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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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, sir.
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 8th, 2018. 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 prior year. In the preholiday, destination guest visitation in our U.S resorts was less than expected which we attribute to guest concerns after two prior years of poor preholiday conditions.
Our destination guess visitation was largely in line with expectations during the key holiday weeks and through the remainder of January. Throughout the quarter with the favorable with 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 into 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 period that have also been impacted by numerous weather events that have negatively impacted there results.
In addition, international visitation at Whistler Blackcomb was below the prior year throughout the quarter. Our Northeast resorts are 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 tickets and season pass products. Excluding season pass holders, effective ticket price increase 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 rental and 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 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 of 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 reimbursement increasing 16.1% compared to the 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 1.9 times trailing 12 months total reported EBITDA.
Turning now to our season-to-date metrics for the period from the beginning of this 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 Steven 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 mount 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 total 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 preholiday period and also due to shortfalls from expectations at Whistler Blackcomb and our Tahoe results.
Our Tahoe results 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 three 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 remain 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 to included in the guidance we issued in September 2018, of which nearly half as 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 an 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 in 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 in these Australia group a subsidiary of Merlin Entertainments for a purchase price for approximately AUD174 million, subject to certain adjustments in 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 AUD4 million associated with the closing of the transaction. Falls Creek and Hotham are expected to generate combined incremental resort reported EBITDA of approximately AUD18 million or approximately $13 million during the 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 proximally AUD4 million to AUD5 million or approximately $3 million to $4 million U.S dollars to support the addition of these two resorts. Specific to this transaction, we anticipate fiscal 2019 acquisition related expenses of approximately $2 million. The transaction is subject to certain regulatory approvals and we anticipate that the closing will occur prior to the commencement of the Australians ski season in June 2019.
I will 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 will 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 program.
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 and dividend provides our shareholders with an overall growth in dividend averaging 30% per year over the last three 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 shareholder. The Company expects to invest approximately a 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, our 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 in a new permanent Tombstone barbecue restaurant at Park city, a full renovation of the Beaver Creek Children's ski school facilities and improvements to the Peak 8 base area at Breckenridge where 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 and Mount Sunapee and Stevens Pass, which will include replacing and upgrading the Daisy and Brooks lift 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 two-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 acquisitions, 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 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 our 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 one day to seven 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% in fiscal 2018 lift revenue. However, despite our success in converting guests to a pass there is 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 at occasional skiers greater assets to our resorts giving us the opportunity to expand this sport and grow the entire industry.
This past year, we launched the new Military Epic Pass which delivered nearly 100,000 new pass holders to our program, representing an incredible opportunity for a company to make our resorts more acceptable to those who are serve their country in the Armed Forces as well as their family. 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 in Breckenridge after April 1st and five days at Crested Butte with holiday restrictions. At a starting price of $369 per adult and $259 for kids. With Keystones plans to be the first resort open in the U.S. and Breckenridge planning to stay open until Memorial Day, the two Summit County resorts will offer one of the longest key seasons in the country.
Also new for the 2019, 2020 season is that guess who purchases season pass before our spring selling deadline will receive 10 discounted Buddy Tickets, up from six the year before. We’re 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 guest.
At this time, Michael and I would be happy to answer your questions. Operator, we are now ready for questions.
[Operator Instructions] We will take our first question from Felicia Hendrix with Barclays.
I was wondering, if you could just talk a little bit more going back to the weather challenges you saw in Tahoe in the subs comps that you regarding international visitation at Whistler? I’m just wondering few things with each of those items. The first, how much did each of these items affect your EBITDA guidance? And what impact did they have on your season-to-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 is mostly coming from Latin America, you've seen strength there over the past several years for variety of reasons or are you seeing of the week demand from Europe?
What I would say that I think, I’m sure we can provide more detail on the closure date, though obviously, I think the weather and the open close status for our resorts is out there. I do think it is one of the things that come along with having great snow, which obviously all of our resorts do is that the timing of the storms and when they hit can significant impact business it happens on weekend or peal period, and its challenging to make up those days. It's not like two days later your necessarily make it up because those guest often have left, and we do see a pretty big impact from that.
So I would say that was a headwind countering of the tailwind from the obviously great snow and great condition. And we have factored obviously that into our guidance in terms of what we've already experienced some and factored some of that into the rest of the season, though I think certainly our hope is that as we go through the rest of the season we see a little bit of moderation in that and I think that can really benefit the spring.
I think on international it was I would say most of the challenges from the international business at Whistler Blackcomb is a little bit on the lower price you know a 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 maybe happened to little bit quicker than we might have expected but it was certainly something that we thought over the long haul make sense given that the resort had grown so significantly over the prior three years. We think its critical to protect the experience of Whistler Blackcomb for the long-term and also continue to make room I think for what was going to be a growing business out of China and Southeast Asia.
So I see what's there a little bit in a transition movement, 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 would say a fairly broad based but less I would say Latin America than the other countries.
