Vail Resorts Inc Q4 FY2022 Earnings Call

Good day, and welcome to the Vail Resorts Fourth Quarter Earnings Call. Today's conference is being recorded. At this time I would like to turn the conference over to Kirsten Lynch, Chief Executive Officer. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to our fiscal 2022 yearend earnings conference call. Joining me on the call this afternoon is Michael Barkin, our Chief Financial Officer. Before we begin, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and subject to a number of risks and uncertainties, as described in our SEC filings, and actual future results may vary materially. Forward-looking statements in our press release issued this afternoon, along with our remarks on this call are made as of today, September 28, 2022. And we undertake no duty to update them as actual events unfold. Today's remarks will also include certain non-GAAP financial measures. Reconciliations of these measures are provided in the tables included with our press release, which along with our annual report on Form 10-K are filed this afternoon with the SEC and are also available on the investor relations section of our website, at www.vailresorts.com. Let's turn to our fiscal 2022 and fourth quarter results. We are pleased with our overall results for the year, which highlight the stability and strength of our business model. As expected, results for the year significantly outperformed results from the prior year, primarily due to the greater impact of COVID-19 and related limitations and restrictions on results in the prior year. Despite the challenging early season conditions through the holiday period, staffing challenges, and impacts related to COVID-19, results exceeded our original expectations for the year, with fiscal 2022 resort reported EBITDA of approximately $837 million. The strong performance was driven by the stability from our advanced commitment pass products, with approximately 72% of skier visitation at our North American resorts coming from pass holders who committed in advance of the season, strong destination guests visitation, including demand for lift tickets, and an improved guest experience from January through the remainder of the season, demonstrating strong underlying demand for the experience at our resorts. Growth in visitation primarily occurred during off-peak periods, including weekdays and non-holidays. Throughout the North American ski season, our ancillary businesses continued to be capacity constrained by staffing, and in the case of dining, by operational restrictions associated with COVID-19. Performance in the fourth quarter of fiscal 2022 improved significantly from the prior year, driven by strong demand in visitation at our Australian resorts and the continued recovery in our North American summer operations following the start of the COVID-19 pandemic. Our Australian resorts experienced record visitation, driven by strong demand following two years of COVID-19 related disruptions, continued momentum and advance commitment pass sales following the addition of Hotham and Falls Creek in April of 2019, and favorable early season conditions that continued throughout the quarter. Turning now to our 2022-2023 season pass sales, advanced commitment continues to be the foundation of our strategy, shifting guests from short-term refundable lift ticket purchases to a non-refundable pass commitment before the season starts in exchange for value. We are very pleased with the results of our season pass sales to-date, which demonstrates the strength of the guest experience, our network of mountain resorts, and our commitment to continually investing in the guest experience. Through September 23, 2022, North American ski season pass sales increased approximately 6% in units and 7% in sales dollars as compared to the period in the prior year through September 24, 2021, including sales for the Seven Springs Resorts in both periods and 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 Black pass sales. These results are particularly strong, considering the company achieved growth of approximately 42% in units and 17% in sales dollars last year through September 17, 2021, compared to the prior year through September 18, 2020, including sales to the Seven Springs Resorts in both periods. Pass sales growth was driven by our renewing pass holders with particular strength in renewing pass product holders that were new to advanced commitment products last year, and we saw strong growth, particularly in destination markets. The strongest product growth was from Epic Day pass products that are attracting new pass holders who are lower frequency guests into advanced commitment products, including the new tier of products launched in 2022-2023 with access to select regional and local resorts. Epic and Epic local pass products continue to represent the largest portion of our pass products, with these products orienting to more higher frequency skiers and riders. As we expected, Epic and Epic local pass products were down approximately 10% in units versus the prior year period after seeing growth of over 50% in the comparable prior year period. We expect a majority of our future growth in pass sales will continue to come from our Epic Day pass products as we convert lower frequency lift ticket purchasers to our advanced commitment products. Pass sales dollars continue to benefit from the 7.5% initial price increase and subsequent incremental price increases relative to the 2021-2022 season, largely offset by the mixed impact of the growth of new pass holders into Epic Day pass products, including our new lower price Epic Day pass offerings. Following the strong trade-up results last year, we are pleased that net migration among renewing pass products holders remains near neutral with minimal degradation relative to our spring pass sales. As we enter the final period for season pass sales, we expect our December 2022 growth rates to be relatively consistent with our September 2022 growth rates. We continue to prioritize advanced commitment as the best way for guests to access our resort. Similar to last year, lift ticket sales will be limited during the 2022-2023 season in order to prioritize guests committing in advance and preserve the guest experience at each resort. We expect these lift ticket limitations will further support our resorts and communities on peak days. And we do not anticipate that the limitations will have a significant impact on our financial results. Now, I would like to turn the call over to Michael to further discuss our financial results and fiscal 2023 outlook.

