Vail Resorts Inc (MTN) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Vail Resorts Second Quarter Fiscal 2019 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to today's speakers, Mr. Katz and Mr. Barkin. Please go ahead.

Thank you. Good morning, everyone. Welcome to our second quarter fiscal 2019 earnings conference call. Joining me on the call this morning 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 that 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 morning, along with our remarks on this call, are made as of today, March 8, 2019 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 morning 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 second quarter fiscal 2019 results. We are pleased with our overall results for the quarter with strong growth in visitation and spending compared to the prior year. In the pre-holiday period, destination guest visitation at our U.S. resorts was less than expected which we attribute to guest concerns after 2 prior years of poor pre-holiday conditions. Our destination guest visitation was largely in line with expectations during the key holiday weeks and through the remainder of January. Throughout the quarter, with the favorable conditions at our U.S. resorts, we saw strong visitation growth among our local guests who are primarily past purchasers.

Our Colorado and Utah resorts experienced strong visitation during the holidays and through the remainder of the quarter that aligned with our expectations. Whistler Blackcomb and Tahoe resorts saw periods of strong visitation in the holiday and post-holiday periods but have also been impacted by numerous weather events that have negatively impacted their results. In addition, international visitation at Whistler Blackcomb was below the prior year throughout the quarter.

Our Northeast resorts were off to a great start to the season as we continue to benefit from good conditions and the first season with Okemo and Mount Sunapee as part of the network. Conditions across the network are set up well for the remainder of the season.

Including results from Triple Peaks and Stevens Pass in the second quarter of fiscal 2019, total lift revenue increased 17.2%, driven by a 27% growth in skier visitation. Total effective ticket price decreased 7.8% in the second quarter compared to the prior year, primarily due to higher skier visitation by season pass holders and the impact of the new Military Epic Pass partially offset by price increases in both our lift ticket and season pass products. Excluding season pass holders, effective ticket price increased 8.3% compared to the prior year.

The strong rebound in visitation and spending compared to the prior year along with the addition of Triple Peaks and Stevens Pass drove a 15.1% increase in ski school revenue and a 21.3% increase in dining revenue and an 11.3% increase in retail and rental revenue compared to the prior year.

Now I would like to turn the call over to Michael to further discuss our financial results, our season-to-date metrics and our updated outlook.

Thanks, Rob, and good morning, everyone. As Rob mentioned, we are pleased with our second quarter performance with strong growth in visitation and spending compared to the prior year. Resort net revenue was $849.3 million, an increase of 15.6% compared to the prior year. Resort Reported EBITDA was $358 million, an increase of 15.9% compared to the prior year. Mountain revenue was $776.1 million, up 15.7% from the prior year while Mountain reported EBITDA was $352.2 million for the second quarter, up 15.4% from the prior year.

Our Lodging results for the second fiscal quarter were positive with revenue excluding payroll cost reimbursements increasing 16.1% compared to prior year primarily due to the incremental operations of Triple Peaks. The average daily rate decreased compared to the prior year primarily as a result of the inclusion of the Triple Peaks resorts as well as incremental managed Tahoe lodging properties that we did not manage in the prior year, all of which generate a lower average daily rate as compared to our broader Lodging segment.

Net income attributable to Vail Resorts was $206.3 million or $5.02 per diluted share for the second quarter of fiscal 2019 compared to net income of $235.7 million or $5.67 per diluted share for the same period in the prior year.

Fiscal 2018 second quarter net income included a one-time provisional net tax benefit of approximately $64.6 million or $1.55 per diluted share related to U.S. tax reform legislation. Additionally, fiscal 2019 second quarter net income included the after-tax effect of acquisition and integration-related expenses of $2.2 million and approximately $1 million of headwind from currency translation primarily related to operations at Whistler Blackcomb, which the company calculated by applying current period foreign exchange rates to the prior period results.

Our balance sheet remains very strong. We ended the second quarter with $158.6 million of cash on hand and our net debt was 1.9x trailing 12 months total reported EBITDA.

Turning now to our season-to-date metrics for the period from the beginning of the ski season through Sunday, March 3, 2019, and for the prior year period through Sunday, March 4, 2018. The reported ski season metrics are for our North American Mountain resorts and the metrics exclude results from Perisher and our urban ski areas in both periods. The reported ski season metrics include growth for season pass revenue based on estimated fiscal 2019 North American season pass sales compared to fiscal 2018 North American season pass sales. And the metrics are adjusted as if Stevens Pass and Triple Peaks LLC were owned in both periods and adjusted to eliminate the impact of foreign currency by applying current period exchange rates to the prior period for Whistler Blackcomb's results. This is interim period data and is subject to fiscal quarter end review and adjustments.

