Vail Resorts Inc (NYSE: MTN) Q3 2020 Earnings Call Transcript

Vail Resorts Inc (MTN) Q3 2020 earnings call dated Jun. 04, 2020

Corporate Participants:

Robert A. Katz — Chairman and Chief Executive Officer

Michael Z. Barkin — Executive Vice President and Chief Financial Officer

Analysts:

Felicia Hendrix — Barclays — Analyst

Shaun Kelly — Bank of America Merrill Lynch — Analyst

David Katz — Jeffries — Analyst

Patrick Scholes — SunTrust — Analyst

Chris Woronka — Deutsche Bank — Analyst

Alex Maroccia — Berenberg — Analyst

Ryan Sundby — William Blair — Analyst

Marc Torrente — Wells Fargo Securities — Analyst

Presentation:

Operator

Good day and welcome to the Vail Resorts Third Quarter Fiscal 2020 Earnings Conference Call. Today’s conference is being recorded.

At this time, I’d like to turn the conference over to Mr. Katz. Please go ahead, sir.

Robert A. Katz — Chairman and Chief Executive Officer

Thank you. Good afternoon, everyone. Welcome to our third quarter fiscal 2020 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 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, June 4, 2020, and we undertake no duty to update them as actual events unfold.

Today’s remarks also include certain non-GAAP financial measures. Reconciliations of these measures are provided in the tables included with our press release, which along with our quarterly report on Form 10-Q were filed this afternoon with the SEC and are also available on the Investor Relations section of our website at www.vailresorts.com.

So, with that said, let’s turn to our third quarter fiscal 2020 results. Our results for the quarter and for the full 2019-2020 North American Ski season were significantly impacted by COVID-19 and the resulting closure of our North American Mountain Resorts beginning March 15, 2020. A decision we made for the safety of our guests, employees and resort communities. In addition, even before the closure and during the first two weeks of March, we experienced a negative change in performance that we believe was due to the impact of COVID-19 on traveler behavior.

As of March 18, 2020, we anticipated that our operating results in March and April would be negatively impacted by $180 million to $200 million, compared to the resort reported EBITDA expectation we had on March 1, 2020. Relative to these expectations, our results were favorable by approximately $40 million, primarily driven by cost actions implemented in April 2020. In addition, resort reported EBITDA for the quarter was negatively impacted by the deferral of approximately $113 million of pass product revenue and related deferred costs to fiscal 2021. As a result of pass holder credits offered to 2019-2020 North American pass holders to encourage renewal for next season.

Looking ahead to our summer operations, we are planning to be operational for the North American Summer and Australian Ski season in late June or early July, which could vary by resort, and opening dates for each business are subject to new information and public health guidance with regard to COVID-19. We expect that our results in the fourth quarter of fiscal 2020 will be materially negatively impacted by the travel environment and we will see lower visitation to our resort properties. However, we are not able to fully assess that impact at this time, and will not be issuing guidance for the fourth quarter or fiscal year. We believe we have developed efficient operating plans to deliver a safe and enjoyable guest experience at our resorts this summer in North America and for the Australian Ski season, with the ability to adjust as consumer demand and local guidelines and practices shift.

Now I would like to turn the call over to Michael to further discuss our financial results, balance sheet and liquidity.

Michael Z. Barkin — Executive Vice President and Chief Financial Officer

Thanks, Rob and good afternoon, everyone. As Rob mentioned, our results for the quarter were significantly impacted by COVID-19, and the resulting closure of our North American Mountain Resorts. Resort reported EBITDA was $304.4 million for the third fiscal quarter of 2020, compared to resort reported EBITDA of $480.7 million for the same period in the prior year, primarily as a result of the negative impacts of COVID-19 offset by cost actions implemented.

Net income attributable to Vail Resorts was $152.5 million, or $3.74 per diluted share for the third quarter of fiscal 2020, compared to net income of $292.1 million or $7.12 per diluted share for the same period in the prior year. We expect to have sufficient liquidity to support our business as we continue to navigate the impacts of COVID-19 with total cash and revolver availability as of May 31, 2020 of approximately $1.1 billion, with $465 million of cash-on-hand, $419 million of US revolver availability under the Vail Holdings Credit Agreement, and $168 million of revolver availability under the Whistler Credit Agreement. As of April 30, 2020, our net debt was 3.6 times trailing 12 months total reported EBITDA.

In April and May, we implemented plans to support our liquidity, including completing an offering of $600 million of 6.25% unsecured notes due 2025, a portion of which was utilized to pay down the outstanding balance of our US revolver under the Vail Holdings Credit Agreement and it’s entirety. Additionally, we implemented plans to support our liquidity by reducing our capital plan for calendar year 2020 by approximately $80 million to $85 million, suspending cash dividends to shareholders for two quarters, which preserves an additional $142 million of liquidity, furloughing a significant number of our year round hourly and salaried employees in the US, and implementing six month salary reductions for all salaried employees in the US among other cost actions.

