Vail Resorts (MTN) Q2 2022 Earnings Call Transcript

Vail Resorts (MTN 1.21%)
Q2 2022 Earnings Call
Mar 14, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Vail Resorts second quarter earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Kirsten Lynch, chief executive officer.

Please go ahead, ma'am.

Kirsten Lynch -- Chief Executive Officer

Thank you. Good afternoon, everyone. Welcome to our fiscal 2022 second quarter earnings conference call. Joining me on the call this afternoon is Michael Barkin, our chief financial officer.

Before we begin, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings, and actual future results may vary materially. Looking -- forward-looking statements in our press release issued this afternoon, along with our remarks on this call, are made as of today, March 14, 2022, 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 the Form 10-Q were filed this afternoon with the SEC and are also available on the Investor Relations section of our website at www.vailresorts.com.

So with that said, let's turn to our fiscal 2022 second quarter results. We are pleased with our financial performance for the quarter. Visitation trends and demand for the experience at our resorts remains encouraging, particularly with destination guests, with results improving post holidays as conditions improved, more terrain was opened and the impact of the COVID-19 Omicron variant receded. As expected, results for the quarter significantly outperformed the results from the prior year due to the greater impact of COVID-19 and related limitations and restrictions on results in the prior-year period.

The 2021/2022 North American ski season got off to a slow start. The confluence of storm cycles, staffing challenges, and the spike in Omicron variant cases created challenges through the holiday period, impacting our resorts' ability to fully open terrain as planned and negatively impacting the guest experience during that time. Despite numerous measures taken ahead of the season, including an investment in wages, available staffing was below targeted levels heading into the holidays, consistent with challenges faced by the broader travel and leisure industry at that time. During the holidays, COVID-19 cases associated with the Omicron variant dramatically accelerated, impacting both travel plans and staffing exclusions despite having a vaccinated workforce.

At some resorts, more than 10% of our employees were unable to work due to COVID-19 at one time. To address these challenges, the company increased hourly compensation during the holidays and for the remainder of the ski season at a cost of $20 million in fiscal 2022. Following the holiday period, the experience across our resorts improved markedly with better snowfall, a stabilization and ultimately reduction in cases of COVID-19, and overall better staffing, allowing us to open terrain across our resorts that was close to normal levels for that time period. Throughout the quarter, we experienced relative strength in destination visitation and lift ticket sales, particularly at our Western U.S.

ski resorts, which exceeded our expectations in January in particular. Whistler Blackcomb was, as anticipated, disproportionately impacted by COVID-19-related travel restrictions, creating challenging results for U.S. destinations and international visitation to the resort. Excluding the Seven Springs Resorts, total visitation for the quarter increased 2% compared to the second fiscal quarter of 2020.

Relative to the second fiscal quarter of 2020, our ancillary lines of business experienced revenue declines, particularly in food and beverage, which was disproportionately impacted by numerous operational restrictions associated with COVID-19 and overall staffing challenges. Resort net revenue for the second fiscal quarter of 2022 decreased 2% relative to the comparable period in fiscal year 2020, primarily as a result of the headwinds in our ancillary lines of business and approximately $33 million of past revenue that would have been recognized in the second fiscal quarter of 2022, but was deferred to the third quarter as a result of delayed openings for a number of our resorts. Our lodging business experienced strong results during the quarter, with average daily rates exceeding our expectations, partially offset by lower-than-expected occupancy rates during the early season. Relative to the second fiscal quarter of 2020, resort reported EBITDA increased 5% despite the challenging early season conditions and COVID-19-related dynamics.

Resort reported EBITDA margin for the second quarter was 43.9%, an increase from 40.9% in the second quarter of fiscal 2020. Now I would like to turn the call over to Michael to further discuss our financial results, season-to-date metrics, and fiscal 2022 outlook.

Michael Barkin -- Chief Financial Officer

Thanks, Kirsten, and good afternoon, everyone. As Kirsten mentioned, we're pleased with our performance for the quarter, particularly given the slow start to the season. Net income attributable to Vail Resorts was $223.4 million or $5.47 per diluted share for the second quarter of fiscal 2022, compared to net income attributable to Vail Resorts of $147.8 million or $3.62 per diluted share in the prior year. Resort reported EBITDA was $397.9 million in the second fiscal quarter, which compares to resort reported EBITDA of $276.1 million in the same period in the prior year.

The increase was primarily due to the greater impact of COVID-19 and related limitations and restrictions on results in the prior year. Resort reported EBITDA for the second quarter of fiscal year 2020 was $378.3 million. Turning now to our season-to-date metrics for the period from the beginning of the ski season through Sunday, March 6, 2022, compared to each of the two prior-year periods through March 7, 2021, and March 8, 2020. Given the significant impacts of COVID-19 in the prior-year period, including significant capacity restrictions that limited skier visits and ancillary revenue, we're also providing metrics relative to the comparable fiscal year 2020 season-to-date period, which was prior to our announcement to close our resorts on March 15, 2020, for the remainder of the 2019/2020 season.

