Rob Katz - Chairman, CEO Michael Barkin - CFO, EVP.

Felicia Hendrix - Barclays Shaun Kelley - Bank of America Smedes Rose - Evercore Joel Simkins - Credit Suisse Louis Taylor - Paulson.

Good day. And welcome to the Vail Resorts Management Fiscal 2014 Third Quarter Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Rob Katz, CEO. Please go ahead..

Thank you. Good afternoon everyone. Welcome to our fiscal third quarter 2014 earnings conference call. Joining me on the call this afternoon is Michael Barkin, our Chief Financial Officer.

Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially.

Forward-looking statements in the press release that we issued this afternoon along with our remarks today are made as of today June 5, 2014 and we undertake no duty to update them as actual events unfold. Today's remarks also include certain non-GAAP financial measurements.

A reconciliation of these measurements is provided in the tables included with our press release and in our quarterly report on 10-Q filed this afternoon with the Securities and Exchange Commission and is also available on the Investor Relations section of our Web site at www.vailresorts.com.

So with that said, let's turn to our third quarter fiscal 2014 results. We are very pleased with our performance in the third quarter of fiscal 2014. We finished the quarter with $241.1 million of resort reported EBITDA.

We had continued strong performance in Colorado and improved results in Tahoe, leading to 11.2% increase in total visitation this quarter compared to the prior year. Total lift revenue increased by 17.1% driven by our strong season pass program and increases in paid guests along with the benefit of price increases across our lift products.

Total mountain revenue increased by 14.6% compared to the prior year as a result of our ongoing success in driving spending for our ancillary services including ski school, food and beverage and retail and rental. Our mountain performance includes the results of Canyons, which were inline with our previously announced expectations.

Our results in Colorado were particularly encouraging compared to the prior year total visitation at our Colorado resort increased 5.6% with further growth in revenue and ancillary yields despite the unfavorable late timing of Easter in the current year.

In Tahoe, results improved modestly over the prior quarter due to late season storms that have brought back more local California visitors with total visitation for the third quarter down only 4.4% compared to the prior year. Throughout the ski season, our Tahoe resort consistently delivered some of the best conditions in their market.

Our lodging continues to have a great year. We drove 23.1% growth in total lodging net revenue and 14.5% growth in RevPAR compared to the prior year through both higher rates and higher occupancy. Further, we benefited from the addition of Canyons lodging properties to our portfolio this year.

The Tahoe region does not represent a material component of our lodging business and therefore the challenging conditions in the region did not have a significant impact on lodging results.

Regarding real estate, we closed on three Ritz-Carlton residence Vail units and five One Ski Hill Place units during the quarter generating net real estate cash flow of $11.3 million.

Additionally, we are continuing to see strong buyer interest at both our properties and closed on three Ritz-Carlton residence units and One Ski Hill Place unit subsequent to April 30, 2014. Turning now to spring season pass sales.

We are extremely pleased that our spring season pass sales through May 27, 2014 for the upcoming 2014/2015 ski season increased approximately 14% in units and approximately 20% in sales dollars as compared to the prior year period through May 28, 2013.

These strong season pass results followed record sales last spring and are driven by our successful marketing efforts, the compelling value of our products and our ability to drive the purchase decision earlier in the year. The results include very good momentum in Colorado which was partially offset by softer results in Tahoe.

Most importantly, we saw a very strong growth from our destination markets, which represented more than half of our total growth for the spring selling period and remains the largest area of untapped potential for our season pass program. We saw continued success increasing our passholder base around our urban ski areas in Minneapolis and Detroit.

These two metropolitan areas represent our fastest growing destination passholder markets. Our effort to drive spring pass sales continues to accelerate the timing when our guests purchase their passes for skiing and riding.

As always, it is important to note, that we do not believe that the growth rate from this spring will be maintained through the fall as our spring growth includes passholders who purchased last fall. However, we believe the earlier we can move our guest purchase decision in a year the more opportunity it provides for stable and consistent growth.

It is also important to remember all of the 2014 spring pass sales will be recorded as revenue in fiscal 2015 over the course of the 2014/2015 ski season. Regarding litigation in Park City.

On May 21st, the Third Judicial District Court in Summit County, Utah ruled in Talisker's favor on all matters relating to the expiration of the Park City Mountain Resort lease. Most important, the Judge ruled as a matter of law that the Park City Mountain Resort lease with Talisker expired as of April 30, 2011.