Thanks, Kirsten, and good afternoon. As Kirsten mentioned, we are pleased with our results for fiscal year 2022. Net income attributable to Vail Resorts was $347.9 million, or $8.55 per diluted share for fiscal year 2022 compared to net income attributable to Vail Resorts of $127.9 million, or $3.13 per diluted share in the prior year. Resort reported EBITDA was $836.9 million in fiscal year 2022 compared to resort reported EBITDA of $544.7 million in the prior year. This increase was primarily due to the greater impact of COVID-19 and related limitations and restrictions on results in the prior year. Moving now to our fiscal 2023 outlook. As we head into fiscal year 2023, we are encouraged by the strength in advanced commitment product sales and our continued focus on enhancing the guest and employee experience while maintaining cost discipline. Our employee investment of approximately $175 million to return to full staffing levels and operational footprints, along with our expected capital investment of over $300 million in calendar year 2022 are expected to further elevate the guest experience this season and increase the capacity of our resorts. Despite facing broad cost inflation, and after incorporating our industry-leading wage investment, we expect meaningful growth for fiscal 2023 relative to fiscal 2022 and strong resort EBITDA margins. Our guidance for net income attributable to Vail Resorts is estimated to be between $321 million and $396 million for fiscal 2023. We estimate resort reported EBITDA for fiscal 2023 will be between $893 million and $947 million. We expect the operations of the Seven Springs Resorts and Andermatt-Sedrun to contribute approximately $22 million of resort reported EBITDA in fiscal year 2023, which is an incremental $4 million of resort reported EBITDA compared to fiscal year 2022, excluding acquisition and integration-related expenses. Acquisition and integration-related expenses are expected to be an estimated $4 million in fiscal year 2023 associated with the resort acquisitions. We estimate the resort EBITDA margin for fiscal 2023 will be approximately 31% using the midpoint of the guidance range. The guidance assumes a continuation of the current economic environment, normal weather conditions, and no material impacts associated with COVID-19 for the '22-'23 North American and European Ski Season, or the 2022 and 2023 Australian Ski Season. The guidance also assumes a return to full staffing levels and operational footprints consistent with the expectation shared in the company's March 2022 investor conference presentation. The guidance assumes an exchange rate of $0.77 between the Canadian dollar and the U.S. dollar related to the operations of Whistler Blackcomb in Canada, an exchange rate of $0.70 between the Australian dollar and U.S. dollar related to the operations of Perisher, Falls Creek, and Hotham in Australia, and an exchange rate of $1.02 between the Swiss franc and U.S. dollar related to the operations of Andermatt-Sedrun in Switzerland. While we are cognizant that the broader economic outlook remains uncertain, and there are challenging headwinds, including inflation, monetary policy and segments of the economy showing signs of slowdown, we remain encouraged by our season to-date advance commitment sales results, which demonstrate continued strength in demand for the experience at our resorts and the loyalty of our pass product holders. We will monitor the macroeconomic environment as we head into the upcoming season, and believe that we will continue to benefit from the stability and resilience of the business model, particularly with the strength, scale and affordability of our advanced commitment products and the diversification of our resort network. Our balance sheet and liquidity position remains strong. Our total cash and revolver availability as of July 31, 2022 was approximately $1.7 billion with $1.1 billion of cash on hand, $417 million of U.S. revolver availability under the Vail Holdings credit agreement, and $220 million of revolver availability under the Whistler credit agreement. As of July 31, 2022, our net debt was two times trailing 12 months total reported EBITDA. On August 31, 2022, the company entered into an amendment of the Vail Holdings credit agreement to extend the maturity date by two years to September 2026. The company declared a quarterly cash dividend of $1.91 per share of Vail Resorts common stock that will be payable on October 24, 2022 to shareholders of record as of October 5, 2022. Including shares repurchased during the fourth quarter for the year ended July 31, 2022, the company has repurchased 304,567 shares of common stock at an average price of $246.27 for a total of approximately $75 million. We intend to maintain an opportunistic approach to share repurchases. We will continue to be disciplined stewards of our capital and remain committed to continuous investment in our people, strategic high return capital projects, strategic acquisition opportunities such as the recent additions of Andermatt-Sedrun and the Seven Springs Resorts, and returning capital to our shareholders through our quarterly dividend and share repurchase program. As previously announced on August 3, 2022, the company closed on its purchase of a majority stake in Andermatt-Sedrun, marking the company's first strategic investment in an opportunity to operate a ski resort in Europe. Andermatt-Sedrun is a renowned destination ski resort in central Switzerland, located less than 90 minutes from three of Switzerland's major metropolitan areas of Zurich, Lucerne, and Lugano and approximately two hours from Milan, Italy. The company acquired a 55% ownership stake in Andermatt-Sedrun, which controls and operates all of the resorts' mountains or mountain and ski-related assets including lifts, most of the restaurants, and a ski school operation. Vail Resorts 149 million Swiss francs investment is comprised of 110 million Swiss francs investment into Andermatt-Sedrun directly for use in capital investments to enhance the guest experience on the mountain and 39 million Swiss francs paid to Andermatt Swiss Alps AG which will be fully reinvested into the real estate developments in the base area. For the 2022-2023 season, Epic Pass holders will receive unlimited and unrestricted access to Andermatt-Sedrun. Epic local pass holders will receive five days at the resort and Epic Day pass holders with all resorts access will be able to visit during any of their days. I'll now turn the call back over to Kirsten.