The reported ski season metrics are for our North American destination mountain resorts and regional ski areas and exclude the results of our recently acquired Seven Springs resorts and our Australian ski areas in all periods. The reported ski season metrics include growth for season pass revenue based on estimated fiscal year 2022 North American season pass revenue compared to both fiscal 2021 and fiscal 2020 North American season pass revenue. The data mentioned in this release is interim period data and is subject to fiscal quarter-end review and adjustments. We are pleased with the positive momentum we have seen throughout the post-Christmas period.

Season-to-date total skier visits were up 2.8% compared to the fiscal year 2020 season-to-date period. Season-to-date total lift ticket revenue, including an allocated portion of season pass revenue for each applicable period, was up 10.3% compared to the fiscal year 2020 season-to-date period. Compared to the fiscal year 2020 season-to-date period, season-to-date ski school revenue was down 8.9%, dining revenue was down 27% and retail rental for North American resort and ski area store locations was down 2.8%. Company performance has continued to improve throughout the post-Christmas period, with particular strength in destination visitation and lift ticket sales.

Despite significant growth of our pass program this year, visitation for the season-to-date period was modestly up 2.8% compared to fiscal 2020, given the company's strategy to shift lift ticket guests into an advance commitment pass product. Whistler Blackcomb was negatively impacted by COVID-19-related travel restrictions, creating challenging results for U.S. destination and international visitation to the resort. The ancillary lines of business continued to experience revenue declines, particularly in food and beverage, which is disproportionately impacted by numerous operational restrictions associated with staffing and COVID-19.

It is important to highlight that our season pass unit growth of 47% for fiscal year 2022 created significant revenue stability in a period with challenging early season conditions and COVID-19 impacts. The growth in pass units did not drive dramatic increases in visitation as the company is shifting lift ticket guests into advance commitment products. In fact, the growth we saw in visitation in the period ending March 6, 2022, compared to fiscal 2020 occurred on weekdays and non-holiday periods, which were up approximately 9% in visits compared to weekend and holiday periods, which were approximately flat in visits. We also saw peak daily visitation at our resorts during the period that were very consistent with prior -- with previous years.

For the season-to-date period ending March 6, 2022, 69% of our visits came from season pass holders, compared to 56% of visits for the same period in fiscal year 2020. We remain committed to our strategy to move lift ticket purchasers into advance commitment products, which offers benefits to our guests and stability to our employees, our communities and our company. Now turning to our outlook for fiscal 2022. Despite the challenging start to the season through the holidays, we have increased the midpoint of our Resort reported EBITDA guidance as compared to our original guidance provided in September, demonstrating the resilience of our business model and the benefits of our advance commitment strategy.

The update to guidance is primarily driven by the strong demand from destination guests at our Western U.S. resorts, particularly with regard to lift ticket sales, which we expect will continue through the remainder of the season, as well as the contribution from the Seven Springs resorts. Additionally, our lodging business is expected to significantly outperform our original expectations in the remainder of the year with strong results on both occupancy and ADR across our properties and the addition of the Seven Springs Resorts. The outperformance is partially offset by the challenging U.S.

destination and international visitation trends at Whistler Blackcomb, the $20 million investment in frontline staff bonuses, increased wages for our summer operations, and the inclusion of an estimated $6 million in acquisition and integration-related expenses specific to the Seven Springs resorts. We now expect net income attributable to Vail Resorts for fiscal 2022 to be between $304 million and $350 million, and resort reported EBITDA to be between $813 million and $837 million. We estimate resort EBITDA margin for fiscal 2022 to be approximately 32.9% using the midpoint of the guidance range. The updated outlook for fiscal year 2022 assumes normal conditions and operations across our resorts for the remainder of the ski season and no incremental travel or operating restrictions associated with COVID-19 that could negatively impact our results, including for our Australian resorts in the fourth quarter.

The guidance assumes an exchange rate of $0.79 between the Canadian dollar and U.S. dollar related to the operations of Whistler Blackcomb in Canada and an exchange rate of $0.72 between the Australian dollar and U.S. dollar related to the operations of Perisher, Falls Creek, and Hotham in Australia. Our liquidity position remains strong.

Our total cash and revolver availability as of January 31, 2022, was approximately $2 billion, with $1.4 billion of cash on hand, $417 million of U.S. revolver availability under the Vail Holdings credit agreement, and $214 million of revolver availability under the Whistler Credit Agreement. As of January 31, 2022, our net debt was 2.1 times trailing 12 months total reported EBITDA. We are pleased to announce that our board of directors has declared a quarterly cash dividend on Vail Resorts common stock of $1.91 per share.

The dividend will be payable on April 14, 2022, to shareholders of record as of March 30, 2022. We will continue to be disciplined stewards of our capital and remain committed to prioritizing investments in our guest and employee experience, high-return capacity expanding capital projects, strategic acquisition opportunities, and returning capital to our shareholders through our quarterly dividend and share repurchase programs. I'll now turn the call back over to Kirsten.