The company has also recognized approximately $9 million of labor cost offsets in the third fiscal quarter associated with the US CARES Act, Canada Emergency Wage Subsidy, and Australian Job Keeper legislation. Additionally, we entered into an amendment to the Vail Holdings Credit Agreement providing among other terms, that Vail Holdings will be exempt from complying with the agreements financial maintenance covenants for each of the fiscal quarters ending July 31, 2020 through January 31, 2022; unless Vail Holdings make a one-time irrevocable election to terminate such exemption period prior to such date. We expect to have sufficient liquidity following these actions to fund our operations for upto two years, even in the extent of extended resort shutdowns.

During the third fiscal quarter, the company paid a cash dividend of approximately $70.7 million or $1.76 per share of common stock. Additionally, we repurchased approximately $25 million of stock at an average price of $155.33 per share, which was completed by March 13, 2020. Subsequent to these events, we suspended our cash dividend for a minimum of two quarters.

I’ll now turn the call back over to Rob.

Robert A. Katz — Chairman and Chief Executive Officer

Thanks, Michael. As announced on April 27. 2020 to address the difficult decision to close our North American Mountain Resorts as a result of the unprecedented circumstances surrounding COVID-19, we have rolled out a comprehensive plan to address our path for those concerned, about the early closure this past season and provide improved coverage for the future.

We are providing credits to 2019-2020 North American pass holders to apply towards the purchase of a 2020-2021 pass product. Season pass holders will receive a minimum credit of 20% towards next season’s pass. For season pass holders who use their pass less than five days, they will be eligible for higher credits upto a maximum of 80% for season pass holders who did not use their season pass at all, for Epic day pass, Edge Card and other frequency based products with unused days remaining, we will be offering credits for each unused day upto a maximum of an 80% credit. The credits will be available for our pass holders who purchase 2020-2021 pass products by September 7, 2020.

As a result of the early closure this season and the meaningful credits we are offering to 2019-2020 North American pass holders, we will be delaying the recognition of approximately $121 million of our deferred pass revenue, as well as approximately $3 million of related deferred costs that would have been recognized in the remainder of fiscal 2020, and will now be recognized primarily in the second and third quarters of fiscal 2021. This shift in recognition timing will partially or fully offset the negative impact of the credits being offered to pass holders depending upon the final usage of such credits towards the purchase of 2020-2021 North American pass products.

We are redefining how we will protect season passes through the launch of Epic Coverage. Epic Coverage is free for all North American pass holders and completely replaces the need to purchase pass insurance. Epic Coverage provides refunds in the unlikely event of certain resort closures, including for COVID-19, giving pass holders a refund for any portion of the season that is lost. Additionally, Epic Coverage provides a refund for personal circumstances covered by our pass insurance for eligible injuries, job losses and many other personal events. Given the uncertainty surrounded COVID-19 and the broader economy, we feel it is important to give our pass holders the time they need to make decisions regarding next season.

And we have very intentionally delayed having any call to action around price increases, benefit reductions or credit expirations. While we have been the leader in moving pass purchases earlier and earlier in the cycle, the critical feature for us is that they are bought before the season really begins, and in this moment, with all that is going on in the world, we feel labor day is a much better time to have a conversation with our pass holders about next season. And we’ll continue to monitor things as we get to the fall and continue to be agile, if necessary.

As a result, we eliminated our traditional spring deadlines and are providing pass holders until September 7, 2020 to use their 2019-2020 credit, and to receive spring benefits, including buddy tickets. We are also extending the period for pass holders to lock in their purchase with only $49 down for the next few months. As a result of moving our first deadline to September, we will not be providing an update on the results of Season Pass sales until our fourth quarter earnings conference call in late September.

We plan to open Perisher, Falls Creek and Hotham in Australia for skiing and snowboarding on June 24, following approval by the New South Wales and Victoria governments. Given the current dynamics, we extended the final pass payment date for the Epic Australia pass, and plan to provide more information to our guests about the upcoming operations this season by June 15, as well as any new pass options that will address COVID-19 impacts on our season. Pass holders in Australia will then have the option to request a refund of all payments made towards their Epic Australia Pass and pass refund protection or move forward with a new pass product. Given the delay to openings and the uncertainty caused by the proximity of the Australian season to broader reopening plants for the Australian economy, we anticipate having greater clarity on operations and pass sales heading into the North American ski season this fall.