Thank you, Michael. The experience of our employees and guests is the core of our business model, and the company is using its financial resources and the stability it has created through its advanced commitment pass program to aggressively reinvest and deliver on our company mission of providing an experience of a lifetime. As previously announced, the company is making its largest ever investment in both its employees and its resorts. The company is investing approximately $175 million in our employees, making our frontline talent a strategic advantage, including industry-leading minimum wage, plus career and leadership differentials across all 37 of our North American resorts, leadership development for frontline talent to build their careers at Vail Resorts, investments in affordable housing for our employees and expanding our human resources department to better serve our employees. The company achieved full staffing levels for summer in North America and across our three Australian resorts for winter. While it is very early in our hiring process for North America winter season staffing, our hiring is currently on track for full staffing levels, with a strong volume of applications for seasonal frontline staff and strong retention of staff from last winter and this summer. We remain dedicated to delivering an exceptional guest experience and will continue to prioritize reinvesting in the experience at our resorts. We are committed to consistently increasing capacity through lift, terrain, and food and beverage expansion projects and are on track to complete 18 new or replacement lifts across 12 resorts in advance of the 2022-2023 North American ski season as part of our one-time incremental investment this year to accelerate that strategy, which will meaningfully increase lift capacity at those lift locations. At Vail Mountain, this includes the installation of a new four-person high speed lift in the Sun Down Bowl and the replacement of a four-person lift with a new six-person high speed lift in the Game Creek Bowl. At Whistler Blackcomb, this includes the replacement of the four-person high speed Big Red Express lift with a new six-person high speed lift, and the replacement of the six-person Creekside Gondola with a new 10-person high speed gondola. As discussed in prior announcements, we are also installing new or replacement lifts at Breckenridge, Northstar, Heavenly, Stowe, Mount Snow, Attitash, Jack Frost, Big Boulder, Boston Mills, and Brandywine. While 18 lift projects are on track for the 2022-2023 season, three lift projects have been delayed and are expected to be completed in calendar year 2023 subject to approval. In Park City, the Park City planning department approved a permit to upgrade the Eagle and Silverlode Lifts at Park City Mountain in April 2022. And the Planning Commission subsequently revoked that permit in June 2022. While the company is committed to resolving our permit to upgrade the Eagle and Silverlode lifts in Park City, the company intends to install the two previously purchased lifts at Whistler Blackcomb in calendar year 2023, replacing the four-person high speed Jersey Cream lift with a new six-person high speed lift and replacing the four-person high speed Fitzsimmons lift with a new eight-person high speed lift. The Whistler Blackcomb lift installations remain subject to approvals. The lift-served terrain expansion project in Bergman Bowl at Keystone is delayed due to a previously disclosed construction issue impacting an area where minimal construction was permitted. While Keystone's Bergman Bowl is planned to be open to guests for the 2022-2023 ski season, the lift installation is delayed with the goal for completion in advance of the 2023-2024 ski season. Our capital plan for calendar year 2022 was previously expected to be approximately $327 million to $337 million. Due to the delays for the Park City and Keystone lift projects, we will be deferring approximately $10 million of capital from calendar year 2022 to calendar year 2023. We now expect our capital plan for calendar year 2022 to be approximately $323 million to $333 million, including one-time investments in real estate related projects, $4 million related to the addition of Andermatt-Sedrun, and integration activities associated with the Seven Springs Resorts. In addition to the $10 million of cost deferred from calendar year 2022, the company expects to incur approximately $20 million in additional costs related to the Park City and Keystone lift projects, which is included in our calendar year 2023 capital plan. In addition to this year's significant capacity-expanding investments, we are excited to announce details of our calendar year 2023 capital plan. We expect our capital plan for calendar year 2023 to be approximately $180 million to $185 million, including $2 million of maintenance capital for Andermatt-Sedrun and excluding $1 million of one-time investments related to integration activities and $10 million of deferred capital associated with the Keystone and Park City projects. Including these one-time investments, our total capital plan for calendar year 2023 is expected to be approximately $191 million to $196 million. This calendar year 2023 capital plan currently excludes growth capital investments at Andermatt-Sedrun, which we expect to announce along with further details on our calendar year 2023 capital plan in December 2022. 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 five-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 across four resorts by more than 500 spaces, to improve the guest experience. The company is planning to introduce new technology for the 2023-2024 North American ski season that will allow guests to store their pass product or lift ticket directly on their phone, eliminating the need for carrying plastic cards, visiting the ticket window, or waiting to receive a pass or lift ticket in the mail. Once loaded on their phones, guests can store their phone in their pocket, and get scanned, hands-free, in the lift line using Bluetooth Low Energy technology. In addition to the significant enhancement of the guest experience, this technology will also reduce waste of printing plastic cards for pass products and lift tickets and RFID chips as a part of the company's Commitment to Zero. Even after launch, the company will continue to make plastic cards available to any guests who cannot or do not want to use their phone to store their pass product or lift ticket. The company is also investing in network-wide scalable technology that will enhance our analytics, e-commerce, and guest engagement tools to improve our ability to target our guest outreach, personalize messages, and improve conversion. In closing, we are thrilled to see the continued loyalty of our guests and the value proposition they see in our pass products. Our advanced commitment strategy is core to the long-term growth and sustainability of our business. And our focus on continuing to invest in the guest experience and our employees who deliver that experience day in and day out. With the North American ski season approaching, I want to thank all of our employees across all of our resorts for their work to welcome skiers and riders back to our resorts. We are all committed to delivering an experience of a lifetime this coming season. At this time, Michael and I will be happy to answer your questions. Operator, we are now ready for questions.