Kirsten Lynch -- Chief Executive Officer

Thank you, Michael. As we turn our attention to the 2022/2023 ski season and beyond, the company will be making its largest ever investment in both its employees and its resorts to ensure we continue to deliver our company mission of an experience of a lifetime. The experience of our employees and our guests is core to our business model, and the company intends to use its financial resources and stability it has created through its season pass program to continue to aggressively reinvest to deliver that experience. We believe our business model allows us to make these investments and achieve our short- and long-term financial growth objectives.

Our employees are the core of Vail Resorts' mission of creating an experience of a lifetime. We are pleased to announce a significant investment in our employees for the 2022/2023 North American ski season with an increase in the minimum hourly wage offered across all 37 of our North American resorts to USD 20 per hour for all U.S. employees and CAD 20 per hour for all Canadian employees, as well as an increase in wage rates for hourly employees, as we maintain all leadership and career stage differentials. Roles that have specific experiences or certification as prerequisites, such as entry-level patrol, commercial drivers, and maintenance technicians, will start at $21 per hour.

Tipped employees will be guaranteed a minimum of $20 per hour. The company will also be assessing targeted increases beyond inflation for our salaried employees. And we'll be making a significant investment in our human resources department to ensure the right level of employee support, development, and recruiting. Talent is our most important asset and our strategic priority at all levels of the company.

And we expect these investments will be an important step to enhance the experience for our employees through increased hiring, retention, and talent development. Our employee investments are intended to help us achieve normal staffing levels and, in turn, deliver an outstanding guest experience, which supports our advanced commitment strategy and, in turn, provides greater stability to our business model and the ability to drive long-term growth. The increase in wages and the return to normal staffing levels will represent an approximately $175 million increase in expected labor expense in fiscal 2023 compared to the fiscal 2022 expected labor expense, including inflationary adjustments. We remain dedicated to delivering an exceptional guest experience and will continue to prioritize investments to enhance the experience at our resorts.

We are committed to continually increasing capacity through lift, terrain, and food and beverage expansion projects and are making a significant one-time incremental investment this year to accelerate that strategy. As previously announced on September 23, 2021, we are excited to be proceeding with our ambitious capital investment plan for calendar year 2022 of approximately $315 million to $325 million across our resorts, excluding one-time investments related to integration activities, employee housing development projects and real estate-related projects. The plan includes approximately $180 million for the installation of 21 new or replacement lifts across 14 of our resorts and a transformational lift served terrain expansion at Keystone. In addition to the two brand-new lift configurations at Vail and Keystone, the replacement lift will collectively increase lift capacity at those lift locations by more than 45%.

All of the projects in the plan are subject to regulatory approvals and expected to be completed in time for the 2022/2023 North American winter season. The core capital plan is approximately $150 million, above our typical annual capital plan, based on inflation and previous additions for acquisitions and includes approximately $20 million of incremental spending to complete the one-time capital plans associated with the Peak Resorts and Triple Peak acquisitions and $3 million for the addition of annual capital expenditures associated with the Seven Springs Resorts. We continue to remain highly focused on developing and leveraging our data-driven approach to marketing and operating the business. Our planned investments include networkwide scalable technology that will enhance our analytics, e-commerce, and guest engagement tools to improve our ability to target our guests, personalize messages and improve conversion.

We will also be investing in broader self-service capabilities to improve guests' online experience and engagement. In addition, we have announced a $4 million capital investment plan in Vail Resorts Commitment to Zero initiative, which includes targeted investments in high-efficiency snowmaking, heating and cooling infrastructure, and lighting to further improve our energy efficiency and make meaningful progress toward our 2030 goal. We plan to spend approximately $9 million on integration activities related to the recent acquired Seven Springs Resorts, including one-time investments related to integration activities and $3 million associated with real estate-related projects. Our total capital plan is expected to be approximately $327 million to $337 million.

Including our calendar year 2022 capital plan, Vail Resorts will have invested over $2 billion in capital investments since launching the Epic Pass, increasing capacity, improving the guest experience, and creating an integrated resort network. Now I will turn it back over to Michael to discuss the impacts of fiscal 2022 trends and our employee investments on our business.

Michael Barkin -- Chief Financial Officer

Thanks, Kirsten. As we begin to plan for fiscal 2023, there are a number of dynamics related to COVID-19 and unusual weather that are negatively impacting fiscal 2022 and are important to highlight. Travel trends at Whistler Blackcomb, our Australian resorts, and our group business were all materially negatively impacted by COVID-19 in fiscal 2022. And early season results across our resorts this year were depressed with challenging snow falling conditions.

