Vail Resorts Inc (MTN) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vail Resorts fiscal 2011 third quarter results conference call. During today's presentation all parties will be in a listen-only mode, and following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Thursday, June 9, 2011. I would now like to turn the conference over to Rob Katz, CEO of Vail Resorts. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Welcome to the Vail Resorts fiscal 2011 third quarter earnings conference call and simultaneous Webcast, both open to the public and press at large. I'm Rob Katz, Chief Executive Officer of Vail Resorts.

Joining me on the call this morning is Jeff Jones, our Co-President and Chief Financial Officer. Before I turn to a discussion of our results, let me remind you that we are using the term reported EBITDA to report earnings for each of our operating segments, namely Mountain, Lodging and Resort, which is the combination of the Mountain and Lodging segments and Real Estate.

The Company defines reported EBITDA as a segment of that revenue of segment operating expense, plus or minus segment equity investment income or loss and for the Real Estate segment plus a gain on sale of real property.

The Company also uses the term net debt which is defined as long term debt plus long term debt due within one year, less cash and cash equivalents. Complete reconciliations of reported EBITDA and other non-GAAP financial measures can be found in this morning's earnings release and on the VailResorts.com website in the Investor Relations section.

I also need to mention that comments made during this conference call, other than statements of historical fact, are forward-looking statements that are made pursuant to the Safe Harbor Provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause actual results to differ materially from those contained in the forward-looking statements.

Investors are directed to the risks and uncertainties described in the documents filed by the Company with the Securities and Exchange Commission, including the Company's form 10-K for the fiscal year ended July 31, 2010, and form 10-Q for the third quarter of fiscal 2011 released this morning.

In addition, the Safe Harbor language in today's press release also applies to our comments on this call, while guidance and forward-looking statements made on this call are made as of the date hereof and we do not undertake any obligation to update any forecast or forward-looking statement except as may be required by law.

With that said let's turn to highlights of our third quarter earnings release. I am very pleased with our third quarter performance which reflects the success of many of our key strategies and initiatives. The investments we made at our resorts, our focus on driving lift revenue and ancillary spending, as well as shifting guests to advanced purchase products allowed us to report strong growth in Resort Reported EBITDA despite an economy that continues to be influx.

In total, Mountain net revenue in the third quarter of fiscal 2011 increased $49.2 million or 16.3%. And Mountain Reported EBITDA increased $23.1 million or 15.8%, which includes incremental revenue and expense of $31.1 million and $19.4 million, respectively, from Northstar-at-Tahoe, which was acquired at the start of the 2010/2011 ski season in October 2010.

As expected, the late Easter holiday, which fell on April 24 in the current year, had a negative impact on the quarter as we were not able to continue the momentum from spring break directly into the Eastern holiday period.

Despite that impact, our Mountain business performed well in the third quarter, building upon the results we saw in the second quarter and leading to an overall successful 2010/2011 ski season. Excluding the impact of Northstar-at-Tahoe, our resort saw a 7.3% increase in lift ticket revenue for the quarter driven by strong pricing growth, offsetting softer visitation due to the very late Easter holiday.

Our ancillary businesses showed continued growth in the third quarter. Excluding Northstar-at-Tahoe, ski school revenue increased 4.9%, lead by strong demand for private lessons, while dining revenue increased 6.9%, helped by the addition of two new dining facilities, the Tamarack Lodge at Heavenly and Ski Hill Grill at Breckenridge, as well as higher yield per skier visit. Retail rental, also excluding Northstar-at-Tahoe, was higher by 0.5% with growth curtailed by the late Easter holiday.

Our Lodging segment experienced improved levels of profitability in the third quarter. Revenue at our owned hotels and managed condominiums increased 13.2%, compared with the prior year, with revenue per available room up 4.4% and occupancy down 0.8 points due to the late Easter holiday.

Most importantly, Lodging Segment Reported EBITDA increased 58.2% on flow-through in excess of 50% in the third quarter driven by a careful focus on expense management.

We achieved several important milestones over the course of this past 2010/2011 ski season that are positive indicators for the future. First, the result at Vail Mountain clearly demonstrated our rationale for investing in our resorts as Vail grew its skier days by 9.2% to an all-time record of 1.75 million, an increase of 150,000 skier visits during the 2010/2011 ski season.