As we plan to reopen our operations in late June or early July, we remain focused on developing safe operating plans in consultation with industry and government leaders, which will include social distancing measures, enhanced cleaning protocols, and necessary changes to regularly offer programs and services. We believe we are uniquely positioned within the travel industry to deliver a safe, high quality guest experience. Our strong network of resorts provide unparalleled outdoor experiences that are located within drive to proximity of major population centers in the US, Canada and Australia. We believe that this will be a significant advantage this summer and next ski season with expectations at outdoor experiences and drive to leisure travel will be an early area of recovery relative to broader travel demand.

In addition, with the exception of Whistler Blackcomb, the vast majority of the guests to all of our resorts are domestic travelers. And while more international and focused, Whistler Blackcomb also has a very strong domestic guest base representing approximately 50% of it’s visits in fiscal 2019. In addition, our ability to leverage our guest data, targeted digital marketing efforts, and broad product offering, including the introduction of Epic Mountain Rewards, and its associated discounts on the full ski vacation experience, will position us well as travel recovers.

We continue to be confident on long-term prospects of our business model that is built on the loyalty of our guests, the strong lineup of season pass products that provide access to our irreplaceable network of world-class resorts, and the sophisticated marketing approach we use to communicate with and attract our guests. We will be focused on providing a safe and exceptional experience for our guests through our passionate employees and the investments we’ve made in our resorts and technology, supported by our strong capitalization and liquidity that positions us well to pursue our growth goals overtime.

I’m incredibly grateful for the commitment and loyalty of our teams, and would like to thank all of our employees, and particularly, our employees on furlough, for their continued passion and dedication during this time. We’re constantly evaluating the situation with the goal of getting our employees back to work as soon as feasible, as we look towards the North American Summer, the Australia ski season — the Australian ski season and beyond.

At this time, Michael and I would be happy to answer your questions. Operator, we are now ready for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We’ll take our first question today from Felicia Hendrix with Barclays.

Felicia Hendrix — Barclays — Analyst

Hi. Good afternoon. It’s good to hear the both of you. I was just wondering if you could walk us through what the post COVID-19 ski experience looks like? And are you seeing any demand at all for the next ski season? I know you said you would give more season pass color in the September call, but are there any data points you can share regarding season pass sales so far as well?

Robert A. Katz — Chairman and Chief Executive Officer

Yes, good to hear you too, Felicia. I think at this point, it would — I think we’re very much in a constantly moving environment in terms of exactly what the ski experience will look like. Right now, we’re focused in terms of ski experience in Australia, where I think at this point, there will certainly be a limitation on the total capacity of the resort, to ensure that we protect social distancing. But at the same time, we’re very confident that we can provide a terrific experience for people who come and our teams are working hard to kind of put all the details together and we’ll be sharing that over the next week to 10 days. And then that will give us, I think some very unique insight that we’ll be able to use as we plan the North American ski season next year. And so we are going to be closely monitoring every piece of our — the experience at our three resorts, and we intend, obviously to — of course, look to improve, right, each week of the ski season, every single part; obviously, this is news for all of us, but we do have the opportunity through over the next couple of months to continue to find ways to just improve, expand and protect, right, our guests in every single aspect of what we do.

And we really do believe that by the end of that, we’ll be in a terrific position for next year. But of course, some of that will remain based on — in terms of some of the particulars will remain based on whatever the local guidelines and local restrictions are at that time. I do feel though, as we said in our comments that the fact that the core part of our experience was an outdoor experience over a very wide piece of crown that allows people to really spread out, and then our focus will be on those pinch points, certainly inside of our restaurants and lift lines, and certainly as people enter the resort, our job will be to make sure that we can maintain social distancing while still giving people a great experience.

Felicia Hendrix — Barclays — Analyst

And any early data points you might have in terms of demand?

Robert A. Katz — Chairman and Chief Executive Officer

Yes, we really don’t. I think — I think we feel, I’d say very good about the fact that there is tremendous passion and enthusiasm, I think, although right, obviously, our pass sales are of course lower than last year, as you would expect even we don’t have a deadline, I think our takeaway from what we’re seeing is what we would expect, it’s another strength I think; not only of our company, but of the whole industry that there is an incredibly passionate committed base of skiers who see skiing and riding as a core part of what they do and every indication that we have so far would suggest that that’s going to continue, exactly to what level, that remains to be seen.

Felicia Hendrix — Barclays — Analyst

Thank you. And Michael, just — as you contemplate opening, have you been able to fully reevaluate your cost structure, though at that so — that as you open, are there opportunities to be leaner or to do away with certain practices or offerings that may not have been as profitable as you may have found in the past?