As expected, our season-to-date growth rates came down from our reported metrics in January given that last year's conditions improved in the post-holiday period for our Colorado resorts. Total lift revenue at the company's North American Mountain resorts including an allocated portion of season pass revenue for each applicable period was up 9.6% compared to the prior year season-to-date period. Our ski school revenue increased 7.4%, dining revenue increased 7.9% and resort retail and rental revenue increased 7.3%, all compared to the prior year season-to-date period. Total skier visits were up 7.9% compared to the prior year season-to-date period.

As noted in our January press release, we are lowering our guidance for fiscal 2019 primarily due to the disappointing results from destination visitation in the pre-holiday period and also due to shortfalls from expectations at Whistler Blackcomb and our Tahoe resorts. Our Tahoe resorts were the most impacted from numerous intense weather events which impacted travel to the resorts and prevented the mountains from being fully open or open at all on certain days. Whistler Blackcomb was also adversely impacted by weather events in addition to a decline in international visitation which resulted in lower growth after 3 years of significant revenue increases at Whistler Blackcomb.

We now expect Resort Reported EBITDA for fiscal 2019 to be between $690 million and $710 million, which remains generally consistent with our expectations in January. Our guidance is predicated on current Canadian and Australian foreign exchange rates of $0.75 and $0.71, respectively, for each currency to the U.S. dollar for the remainder of the fiscal year, which represents an estimated $4 million reduction in Resort Reported EBITDA from the currency rates included in the guidance we issued in September 2018, of which nearly half has been realized year-to-date. The updated guidance incorporates $12 million of acquisition and integration expenses, including $2 million for the recently announced Falls Creek and Hotham resorts transaction. The guidance does not incorporate any expected operating results or stamp duty payments for Falls Creek and Hotham, which we plan to update following the closing of the transaction. Our guidance assumes normal conditions at our resorts and a stable economic environment for the remainder of the fiscal year.

We were very pleased to announce in February that we entered into an agreement to acquire the ski resorts at Falls Creek Alpine Resort and Hotham Alpine Resort in Victoria, Australia from Living and Leisure Australia Group, a subsidiary of Merlin Entertainments, for a purchase price of approximately AUD 174 million, subject to certain adjustments at closing, including an increase or reduction in the price for operating losses or gains incurred for the period from December 29, 2018 through closing. The company also expects to pay a stamp duty which we estimate will be approximately AUD 4 million associated with the closing of the transaction.

Falls Creek and Hotham are expected to generate combined incremental Resort Reported EBITDA of approximately AUD 18 million or approximately USD 13 million during their first 12 months of operations following the acquisition excluding any integration expense. After the closing of the transaction, annual ongoing capital expenditures are expected to increase by approximately AUD 4 million to AUD 5 million or approximately USD 3 million to USD 4 million to support the addition of these 2 resorts. Specific to this transaction, we anticipate fiscal 2019 acquisition-related expenses of approximately USD 2 million. The transaction is subject to certain regulatory approvals and we anticipate that the closing will occur prior to the commencement of the Australian ski season in June 2019.

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

Thanks, Michael. We remain confident in the strong cash flow generation and stability of our business model and we'll continue to be disciplined stewards of our capital, remaining committed to strategic, high return capital projects, continuous investment in our people, strategic acquisition opportunities and returning capital to our shareholders through our quarterly dividend and share repurchase programs.

We are pleased to announce that the Board of Directors has approved a 20% increase to our quarterly dividend and declared a quarterly cash dividend on Vail Resorts common stock of $1.76 per share payable on April 11, 2019 to shareholders of record on March 27, 2019. The approval of this increase in dividend provides our shareholders with an overall growth in dividends averaging 30% per year over the last 3 years. Additionally, during the second quarter, we repurchased approximately 155,000 shares of our common stock at an average price of $225.64 for a total of approximately $35 million.

Moving to our calendar year 2019 capital plan. We remain committed to reinvesting in our resorts, creating an experience of a lifetime for our guests and generating strong returns for our shareholders. The company expects to invest approximately $139 million to $143 million, excluding one-time items associated with integrations, the one-time Triple Peaks and Stevens Pass transformation plan, summer capital, real estate related capital and reimbursable investments.