This performance comes on the heals of new, world-class, base villages in Lionshead and Vail Village and the addition of a new, high speed lift in the back bowls. Vail has once again set the standard for all mountain resorts and guests are clearly showing their approval.

Second, we gained share in all of our key markets as we continue to further differentiate the experience we provide at our resorts. For the 2010/2011 ski season, visits to our Colorado resorts were up 4%, compared with the gain of 1% for the rest of the Rocky Mountain region, which includes Colorado and Utah.

Visits to our Tahoe resorts, including Northstar-at-Tahoe in both periods, increased 3.9% in contrast to a 7.1% decline for the rest of the Pacific Southwest region, which includes California. Visits to all six of our resorts were up 4% for the season, adjusted as if we own Northstar-at-Tahoe in both periods, compared with 0.1% growth for the rest of the US ski industry.

Third, we successfully integrated a sixth mountain into our portfolio of world-class resorts and leveraged our successful season pass model. Northstar-at-Tahoe has been a great addition to our Company, achieving record visitation and profitability and helping to drive a 36% increase in our Tahoe season pass programs for the 2010/2011 season. This is a clear indicator of the power of adding new resorts to our network.

Northstar has exceeded our initial expectation in its first season under our ownership, and the high impact capital plan that is in place for next season will help to solidify that resorts leadership position in the Tahoe market. Fourth, we saw a nice recovery at Keystone due to a renewed focus on kids and family, with Keystone skier visits improving by 7.1% and once again exceeding the 1 million visitation mark.

Fifth, our ancillary revenue showed strong growth across all of our major areas, including ski school, dining, and retail rental, reflecting the impact of higher pricing as well as improved yield per skier visit, and a steady improvement in consumer spending.

Sixth, our new pricing initiatives achieved the goals outlined at the outset of the season. Not only have we continued to shift guests to purchase season passes, such as pass sales now represent 35% of our lift ticket revenue, but our dynamic pricing model fueled an 8.3% increase in ETP for the 2010/2011 ski season, excluding season passes and Northstar-at-Tahoe. In addition, we significantly grew our sales of lift tickets sold to guests in advance of their arrival.

Last and most important, we achieved our highest guest satisfaction scores ever, a testament to the amazing hard work, dedication and commitment of all of our employees. Over the past several years, most notably during the recent recession, our Company has demonstrated its ability to generate consistent strong free cash flow from our resort business, manage our balance sheet conservatively, smartly invest in our assets, grow the business through acquisition, and return capital to shareholders in the form of share repurchases.

Today, I'm very pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resort's common stock, the first ever common stock dividend in Vail Resort's history. The quarterly dividend of $0.15 per share of common stock payable on July 18, 2011, to shareholders of record July 1, 2011, represents the first payment of a planned annual dividend of $0.60 per share and equates to an annualized yield of approximately 1.4% based on the closing stock price on June 8, 2011.

This regular dividend demonstrates our confidence in our business, our financial prospects and long term strategy and a commitment to continue to return capital to shareholders. Now, I'll turn it over to Jeff who will go into greater detail on our financial performance and outlook.

Thanks, Rob. Good morning, everyone. Earlier this morning we released our earnings for our third quarter of fiscal 2011 ended April 30, 2011, and also filed our Form 10-Q for the quarter, which you can find available now at our VailResorts.com website.

Now, turning to our results. Our third quarter fiscal 2011 financial results reflected an improvement in Resort Reported EBITDA of $26.3 million or 17.3%. Resort revenue increased $54.2 million or 15.6%. Reported results include the October 2010 acquisition of Northstar-at-Tahoe.

As Rob mentioned, Mountain reported net revenue in the third quarter increased $49.2 million or 16.3% with Northstar contributing $31.1 million. Mountain segment operating expense increased $25.7 million or 16.4% in the quarter, which includes $19.4 million of expenses associated with Northstar-at-Tahoe.

Excluding Northstar-at-Tahoe, operating expense increased $6.3 million or 4.0%, which resulted in part from having 6% more operating days in the quarter, because of the late timing of Easter. Labor and labor related benefits also increased in the quarter due to the partial reinstatement of the prior year's wage reduction and our matching component of 401k plan and a more normal level of wage increases.

These increases were partially offset by a decrease in Workers' Compensation claims of $2.2 million due primarily to our concerted efforts and focus in this area, resulting in a substantial reduction in the number of claims.