Michael Z. Barkin — Executive Vice President and Chief Financial Officer

Yes. I think we’ve gone through a comprehensive review, certainly on the cost actions that we took in reaction to the shutdown and, and certainly are trying to take a measured approach as we look to reopen — to ensure that we’re taking a balanced view, that’s really oriented to ensuring that we deliver that guest experience that Rob talked about while also sizing the operations appropriately, both for the distancing requirements as well as the potential demand scenarios.

Felicia Hendrix — Barclays — Analyst

Okay. Thanks very much.

Robert A. Katz — Chairman and Chief Executive Officer

Thanks Felicia.

Michael Z. Barkin — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Next, we’ll hear from Shaun Kelly with Bank of America.

Shaun Kelly — Bank of America Merrill Lynch — Analyst

Hi. Good afternoon, everyone. Hope you guys are safe and well. Just wanted to ask — dig in a little bit further on maybe the pass behavior, Rob. I know there is only so much we can — given exactly as you said that there is no real kind of deadline or call to action at the moment. But perhaps you could just maybe, tell us a little bit about either, what was the reaction you saw kind of before the trend you were seeing before you made some of the material updates? And then, did that — how materially did that change after you gave the credit program? And then, also any color on destination versus local behaviors would I think be really interesting or useful?

Robert A. Katz — Chairman and Chief Executive Officer

Yes. I think one of the challenges with that Shaun is that, so much of our business is done around the deadlines, and they are key part of our selling cycle. And so it really is tough to read anything into the information that we’re seeing today versus what we might have seen last year because of the absence at this point now with two different deadlines. But I think what I would say is that, given that we have not had deadlines, I think we’re pleased with the enthusiasm, pleased with the engagement. And — obviously, our message to pass holders at this point have been to give them more time because we think that the conversation about next season is best had when there is more information about next season. So, I’d say so far I think what we take away is positive but I think to read into any trends, either might be misleading at this point, so hard to comment on that.

Shaun Kelly — Bank of America Merrill Lynch — Analyst

And is there any material differences on the destination local piece, rather I mean is like or it all just a little bit too early to tell?

Robert A. Katz — Chairman and Chief Executive Officer

Again, I think it’s too early to tell. And again, I don’t — I think we’ve — when we do a huge percentage of our business on the deadlines, and so when you eliminate them, I — that’s one of the reasons why we’re not giving commentary is because — again, neither positive nor negative, we just don’t think we want to read anything into it. And — but again, I feel like again, certainly the — many of the indicators that are out there in a number of different forums, I think would suggest that there is tremendous passion and enthusiasm to get back on the mountain. Exactly how that will play out in the final numbers, again, we don’t know. But at this point, we feel good about the past and I would say, certainly — anecdotally, I think we’re getting very good response from many of our pass holders, not all, but many, many of our pass holders who I think certainly were disappointed in last season, and I think feel good about what we’re doing for next season, both in terms of the credits we’re giving, that we are providing credits up to 80%, that we’re giving everybody at 20% credit from a season pass holder perspective. The Epic Coverage addition, people feel — I think good about that, they feel like I mean they are being protected. And I think they feel good about the time. I think people understand that this is a tough moment. So again, I’d say what we hear from e-mails, what we see on social media and everything has been reassuring.

Shaun Kelly — Bank of America Merrill Lynch — Analyst

That’s helpful. I think you talked in the past, and then certainly, I think in recent quarters about little bit of kind of a trend line relative to — for Vail relative to broader — it’s called luxury travel. Just any indicators or anything you’re watching on just — maybe at broader travel behavior as you’re trying to gauge maybe your own summer program? And then, obviously heading into the fall that you think are particularly important, whether it’s — things going on on the airlift side or anything else? Again, appreciate that like — none of these decisions maybe being made last minute but just kind of what do you keep an eye on as you’re trying to gauge that capacity piece or that occupancy piece kind of — way out the next season?

Robert A. Katz — Chairman and Chief Executive Officer

Yes. We’re tracking very rigorously a number of travel consumer surveys, and we’re also obviously, listening to the input feedback we’re getting from other people in the travel sector. And — I think our takeaways which we have mentioned before but I think are worth reiterating is that, there is no doubt that right now, at least consumer sentiment seems to be — the shorter the distance, the better; so obviously, for our resorts, the fact that we’re near so many major urban markets I think is a big positive. No doubt domestic travel; air travel, I think is in a much better spot than international travel, which again, I think bodes well for most of our resorts; obviously, Whistler does have exposure there, as we mentioned.

And, I think another piece is that all of our resorts, for the most part are really located near major metropolitan airports as well. And we’re not really subject to some of the smaller efforts, we benefit them from them in certain locations, but in the end of the day, all of our resorts are largely conveniently located to these airports. And that’s where I think most of the capacity is going to remain, and so we feel like that gives us an advantage as well as we look into next year where we’re not necessarily dependent on the smaller local or regional airport.