Returning to normalized levels would result in estimated incremental resort reported EBITDA of approximately $100 million in fiscal 2022. The Seven Springs Resorts did not have a full year of operating results and were impacted by acquisition and integration-related expenses. Full year results with no acquisition or integration-related expenses would result in estimated incremental resort reported EBITDA of approximately $7 million in fiscal 2022. Finally, our ancillary businesses were capacity-constrained in fiscal 2022 by staffing and, in the case of dining, by operational restrictions associated with COVID-19.

Returning our ancillary business to normalized levels would result in estimated incremental resort reported EBITDA of approximately $75 million in fiscal 2022, which includes the incremental revenue and operating expense associated with normal capacity, but excludes incremental labor expense. The normalized labor expense for the ancillary businesses is included in the approximate $175 million labor investment. All of these estimates assume normal conditions throughout our ski seasons, continued strength in consumer demand, consistent economic dynamics relative to what exists today, and no material ongoing impacts from COVID-19. Offsetting the estimated $182 million of expected favorable resort reported EBITDA impact from returning the business to normal levels relative to projected fiscal 2022 results is the approximate $175 million labor increase from fiscal 2022 to fiscal 2023 that is expected to be necessary to return the company to normal staffing levels, giving the shortages in fiscal 2022 and the current labor market dynamics in our resort communities.

These estimates do not take into account any fiscal 2023 projections for volume, price or expense growth, which will be evaluated and incorporated in our full year 2023 guidance that we plan to outline in September 2022. I'll pass it back to Kirsten now. 

Kirsten Lynch -- Chief Executive Officer

We are fully committed to delivering an experience of a lifetime to our employees and our guests. And I want to thank all of our employees for their tireless dedication to deliver a safe, exceptional experience this year, particularly in the face of this season's unique challenges through the holiday period. Our team is at the core of Vail Resorts' mission. I am deeply grateful for the commitment demonstrated day in and day out.

And I'm excited about the path ahead as we make these important investments in our team and the guest experience. At this time, Michael and I will be happy to answer your questions. Operator, we are now ready for questions. 

Questions & Answers:

Operator

Thank you. [Operator instructions] We'll take our first question from Shaun Kelley with Bank of America. Please go ahead.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Hi. Good afternoon, everyone. Thank you for all the detail. And obviously, it's good to see the investment in the employees and in the business.

Just wondering, Kirsten, if you can help us dig in a little deeper on maybe some of the restructuring or initiatives that you're taking here? Are we actually adding headcount into the resorts? What levels are you doing that? Is this like -- are there actually incremental people being added? Or is it really just the wage increases across the current staffing levels? Maybe give us a sense of like kind of magnitude of either employee increase or things that could give us a sense of how much we're going to be impacting the experience through these investments. That would be a great place to start.

Kirsten Lynch -- Chief Executive Officer

Hi, Shaun. Thanks for your question. I would think about this as a strategic investment in the guest experience. And the goal is to return to full staffing, which we did not have this year.

We are looking at making our resort talent our strategic priority and being a leader in comp, hiring, investing in their development and career opportunities. And so there are several different components of it. The first component is the $20 per hour minimum wage for all employees in all 37 North American resorts. And the goal there -- including compression adjustments for career stage and leadership differentials.

And the goal there is to strategically invest in our employees and get to full staffing as that is what's critical for us to achieve our mission. There is also a component of the investment that is an investment in HR, which is $4 million. And that investment is actually adding incremental talent into the central HR function almost 50% increase in the central HR services staff. And that is designed to be dedicated to the resorts in each region provide faster, more direct support in hiring, onboarding, payroll, case management, and a more personalized experience. 

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Great. And then as my follow-up, kind of thinking about the other side of the equation, which is, let's call it, visitation and your -- the volume side of what's going on. Here it seems like you're kind of sticking with the strategy of what has gone on in terms of just, I think, some of the statistics you called out in terms of visitation at the resorts. Can you just help us break that down a little bit? Because obviously, there's a very, very loud industry out there that is suggesting that the resort towns and communities are still struggling with some of the growth that has occurred as a result of COVID.

I think this expands beyond, let's call it, the reach of necessarily just Vail Resorts. But it seems like the patterns that you saw aren't as alarming to you as maybe what we're hearing in some of the resort towns. So how are you thinking of balancing that as we kind of look out to the next couple of years? 

Kirsten Lynch -- Chief Executive Officer

Yeah. We are confident and committed in our advance commitment strategy. And so I'll talk a little bit about what has been the visitation dynamics. So pass sales really has not translated into an outsized visitation growth.

As you can see, our visit season to date are up 2.8% versus fiscal year '20 and not creating capacity issues for us. I think it's important to remember that there's really only a handful of days at our resorts that are really at high capacity or max visitation days. And there's a whole lot of what I would call underutilized capacity at our resorts. So the pass strategy and the growth we saw, we are moving lift ticket guests into a pass, which obviously creates stability, we believe, creates long-term value because of guest lifetime value.

But once we make that shift and we move lift ticket guests into a pass, we see them spreading their visits. And we saw that evidence this year that our peak visits at our resorts were very consistent with previous years. But even more importantly, we saw visits spread to off-peak periods. And so when we look at the holiday and weekend visitation, it is essentially flat relative to season-to-date fiscal year '20.