The court also rejected Park City Mountain Resort's claim that Talisker violated probation on sale and right of first refusal terms. A single claim will proceed to the trial with respect to non-disclosure, which is solely a damage claim which we expect in the worst case would not result in a material impact for the company.

Talisker will also be pursuing back rent. As a result of the ruling and subject to appeal, the ski terrain of Park City Mountain Resort previously subject to the expired lease can now become part of Vail Resorts master lease with Talisker. I'm pleased to announce another important decision related to our capital allocation strategy.

Today, we provided a notice of redemption for $175 million of our $390 million, 6.5% senior subordinated notes using a bailable cash on hand. This will reduce our annual cash borrowing cost by approximately $11.4 million before tax without an impact to our net debt.

Additionally, I'm also pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts common stock. The quarterly dividend will be $0.415 per share of common stock and will be payable on July 8, 2014 to shareholders of record on June 23, 2014.

Given our strong free cash flow and disciplined approach to reinvesting in our business, we will continue to pursue our long-term internal and external growth objective while returning significant capital to our stockholders. Now, I would like to turn the call over to Michael to further discuss our financial results and our outlook for fiscal 2014..

Thanks Rob, and good afternoon, everyone. Before discussing our updated guidance, I want to remind you that you can find a full discussion of our financial results for our third quarter of fiscal 2014 ended April 30, 2014, in our quarterly report on Form 10-Q, which we filed today with the Securities and Exchange Commission.

Our Form 10-Q and our earnings announcement can be found on our Web site at www.vailresorts.com. As Rob mentioned, we are pleased with our third quarter results, resort net revenue was $526.9 million for the third quarter up 15.6% from the prior year.

Mountain reported EBITDA for the quarter of $228 million increased $33.6 million or 17.3% compared to the same period in the prior year. This was driven by both increased lift revenue and increased ancillary spending. Total lift revenue for the quarter increased $36.8 million or 17.1% compared to the same period in the prior year.

Lift revenue excluding season pass revenue was the largest component of the increase in lift revenue increasing $20.9 million or 14.5% over the prior year period. This was driven by our Colorado resorts and incremental revenue from Canyons partially offset by lower revenues at our Tahoe resorts.

In addition, season pass revenue increased 22.3% for the quarter compared to the same period in the prior year. Ancillary revenue continue to perform well in the third quarter with ski school revenue increasing by $9 million or 16.8% and dining revenue increasing by $4.4 million or 11% compared to the same period in the prior year.

Retail rental revenue improved by $7.5 million or 11.2% driven by strong performance in our Colorado and Utah regions, and incremental revenue generated by Hoigaard's, the Midwest retailer that we acquired last year.

Third quarter lodging net revenue excluding payroll cost reimbursements increased $12.5 million or 24.6% and lodging reported EBITDA increased $4.7 million or 56.3% compared to the same period in the prior year.

These results were a reflection of strong occupancy and increases in rates in our core Colorado markets and the addition of Canyon star lodging portfolio. Overall, resort reported EBITDA was $241.1 million for the quarter an increase of 18.9% over the prior year.

Included in our third quarter results was $2.4 million of litigation and integration expenses related to Canyons. Real estate – our reported EBITDA for the third quarter of fiscal 2014 improved by $29 million to a loss of $2.3 million. Net real estate cash flows were $11.3 million for the third quarter of fiscal 2014.

As Rob mentioned subsequent to April 30th, we have closed on three Ritz-Carlton residences Vail units and 1 One Ski Hill Place unit. Finally, net income attributable to Vail Resorts Inc. increased 20.8% to $117.9 million and we reported earnings per share of $3.18 per diluted share in the third quarter of fiscal 2014.

Our balance sheet remains very strong. We ended the quarter with $307.4 million of cash on hand and no borrowings under the revolver component of our senior credit facility. And our net debt was 1.8x trailing 12 months total reported EBITDA. Now let's turn to our updated guidance for fiscal 2014.

We now estimate resort reported EBITDA for the full fiscal year 2014 to be between $267 million and $273 million, which includes approximately $10 million of litigation and integration expenses related to Canyons.

The increase in our guidance range is primarily due to the outstanding results we saw in Colorado in March and April that exceeded our expectations on both visitation and guest venue.