Shaun Kelly — Bank of America Merrill Lynch — Analyst

Last question would be this, I mean, you alluded to this a moment ago, about working through some guidelines, especially in Australia around potential capacity restrictions. Obviously, this industry is not — right now, probably front and center for governments that are trying to figure this out across lots of different industries and lots of different businesses. But is your base case or is your expectation that there could be some capacity constraints into the next ski season? Obviously, you can plan around either way but just kind of curious how you’re thinking about it? And what that conversation might be like with local authorities?

Robert A. Katz — Chairman and Chief Executive Officer

Yes. I think the two places that we’re certainly well aware of potential capacity constraints; one is on loading lifts and gondolas, and to the extent that you’re maintaining social distancing between unrelated groups, that could limit the number of people that you could put on a chair, put on a gondola at any one time, and that’s certainly something that will likely be a part of the plan in Australia. Unclear whether that’ll still be necessary next winter season, but that’s one potential constraint. Another potential constraint is in food service, and the ability in terms of how many people we could have in food service, how — what our food and beverage operation will look like, that could shift as well, which I think will be the case down in Australia. And — again, hard to know whether that will still be the case next winter.

Interestingly, some of these are things that were actually implemented before we shut down our resorts and we were able to do that very quickly, obviously, probably a little bit on the clumsy side in terms of guest experience because we were so focused on the safety piece. But I think with more time, we feel like we could start to narrow these in and make sure that we could manage the capacity and the experience on all these fronts. Certainly there is impacts depending on the regulation of the restriction that could be across the board, but certainly those are the two things that I think are probably, top of mind for us right now. And I think that will be the question; even apart from capacity restrictions what will ultimate consumer travel demand be December through March of next year? And how will that marry up with any capacity constraint that we have?

Shaun Kelly — Bank of America Merrill Lynch — Analyst

Thank you very much.

Robert A. Katz — Chairman and Chief Executive Officer

Yes.

Operator

David Katz with Jeffries has our next question.

David Katz — Jeffries — Analyst

Hi. Good afternoon, everyone. In the — good to hear everyone’s voices, for sure. In the context that you all have historically been quite good at getting to the right answer and listening to the commentary. Last September 7 that our deadline, is that — how firm would you say that is? Or is that something we could get closer and start to reevaluate?

Robert A. Katz — Chairman and Chief Executive Officer

Yes. I think, right now I’d say it’s a firm deadline, and it’s a deadline that we are of course open to adjusting if that’s what’s required. I think if we’ve learned anything over the last number of months, it’s that dynamics on the ground shift, and we’re going to shift with that with the mindset of doing what’s right for our guests. And I think — and especially our pass holders in this case. And I think we are very focused on the long-term. And so, we’re going to — to the extent that we can inset earlier behavior, we are absolutely going to do that. And we think that’s the right thing for us, we think that provides great value to our guests. But if we — if deadlines have to shift, we’re going to do that too. And ultimately, this is about guest loyalty and making sure that we do what we can to protect it. And so, we’re going to look at every option. And that said, yes, at this point, given the trajectory that I think we are on, we feel like — as we get to Labor Day, probably we’ll be in a good spot to really ask our pass holders to make a decision.

David Katz — Jeffries — Analyst

And if I can just go back to Michael on one point, and apologies for the background noise, it’s not my dog but [Indecipherable] stuff. On the subject of cost base; what we were seeing across a lot of asset-based companies here is, opening with very limited demand site restrictions. But the ability to perhaps do so with much better profitability, and perhaps, even structure things that will endure. And, is that a reasonably expected outcome here?

Michael Z. Barkin — Executive Vice President and Chief Financial Officer

I can’t comment on profitability, obviously, as we’re still evaluating exactly how the planning for next year will take place. But what I would say is that I think we’ll continue — as I said earlier to Felicia’s question, continue to take the same rigorous approach that we’ve taken to our cost structure all the way through, and I think that — we’ve certainly demonstrated that over the years relative to our focus on margin and free cash flow overtime. But again, I think really important to Rob’s point that we will continue to take a very balanced long-term view to really focus on ensuring that we’re giving our guests the right experience. And if that involves investing beyond the demand to ensure that we give that experience, I think we’ll be assessing each of those decisions as we go into planning for next year, but certainly always with an eye towards cost discipline where we think it’s appropriate.

Robert A. Katz — Chairman and Chief Executive Officer

Yes, and maybe I’ll just tag on to that. I do think that may be important to just emphasize that, even we understand that there may be situations where we have less guests, and — but we’re still going to, of course, have the full mountain open with the full experience for them. And so, there will be areas where the volume piece obviously could potentially be reduced in terms of our expense load, but we are not going to pull back at all on what a guest would expect when they come to one of our resorts.