Our retail margins improved as retail cost of sales decreased $1.6 million or 8.3%, excluding Northstar-at-Tahoe despite an increase in retail rental revenue, due in part to a lower level of markdowns and the leveraging of our strong buying power. In total our Mountain segment, excluding Northstar, experienced improved flow-through in the quarter.

As a reminder since Northstar has an operating lease related to its underlying land, its margin structure is lower than our other resorts, which dilutes the total Mountain Reported EBITDA margin; however Northstar's contribution after lease expense obviously benefits reported EBITDA in absolute dollars.

During the third quarter we had two charges to earnings which appeared as separate line items on our income statement. First, we had a $2.6 million write-down on a note receivable related to our managed lodging property, La Posada, as the lender has initiated a foreclosure process on the property against a third-party owners of the property. At this time, we still anticipate continuing to manage the property for the lender.

Second, we had a $6.6 million charge for the extinguishment of debt associated with the successful refinancing of our $390 million senior subordinated notes. As previously announced, we issued $390 million of 6.5% senior subordinated notes due in 2019, during the third quarter, using the proceeds to retire our $390 million, 6.75% notes that were due in 2014.

In addition to extending our maturity and lowering our interest rate, we obtained much greater flexibility in our covenants in a number of key areas, much as we did when we amended our credit facility in January and April of 2011. This flexibility will further accommodate our ability to grow strategically, as well as return capital to shareholders as we're doing with today's dividend announcement. Net income attributable to Vail Resorts Inc., excluding the charge for the extinguishment of debt, increased 11.2%.

Turning to our Real Estate business, Real Estate net revenue increased $10.1 million to $13.2 million due to four closings at the Ritz-Carlson and three closings at One Ski Hill Place during the third quarter. Since quarter end, we closed on one additional Ritz-Carlton residence for a total of 23 whole ownerships units sold to date and we have another three units under contract. The rate of sales at the Ritz-Carlton is encouraging when compared to other high end projects in the Vail area.

While Real Estate Reported EBITDA totaled a loss of $5.1 million in the quarter, net proceeds from sales since the beginning of fiscal 2011 equaled $159.1 million, including the closing of the current subsequent to quarter end.

For the nine-month period ended April 30, 2011, which captures our entire ski season, and excluding Northstar-at-Tahoe, our resorts saw a 7.7% increase in lift revenue driven by a 4.1% increase in visitation and a 3.5% increase in overall effective ticket price or ETP. ETP, excluding Northstar and season pass revenue, increased 8.3% reflecting our new pricing initiatives. Our ancillary businesses also performed well in the nine-month period with ski school dining and retail rental reporting respective gains, excluding Northstar, of 7.8%, 10.7%, and 7%.

Our balance sheet strengthened further in the quarter. We ended the third quarter of fiscal 2011 with net debt at 1.6 times trailing 12 months total reported EBITDA down from 2.5 times in the prior year third quarter and no borrowings under the revolver component of our senior credit facility.

Turning to our outlook for the remainder of fiscal 2011. Based on our strong results for the third quarter and the visibility we have to the fourth quarter, we believe that we are now on track to achieve the upper end of the Resort Reported EBITDA guidance range issued on December 7, 2010, which calls for Resort Reported EBITDA in a range of $211 million to $221 million, representing a 13% to 19% increase over fiscal 2010.

I'd like to remind everyone that the addition of Northstar will be contributing positively to overall annual Company EBITDA, will result in higher seasonal EBITDA losses during our first and upcoming fourth fiscal quarters.

Our Real Estate Reported EBITDA guidance remains at a range of negative $10 million to $0; however we now believe net income attributable to Vail Resorts Inc, will be at the lower end of our guidance range of $32 million to $42 million due to the impact on net income of the $4.6 million after-tax loss, including anticipated charges in the fourth quarter on extinguishment of debt associated with the successful refinancing of our senior subordinated bonds. Now, back to Rob.

Thanks, Jeff. Turning to spring sales of season passes for the 2011/2012 ski season, we are extremely pleased with the response to our newest pass products and spring promotional activity. Our total season pass sales through June 5, 2011, adjusted as if Northstar-at-Tahoe were owned in both periods, increased approximately 19% in units and approximately 27% in sales dollars compared with the prior-year period through June 6, 2010.