The growth that we saw was on non-holidays and weekdays, Monday through Friday, and that was up 9%. And that is actually an outcome that we have wanted to achieve and we are very pleased to achieve. I think the narrative about passes directly translating into visits is missing the understanding that those are mostly existing guests moving from lift tickets on to a pass. It does not directly translate and never has over the history of our company with pass -- where a pass growth directly equals pass -- excuse me, visitation that our pass holders spread their visits across a lot of different resorts, all different time periods.

And there are other sort of limiters on peak days such as lodging capacity. So I understand what you're referencing about the narrative, but I would say that the outcome of the dynamics of visitation that we are seeing are very aligned with our strategy and our strategy moving forward.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Thank you very much. 

Operator

Thank you, and we'll now take our next question from Ben Chaiken with Credit Suisse.

Ben Chaiken -- Credit Suisse -- Analyst

Hey, how's it going? You called out $182 million of uplift next year as Whistler and early season trends normalize. Implicitly in that number, does that also assume international inbound to your domestic resorts come back? Unless I missed it, I don't think you specifically called that out. Or would that be incremental?

Michael Barkin -- Chief Financial Officer

Yeah, thanks, Ben. Yeah, I think the implicit in the Whistler return to normal is an assumption that international does return. And I think the good news is that border restrictions in Canada are continuing to loosen as Omicron recedes. And so that is built into that $100 million return to normal that includes Whistler.

Ben Chaiken -- Credit Suisse -- Analyst

OK. That's helpful. And then related, as you guys reflect on the season-to-date operating environment, what you're seeing from the consumer and then any decision that competitors have made, how does that inform your view, if at all, on pricing? And I ask that in the context of the major investments you're making, both on mountain and also on your employees.

Kirsten Lynch -- Chief Executive Officer

Yeah. Thank you. We have a long history of strategic management of price. And I would say that last year, obviously, we did a price reset on pass, and that was a discrete decision that we made based on guest lifetime value.

As we think about it going forward, the two things I'll say is that we still believe that we are strong and disciplined at strategic price management, and we have not heeded that lever in any way, shape or form. And any pricing decisions that we make going forward will take into consideration the current macro inflation dynamics.

Ben Chaiken -- Credit Suisse -- Analyst

Got it. Thank you very much. 

Operator

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

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Hey, great. Good afternoon, everyone. Thanks for taking our question. Wanted to start on the stronger-than-anticipated window ticket business.

Is that just a function of a highly resilient high-end consumer coming out of COVID-19? Is there anything to do with how you underwrote the implications from the 20% price cut? Just if you could unpack the drivers of that upside, that would be helpful.

Kirsten Lynch -- Chief Executive Officer

Yeah. We are -- we definitely saw lift ticket dynamics that were stronger than we expected, especially knowing that we have moved a lot of lift ticket buyers over into a pass. I don't think at this point in the season that we know exactly what the motivations or drivers were there, but it certainly indicates to us that there is strong demand for the experience at our resorts. And of course, with some of the guest experience challenges that we had in the early part of the season due to staffing, those are lift ticket purchasers or destination guests that are making those decisions even with full knowledge of some of the challenges that occurred over Christmas and making some short-term decisions.

So we're really encouraged to see that. The other encouraging part of it is actually that is, right, a prospect pool for season pass conversion next year, whether that is converting them into an Epic Day Pass or into a full season pass. So to see that strength in lift tickets is very encouraging to us in terms of the demand, but also the future for season passes. 

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Great. That's helpful. And then for my follow-up, on the $175 million investment back into your employees, I wanted to follow up on Shaun's question and maybe come at it from a different angle. So $175 million, you mentioned $4 million of centralized HR rules coming back online.

So we'll call it $170 million thereafter. Can you just help unpack how much of that is the $5 per hour hike, $15 up to $20? And then how much of that is more hours worked across your entire employee base? Just trying to get a sense for how much of it is maybe a return to "normalcy" and kind of hours worked across your resort base versus how much is the actual dollar hike itself. And then as a follow-up to that, just if you could just maybe walk through how you came to $20 as well, that would be helpful. Thanks. 

Michael Barkin -- Chief Financial Officer

Yeah. So I'll start with your first part, and then I'll have Kirsten take your second part. But we're not breaking out the specific components of it, as I'm sure you can understand. But as you know, our wage rates are going up substantially.

So that is a major driver that every hour rate will be at a higher wage rate. That being said -- so that's a substantial investment. Of course, part of that also includes, right, the labor dynamic in our resort communities, which is inflationary. And so we do feel like the wage rate increases are important to get us back to normal levels of staffing.

Of course, as Kirsten mentioned, we were not at normal levels of staffing. What we're providing you is a number between what we expect fiscal 2022 actuals to turn out to versus what we expect the incremental investment will be required to get to full staffing. And to do that, as we noted, right, both is really about getting more hours worked across our resorts. And certainly, that is true across the business.