David Katz — Jeffries — Analyst

Thanks very much and good luck.

Robert A. Katz — Chairman and Chief Executive Officer

Yes. Sure. Thanks.

Operator

Our next question will come from Patrick Scholes with SunTrust.

Patrick Scholes — SunTrust — Analyst

Hi. Good afternoon, everyone. I know in a prior press release you had possibly indicated you might open up Breckenridge at the end of the season. I could see that a basin has reopened. I’m sure it’s not pretty financially impactful if you did or didn’t but it did seem to get a basically good positive press. I’m wondering what went into your decision to not open Breckenridge? Thank you.

Robert A. Katz — Chairman and Chief Executive Officer

Yes. I think — we felt — shared it in an e-mail that, yes, we knew there’d be tremendous enthusiasm, certainly to come back. I personally would love to have gotten back on skis. But we also knew — and our resorts are some of the most popular resorts, right, in North America. And so, we know that when we are going to reopen and let people come back, it’s got to be at a moment where both, our resort, our employees, and the local community, and obviously, at Breckenridge, we’re very intertwined there. We have to think that it’s the right thing all around, and I think we start like — it was just a little early to do that for us. And we’re — I think based on very supportive of them providing the experience that they did, and good to get some folks back on, obviously more limited than anybody would have wanted, of course. And I think, it will ultimately be kind of a shorter experience.

For any of our resorts, I don’t think any of us could have gone deep into June or July this year. So, for us, it’s really a safety thing. I think we just felt like given the unique nature of Breckenridge and the community and the dynamic, it was just right for us to not bring that piece on yet. And really focus all of our attention on providing a safe and really enjoyable experience for summer, which is to get going here in just a couple of weeks.

Patrick Scholes — SunTrust — Analyst

Okay. Thank you for the detail. That’s it.

Robert A. Katz — Chairman and Chief Executive Officer

Yes. Thank you.

Operator

Next, we’ll hear from Chris Woronka with Deutsche Bank.

Chris Woronka — Deutsche Bank — Analyst

Hey. Good afternoon, guys. I know you addressed a couple questions on the cost structure earlier, but just to maybe hit it one more time. If you guys think longer term, so way post-COVID which hopefully is really soon. But do you see any changes to the — what you take away from this situation and how you adjusted the cost model? And also, getting at the cost of labor, do you have a view on where that goes over the next two to three years, given more slack in the environment? I mean, is it crazy to think you would have higher margins, two, three years from now?

Robert A. Katz — Chairman and Chief Executive Officer

I think at this point we’re not — we have not made any longer term decisions on cost. And again, I think that we — I think to the extent that there is technology or other productivity opportunities to take, kind of back at the house, cost out of our business, I think we’ll always look to do that. We always were doing that before but in terms of anything that could negatively impact the guest experience, yes, we’re not — that’s not on the table. And I think in terms of labor, yes, I don’t think we’re looking at necessarily any reductions on labor rate. I think that the — certainly, the market may be easier in terms of hiring, I think the market may be easier in terms of housing in many of our local communities. And so, I think that’s a small positive in an otherwise very challenging negative environment.

And then — and I think that’s an opportunity for us, and I think we shared some of this a couple years ago, which is — to use this to make sure we stay out ahead of this trend going forward. And to ensure that, I think — probably, we will have an easier time fully staffing this year. And now is the time for us to get out ahead of that to make sure over the next three to five years, we don’t see staffing issues again. And so that’s something we’re very focused on. But in terms of cost or margin improvement on that font, no, I don’t think so. I think we’ll be looking on the revenue line for that piece.

Chris Woronka — Deutsche Bank — Analyst

Okay. Fair enough. And then, understand that you’ll give us more of an update late summer on the season pass. But is it possible — are there different scenarios where maybe there is a new kind of pass product that could come into the fold later in the season if you see certain things developing? Or do you kind of think that what’s out there is going to stick in it’s current form?

Robert A. Katz — Chairman and Chief Executive Officer

At this point, yes, we’re not expecting any changes. I think we’ve got a product that we think is — remains very compelling. And I think price, well, obviously we’ve got significant credits for people who bought last year. And we intend to reach out, obviously, not just to our own pass holders, but to new pass holders, again, of course. And we do think that — because we were drive to destination, domestic choice, I think for many people they know our resorts and they know the experience, I think that will go a long way in providing people comfort. I think they understand that we’re going to put safety first, no matter what, and I think that will also go a long way. And so we feel like the pass and the relationship we have there, I think will bode well for us. We’re not necessarily seeing anything that we have to change. Obviously, I say that and of course, in this environment, it’s the width — so many different changes happening so quickly, who knows, but at this point, again, we’re pretty comfortable with the direction that we’re going in with our pass program.