Thank you. We will take our first question from Shaun Kelley with Bank of America.

Hi, good afternoon, everyone. I wanted to start by discussing pass purchasing. Historically, you've tended to be somewhat cautious about anticipating a slowdown as we progress through the selling period. However, you have been quite successful in encouraging customers to make purchases earlier. Your comments seem more optimistic than before, especially in light of the challenging comparisons you face. What gives you the confidence that these trends will continue? Additionally, Kirsten, I would like you to clarify a remark from the script regarding full price Epic and Epic Local, which appears to be down slightly compared to last year. What are your thoughts on this? What might be causing this trend if I understood your comment correctly?

Thank you for the question, Shaun. I'll address your second question about Epic and Epic Local passes first. These passes continue to make up the largest part of our pass product portfolio, primarily targeting high-frequency skiers and riders where we have a strong presence. As anticipated, Epic and Epic Local saw a decline of about 10% in units compared to last year, following a growth of over 50% in the prior year. This aligns with our expectations. It's important to note that we foresee most of our future growth in passes coming from the Epic Day pass, as we aim to convert low-frequency lift ticket buyers into advanced commitments and attract guests from our lower price resorts to our advanced commitment products. Epic and Epic Local have performed according to our expectations. Looking at our results and what we anticipate for the remainder of the season, I would say that our growth rate is expected to remain consistent. Currently, we are seeing very encouraging results with a 6% increase, which aligns with our expectations, especially considering that we were comparing against a 40% unit growth. The positive trend is primarily driven by renewing pass holders, particularly first-time pass holders from last year, and our destination guests. The Epic Day pass will be significant as we move through the season. Generally, as the season progresses, we observe strong underlying dynamics and begin attracting more new guests to the program as we approach the season start. At this stage, I am optimistic about our trends and what we expect for the remainder of the selling cycle.

That makes a lot of sense. Thank you. Kirsten, I appreciate your comments on labor; they were very helpful. Could you remind us when we enter the peak hiring window? I assume that timeframe is approaching quickly. Also, what milestones are you monitoring to ensure everything is on track, and do you have any plans or backup strategies to address any last-minute staffing shortages? We understand that you have a lot to achieve in a short timeframe due to the seasonal nature of the workforce.

Thanks, Shaun. As you know, our employees are the core of our mission to create an experience of a lifetime and we made a significant investment in our employees going into this season. When we look at our winter seasonal staffing, it is early. It will be ramping up significantly over the next couple of months as we head toward opening our resorts. And right now the indicators are very strong. One, being well, our results in terms of achieving full staffing over summer were very good. But we look at retention of our employees that worked at our resorts last winter, we look at retention of our employees that are working at our resorts over the summer. And both of those are very strong indicators. And then we look at the number of applicants for the job postings of new people that we need to hire. As you can imagine, we have pretty strong analytics around all of the measures and metrics that we're looking at, and are disclosing this because we're feeling good about where we are on this process right now. I would highlight that it does ramp up over the next few months though, as we get closer to the season. And so it is still early in the process, but feeling good about where we are right now.