And as we called out specifically in our ancillary businesses in particular, which were quite constrained this year, that would include the additional hours work to get to what we would consider normal levels of staffing and business across all of those pieces. So it is a combination of both of those, and it's -- yes, it's a very significant investment for us, right, both in the employee experience and in our ability to deliver the guest experience. So with that, I'll turn it back to Kirsten on the $20 specifically. 

Kirsten Lynch -- Chief Executive Officer

For $20 an hour, we looked at a lot of different factors to land in that spot. We looked at inflation. We looked at cost of living. We looked market by market because obviously, we operate in a lot of different markets and considered what was going on in the macro environment as it related to the workforce and labor.

I think as we reflect back on last year, we as a company were out front of the global labor shortage with a wage increase last summer to $15 an hour, but it was clearly not enough. And midway through the season, we effectively increased that with a $2 per hour bonus that would be paid out at the end of the season. So as we're looking at next year and all of those different factors, where we really decided is, well, one, we would have inflationary labor costs anyway; and two, where do we want to land beyond that to take a leadership position. We want to take a leadership position that seasonal frontline talent is a strategic priority for the company.

And so we're staking out this position at $20 an hour.

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Great. Very helpful. Thank you, both. 

Operator

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

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Good afternoon. Thank you very much for taking my question. I'm sorry to follow up on this $175 million incremental spend, Michael. But it looks like Mountain labor expenses may grow 25% for next year, year over year.

I know you're not guiding for 2023. But should we assume a margin reset for the Mountain segment going forward?

Michael Barkin -- Chief Financial Officer

Yeah. So as you noted, we are not providing any specific guidance for fiscal 2023. What we're trying to do is give you a bridge to kind of the impacts in fiscal 2022 of getting back to both normal business levels and normal staffing. I think what I can point you to is that within that $175 million, as we talked about, is both the wage rate and returning hours to normal levels to fully staff the business.

Part of doing that is the benefit of bringing our ancillary businesses back up to capacity. And so as I noted in the prior comments, we included, right, an adjustment for $75 million specifically related to the impact that we saw in ancillary businesses from staffing constraints and as well as in F&B from the operational impacts of COVID. But I think that, yes, specifically, that will obviously be a direct offset because we actually believe that we'll be able to generate more incremental revenue than we were able to in fiscal 2022 in our ancillary businesses when those businesses are fully staffed again. 

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

OK, very helpful. In terms of membership retention, I don't know if you have any updated thoughts with regards to just key learnings post the season in terms of the guest experience if you've surveyed any sampling of your new customer base or existing customer base in prior years. If there are any key takeaways that you think need to be addressed in terms of retaining that customer going forward for the next few seasons.

Kirsten Lynch -- Chief Executive Officer

Thanks. As we shared in the comments, we had some issues early season with the guest experience, driven by being -- primarily being short-staffed. And we believe post the holidays or post-Christmas that we have rectified that. We feel very good about the experience post-Christmas, and we feel very good about the experience now.

We do survey our guests about the experience and definitely see that reflected back from them that the experience has improved post-Christmas. As I think about retention, I think we have a compelling portfolio of amazing mountain resorts, a compelling value with our past products, a strong portfolio of past products at many different levels to bring people in. And we've seen strong lift ticket and destination demand for the experience at our resorts. I think the key issue to address, as you noted, is the investment in the guest experience and that our business model is really based on our commitment to reinvesting back into that experience to keep making it stronger and therefore attracting and retaining our guests.

And the investments that we're making are the two different investments. One, the capital investment of over $300 million into lifts and specifically addressing capacity at the resorts, as well as the terrain expansion. And then the other investment, which is in staffing because our business is very much tied to talent and our employees to deliver that incredible guest experience. And so when I think about are we addressing the lessons learned? Yes, and it's also the strength of our business model that enables us to actually reinvest and keep a sustainable long-term growth trajectory.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Very helpful. Thank you very much for all the color. 

Operator

Thank you. We'll take our next question from Chris Woronka with Deutsche Bank.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, good afternoon, everyone. Thanks for taking our questions. You obviously spent a lot of time talking about the investment in your employees and also in some of the hard capex. Where do you think capacity can -- how much do you think you can increase capacity, if you need to, over the next three to five years, whether it's with terrain expansion or further investments in employees? Like where are you as a percentage of your notional max on capacity?

Michael Barkin -- Chief Financial Officer

Yeah, Chris. Thanks for the question. I mean, as we announced in December, with the over $300 million capital plan, that's a larger-than-normal plan for us. And as Kirsten articulated, very excited about what that will do in terms of enhancing the capacity, right, across many of our resorts with a real focus on lift capacity, which of course is a key lever for us.