As a result of our strong real estate sales performance, we are revising our fiscal 2014 real estate reported EBITDA guidance, the negative $9 million to negative $7 million including approximately $2 million of non-cash stock-based compensation expense.

We now estimate that net real estate cash flow for fiscal 2014 will be between $27 million and $32 million.

In addition to the items discussed above, we also expect to report a loss on extinguishment of debt in the fourth quarter of fiscal 2014 of approximately $10.8 million, including a write-off of unamortized debt issuance cost related to the debt redemption that Rob mentioned earlier in the call.

We are now estimating net income of $26 million to $33.5 million. I will now turn the call back to Rob..

Thanks Michael. I want to take this time to thank all of our employees and guests for making the 2013/2014 ski season such a success. The passion and commitment to service of our employees at all levels and in all areas, it's truly a hallmark of our business and the integral part of our performance this past season.

At this time, we are happy to answer questions, operator, we are now ready for questions..

Thank you. (Operator Instructions) Our first question comes from Felicia Hendrix at Barclays. Please go ahead..

Hi. Thank you. First of all, I just want to congratulate you on the Park City litigation.

And I was wondering, if you could just update us to the status of the land dispute and if there's any sense that PCMR will appeal?.

Yes. Well, thanks Felicia. I guess what I say is, they have indicated that in public statements in the past that they would like to appeal. And I think if they do, there is a legal process that flows from that. And obviously, that will be a public process with update along the way.

I don't want to kind of comment on that one way or the other in terms of how it will play out, more of the different stuff that will have to be taken. Just because I think it's important that play out through the Court process just like the rest of the litigation have..

But can you just tell us what happens – if they do, what happens to the land under the Talisker lease while it's in appeal specifically?.

I guess, what I would say this is that, if they appeal the decision they may look to seek a stay of the ruling preventing anything from happening from that ruling, while the appeal being incurred that is a – that's something that the court's will have to assess in terms of whether to grant PCMR a stay.

And if they do under what terms it would be, and so that would likely play out over the next few months..

Okay. Thanks. And then just getting to the business and what you reported in the quarter, which was very strong -- better than what we are looking for. Your mountain EBITDA margins were higher than we have seen in a long time.

Just wondering, if you could talk about what drove that and if you think you can push margin further in future years?.

Yes. I think Felicia we are obviously very focused on margin and I think that in this quarter in particular obviously the outperformance in Colorado. The ability to leverage that cost structure when we do see significant growth in visitation really helps us on that front..

Okay.

So it was just that there wasn't any mix issues or anything else that you should be aware there?.

No. I think they are just generally the business model working..

Okay. Fantastic. Great. Thank you..

Our next question comes from Shaun Kelley of Bank of America. Please go ahead..

Hey, good afternoon guys. And I will echo my sentiments on PCMR litigation. So Rob, just to be very clear on the timing here.

Do you have any like idea or could you give us a little bit more color on exactly when you might hear on at least whether or not the Court is going to grant a stay here?.

No. I really, can't. That's something the Court will set the timetable for. Again, I'm guessing over the next couple of months. But, just as before that's not something that's within our control. And the process itself, what needs to be done by them and all those things, will just have to work their way through the legal system..

Okay. Understood.

And then, I guess secondarily on – with favorable outcome any change or thoughts about your – I guess your capital budget or kind of forward plans for Canyons as it sits right now given that you start to probably feel a little bit better about the opportunity to make some improvements there?.

We put out our capital plans for Canyons to next year. The two highlights of that plan being an increase in the snow making for Canyons and we are expanding the Cloud Dine facility.

And I would say that I think two of the key things that we have identified before the acquisition as important things to upgrade, we are both snow making at Canyons and food service and dining. And so I think that's being done, I think in terms of upgrading lifts, which should certainly be a priority as well.

I think that's something we are studying as we speak. And no question we will be impacted I think by the ultimate resolution of the PCMR litigation and the situation in general. For next year though, we are not – we are at a point – in the cycle where we wouldn't be adding any significant capital items this summer anyway.

So at this point I think – it's – we will obviously monitor very closely how things play out and then really the decisions really for next summer, if we have any to make..

Great.