Thank you very much.

And our next question comes from Laurent Vasilescu with BNP Paribas. Please go ahead.

Hi, guys, Dion C on for Laurent. Thanks for the question. Maybe digging in a little bit more on the Epic pass. You mentioned how you expect the growth or the incremental growth to come mostly from the Epic Day. So should we expect going forward that mix remains like a headwind, even if you're taking price? Or how should we think about I guess, the mix and pricing going forward?

Well, yes. That is an accurate assumption that what we are trying to do is move our low-frequency lift ticket guests over into an advanced commitment, because that is the core of the subscription model assumption that drives stability and loyalty spend capture. And then we're trying to also move guests that go to some of our lower-priced resorts over into advanced commitment as well. So I would say that it's an accurate assumption to assume that the future growth will come from Epic Day pass. In terms of pricing, won't comment on that going forward, except that we, as you know, have a significant amount of data and analytics, and we are constantly looking at what are the levers to pull to achieve our business outcomes.

Okay, got it. Can you talk about retention? You had a significant increase in units last year. How is the retention of those new pass holders? This year, the incremental is primarily coming from the Day pass, while the Epic Pass and Epic Local pass were down. Is it correct to assume that some of those holders decided not to renew? How should we view this? Thank you.

No, well, first of all, I would say when we look at renewing pass holders, you can maybe think about it in two different buckets. The year one renewals are the new people who actually were new into the pass program last year, and then you have what I'll call our multi-year pass holders, people who've been in the pass program for years and years. Overall, our net migration among the renewing pass holders remains near neutral with minimal degradation relative to our spring pass sales. So I think that's an important metric. Our renewals were strong with both of the populations that I just mentioned. Our multi-year renewals were strong and our year one first time pass holders, the renewals among that group were strong as well. And I think that's an important underlying health of the business dynamic because it really validates our compelling resort network. It validates the guest experience, the investments that we make into the guest experience, as well as the value that that provides for our guests.

Yeah, no, that's great to hear. Thanks so much.

Thank you.

And we'll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Good afternoon, everyone. Thank you for the question. I wanted to discuss the margins you projected, specifically the 31% resort margin at the midpoint. It seems to be higher than what you achieved in fiscal years 2017 through 2019. Given the significant changes to your business model, including volume, pricing, and inflation, do you believe that 31% could be a new baseline? Are there structural factors that could potentially increase that margin in the future, or do you think this is a reasonable estimate moving forward?

Thank you, Chris. We're pleased to guide toward a 31% margin, which we believe is strong considering the current environment. It's important to note that last year's actual margin exceeded our guidance, partly due to not achieving our desired staffing levels while still delivering strong business results. This led to an unexpectedly high margin last year. As we aim to return to full staffing and operating capacity to enhance the guest experience, we're also focusing on maintaining discipline across our P&L to maximize revenue growth. We're making necessary investments to ensure workforce sustainability and enhancing our wage structure with a significant one-time investment this year. Historically, we've demonstrated the ability to grow margins through pricing, growth, and cost discipline, and we'll continue to prioritize this moving forward.

Okay, thanks. Thanks, Michael. And then just as a follow-up, you've talked about an expectation that a lot of the growth going forward on pass products is likely to come from the day pass. Is there any way to possibly also capture more ancillary stuff upfront with an advanced commitment? I know, that's tricky. And I know there's some amount that spur the moment people will just do it. But is there any thought to possibly getting a little bit more of that locked into or is that just too difficult to do?

No, Chris, I think, absolutely, that is our intention and the premise of the lifetime value model and subscribing our guests in advance of the season. And part of that assumption and data support is that we will get the capture of the ancillary and the compounding effects of that. One of the things you saw us do a couple of years ago, pre-COVID, was announce Epic Mountain rewards incentive to our pass holders for a discount on ancillary businesses. And that benefit of being a subscriber, we absolutely leverage and intend to keep leveraging to increase that spend capture.

Okay, very good. Thanks.

Thanks, Chris.

And we will take our next question from David Katz with Jefferies. Please go ahead.

Hi, good afternoon, everyone. Thanks for taking my question. Can you talk a bit about Andermatt? I think it might be instructive just to get a sense for what your vision is for that and how it sort of weaves into the rest of the system, potentially. And what that could become longer term?

We are very excited about Andermatt joining the Vail Resorts network and the pass access we announced after acquiring it in early August. This is a significant moment for us as we take a majority stake and an operational role in a resort located in one of the top ski regions in Europe, Central Switzerland. Andermatt is a remarkable resort in terms of the skiing experience, the capital we plan to invest in our partnership deal, and the ongoing base area development aimed at establishing it as a premier destination in Europe. We are thrilled about Andermatt's current state, our team there, and our partners' efforts to elevate it to one of the great destinations in Europe. This marks an important initial step as we explore future growth opportunities in Europe. Our focus will be on delivering a great experience for visitors to Andermatt, and we are optimistic about the potential it represents as we begin our journey in Europe.

