to drive to one of our resorts, we will continue to market to those individuals for our other resorts. This broad range of options is beneficial. The main focus is to keep them involved in skiing, which ties back to the pass and the Epic Day Pass. We need to enhance their frequency of visits, engagement, renewal rates, and connection with the sport at our resorts. No matter where they reside, we have the opportunity to address that gap.

As there are no further questions, I'd like to turn the call back over to Mr. Katz for any additional or closing remarks.

Thank you, operator. This concludes our fiscal 2021 second quarter earnings call. Thanks to everyone who joined us today. Please feel free to contact me or Michael directly should you have any further questions. Thank you for your time this afternoon, and goodbye.

Once again, that does conclude today's conference. We do appreciate your participation. You may now disconnect your phone lines.