And again just in terms of the EBITDA guidance that you provided today. You won't quantify kind of how much Tahoe and Whistler combined were headwinds?
Well, I guess what I would say is, 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 we disclosed before. But no, we are not providing specific guidance at this time as to exactly how much the weather impacted. It is also -- it is, obviously, if you looked at our results what I think you know a plenty of resorts let's say our resorts like heavenly, you would see some pretty high variation up and down in terms of our expectation, but the down during those snowfall periods have been pretty significant. So, we will take that on and think about maybe there is a better way for us to share or talk about this potentially at the investor conference next week.
And then just to clarify it. So, on the Epic Day Pass, we have just gotten a bunch of questions on that and there is kind of two parts that still -- some of the questions we got about the trade off you are making in terms of revenues by transitioning people onto the day pass versus buying a more expensive ticket at the window. So I think we all know that you rather have those folks in your data base building stability and royalty, but just if you could just walk us through any noise that might creating your numbers next year the demand of the product is what you expected to be? And then we have also gotten questions about just the driver behind the decision which you would be at 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 the second one first. I would say we view it very much as our 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 that is out there is, there are a lot of people who are many, many destination local guests who are out there for those folks who are kind of that four plus days skier obviously we have had products that makes sense for them. But there is a huge other part of the market that’s quite important to the resort business that there 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 a potentially lower frequency.
And so, we introduced a number of years back the epic seven day that was one steps towards that I mean, we introduced the epic four day, and now we deal like we had a point in our maturity. The complexity of going after a lower frequency guest for a season pass, we think our program are tools in place to actually do that in a more successful way. And in our mind if you look at the discounts that were offering they are kind of in line with the discount that we had offered before on the epic four day and the epic seven 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 to opportunity for us to potentially some people to come in those off-peak times. And we do see a lot of the epic four day, a lot of the epic seven day historically been used in more peak time. So, this is an opportunity to kind of broaden that. And in terms of the impact on our financials, I would its consistent with you've seen which is that there -- it is in our mind as we transition people to and day out product to an advanced product we obviously take a step back on price.
But then, obviously, we then build from there and have a pretty consistent price increase strategies, so that initial conversion have some potentially immediate dilution. But in our mind 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 to get satisfaction as higher, all of that right is kind of you know I think -- in our mind, we think about it life time value of guests which goes up significantly and it defiantly work that trade-off.
And we will take our next question from Brett Andress with KeyBanc.
This is Dan Charrow for Brett. Just touching on the outlook for the rest of the season, with Breckenridge now posed to continue operations for Memorial Day. Can you talk about maybe any potential extension to the ski season that you are 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 that we see in the past couple of years?
I would say we have defiantly factoring in the current season into our guidance and I think to the extent of there were other extensions. I don't think that would have a material impact on our results for the year. I think certainly were going to continue to -- Breckenridge, obviously, we've already made our commitment on there, obviously conditions permitting to go all to way to Memorial Day. We think that’s an important long-term strategy for us in Colorado.
In think in Tahoe, obviously, we will continue to monitor conditions. We just announced a little while ago that we were extending each of the three resorts are, and I think you will continue to monitor to the extent that it seems like the conditions are so strong, demand is still there. Yes, we will consider that again. I think that’s, yes, more about the experience were providing and the season long opportunity that we see that in their less about necessarily that having a material impact on our results for the year.
And wondering, if you can provide any color around Falls Creek and Hotham resorts, seems like those are nice way to expand the Australian footprint bit closer to some of the larger cities? And from a total attendance perspective, should we think about those as maybe third of the size of Perisher, and any early indications around how the inclusion in the network may impact the overseas epic cohort?
Yes, I think, we’re very excited about the Falls Creek and Hotham deals. I think on a couple of basis, one, we could really have the experience now from Perisher serving in the Sydney and New South Wales market and have had a lot of success with Perisher in the Epic Australia Pass there. But because Perisher largely does serve that region we have 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.
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 have already executed against it 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 base to collect data and market directly to those guests as well as to our two partnerships in Japan 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 one EBITDA that we put out relative to Perisher the two together are in the same ballpark.
And our next question comes from Sean Kelly with Bank of America.
I just want to go back to maybe Felicia's question to start. Rob, I think you mentioned pretty clearly the move with all the new announced products and sort of what to do you think that might do for pricing. But could you talk a little bit about, what it also might mean for the yields and some of the ancillary spending you are seeing out there just that you continued to make the transition to the advance products, and kind of what your experience for the military this year relative the expectation?
Yes, I think two definitely different pieces there. I think certainly when we see somebody move from a paid left to get to a season pass we tend to see higher frequency. And that obviously help ancillary as well, often the yield per day may go down and somebody is adding days to their season, but the total that we are getting from somebody over a season goes up. And in our mind again when we are thinking about that that multiyear frequency how often we will see somebody over three to four year period, we see that the total revenue opportunity is being much better to the extent that they are on a pass versus on the lift ticket on almost every metric.