Historically our spring pass sales period represents roughly one-third of our total season passes sold over the entire program period. These results are a testament to the strong connection our guests have to our resorts, their enthusiasm for the benefits offered by our season passes and their willingness to commit well in advance of the next ski season.

At the same time it's important to note that we currently believe that a large portion of the increase this spring is due to our efforts to entice guests to purchase their pass even earlier in the year. Specifically, in 2010, we took over the historical pass program offered by Northstar-at-Tahoe; and following the acquisition of Northstar, we were able to significantly grow our Tahoe pass program.

For 2011, we believe we have shifted a material portion of those new passholders to purchase their passes in the spring rather than the fall. It is also important to remember that all of the 2011 spring pass sales will be recorded as revenue in fiscal 2012 over the course of the 2011/2012 ski season. With our winter operations and spring pass sales coming to a close, we now turn our attention to summer operations at all of our resorts and lodging properties.

In addition, we'll be busy on a number of high impact capital projects we have planned for next season, including a new fine dining restaurant adjacent to Mid Vail, a new high speed quad lift to replace the fixed-grip Rose Bowl chair at Beaver Creek, development of significant new functionality for our award-winning, epic mix application, which will be operational at all of our resorts next season, renovations at certain lodging properties, and a major initiative at Northstar that includes a new high speed lift serving expanded terrain and new ski runs adjacent to the existing back-side lift that will expand skiable terrain at the resort by 10%, a new on-mountain ski restaurant at the top of the Zephyr Express lift and enhancements to the base village in conjunction with the introduction of new tenants.

I want to take this time to thank all of our employees and guests for making the 2010/2011 ski season such a success. The passion and commitment to service of our employees at all levels and in all areas never ceases to amaze me. At this time, Jeff and I will be happy to answer your questions. Operator, we are ready for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from the line of Felicia Hendrix with Barclays Capital. Please, go ahead.

Good morning, guys. So a few questions for you. The first one is, can you guys just help us understand of your increase in skier visits both at the Colorado resorts and then at Northstar, what percentage was attributable to season pass sales?

In looking at that, I'd say that represented the bulk, certainly the largest portion of any increase was related to season pass increases across our six resorts. And I think a portion of that was due to greater usage of the pass, but a portion was also due to us converting folks from non-season pass lift tickets to season passes; and so both of those trends we think really resulted in the kind of skier visit mix that we saw.

Would you ever just break out the number of season pass visitors at all?

Great suggestion. Let us think about that.

Okay, have you thought about it?

Not yet. (laughter)

Okay. (laughter) And then just on the dividends, that was definitely a great announcement to see today, and I know you guys have been contemplating that for some time.

Just wondering, is this a level that you're comfortable with or is this just a starting point? Can we perhaps expect over time to see that increase?

Yes, I think that's something that we're going to be looking at quarter by quarter, year by year. We're very comfortable with the current level, and I think we're starting at this level to give us an opportunity for those considerations in the future.

Great. Great to hear. And then just in terms of the buyback program, I know that's still in place, and that's obviously a lever that you guys still have in front of you, but just curious, any thoughts as to why you didn't buy back stock in the quarter?

I think what we'll probably see is a bit of a shift, so the buyback program will certainly still be available and will be very opportunistic with the program, but I certainly think we will see a little bit of a shift away from the buyback program and towards the dividend policy, but again, we'll be looking at both and again using our judgment as to which one is the right way to go for each quarter and for each year.

And then just final question is, we've been impressed through pretty much the downturn and a little bit into the recovery that you've been able to garner higher spend per visitor from your non-lift ticket revenues. It's been impressive particularly in light of what seems to be a lot of concern regarding the consumer. Now I know that you guys are higher end and there really hasn't been as much concern on the higher end as the lower end.

But I was just wondering if you could discuss some of the initiatives that you've had to get that higher spend out of your guests. And then what kind of trajectory do you see going forward, is there going to be an issue of anniversarying it or should we expect that to continue to grow?

I think our ability to really get this both ancillary spend and increased pricing on tickets is a mix of things, but I think it certainly starts with driving a much higher level of guest experience, so I think particularly with our upper end guest, and the upper end consumer, when they feel like they're getting a tremendous experience, they're seeing that value, that allows you to sell more things to them and obviously price accordingly.