And then you mentioned in your prepared remarks just switch gears that the – the urban ski resorts that you guys had acquired outperformed your expectation, can you just give us a little bit – I guess a little bit more color on what specifically was it pass sales that helped there, was it performance metrics at the core or how exactly did you measure that performance in – what was better than you expected?.

Visitation primarily was – I think was very, very strong and I said we attribute that to two pieces. One was – there was cold weather in the Midwest and so we were able to make snow.

Although we also got hurt by cold weather in the Midwest because we had a number of days where the temperatures are so cold that obviously we couldn't even run the resort. So it balanced itself out, but there is no question that we had a good snow making year.

But, I would say that's one piece and the other piece is, the capital investments that we made in the resorts, we think drove much higher awareness, we have gotten good PR.

And so just – I think our pass sales at the resorts were very strong as we talked about last year and obviously the spring, but when we talk about the resorts themselves outperforming that's really daily visitation. I would also say our F&B business was quite strong as well in both urban markets..

Great. I guess my last question would just be on – you mentioned that the – sorry– I totally lost my train of thought.

You did mention that you guys are looking at other opportunities or you guys have mentioned previously you are looking at other potential acquisition opportunities, can you just give us your thoughts on – what are the markets that might make sense on the urban strategy and specifically, do you think that the ski conditions this year might have given you a better chance to possibly pick up something that would be added into the portfolio?.

I would say nothing has changed on that front. If anything I think we feel that the performance of those properties both in terms of the pass sales and in terms of the – kind of daily performance at the ski areas themselves bolster our confidence in doing more.

With that said as we go we talked about this is really on the handful of potential locations. I'm not going to necessarily identify anything other than to say we need cold weather. We need to be near major urban centers and obviously, we do factor in when we assess the weather. There are major destination resorts in close proximity.

So we kind of triangulate all of that and we are also looking for what we consider the top locations. And even once we pick our market, the top locations in that market. I think it's – I get every other part of our acquisition effort which is patients. It takes time. And it's hard to really handicap it..

Very good. Thank you very much..

Thanks..

Our next question comes from Smedes Rose at Evercore. Please go ahead..

Hi. Thank you.

I was just wondering historically, when you look back and you had areas where there has been kind of a bad or low snow season, do you technically see a fall off in pass sales the following year for the season or is that it kind of maybe come back later or how does that usually kind of play out?.

I would say that in Colorado, we haven't necessarily seen a – the same kind of drop that we saw in Tahoe this year in the spring. Having said that, Tahoe has obviously had a couple of bad season, I think this season was particularly challenging. With that said, I think, yes, we do see the pass sales typically pick up over time.

Some of that may ultimately come down to how people are feeling about the upcoming ski season when you have November in particular and through the beginning of December when our pass sales conclude. So Tahoe may ultimately be about that. But, I think skiers understand that there is some randomness I think to the weather.

And a good season – there are even good parts of the season are hard to predict and forecast. And I think, those people who want to have skiing as part of their recreation know that our passes are the absolute best deals that they could possibly get. Our huge value compared to the daily lift tickets.

And we think that absolutely helps to drive people even when they feel that the pass season wasn't strong as they hoped.

I would say in Tahoe of that we did see as we noticed here that in our remarks that visitation picks up quite a bit relatively speaking towards the end of the season this year and that helps a quite bit because I think it allows a passholder from this season to feel like they got more value than they might have expected out of the pass given where things stood in January looks like.

So I would actually say although, we don't like to see any offsets to our growth. We actually feel pretty good about where we wound up for Tahoe this year given the season..

Okay.

And then I just was wondering on your partial pay down on your – of that 6.5% debt, was there a reason for that particular amount or is that something you would tend to continue to pay down, I'm not sure what the stipulations are around that debt, if any?.

Yes. I mean obviously, we – I don't think there is not a magic formula to that. I think it was an assessment that we made looking at our cash balances, looking at the upcoming year identifying how much we could pay down and obviously, the savings. And I think we looked at all of that and decided this is a good time to do this.

And still preserves we believe all of our flexibility whether that in terms of investments or if needed – need be certainly to raise new debt which seems certainly pretty available right now.

But, I think we are looking I would say a little bit, Smedes that, we don't want to carry a lot of cash on our balance sheet, earning very, very low interest rates right now. And I think that's probably the predominant driver of this..

Okay. All right. Thank you..

Thanks..