As previously announced, the calendar year 2019 capital plan includes a significant investment in our snowmaking systems in Colorado that will transform the early-season terrain experience at Vail, Keystone and Beaver Creek. We will also be investing at a new permanent Tombstone BBQ restaurant at Park City, a full renovation of the Beaver Creek children ski school facilities and improvements to the Peak 8 base area at Breckenridge. But we are planning to make a one-time investment to transform the guest experience at the base of Peak 8 with new ski school and childcare facilities as well as an improved ticket and retail and rental experience.

We remain highly focused on investments that will substantially improve the guest experience across our resorts, including a new mobile lift ticket express fulfillment technology capacity that will eliminate the ticket window for guests who purchase their tickets in advance. We will be completing the final stage of our point-of-sale modernization project and investing in technology to automate our data-driven marketing efforts. We also plan to make significant one-time investments across the recently acquired resorts of Crested Butte, Okemo, Mount Sunapee and Stevens Pass which will include replacing and upgrading the Daisy and Brooks lifts at Stevens Pass and the Teocalli Lift at Crested Butte as well as on-mountain restaurant upgrades at Okemo.

We now expect to spend $14 million in calendar 2019 of the 2-year plan of $35 million at the acquired resorts. We also plan to spend approximately $7 million on integration activities across the recently acquired resorts excluding any spending for Falls Creek and Hotham.

Including investments related to integration and acquisition, summer capital, real estate related projects and approximately $13 million of reimbursable investments associated with insurance recoveries and tenant improvements, our total capital plan will be approximately $180 million to $185 million.

Turning now to our season pass sales. Earlier this week, we launched pass sales for the 2019/2020 season. 11 years ago, the Epic Pass transformed the ski industry by offering guests unlimited skiing at the best resorts in the world for a previously unheard of low price, making skiing and riding more accessible and affordable. The 2019/2020 season pass lineup takes another transformational leap by offering season pass level discounts to all guests with the introduction of Epic for Everyone. As part of this introduction, the company is now offering the new Epic Day Pass, a customizable pass for skiers and riders who may not need the unlimited skiing offered by traditional season passes. Guests can create their own pass by selecting the number of days they plan to ski or ride from 1 day to 7 days and whether or not to add holiday access. The Epic Day Pass with a starting price of just $106 allows guests to receive a discount of nearly 50% off lift ticket window prices by purchasing in advance of the ski season, providing all of our guests with the value, flexibility and convenience that come with being a pass holder. The season pass program has grown to comprise 47% of fiscal 2018 lift revenue. However, despite our success in converting guests to a pass, there's still a meaningful portion of our guest base that currently purchases daily lift tickets with an average frequency estimated at 2.3 annual skier visits per lift ticket purchaser. Epic for Everyone provides all of our guests with the opportunity to participate in season pass discounts and provides first-time and occasional skiers greater access to our resorts, giving us the opportunity to expand the sport and grow the entire industry.

This past year, we launched the new Military Epic Pass which delivered nearly 100,000 new passholders to our program, representing an incredible opportunity for our company to make our resorts more accessible to those who have served their countries in the Armed Forces as well as their families. For the 2019/2020 season, we will continue offering the Military Epic Pass at a compelling price of $129. The company is also introducing a new season pass, the Keystone Plus Pass, providing unlimited access to Keystone with holiday restrictions, unlimited skiing at Breckenridge after April 1, and 5 days at Crested Butte with holiday restrictions at a starting price of $369 for adults and $259 for kids. With Keystone's plan to be the first resort opened in the U.S. and Breckenridge planning to stay open until Memorial Day, the 2 Summit County resorts will offer one of the longest ski seasons in the country. Also new for the 2019/2020 season is that guests who purchased a season pass before our spring selling deadline will receive 10 discounted Buddy Tickets, up from 6 the year before. We are also pleased to begin our new pass partnerships with Sun Valley and Snow Basin as well as Rusutsu in Hokkaido, Japan.

In closing, I want to take a moment to thank all of our Vail Resorts employees for their passion and tireless dedication to deliver an experience of a lifetime to our guests.

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

(Operator Instructions) We'll take our first question from Felicia Hendrix with Barclays.

Rob or Michael, this is for either one of you. I was wondering if you could just talk a little bit more going back to the weather challenges you saw in Tahoe and the tough comps regarding international visitation at Whistler. I'm just wondering a few things with each of those items. The first, how much did each of these items affect your EBITDA guidance and what impact do they have on your season-to-date data that you reported? Also wondering if you could give us some data just on how many days you lost in Tahoe? And then at Whistler, wondering if the drop in international visitation was mostly coming from Latin America? You've seen strength there over the past several years for a variety of different reasons, or are you seeing also weak demand from Europe?