I'd also say that we've gotten more and more sophisticated by targeting folks with different products, different offerings, both on pricing on lift tickets and on our ancillary revenue. And we actually would anticipate that those trends were certainly not a one-time phenomenon, but would continue into the future.

Of course to what levels will certainly depend on the economy and kind of what we're seeing on overall macro trends, but we believe this is something that aligns really the strength that our Company brings with the opportunity we have with our guests.

Great. Thanks a lot.

Our next question comes from the line of David Katz with Jefferies & Company.

Good morning. Nice quarter. I wanted to just go back on your -- I know, Rob, you ran through some spending initiatives. But if you could just give us some detail about CapEx, and we do try and make a distinction between that which is maintenance or obligatory versus those that are actually return driving spending patterns. And so, as well, if you can sort of talk into the future a little bit about what we should be thinking you would spend going forward.

Sure, I think what we have included in our Q that we filed today, and we announced in large part in the last earnings call, is our maintenance capital is around $40 million a year plus or minus and then discretionary capital is on top of that. We're anticipating between $88 million and $98 million of discretionary capital for 2011, calendar year -- total capital is $88 million to $90 million. Of that, $40 million is included within that.

And so I'd say the projects that we see are, we really believe each of them will have a very significant impact on all of our resorts, and in particular, the number I just put out there didn't include Northstar, which is about $30 million.

Is on top of the $88 million to $98 million?

Yes, on top of the $88 million to $98 million. So $88 million to $98 million on our original, kind of, five resorts, $40 million of that of maintenance, plus $30 million of Northstar capital.

And is that $30 million going to be included, you said, within the calendar year; correct?

Yes, that's our anticipation. Obviously sometimes projects will bleed over into the next calendar year, but that is how we forecast by calendar year. And I think our belief is, we point to the results at Vail as an unbelievable testament to the ability to really transform the base area experience, transform the experience on the mountain, even when it starts at a high level, and to see consumers and guests really respond to those improvements, and I think it's like the answer that I gave Felicia about pricing and spending. With our consumer and our guests when we can deliver for them, we find ways to help drive our business.

Right, and I know Felicia touched on this as well, but if you could just talk about your thought process in terms of the size of the dividend and how you arrived at the order of magnitude of what to pay, I think that would be helpful.

Sure. I think that we looked at what we considered to be free cash flow from our Resort business and looked at the opportunities we have obviously to invest in the business, the opportunities that we believe we may have strategically and wanted to pick a number that we were very comfortable with would be a good starting point.

Our view is, we have a unique opportunity where we have both good growth opportunities, both organically and strategically, but also have the ability to really generate free cash flow, and so we felt like this was a good way to balance both of those objectives.

Got it. And has there ever been any thought given to -- one of the things I observe in your stock is that it can be volatile, it can be difficult for investors to buy and size. And have you contemplated the notion of splitting at any point or any kind of volume-enhancing initiatives?

Again, a good suggestion and I think we considered that and lots of different corporate finance, potential strategies. And when we think it's the right time to do something like that, we'll certainly share that with everyone.

Okay, appreciate it. Thanks.

Thank you. (Operator Instructions) Our next question comes from the line of Will Marks with JMP Securities.

Good morning, Rob. Good morning, Jeff. I wanted to ask you first about, it's a pleasant surprise in season pass sales particularly after the $20 rebate that you were giving. Were sales really bad before you gave the rebate? The numbers are really exceptional or did they pick up after the rebate? And I know you removed the rebate at Memorial Day. So in the weeks since then, have there been any sales?

Yes, I think we're not going to get into trying to slice and dice our results week by week and tying them specifically to specific promotions, because obviously, that's a competitive opportunity for us.

What I would say though is, I think you saw that during the ski season, you now saw it a little bit more during season pass sales, we are going to be more dynamic, more flexible, more opportunistic with our pricing. I think that the ski industry as a whole has generally not been as nimble as other parts of travel, and I think we're going to start to really push that envelope. And obviously, the strategies we pick, we watch them all and see which we think made sense.

Obviously we're very pleased with how the total spring pass sales went this year, so I think you'll again continue to see us be opportunistic and creative in how we approach the market.

Okay, thank you. Jeff, I think you may have mentioned a little bit of this because of due to having Northstar, but even the high end of your guidance would imply, I believe, that resort EBITDA loses $10 million more than it did last year, and I know some of that's probably because of Northstar, but what else specifically?