Chris Woronka — Deutsche Bank — Analyst

Okay. Very good. Thanks, guys.

Robert A. Katz — Chairman and Chief Executive Officer

Yes, thanks.

Operator

Alex Maroccia with Berenberg has our next question.

Alex Maroccia — Berenberg — Analyst

Hi. Good afternoon, guys. Given the data you have on your customers, can you provide any visibility into your average customer demographics as it pertains to current unemployment and declining wage trends you’re seeing in the states and abroad?

Robert A. Katz — Chairman and Chief Executive Officer

I don’t have that to share. In this moment, I think we’ve shared before, it can certainly get to you some of the demo statistics that we’ve provided on our guests. Obviously, there — where our guests are certainly impacted, in part, maybe due to unemployment. In other cases, many of our guests do come from major urban areas that have been impacted by COVID, and things like that. So, I think, that’s part of what we’re going to have to overcome, I think as we look to next year. But at the same time, we also hear very distinctly from these guests and from all the consumer research that people have a pent up desire to travel again. And I think that it’s just a matter of making sure that where they go is safe, that they feel comfortable, that they have trust in the location that they’re going, and the operator of whatever the experience is, and so that’s something we’re going to be relying on. But in terms of specifics on the unemployment side, I wouldn’t have that.

Alex Maroccia — Berenberg — Analyst

Okay, understood. And secondly, I’m sure the weakness this spring, and potentially this summer could be impacting some of the smaller resorts around yours, a bit more heavily, just due to the lower capitalization from the peers. Can you provide any information about financial distress in the industry currently? And how it could benefit your reputation in those markets and could potentially present some M&A or Epic partnership opportunities if the cash is there?

Robert A. Katz — Chairman and Chief Executive Officer

Yes. At this point, I think many — many of the players in the industry I think are going to weather this storm, and that’s what we want to see. And certainly in times of previous deep recessions or crisis, it’s not typically a time where you see a ton of M&A right away. And I think that would be true for us, and in part, I think right now we do feel like, a lot of our focus is going into — of course, all of our focus is going into our existing resorts, our existing properties, our existing employees. We think this is the moment that calls for that. I think as we get past COVID, as next winter season starts to ramp-up, as there is a bit of more consistent recovery, often historically, you see conversations start to happen at that point sometimes. And so, we’ll certainly be open to that at that point. But right now, I think there is a lot of focus just on making sure that we can provide just the best experience, in terms of both safety, and how enjoyable it is.

Alex Maroccia — Berenberg — Analyst

All right. Great. That’s helpful. Thank you.

Robert A. Katz — Chairman and Chief Executive Officer

Thanks.

Operator

Ryan Sundby with William Blair has our next question.

Ryan Sundby — William Blair — Analyst

Hi. Good afternoon. Hope everyone is doing well. Michael, maybe I’ll start with you. With the extended asset coverage and the opportunity through some passes that [Indecipherable] close next year. Does that put restrictions on what you can do with the cash directly to make refunds? And will they work similar to the past credits where this can be proportional based on maybe how many days this [Indecipherable]?

Michael Z. Barkin — Executive Vice President and Chief Financial Officer

Yes. I think I’ll take those in two, and I’ll probably turn over the Epic Coverage piece to Rob. But I think as it relates to liquidity piece, obviously any refunds would be relative to deposits made or purchases made. So our liquidity today, right, is largely ahead of past sales for the next year. So, obviously we would be collecting those payments over the fall, and then would have that cash. So, our liquidity position and the estimates that we made were kind of the runway would be exclusive of that. And I’m not sure I totally copy Epic Coverage piece, but rather if you did, you can just win.

Robert A. Katz — Chairman and Chief Executive Officer

Yes. I think, two things. One, I think we made a decision that obviously, we went through this past season, and we did — we — obviously, we were closed early. And we decided that we were still going to provide credits, even though the program didn’t really provide for that at all. But we were not going to provide refunds because there is really no way to do that. But for next season, we felt strongly that if there are these kind of closures again, that — yes, our guests deserved refunds. And that’s something that — as we look to, we didn’t have that program in place going backwards, but we are going to have it going forward. And yes, we will absolutely have liquidity, it’s not an issue for our company in terms of providing refund should that come up. And obviously, we’ve shared that even in the absence of any operations, right, we have a pretty long runway on the liquidity side, so we don’t see that as an issue.

In terms of providing the refunds, we have — we’ve outlined a couple of options for our pass holders, either to the extent that there is a closure from COVID or something like that, then there is really two options for our pass holders. One is that they can choose before the season, a particular week of the season, that they are kind of protecting. And this way, and if the resort is closed during that week, then they would get a full refund. And again, summarizing, there is a lot of details on this of course online. But — or they could choose the whole season, and then, if there was a closure, they would get a proportionate amount of the season that was closed.