Yes, what I would say is I think -- I'm not sure we can provide more detail on the closure date. Though obviously, I think the weather and the open/close status of our resorts is out there. I do think it is one of the things that comes along with having great snow, which obviously all of our resorts do, is that the timing of those storms and when they hit can significantly impact business. If it happens on a weekend or a peak period and it's challenging to make up those days. It's not like 2 days later, you necessarily make it up because those guests often have left. And we do see a pretty big impact from that. So I'd say that was a headwind countering the tailwind from the obviously great snow and great conditions. And we have factored, obviously, that into our guidance in terms of what we've already experienced and factored some of that into the rest of the season, though I think that -- certainly our hope is that as we go through the rest of the season, we see a little bit of a moderation of that and I think that can really benefit the spring. I think on international, it was, I would say most of the challenges we saw on the international business at Whistler Blackcomb is a little bit on the lower price business that the resort had historically done. I think both our own pricing strategies and even more important than that, just the cost of lodging in the Whistler Blackcomb market has come up quite a bit over the last couple of years. And in part, I think seeing a little bit of that slowdown may be happened a little bit quicker than we might've expected. But it was certainly something that we thought over the long haul, made sense, given that the resort had grown so significantly over the prior 3 years. We think it's critical to protect the experience at Whistler Blackcomb for the long-term and also continue to make room, I think, for what's going to be a growing business out of China and Southeast Asia. So I see Whistler a little bit in a transition moment and I think actually very well-positioned for the future. But certainly, I think a little bit of, again, a headwind on the international side this year. I'd say fairly broad-based but less, I'd say, Latin America than the other countries.

Okay. And again, just in terms of the EBITDA guidance that you've provided today, you won't quantify kind of how much Tahoe and Whistler combined were headwinds?

Well, yes, I mean, I guess what I'd say is that the change in guidance from the beginning of the year, I think certainly, the biggest part of that was still going to be the early season as we, I think, have disclosed before. But no, we're not providing specific guidance at this time as to exactly how much the weather impacted it. It's also -- it is a -- obviously, the -- if you looked at our results, what, I think -- for any of our resorts, let's say a resort like Heavenly, you'd see some pretty high variation up and down in terms of our expectation. But the downs during those snowfall periods have been pretty significant. So anyway, we'll take that and think about maybe there's a better way for us to kind of share or talk about this potentially at the investor conference next week.

Okay. And then just to clarify. So on the Epic Day Pass, we've just gotten a bunch of questions on that and there's kind of 2 questions. So some of the questions we got about the trade-off you're making in terms of revenues by transitioning people on to the Day Pass versus buying a more expensive ticket at the window. So I think we all know that you'd rather have those books in your database building stability and loyalty. But just walking -- if you could just walk us through any noise that might create in your numbers next year, the demand for the product, this is what you expect it to be? And then we've also gotten questions about just the driver behind the decision, would you be what is more of an offensive move just in terms of continuation of your strategy that you had now for 11 years or defensive because of the past competition you faced?

Yes, I think -- I'll take the second one first. I would say we view it very much as a continuation of our own strategy that has been in place for years and certainly having nothing to do with Ikon. And I think the fact that we have continued to grow the season pass program and I think one of the things that is out there is there a lot of people who are -- many, many destination, local guests who are out there, for those folks who are kind of that 4 plus days skier, obviously, we've had products that make sense for them. But there is a huge other part of the market that's quite important to the resort business that they're just lower frequency and I think our strategy has been to yes, start with the highest volume skier, get that to convert and then slowly but surely move folks into our products that have potentially lower frequency. And so we introduced a number of years back, the Epic 7-Day, that was one step towards that; and then we introduced the Epic 4-Day; and now we feel like we're at a point in our maturity, the complexity of going after lower frequency guests for a season pass, we think our program and our tools are in place to actually do that in a more successful way. And in our mind, if you look at discounts that we're offering, they are kind of in line with the discounts that we had offered before on the Epic 4-Day and the Epic 7-Day, with obviously slightly higher discounts for more days. We did this year decide to introduce the off-peak discount because we think that's a great flow through opportunity for us to potentially incent people to come in those off-peak times. And we do see a lot of our -- a lot of the Epic 4-Day, a lot of the Epic 7-Day historically have been used in more peak times so this was an opportunity to kind of broaden that. And in terms of the impact on our financials, I would say it's consistent with what you've seen, which is that they're -- it is, in our mind, as we transition people to a kind of day-of product to an advance product, we obviously take a step back on price. But then obviously, we then build from there and have a pretty consistent price increase strategy so that initial conversion has some potentially immediate dilution. But in our minds, when we look over a multiyear period, we see that trade-off is quite positive. So the stability that you get, the return rate that's higher for season pass, the guest satisfaction that's higher, all of that, right, is kind of -- in our minds, we think about it as lifetime value of guest which goes up significantly and it's definitely worth that trade-off.