Yes, I think fourth quarter is certainly driven, it's an EBITDA loss quarter, so to the extent that any expenses are normally increasing, you're going to see an increase in that year-over-year in the fourth quarter, but I would say the significant portion is Northstar, because on top of it just seasonally, losing like all of our mountains would in that quarter, you have an operating lease that gets taken across the season or taken across the year and that definitely incrementalizes what that normally would be in the fourth quarter for Northstar.

So I think overall, given what we talked about with Northstar early in the year, as we said today, Northstar has exceeded our expectations and that expectation is through the whole fiscal year, so we feel that the numbers on Northstar overall are better than we had anticipated at the time of the acquisition and when we first talked about when we released our thoughts on Northstar earlier in the season.

At the same time, my comment was just to remind everyone that in the fourth quarter why we're guiding people to the top end of our Resort EBITDA range, but also qualifying that, what's embedded in that guidance, is the thoughts on what will happen in the fourth quarter, especially with regards to Northstar.

Okay, that makes sense. And then, as we look ahead to next year, the quantitative indicator we have would be the pass sales, at least a little bit. Can you give us some idea, just qualitatively, on some of the other things we should be thinking about both on the revenue expense side -- and I assume on revenues we've got a better Easter, weather did impact things, I'd say it sounds like, negatively, and in terms of access in some periods. And on the expense side, is there anything besides normal expense growth we should assume?

Sure. I think starting maybe with the expenses, I think obviously the price of energy is something that we'll certainly be focusing on, but I think apart from that, I don't see anything materially that would stand out in and of itself.

I think on the revenue side, certainly a lot of it always does come down to the economy. I think it's again the economy for upper end travel. I think one of the things I think we're seeing certainly this year and last year is that we have the ability to outperform some of the broader indexes because of the guest demographic that we're targeting. But I also think we do believe that a number of the capital projects that we're putting in place will obviously have real benefit for next year.

We do think we'll be able to carry the momentum we're seeing. And while as we mentioned in the release and I mentioned today on our call, certainly a big portion of our increase in the spring is moving folks from the fall to the spring, but that's a huge indicator for us for next year. The more folks that we can get to commit earlier, the more people are seeing and speaking with their wallets to say that they really like the new pass products and the new way that we're approaching them.

Those are all very positive signs we take for next year, and I do think as you mentioned Easter, obviously last year, we did very, very well during the spring break, Easter period. And this year, we were able to have a strong quarter even with a much-later Easter, so we certainly feel like we have some opportunity next year by bringing in that Easter holiday to a more normal time period.

And finally, yes, snow, what I'd say is, we've been beating the drum; that's overall, snow is not the driver of our results. And I think there's no question that we had weeks during the season where snow was a huge help. Other weeks where snow was a real problem. Again, we are driving our business based on again upper end vacation travel and the consumer and then our ability to really outperform in that area.

Okay, thank you very much.

Our next question comes from the line of Shaun Kelley with Bank of America-Merrill Lynch. Please, go ahead.

Good morning, guys. I just wanted to go back to the season pass comments and trends a little bit more. Obviously the numbers were exceptionally good. I think, Rob, in your prepared remarks that you mentioned that part of it had to do with the timing shift or pulling more of the pass sales from Tahoe. Could you give a sense of what the trends are just for maybe the Colorado pass sales so we can get a sense of a little bit more of what it was without that shift?

Yes, I think again, we're not going to start to break down a bit by bit, and also, we now have national aspects to all of our programs and international aspects to our programs, so it can get a little dicey to do that.

What I would say though, is that all of our product types are up. We saw good momentum across-the-board and again, very, very positive indicators. I think the tempering remarks that we're making around pass sales are because, obviously, trying to extrapolate a 27% increase that we saw in the spring into the fall we don't think would be appropriate, because we do feel like we're bringing folks forward.

But it's important to remember though that we had a very nice increase obviously in both absolute price increase, probably around 6%, even including the $20 promotion that we ran, and obviously about an 8% spread between units and revenue that came from improving mix as well.

Those are trends, and again, just the fact that people are basically willing to commit that much earlier than they were before, those are huge signs for us. I don't want to extrapolate these very strong sales numbers to the fall. But again when you look at positive indicators for next year, this is a big one.