And we did that because obviously there are two types of skiers, and I think that was one of the challenges looking backwards to this past year. Some skiers really do want to use the pass start to finish, other skiers are buying the pass just for a particular week of the season when they’re going to come out. And so, we designed this coverage to really be flexible, to be able to provide both of those guests really the peace of mind to know that they are not at risk, one way or the other, as they go into next season.

Ryan Sundby — William Blair — Analyst

Thanks. Helpful for the answer there. And then, I’m trying to get some [Indecipherable]. Once the season kind of starts to kick off, do you feel obligated to have the mountain open every day? Or do you have the flexibility to do from next week, open up one weekend go on the year if that’s the [Indecipherable]?

Robert A. Katz — Chairman and Chief Executive Officer

Yes. No, we would — we do feel the — that there — it’s incumbent upon us I think to keep our mountains open when we can open them, based on weather conditions, and obviously, restrictions from health or whatever, COVID type things. But apart from that, no, we do open our resorts, and we do open our terrain and we want people who come to get the full experience. And, we feel that it’s critical to do that for all of our guests, pass holders and otherwise, and that’s something we are going to do for next year. So we don’t see — if there is lower demand and I think if you look back to like the ’08-’09 recession, no, we did — we maintained full terrain, full resorts open even though we had lower demand. Now, it’s possible that with COVID, we could see even lower demand. But we think we can absolutely still be profitable, once we get into the season and that is both, the right decision for our guests and the right decision for the business.

Ryan Sundby — William Blair — Analyst

Thank you guys.

Robert A. Katz — Chairman and Chief Executive Officer

Thanks.

Operator

Our final question will come from Marc Torrente with Wells Fargo Securities.

Marc Torrente — Wells Fargo Securities — Analyst

Hey, good afternoon. Thank you for taking our questions. In terms of locking bookings, could you give a little more detail on how they were looking month-to-month, and if you have any entitled to the early fall?

Robert A. Katz — Chairman and Chief Executive Officer

Yes, I think — we don’t, we’re not giving any specifics on that. I think, we’re — I think, many of the trends that we’re seeing are probably similar in terms of our markets as in other markets and that cancellations have begun to, and again, I’m speaking broadly about cancellation subsiding people starting to book again. I think there is more confidence out there, but it is coming off of a very low base, so it’s important to remember that we went a long while there with no bookings, and with full cancellation. So I’d say at the moment our lodging properties are probably not that different than what you’re seeing in a lot of resort communities. I think it will be more telling obviously, as we get towards the end of the summer. But at this point, probably not a ton of insights from the trends, just given how low of a base we’re starting from.

Marc Torrente — Wells Fargo Securities — Analyst

Okay, great. And then, could you may be provide any other detail on your assumptions around the season pass credits? What’s the typical renewal rate? What’s the average credit look like? Anything else, right there would be helpful.

Robert A. Katz — Chairman and Chief Executive Officer

Yes. I’d say, we’re not providing those details. I’d say historically, we haven’t provided that level of granularity. And certainly in this moment, there is a fair amount of uncertainty and obviously, a fair amount of shift and change. But of course, we do feel that the credit program was designed to solve I think two opportunities for us. One was to make us feel better about last season, and two was as we said to incent renewal for next season and so the past is really designed to address both of those and the credit piece.

And a little bit unclear, where that’s going to go, but obviously, for us, somebody with an — who is getting an 80% credit, let’s say, on the one hand, you could see that as a cost, on the other hand, you could really see that as an opportunity to the extent that they were not going to renew for next year if they didn’t use their pass last year. So we really tried to factor both of those things in and be precise, and I would say that that is a — the way that that program was designed, I think was leveraging off of all of this work and time that we’ve had in terms of understanding and dealing with our guests on a more personal one-to-one basis. And the flexibility that we had in our system, the kind of robustness that we had to do the analysis to know that this was a good decision for us, not just for guest piece which I think it was, but also from a business perspective. So we feel good about it and I guess we’ll have more to share once we get deeper into the selling cycle.

Marc Torrente — Wells Fargo Securities — Analyst

Okay, great. Appreciate it, guys.

Robert A. Katz — Chairman and Chief Executive Officer

Yes. Thank you.

Operator

That will conclude today’s question-and-answer session. I’ll now turn the conference over to Mr. Katz for any additional or closing remarks.

Robert A. Katz — Chairman and Chief Executive Officer

Thank you, operator. This concludes our fiscal third quarter 2020 earnings call. Thanks to everyone who joined us on the conference call 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.

Operator

[Operator Closing Remarks]