And we'll take our next question from Brett Andress with KeyBanc.

This is Dan Charrow on for Brett. Just touching on the outlook for the rest of the season. With Breckenridge now post the continued operations through Memorial Day, can you talk about may be any potential extension to the ski season that you're contemplating in the guide? And what would we have to see over the next month or so in Colorado or more broadly for you to get more constructive about a lengthier season than we've seen in the past couple of years?

I would say I think we have definitely factored in the current season into our guidance and I think to the extent that there were other extensions, I don't think that would have a material impact on our results for this year. I think certainly we're going to continue to -- Breckenridge, obviously, we've already made our commitment on there. Obviously, conditions permitting, to go all the way through Memorial Day, we think that's an important long-term strategy for us in Colorado. I think in Tahoe, obviously, we'll continue to monitor conditions. We just announced a little while ago that we were extending each of the 3 resorts and I think we'll continue to monitor to the extent that it seems like the conditions are still strong. Demand is still there. Yes, we will consider that again. I think that's, yes, more about the experience we're providing and the season long opportunity that we see that is there, less about necessarily that having a material impact on our results for the year.

Got it. Helpful. And wondering if you can provide any color around the Falls Creek and Hotham resorts. It seems like those are a nice way to expand the Australian footprint a bit, closer to some of the largest cities. And from a total attendance perspective, should we think about those as maybe 1/3 of the size of Perisher? And any early indications around how the inclusion in the network may impact the overseas Epic cohort?

Yes, I mean, I think, we're very excited about the Falls Creek and Hotham deals. I think on a couple basis, one, we clearly have the experience now from Perisher serving the Sydney and New South Wales market and have had a lot of success with Perisher and the Epic Australia pass there. But because Perisher largely does serve that region, we've not had the same opportunity with the Melbourne and Victoria markets. And so the opportunity to use the same model in Melbourne and Victoria more broadly is quite compelling. And we do feel very good about both Falls Creek, which really offers a really great kind of family oriented experience, paired with Hotham which has a lot more advanced skiing. The two of those together really present a compelling opportunity for really the full skier population in that area. So we feel like the opportunity to rollout the Epic Australia pass is great. And then from there, right, clearly, the strategy which we've already executed against is to build that connection to North America primarily and particularly relative to when we did Perisher in 2015, we now have Whistler Blackcomb which is one of the, right, primary destinations for Australian skiers. And so to be able to offer that to this new guest space to collect data and market directly through those guests as well as to our 2 partnerships in Japan, yes, offers a very compelling opportunity for us in that market. So we feel like, yes, really well strategically positioned. Certainly important as we look at Asia in the longer term. And in terms of size, I think probably the best comparison is to -- the kind of year 1 EBITDA that we put out relative to Perisher, the 2 together are in the same ballpark.

And our next question comes from Shaun Kelley with Bank of America.

I just wanted to go back to maybe Felicia's question to start. Rob, I think you mentioned sort of pretty clearly the move with all the new announced products. And sort of what you think that might do for pricing. But could you talk a little bit about what it also might mean for sort of yields and some of the ancillary spending you're seeing out there, just that you continue to make the transition to the advanced products and kind of what your experience was with Military this year relative to expectation?

Well, I think, yes, 2 definitely different pieces there. I think, certainly, when we see somebody move from a paid lift ticket to a season pass, we tend to see higher frequency and that obviously helped ancillary as well. Often, it isn't -- the yield per day may go down as somebody's adding days to their season. But the total, right, that we're getting from somebody over a season goes up. And in our mind, again, when we're thinking about that multiyear frequency, right, how often we will see somebody over 3- to 4-year period, we see that the total revenue opportunity is being much better to the extent that they're on a pass versus on a lift ticket on almost every metric. On Military, Military has performed great in terms of obviously the number of people who went into the program, in good frequency from our Military passholders. I think less spend per visit than we would see from other destination guests. That's not totally surprising to us just because, obviously, the lower price made it accessible to a lot of folks who may not have had necessarily the budget to -- that a lot of our other destination guests have. But in total, highly incremental for this season.