Understood, please.

Just to build on that, David, I agree with that. And I would just say in the short term we are really focused on, as newly into the European market, learning, building our success, building our relationships and our partnerships. Long term, if you look at the total addressable market in Europe and the size of it compared to North America, you can see the potential for the big unlock in growth and value creation.

So if I may, just to follow that up, it sounds as though your next move in Europe is probably to put more capital into that mountain before you would contemplate another one or sort of chew on this one and actualize this one a bit before you look at more?

I think we're very focused, as both Kirsten and I mentioned, on executing well at Andermatt. It's a great resort with numerous growth opportunities. Importantly, as you may recall from our announcement regarding the deal, we structured it to prioritize reinvestment. Out of the 149 million Swiss francs, we allocated 110 million Swiss francs directly into the business for future capital. We are already in the planning stages and aim to announce the first phase hopefully in December. Our focus will be on how we can invest to enhance the resort, partner with ASA in the base area, and provide a great guest experience in the coming years while also starting to introduce our Epic pass holders to the resort, which will be a wonderful opportunity for our guests.

Perfect. Thank you very much.

Thanks, David.

And we'll take our next question from Omer Sander with JPMorgan. Please go ahead.

Hi, Kristen, hi, Michael. Thanks for taking my question. First on ancillary revenues, how do you think about where this bucket trends or maybe normalizes going forward? And how does this shift towards more pass units and pass sales and access?

Yeah, Omar, if I'm interpreting your question correctly, in terms of ancillary revenue, I think the biggest thing for this coming year is the return to the full capacity. As you know, over the last few years, we've had quite significant operating constraints, primarily due to COVID, and then last year due to some of our staffing challenges. And so a big part of our employee investment was to bring those businesses back to full capacity, which will be a big driver, we anticipate of our revenue growth this year. And then more broadly, on ancillary certainly looking at differentiated strategies to continue to drive each of those businesses and we'll continue to invest and innovate there. As it relates to pass holders and ancillary, I think important to remember that we, a few years ago, introduced our program called Epic Mountain Rewards, which gives pass holders a 20% discount on those ancillary products. And so that is a key part of our strategy in moving people into advanced commitment, and then encouraging those guests to use those ancillary businesses to drive growth.

Okay, helpful. Thank you. And then maybe one just pivoting, Kirsten, you talked about capacity and all of these projects that are going on Park City, Keystone, Breckenridge, Stevens Pass. How do you think that the total capacity that these projects can add after completion?

When I think about lift projects, in particular, I think about improving the guest experience in terms of the upload capacity and the lift line wait times, and the impact that that has on our guests waiting in those lines. So putting in high capacity, high speed lifts improves that experience by reducing that wait time for our guests.

Okay.

We will take our next question from Ben Chaiken with Credit Suisse. Please go ahead.

Hey, how's it going? Thanks for taking my question. On pass sales, did you guys see an acceleration after the announcement that window tickets would be limited? Was this trigger like a call to action? And was there any cohort in particular, was it renewals, single day conversion, or just new to Vail?

The announcement about our lift ticket restrictions, hard to tell if there was really a meaningful call to action or impact because it's actually similar to how we've operated the last couple of seasons. And we're always focused on driving more guests into advanced commitment and earlier. So I think I would say hard to parse out if really, that had any type of an impact.

That's helpful. And then pivoting a little bit, Canada was pretty much closed off to U.S. skiers the last few years. So in your guidance, did you assume a full recovery of that market, and then what data points were you looking at to make that decision? Are there hotel bookings? Just what kind of forward booking do you have?

Yeah, Ben, we did assume a full recovery on Whistler Blackcomb. It certainly was impacted last year. And the biggest indicators that we're looking at are travel restrictions, which have largely been lifted at this point for Whistler Blackcomb. And yeah, and so we're quite optimistic about the outlook, in particular, because a lot of guests were not able to get there the last few years and their normal travel schedule.

Got you. That's all for me. Thank you.

And we will take our next question from Ryan Sundby with William Blair. Please go ahead.

Hey, guys. Thanks for the question. I wanted to follow up on the strength in the renewing pass holders that were new to Epic this year. Kristen, how much of a surprise, I guess if any of was that to you? And does it imply you should maybe be taking the pass even more to encourage that first trial? Or is there a point where you start to do that and make the pass just too complex for the consumer to understand?

Sorry, Ryan. Can you repeat the second part of your question?