(Operator Instructions) Our next question comes from Joel Simkins with Credit Suisse. Please go ahead..

Yes. Hi, good afternoon guys. Obviously, you have answered a lot of questions so far here. But, it looks like you are getting some traction here obviously on the residential side continue kind of tick away at the inventory. I was at the NYU hotel conference earlier this week.

We heard a couple of words like fractional and condo hotels that we haven't heard in a while. I know we are probably quite a few years off from that. But, clearly the second home market is getting a bit better. Just wondering what you are thinking as it relates to some of the potential projects we have talked about in the past..

I think we are getting better. And I think we feel like the market is definitely strengthening and it's exactly what you are saying Joel, I think people are starting to talk about those things again. I think was some more critical for us though is the velocity of sales.

So generally speaking to start new residential real estate project, we believe you still need to see a greater uptick in the velocity of sales.

But, though the nibbling so to speak from third party folks who might be interested in opportunities as you just noted, I think it's definitely increasing and makes us comfortable that we're heading in the right direction. But, yes we're not there yet..

And one final question.

In terms of your forward commentary on the season pass, just curious what you're seeing from the Minneapolis, Detroit feeder markets now that those urban properties have been fully integrated and you didn't really capture that demand from those regions?.

No, I would say, I mean just like all of our destination markets, I think we feel our penetration in those markets is still very low. And we have a plenty of upside. So I would say, but I think what we're seeing with our pass program is that, there is no, it's not like you do one thing and all of a sudden the dam brakes and everybody buys.

But, this takes -- it takes year-after-year building awareness, building your consideration set and getting people to – it's just a size that this passes for them.

We think, there's no question that the awareness of our pass, we believe has gone up because of our own efforts, because of the introduction of our other products like the Mountain Collective and Intrawest Passport Program, which again, regardless of how many people buy there is or are there just more stories, more media about it.

And we think even our entry into Utah has created a lot of stories and discussion about our Epic Pass being behind the strategy, we think all of that helps.

And, I think we're very pleased both with the urban markets, but also just watching our destination markets really lead the way right now because much more so then for instance in Colorado, we have a long runway on penetration there..

Thanks a lot, guys..

Thanks..

Our next question comes from Louis Taylor at Paulson. Please go ahead..

Thanks. Rob, again congrats on another good season. Just going back to the Park City for a minute, can give us a little sense for what has to happen for you to actually take over operations of that mountain.

Could you just give us a rough roadmap of what needs to unfold?.

Well, I think what – I guess what I would say is that the transaction that we did with Talisker allows us to include the vast majority of the featuring at PCMR, Park City Mountain Resort in our lease with them, once the Judge rules that PCMR lease has ended which has happened, but then obviously enforces that ruling.

So obviously, if there are stays or things like that, obviously that would be a delay and obviously all that subject to any appeal that they have. So that is the – that allows us to then operate that terrain along with any and all of the fixtures that come with it.

And but there is no question, we've been very public that to operate the resort the right way, we need to use the existing access point and land at that base area is still owned by PCMR. And no matter what happens in this – with the outcome of this litigation.

So for the best ski experience and for the overall health and vitality of the Park City community, we need to be cooperative and we need to work together and obviously we'd put out a number of ideas and proposals about how that could be where very flexible in open to that.

We think there is, there can be a real win-win for everyone involved here, guests, the community, PCMR, everybody. And there is no question that ultimately it would require both parties to come up with a solution that they can agree to.

I think in the absence of that solution, then our company will certainly look to create the best possible ski experience, but we've acknowledged and then we've reemphasized that. We're really solely focused right now on maintaining the existing access point and working through cooperatively to come up with a positive solution for everybody..

Okay. And then just as a follow-up.

Are there any Court dates coming up that we should be aware off?.

So the next Court date that's been scheduled is on June 19th. And that is a hearing on our motion – Talisker's motion for summary judgment on their unlawful detainer action, which is about essentially enforcing the Judge's ruling.

There's been – so, again that will be a hearing whether the Court takes any action at that hearing or how long after that hearing there would be any action, obviously that's up to the Court, we don't know..

All right. Thank you..

Thank you..

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

Thank you, operator. This concludes our fiscal third quarter 2014 earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact myself or Michael directly should you have any further questions. Thank you for your time this afternoon and good bye..

That does conclude today's conference. We thank you for your participation..