Got it. And then another question just as we think about the sort of overall blend between destination and the local limitation. What do you think it would take to see an upside surprise from sort of destination spending at this point in the cycle? It seems like some of the benefits that we saw are really from the upside on visitation given the strong condition. It seems like in peak periods, you're pretty optimized. But is there a move to shoulder, and I think you mentioned that a little bit, maybe some of the target offerings or anything that you can do to really optimize what you're seeing in destination spending outside of those peaks?

Well, I would say yes, I think 2 things. One is I think we need to get people into the resort, right, in the off-peak periods and that's one of the strategies. I think with that, with our Epic Day Pass product launch, I think one of the things that we see by the way even it's just that a lot of our Epic 4-DAY holders will tend to use that product in Christmas or early part of January and it goes down as you go through the season. And so actually, the entirety of spring break is actually not a peak period in terms of the restrictions on the pass. So the Epic Day Pass, which is about 15% lower than -- the restricted version is about 15% lower than the unrestricted version and actually gets you access to spring break. So we're really hoping to actually move a lot of these folks who are that Spring Break traveler to potentially consider a pass even though obviously, they've been buying even further in advance. But for us, obviously, that's a big win. I think on the ancillary spend, I think where we see the biggest opportunity is that we have not yet taken the same marketing and data-driven specification that we have around pass and that we're starting, right, to really use for lift tickets. We have not really taken that to ski school or rental or even F&B in some respects. So we actually see an opportunity and we've talked about that, I think in prior years on this progression. We're trying to kind of take the biggest and best opportunity first and then keep moving through each piece of our revenue stream. And so we do think that there is an opportunity to really, I'd say, go up a whole another level and how we engage our guests to take these products. And obviously, each of these products deliver pretty strong flow-through especially ski school. And a relatively small percentage of our total visitors actually use ski schools. So in our minds, that's definitely on our roadmap over the next couple of years.

Great. Last question for me would be sort of run rate G&A expense. I mean, it's a little difficult with all the M&A activity, obviously, and some of your centralized investment. But when you look at sort of same resort or same mountain basis, can you help us give a little bit of a guidepost of what type of labor inflation you're seeing out there right now? Obviously, you operate some markets where that's significant. I think you may still have some of the investments you made in your workforce following tax reform. Can you just give us a sense of what you're kind of current market conditions you're seeing on a, like, (inaudible) basis?

I don't think I can give you a stat. But I guess right off the top here, maybe that's something we can address down the road. But I would say that we are seeing yes, wage pressure, and I think we identified that for going into this year. One of the headwinds was $15 million and wage investments over and above kind of the normal inflation that we've seen previously. I think that's helped and that certainly made progress. But I would expect that the same pressures that we're seeing, that everyone is seeing across the country are pressures that we will continue to feel again, and I think, again, like we're seeing in the rest of the lodging industry. So in our minds, I think this is going to continue to be -- I think this year may have been more significant kind of one time in terms of the headwind. But as we go forward, I think that's a topic that's going to be a challenge until there's some shift in the employment market.

And our next question comes from Ryan Sundby with William Blair.

Just going to try and follow-up on Felicia's and John's question on the incrementality of the Epic Day Pass. Is there -- can you probably take us any color on the breakdown and size between the big -- kind of the base Epic local and 4- and 7 Day passes? And then as we go through the pass buying season next year or the summer, do you plan to provide kind of a similar baseline view like we did with Epic this year versus Military or will all these kind of get combined going forward?

So what I'd tell you is I think we're not -- I don't think we're providing additional color on the breakdown amongst our passes. I think on incrementality, we do think there's a significant opportunity with the Epic Day Pass on with these lower frequency guests. Obviously, that will be at a lower price point. So from a revenue perspective, certainly there would be some dilution on EPP. But in our minds, we are focused on that incrementality. I think the incrementality that we see, yes, is through more consistent, more stable return rates over a multiyear period. And the stability that we're looking for plus obviously, the ability to then communicate with our guests in a more targeted and more personalized way. So we hope that's one benefit. The other benefit we see is for some of our passholders that churn out of the program, one of the top reasons that they give for why they churn out is that they're not -- they don't think they're going to ski enough next year to justify a pass. And so in our minds, this is now addressing one of the most important concerns people have which is their own skier frequency in terms of how or why they buy a pass. In terms of reporting, yes, we will take a look at how to best portray, right, the results. I don't think this will be a similar situation to Military where with Epic Day Pass that we can somehow pull out more discreetly the entirety of the program because obviously we have a lot of people already in an Epic 7 and in an Epic 4. But we absolutely, when we get to June and do our first report, we will definitely look at how can we provide some insight that we think is helpful to investors in terms of understanding the impact of the overall program and our results to date.