Yeah. More around, should you continue to evolve the pass, encourage trial, or do you get to a point where it becomes too complex, and the guest doesn't really understand how it works?

So in terms of our renewing pass holders, we're incredibly pleased to see it. And overall, our results are on our expectations. So no, I would not say that that was a surprise. Highlighting though, for all of you, the drivers of why we're able to grow 6% on top of 42% unit growth, is this combination of strength that we see in our renewing pass holders, in particular those first-time pass holders that just joined last year, which to me, I take as a really great validation of the guest experience, the resort network, the investments we're making, the value that we have. We also saw the strength in destination and Epic Day pass. But our overall results are in line with what we expected.

Okay, thanks. I just want to understand, we've seen more segmentation there on kind of the final product. And then it sounds like demand in Australia was great, with macro and inflation becoming bigger headwinds. Is there anything to glean from that season in terms of the way guests behaved, either in terms of spending or behavior around length of stay, as you move through the quarter and beyond just to kind of project into the end of the North American season?

All three of our Australian resorts had record years. I believe some of this is due to pent-up demand resulting from the impacts of COVID in Australia. We always benefit from having these three resorts during our summer and their winter, allowing us to gather insights. As we look ahead to the upcoming season, we see strong indicators, especially regarding pass growth, which is the most significant indicator of demand for our experience. We are also focused on mitigating risks related to the economic uncertainty we are currently facing.

Great, thanks.

And we will take our next question from Patrick Scholes of Truist Securities. Please go ahead.

Hi, good afternoon, everyone. Looks like today you're sitting on about $1.1 billion of cash and obviously a substantial increase from pre-COVID levels, about $100 million. At what point do you get more confident that you can have a cash balance that's closer to those pre-COVID levels? And what would your priority for that $1 billion of cash be if you should get to that level of comfort?

Yeah, thanks for the question, Patrick. I mean, I think we've taken a quite consistent stand on capital structure and capital allocation over time. And I think the expectation is that we'll continue to focus on the areas that we have. And in terms of capital allocation, we certainly, whether it's cash on the balance sheet, availability on credit facilities, we're really focused on the opportunity to reinvest in the business. And clearly with our capital plan for last year, the capital plan we just announced this year, the employee investment that we're making, as well as the two acquisitions, our ability to continue to invest in, in internally in the business as well as to find strategic acquisitions is where we're going to focus. I think, as it relates to cash on the balance sheet and net debt, we continue to be in a very good spot. We're around two times net debt in total. And we continue to look at that to ensure that we keep an appropriate amount of leverage on the balance sheet, and have the Board's support as it relates to returning capital to shareholders with our primary tool being the quarterly dividend, and we've been quite aggressive in raising that as we've come out of COVID. And take an opportunistic moments to do share repurchases, which I think we'll continue to look at both as ways to return excess capital to shareholders.

Okay. Okay. Thank you. And my second question here, wondering if you folks have any views on short-term rentals, certainly in the main resort communities, a lot of controversy, we've seen a lot of short-term rentals come on the market much more so than pre-COVID levels. And I'd have to imagine, short-term rentals are sort of a yin and a yang or a double-edged sword for you folks. One certainly it helps visitation, and those visitors are obviously going to spend on your under resorts. But on the other side, it really takes employee housing out of the market, which obviously is we know, is a big issue. Right. I wonder if you have any view on that issue at hand with short-term rentals. Thank you.

Yeah, thanks, Patrick. Not a view on short-term rentals. But a view on affordable housing for employees obviously is a huge priority for us. And the key for us on that is really partnering in our mountain communities to try to solve that problem. We believe it's gotten to the point where it is a crisis in our mountain communities. And it has to be a top priority. And I think we've thankfully had some really strong success recently focused on that in partnership in Park City and the Canyons Village with a new affordable housing development that is going to provide affordable housing for over 440 of our employees. And then in Whistler Blackcomb a great collaboration and partnership with the town to work on an affordable housing project for our fiscal year '24 that will come to fruition. So really, our key focus in priority is trying to find these opportunities in our mountain communities and to partner with our communities to create those opportunities so that we can make sure that there are options for our employees.

And we'll take our next question from Jeff Stantial with Stifel. Please go ahead.

Hey, I appreciate everyone. Thanks for taking my questions. Just two quick ones from me. If you look at guidance, it looks like it implies about 9% organic growth. Once you adjust for the M&A and the various headwinds and tailwinds that you've cited against the $837 million of resort EBITDA reported, I guess, one of the unique puts and takes you had called out, that kind of factors into that 9% as compared to what you would view as I guess a quote-unquote normalized run rate, organic growth rate. Let me know if that makes sense. Thanks.