That's really helpful. And then I guess a second one on that, you talked about the discounting a little bit, but just could you just give us a sense of, as you're moving through the strategy here -- I know you talked at the Analyst Day a lot about really trying to push pricing there. It seems like you learned a little bit as you were going through in terms of what was working for the customer and what wasn't.

So could you just give a sense more strategically about what you maybe learned and then how you're thinking about the price increases throughout the rest of the fall because usually, as you move into the fall, you do start taking some step-function increases there.

Sure. Again, our goal is really to drive overall revenue, right? And so how we -- and there's two pieces to that and that applies to both the season pass business and lift tickets, which is how we price each of our products and how the mix shifts. And so when you look at a spread between units and sales of 8%, that's very positive for us, obviously particularly in this economy.

And being able to move the mix is just as important to us as moving price in and of itself. And we monitor that very carefully and make adjustments. So along the way we do that pretty continually in our lift tickets, packages and promotions. And I think now you're seeing us testing that with season passes as well.

So again, we're not going to get into each of our pricing strategies. And certainly for the fall, we think the fact that we were able to get these kind of increases now certainly bodes well for the fall, but I think we'll let everybody know including our guests at the same time what our promotions and programs will be when we're ready to launch them.

That's great. And then I guess just one on the balance sheet. You talked a little bit about the repurchase versus the dividend decision, but could you give us a reminder of your thoughts on the right or appropriate target leverage for the business? What we continue to see out there is that debt actually continues to become cheaper. You guys have obviously locked in a very good long term structure with the bond deal.

So could you give us just your sense on where is the business, like were you comfortable learning the business now that you've had a chance to evaluate the dividend policy?

Yes, obviously we're comfortable with our current level. Obviously we have real opportunity with the remaining inventory and Real Estate held for sale that we have in inventory, so that's going to represent a real opportunity going forward. There's no question that we feel like the Company, given the strong cash flow generation, can certainly handle more debt than we have today and a higher net debt to EBITDA ratio.

But again, it's something that we're constantly assessing and also looking at what opportunities are in front of us both internally and externally. We balance all that and try and come up with the right mix that we want to use for corporate finance. There's no magic, black box or something. It's a constant judgment that our Board makes all the time.

That's great. Thanks, guys.

Thank you. (Operator Instructions) Our next question comes from the line of Tim Hamby with Janco Partners.

Good morning. Congrats on the great season. Just want to see what your thoughts are on the acquisition and/or partnerships market, both domestically and internationally. I think we're all happy about the dividend, but I wanted to see what your thoughts are on the markets for those right now.

Yes, I think on the Mountain Resort side, we think there are a number of very interesting and compelling opportunities both in North America and around the world, but they take time. And I think we've taken a very patient and disciplined approach to that and I think we'll continue to do that.

And we really only want to do the things that we think -- where we really can add value. And Northstar is a perfect example of waiting for the right opportunity, the right time, and then being able to leverage and really add value to that resort, which was already performing very well. It wasn't a turnaround. This was a resort that had just reported record results and we were really able to even do it even better, given some of the things that we can bring to the table.

What I would say is I think on some of our other business lines, on lodging, on retail, those are areas, media, those are areas where we believe there are interesting tuck-in opportunities, smaller opportunities. And we'll be constantly looking at those, and I would see that those kind of coming a little bit more frequently. We've already seen some of that in terms of new properties, new opportunities. And so we're going to be I think more aggressive on the timing on those just because of the nature of those businesses.

Great, thank you. That helps. And also as far as epic mix goes, do you have any updates or new marketing initiatives or anything you're working on with that?

Yes, I can't really go into much detail. That's something we'll probably be announcing probably in the week or two before Labor Day, like we did last year, but we have come up with, and are hard at work at, some pretty groundbreaking and significant enhancements to the user functionality and what epic mix represents for next year that we think is going to move the bar significantly in terms of our Company's ability to engage digitally with our guests.

Great. Thank you very much.

I'm showing no further questions in queue at this time. I'd like to turn the call back over to Management for closing remarks.

Thank you, Operator. This concludes our fiscal 2011 third quarter earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact Jeff or me directly should you have any further questions. Thank you for your time this morning and goodbye.

Ladies and gentlemen, this does conclude our conference call for today. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 and enter the access code 4442662. I'd like to thank you for your participation and you may now disconnect.