That and the employee investment, yes, we think, is really instrumental to the guest experience piece. As it relates to the overall capacity, I think Kirsten mentioned this earlier, but we actually have a lot of capacity, right, across our resorts. There is, as she mentioned, a certain number of days where, right, we have true kind of peak days, but those remain actually quite limited. And so the results that we shared in our comments in terms of the success that we've had in having the growth in advance commitment really result in what we're seeing this year in terms of a spread away from the holidays and weekends into the non-holiday periods and weekday periods, we think is actually a great utilization of the capacity.

We're also investing against operational initiatives, including using data, to increase capacity across our resorts. And so that's another way that we increase capacity. And then, of course, the hard capital piece, which we are committed to continuing to invest against our resorts. We have long-term plans around that and obviously accelerated some of that this year.

So we actually feel quite good about the capacity piece and our ability to serve an increasing number of guests. And of course, there's other constraints that actually play in, in some ways more than the capacity of our resorts like our lodging -- the lodging, right, availability at our resorts, and things like that. So we actually feel quite good about our ability to serve the business as we continue to grow. 

Chris Woronka -- Deutsche Bank -- Analyst

OK, very helpful. And then as a follow-up, I mean, you put through a nice dividend increase this quarter, and you've talked -- you've given us your capital plan, which is, like you said, above your historical average. But we think you're still going to have to generate a lot of cash and have cash on the balance sheet. Any thoughts toward share repurchase, given where the stock has been?

Michael Barkin -- Chief Financial Officer

Yeah. I mean, I think, as you noted, yeah, we feel very good about our balance sheet and our liquidity position. Very pleased that our board supported a significant increase in our dividend to $1.91, which, of course, was ahead of our pre-COVID levels. And with the success that we're having this year financially and in terms of the projections that we provided the cash flow, that we are going to generate the business that's just over two times net debt at this point.

So feeling quite good about that. I think we'll continue to really focus our capital allocation priorities where we have, right, in the past, which is reinvesting in the business, which of course we're taking a big step forward on today and both the operating side and capital side, continuing to pursue acquisitions that we think are -- we're going to do so on a targeted and selective basis, but certainly finding opportunities to continue to expand the network. And then yes, use the quarterly dividend, certainly, as our primary means of returning capital, but always looking at share repurchases as another vehicle. And we'll continue to assess that every quarter with the board and where market conditions set.

Chris Woronka -- Deutsche Bank -- Analyst

Very good. Thanks, Michael. 

Operator

Thank you. We'll take our next question from Patrick Scholes with Truist Securities.

Patrick Scholes -- Truist Securities -- Analyst

Hi. Good afternoon. Given the discounts that you've announced for Stevens Pass Resort for next year for customers who own the Epic Pass this year and have had a, should we say, a disappointing season. Are you considering that for giving a discount for Epic Pass holders this year who have used other resorts where there's been issues such as Park City or some of the New Hampshire resorts?

Kirsten Lynch -- Chief Executive Officer

Hi, Patrick. Thanks for the question. Pass sales have not launched for Vail Resorts yet, so we're not going to comment on any specifics related to the launch. I will say as it relates to Stevens Pass, I do feel really good about the actions that we have taken there.

It was a challenging early part of the season at Stevens Pass. We have a very strong GM in place there. We opened more terrain, extended the season, announced summer operational plans, and then the Stevens Pass credits that they can use on Stevens Pass, pass or spend at Stevens Pass. And I do feel good about the actions that we've taken.

Beyond Stevens Pass, I'm not going to comment on any other announcements related to our launch for next year. 

Patrick Scholes -- Truist Securities -- Analyst

OK. And then a somewhat related question. Just given just the tremendous amount of negative media, I'll be honest with you, I mean, I don't think I can recall a major company receiving this much negativity. Have you considered hiring a public relations firm to help out and really improve the image in the mind of the customer or maybe you have, if you could let us know.

Kirsten Lynch -- Chief Executive Officer

Yeah, thanks. I think, yes, obviously, the narrative has been quite challenging tied to short staffing and passes. What we really are focused on is what are the actions that we take as a company to give our guests and our pass holders' confidence. And that's the investment that we're making in the experience on the Mountain, which is the lifts and the train expansion, as well as the investments that we're making in our employees to get to full staffing.

As the core challenge that we experienced in the early season, yes, there were some low snow conditions initially. But we went into the season short-staffed and, then Christmas, which is our busiest, most critical time period is when the Omicron variant hit, and we had a lot of employee exclusions. So key for us is we are confident in our strategy and that we're making the investments to deliver a sustainable business model in the long term. 

Patrick Scholes -- Truist Securities -- Analyst

OK. Can I just ask one more question? With the stock trading at about the same levels as it was four or five years ago, have you seen any interest from private equity of late in your company? Can you give any color, if possible?

Michael Barkin -- Chief Financial Officer

As you would expect, we would not comment on anything around that.

Patrick Scholes -- Truist Securities -- Analyst

OK. Thank you. 

Operator

Thank you. We'll take our next question from David Katz with Jefferies.