Great. That is very helpful. And Rob, I guess, what's the better early season snow this year and the investments that are coming in snowmaking capabilities? Do you see the weakness this year around destination guest in the preholiday period is more of a onetime event? Or should we kind of expect some kind of behavior change that kind of contains I guess into the future?

I don't know. I think, obviously, we felt that we looked at the snow coverage and the conditions this year and the early season and we look back a few years ago to when we had a very good early season and expected to see kind of a repeat of that and we didn't. And so I don't know whether that could be that it's 2 years of tough snow and people are not willing to have the confidence to book again. If next year is good, I don't know whether people will -- whether things will change and this year was kind of a onetime event, it will change next year or this is a longer piece on the change side. It may be that yes, that as we move more and more people to pass, that pass skier obviously is more likely to be a local skier. So we may not see that lift ticket buyer as much show up. But when you look back historically, I think you do see whether it's been in Tahoe or in Colorado, you do see these lags in terms of when people get comfortable again to show back up and have confidence in the weather and I think that's something that I would imagine might happen again. But that's certainly not something that we can predict at this point.

And our next question comes from Tyler Batory with Janney Capital Markets.

Just want to follow-up on some of the other questions here. Rob, I know you've discussed this before. But now that we're basically through the entire ski season, any updated thoughts on how the Ikon Pass may or may not have influenced your results?

Well, what I would say is we still have a lot of season to go. So we're not done just yet. And obviously, the March and April time periods, just to put that out there, is still significant, obviously. And obviously, Q3 in total is significant. I think that as we talked about before, it's a little hard for us to say. I think that we, again, having seen the growth in our season pass program last year, even if it was a little less than may be what we had hoped for, we're still pretty strong growth. And obviously, we've seen strong growth this year versus last year. Obviously, our Colorado and Utah resorts have really been on expectations for -- once we got into holidays and beyond. So to me, I guess what I would say is it is a -- it's hard for us to know whether that has any impact from Ikon. I think an important point though, broadly, is that our resorts have been competing with the resorts that are in the Ikon Pass truly for 50 years in many cases. And they've always been great competitors and they're great resorts and so the fact that there's a new pass isn't -- that's not new and obviously, even the Ikon Pass was replacing many other passes that were out there that we were competing with before. And so I -- there's no doubt that I think the Ikon is a great product and I think they've done a very nice job of it and to me, I'm sure it has some impact. But I don't think it has had a structural change to the primary drivers of our business. Again, because most of these dynamics existed even 2 years ago.

Okay, got it. That's helpful. And then I wanted to ask on the partnerships that you guys have in Japan. Do you think those relationships have been incremental driver of your pass sales? Are you seeing folks using their privileges to go visit those properties? And then any updates as far as how you're thinking about partnerships or outright acquisitions in that market?

I think we will be sharing more information about pass sales in Australia when we get to our June earnings call. I would say that we do feel like it's definitely been a positive and we certainly, I mean, just from guest enthusiasm alone, I think when we added Rusutsu having a resort in Hokkaido, I think it's a very meaningful addition to that market and I think we, having the 2 choices now of Hakuba and Rusutsu going forward, I think will absolutely give us a boost. I also think that adding the Melbourne market in terms of Hotham and Falls Creek, again, just from guest enthusiasm, in terms of what we see and hear and read and what's coming through communication channels, again, I think people are quite excited about the opportunity. Actual -- the impact to actual results will be a little bit hard to tell but we'll be able to at least share more data on that in June.

Okay, great. And then just last one for me, a housekeeping item. The real estate EBITDA, you guided to midpoint or flat, now you're down 5. What's driving that? Is there any way to think about how the real estate EBITDA could flow in the third quarter or the fourth quarter?

Yes, as we've talked about before, the real estate is a little bit lumpy just in the -- it largely tracks with kind of primarily land sales at this point. And so as the timing of various deals comes together or moves, that can impact guidance within any 1 year. And so we obviously make our best estimates of that at the start of the year and then update that as it goes.