Yeah, I think it does make sense. I mean, I think the clear drivers, kind of go back to what we actually presented in our March investor presentation where we have the large employee investment and wage investment that we're making offset, that's an increase on the cost side, but that's offset by significant growth that we're going to be able to achieve from a number of things. One is, last year, we had a number of headwinds in terms of Q1 impacts in Australia, a challenging early season in North America and some of the travel concerns in Whistler Blackcomb. So we're anticipating all those come back to normal. We're also getting what we expect to be the full benefit of the full capacity of our ancillary businesses, particularly in food and beverage, and ski and ride school as we return to full staffing and no COVID restriction. So those pieces are big parts of the top line growth story. And then of course, we are anticipating price increases in this inflationary environment, which will also drive pieces of the revenue growth story. So those are really the big drivers of the top line growth. And of course, the increase in wages will be the biggest driver on the cost side along with, of course, we are facing inflation as everybody else is across our operating expense structure. I would say that the acquisition side is actually not as impactful this year outside of the acquisition and integration expenses, because Seven Springs performed so well last year. We actually, were able to actualize a good portion of Seven Springs results last year, and those will continue into this year. And then of course, we have the additional $4 million that we pulled out of additional Andermatt expected contribution this year. So those are the big pieces, I think. I think, yeah, we're quite comfortable with the plan that we put together.

Okay, understood, that's helpful, I guess, just to hang on there for a second, just to be clear. So kind of when I'm calculating the 9% as a baseline, I'm thinking about the fully adjusted, when you reported it during the investor day was $8.32. Then you've outpaced your initial full year 2022 guidance. But I'm taking the normalized, kind of full year '22 after the labor investments, after the catch up to full capacity, after the normalized travel conditions, yeah, kind of that normalized, using that as a baseline to calculate the growth rates. I guess with that in mind, do you mind kind of framing I guess, how that 9% would be from a normalized here.

Yeah. So the largest difference is between kind of the normalized and for everybody else. I think we're referring to the investor conference presentation bridge that we provided back in March of 2022. The largest pieces that we had not included in that bridge, which are of course, the bridge between that to our full year guidance were two pieces. One, what we anticipated from organic revenue growth, which of course, is the combination of both our price increases and our volume expectations outside of the normalizing adjustments. And then inflation essentially on non-wage areas of the business. And so those were the two pieces that would be incremental to the normalized starting point.

Okay, understood. That's helpful. Thank you very much.

And we will take our next question from Brandt Montour with Barclays. Please go ahead.

Hello, good evening, everyone. Thanks for taking my questions. I wanted to revisit the first question and I'm hoping I'm not asking the same thing repeatedly, but with both Epic and Epic Local being down this year, I understand that's aligned with internal expectations. However, from what I gathered from your comments, this seems to involve the highest frequency skier, and it appears this would be a skier who is not new to the program. Considering all the data you collect, can you provide insight into who these individuals are that are leaving at this point?

Okay, so to clarify on Epic and Epic Local, that is the largest portion of our pass portfolio, it's comprised of both brands, renewing pass holders, as well as new people coming into the pass program on Epic and Epic Local as well. Those guests tend to be high-frequency skiers and riders. And so when you think about the total addressable market, we are highly penetrated in that market. And last year, Epic and Epic Local grew over 50% versus the prior year. So we saw a tremendous amount of growth in those two product lines. What we're seeing this year, as we expected, is that we're down about 10%. I noted earlier that we do have strong renewals overall, that includes on Epic and Epic Local, and that when you think about the product line, and how we're going to capture the majority of new people coming in incrementally to the pass program, their total addressable market that is remaining tends to be the lower frequency skiers or the skiers that are skiing at lower price point resorts in our portfolio. And really, so the majority of the growth that's going to come in the future is really going to come from that group because the addressable market of that group is so much bigger. Does that help clarify?

It sounds like it's really, really tough comparisons in that segment, if I'm able to maybe paraphrase. Okay, yeah, that's helpful. Thank you. And then just a second follow up, the FX rates are obviously extremely volatile. And everyone sort of has outsized attention to it right now. I was just curious if you guys have given or could give sort of a net or net EBITDA sensitivity to a 1% change in your basket of currencies across Canadian dollar and the Aussie dollar specifically, that would be helpful for us.

No, I appreciate the information. We haven't shared that publicly, but we can definitely consider how to provide that for you in the future. I would say that the majority of our EBITDA revenue and guests are primarily based in the U.S. We do have Whistler, which is our largest resort, and Australia has performed well, but it remains a relatively small part of the overall company. However, we can think about how to quantify that for you in the future.

Great, thanks guys.

It appears there are no further questions at this time. I'd like to turn the conference back to Kirsten Lynch for any additional or closing remarks.

Thank you, operator. This concludes our fiscal 2022 yearend 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. Goodbye.

This concludes today's call. Thank you for your participation. You may now disconnect.