David Katz -- Jefferies -- Analyst

Hi. Good evening, everyone. Thanks for working me in. I wanted to just touch on something else, which is the cost of energies.

And if you could just sort of talk about energy costs and the degree to which you contemplated that. I know it's only been a few weeks, and it's been somewhat of a spike, but whatever thoughts might be helpful.

Michael Barkin -- Chief Financial Officer

Sure. Yeah. I mean, we certainly operate across a wide network of resorts and certainly use energy in the form of fuel, electricity, otherwise. And so we're certainly keeping an eye on it.

It's not a major part of our cost structure. Obviously, to the extent that there's significant inflation in any part of our cost structure, we'll take that into account as we plan for next year. I would just note that this is where our investments and our Commitment to Zero efforts, and we're putting resources against that, including capital investments in our plan this year to actually make our resorts more energy efficient, whether that's through standard stuff in facilities with lighting and HVAC, also something we really focus on with snowmaking and other opportunities. So we're certainly doing our best to drive our own energy usage down, which of course drives energy costs down as well.

But again, as it relates to the broader economic environment around energy costs or other forms of inflation, that's certainly something that we'll be assessing as we head into FY '23, and of course, use kind of the best information we could currently available to inform our FY '22 updated guidance.

David Katz -- Jefferies -- Analyst

Understood. It's not a huge input anywhere near on the scale of what it sounds like labor is. I wanted to just follow up with a question on food. You've always been a, say, thought leader in terms of service.

Have you contemplated any alternative ways of selling, delivering food that might drive some efficiencies for you and some service delivery benefits?

Kirsten Lynch -- Chief Executive Officer

Thanks. We are always looking at innovation and ways to make the business stronger. I think as we think about next year, getting fully staffed, and our food and beverage outlets is absolutely critical to capturing the revenue and the growth for the company. And then, yes, as we look forward, I think we're always open, exploring and assessing what are innovative ways to make the guest experience better and also more efficient.

David Katz -- Jefferies -- Analyst

OK. Thank you very much.

Kirsten Lynch -- Chief Executive Officer

Thank you.

Operator

Thank you. We'll take our final question from Ryan Sundby with William Blair. 

Ryan Sundby -- William Blair -- Analyst

Yeah. Hey, Kristen. Hey, Michael. Maybe just to follow up on David's question there a little bit, it feels like we've seen pretty incredible on-site spending across a whole slew of entertainment options as the consumer comes back from COVID here.

It's a little harder to tease that out of your business, just given some of the staffing and labor issues and restrictions. So I guess, just as my question, do you have some maybe like-for-like ancillary businesses or dining locations where you've been able to get back to more staffing in more normalized staffing levels? And if so, are you seeing that kind of pickup in spend as well?

Michael Barkin -- Chief Financial Officer

Yeah. I mean, I think there are really two issues going on with our dining operations this season. One was clearly, right, the staffing environment, which was challenging. Probably more so was the operational restrictions, which you saw our dining numbers are kind of disproportionately impacted relative to ski school and rental largely because of that, which is that we had instituted a vaccination mandate, as well as the reservation system.

And so as a result of that, our -- we actually explicitly reduced the capacity of our dining operations to accommodate those restrictions. And so that was true across all of our major dining operations. And so no, we don't have a real like-for-like. That being said, of course, we have significant history operating these facilities and so -- in operations.

And so we certainly feel like we have a good sense for when those restrictions are lifted, assuming that the COVID environment has dramatically improved for next season. That was how we came up with -- between that and full staffing the estimates that we included in the outlook section of the release. 

Ryan Sundby -- William Blair -- Analyst

Got it. So that outlook does assume some pickup in guest spending per capita? Or is it more in line with historical levels?

Michael Barkin -- Chief Financial Officer

I wouldn't say that -- we're not making necessarily any specific views on guest spending outside of saying that in the absence of COVID restrictions and with the return of full staffing, these are levels of spending that we would expect. So what I -- the overall business, yes, will generate substantially more revenue, which of course is how we got to that $75 million -- as part of that, the $75 million across our ancillary businesses that we would expect to return. And of course, that in total is more spending. I'm not going to comment on specific assumptions as to per guest spending.

Ryan Sundby -- William Blair -- Analyst

Got it. No, that makes sense. Thank you. 

Operator

Thank you. And that does conclude today's question-and-answer session. I'd like to turn the conference back over to management for any additional or closing remarks.

Kirsten Lynch -- Chief Executive Officer

Thank you, operator. This concludes our fiscal 2022 second quarter earnings call. Thanks to everyone who joined us today. Please feel free to contact me or Michael directly should you have any further questions.

Thank you for your time this afternoon.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Kirsten Lynch -- Chief Executive Officer

Michael Barkin -- Chief Financial Officer

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Ben Chaiken -- Credit Suisse -- Analyst

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Patrick Scholes -- Truist Securities -- Analyst

David Katz -- Jefferies -- Analyst

Ryan Sundby -- William Blair -- Analyst

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