Our next question is from Brad Boyer with Stifel.

First question is just around what you're seeing today in the M&A environment, particularly in North America. And taking that a step further, just curious if you guys are getting a little bit more receptive and comfortable with pursuing partnership arrangements as opposed to owning resorts outright, just thinking about the Sun Valley and Snow Basin announcements?

Yes, I think -- I don't think we can comment on the environment per se. But I think that we're certainly still aggressive about adding resorts that we think will make our network more powerful. We are going to be patient and disciplined for the right opportunity. In some cases, when we think we have a good opportunity, the owners of that resort are not interested in selling and that discussion can sometimes morph into a partnership discussion. And I think we're going to be selective about those partnerships much like we are with acquisitions. So I don't think -- our goal is really not to dilute the experience, the selection of resorts, the power of the network. It's really for, yes, those resorts that we think can be highly incremental. So we'll still be open to it but I think just like on acquisitions, we're going to be incredibly disciplined about it.

Helpful. And then just a second one. I mean, probably splitting hairs here a little bit, but it looks like you guys are accelerating some of the year 1 investment in the acquired resorts. Can you just talk a little bit about the drivers behind that?

Yes, I think that was just us ultimately -- I think when we put out some of that original guidance, it was only 1 month or 1.5 months I think, after we've closed the deal. And so I think we have made an initial pass at what we thought we could get done in the first year and then I think with the benefit of a little more time, we were able to then identify okay, how much of this could we get done in this first year. Obviously, our goal was to get -- anything we could get done this year would be a positive. So we saw some additional opportunities. And yes, just assessed, yes, the full plan for this year in greater detail and yes, I think that was a good thing.

And our next question come from Chris Woronka with Deutsche Bank.

Wanted to ask you on the new build your own or daily Epic Pass for next year, does that move you closer to maybe the lower price point being able to do more of a monthly or a subscription model? Second part of that is, is this -- do you view it internally as more like an experiment or more something you're pretty sure is going to be permanent going forward?

So on the monthly piece, we have taken an approach toward how people pay for their pass by only charging $49 down in the spring and then the full amount of the payment in September and what we've seen is that has been pretty compelling for people who are buying their pass in the spring or earlier than that. And it's a good competitive differentiation for us and something that we've been pretty successful with for a lot of years. I don't see us going into a plan where people could pay for it over the term of the season because I think that would create risk on the commitment that we'd be getting. So we're always going to essentially say that folks have to pay for their pass before the season begins. So that will be -- I don't see us moving off of that. Yes, we don't see this as an experiment. We very much see this as a logical extension of what we've already done. I think it's true that there are unknowns. We don't know how fast guests will migrate to this product. I think if you look back historically, it does take a number of years, even when the discount is great, even when the benefits are great, it still takes guests who have not focused on buying a pass a number of years to really move the needle and we've seen that in almost every initiative we've had and I've no doubt we'll see that here with Epic Day Pass. So we don't know that. And sure, we don't know exactly the return rates of that and the frequency piece. But in the end, I think we've seen enough of the benefit on the stability side for -- from our existing products that we're quite confident that this will be able to deliver those same kind of opportunities for the company.

And our next question comes to us from Brennan Matthews with Berenberg.

Just one here, and that's on the recent decision by A-Basin to, I think, end the partnership with you. Do you expect this to have any impact on pass sales for next season?

Again, hard to say at this point. I think we feel like the product that we're offering certainly -- so we had a couple of different things. One, A-Basin was on the Epic Pass and the Epic Local Pass. And I think on those, we certainly feel like we have a terrific collection of resorts. And certainly within Colorado, obviously we've added Crested Butte and then added Telluride to the Epic Pass so I think we've provided a lot of value. I think by having Keystone open -- being -- planning to be one of the first opened in the country in terms of resorts and then Breckenridge opened through Memorial Day. We feel like we're giving our guests a lot of the benefit that A-Basin did offer and obviously, it's a great resort. And then we replaced the Keystone A-Basin Pass with the Keystone Plus Pass which also, we think, offers a pretty compelling opportunity for folks. That said, it's a big transition. A-Basin's been in our portfolio for a long time and so yes, I don't think we have perfect information on necessarily what the impact is but we certainly think we're offering a pretty compelling product even without them.

And there are no further questions in the queue at this time. I would like to conference back over to our speakers for any concluding remarks.

Thank you, operator. This concludes our fiscal second quarter 2019 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 morning, and goodbye.

Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today. You may now disconnect.