On military, military has performed great in terms of obviously the number of people who went into program and good frequency from the military householders. I think last stand per visit and we would see from other destination guests that’s not totally surprising to us, just because obviously the lower price made it acceptable to a lot of folks who may not have necessarily the budget to get a lot of other destination gets up, but in total highly incremental for this season.
And then other question just as we think about the sort of overall blend between destination and the local limitation is just, what would you think it would take to see an upside supply from sort of destination spending at this point in cycle? Seems like some of the benefits that we saw are really from the upside on visitation given the strong condition, it seems like peek period you’re pretty optimized. But is there move to show there, and I think you mentioned that a little bit maybe the target offering or anything that you can do really optimize, what you’re seeing in destination spending outside of those peeks?
I would say, I think two things, one is I think we need to get people into the resort in the off-peak period and that’s one of the strategies with us with our epic day pass. Product launch, I think one of the things that we see by the way even as just that lot of our epic four day holders will tend to use that product and Christmas or early part of January and it goes down as it go to the season. And so actually, the whole 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 15% lower than the unrestricted version and actually get to 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 path, even though, obviously they are being 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 past and that we’re starting right to really use for listing, as we not really taken that a ski school or rental or even SMB in some stock.
So, we actually see an opportunity and we talk about that and 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 think lot of whole another level and how we engage our guests to take this product and obviously each of these product deliver pretty strong flow-through especially ski school. And a relatively small percentage of our total visitors actually use ski school, so in our minds that defiantly on our roadmap over the next couple of years.
Last question for me, if you see sort of run rate G&A expense in difficult with all the M&A activity obviously and if you centralized investment. So when you look n same resort or same mountain basis, can you help give us a little bit of guidepost of what type of labor inflation you’re seeing out there right now? Obviously, operate some markets there, that significant I think you may still have some of the investments you made in your work force following tax reform. Can you give us a sense of what you’re kind of current market conditions you’re seeing on the same resorts or same Mountain basis?
I don’t think I can give you a stat, but I guess right off the top here maybe that 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 have seen previously.
I think that helped and that certainly made progress, but I would expect that the team pressures that we are seeing that everyone is seeing across the country are pressures that we will continue to feel. I think again like we are 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 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 are some shift in the employment market.
And our next question comes from Ryan Sundby with William Blair.
Just kind of try and follow up on Felicia's and John's question on the incrementality of the Epic Day Pass. Can you provide I guess any color on the breakdown and size between the big kind of the base epic local and the four and seven 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 would say is, I think we are 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 are looking for plus obviously the ability then communicate with our guests in a more targeted and more personalized way. So, we owe that one benefit the other benefit we see is for some of our pass holders that churn out of the program. One of the top reasons that they give for why they churn out is that they don’t think they are going to ski enough next year to justify pass. And so in our mind, this is now addressing one of the most important concerns people have, which is their own skier frequency in terms of how alive they buy a car.
In terms of reporting, well, we will take a look at how to best portray 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 discretely the entirety of the program because obviously we have a lot of people already in epic seven and epic four. But we absolutely when we get to June and do our first support, 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 today.
Then Rob, I guess with the better early season snow this year and investments that are coming in and snow capabilities, do you see the weakness this year around destination guests and the preholiday period is more of a onetime event? Or should we kind of expect some kind of the behavior change that kind of contains I guess into the future?
I don’t know. I think obviously we felt that we look at that snow coverage and the conditions this year in the early season, and we look back few years ago to when we had a very good early season and expect it 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 two 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 or whether things will change in this year, it was kind of the onetime event, no change next year or this is a longer piece on the change side.
It maybe that, yes, that as we move more and more people to pass, that pass skier obviously is more likely to be a local skiers. So, we may not see that less ticker buyers much show up. But when you look back, historically, I think you do see whether it's been an Tahoe one 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 the thing that we can predict at the 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, and Rob, I know you've discussed this before, but now they were basically through the entire ski season. Any updated thoughts on how the Ikon pass may or may not have influenced your results?
One, I would say, as we saw a lot of season to go. So, again we're not done just yet, and obviously, as of March end and our April time period just to put that out there is still significant obviously and I was in Q3 in total a significant. I think that as we talked about before so, 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 there was a little less than maybe what we held for. It's a 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 that once we done into holidays and beyond.
So to me, I guess and I would say it is a -- it's hard for us to know whether that has any impact to my comment. I think that's an important point that broadly is that, our resorts are being 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 that the fact that there is a new pass is in, 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, there is no doubt that I think the Ikon is a great product, and I think they've done a very nice job with it. And to me, I am 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 two years ago.
And then, I wanted to ask on the partnership that you guys have in Japan. Do you think those relationship are going to be incremental driver of your pass sales? You have seen folks using their privileges to go visit those properties and then any updates as far as how you are 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's earnings call. I would say that, yes, we do feel like it's definitely been a positive. And we certainly, I mean from guest enthusiasm alone, I think when we added Rusutsu to having a resort in Hokkaido, I think is a very meaningful addition to that market. And I think having the two choices now, Hokkaido 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 actual results always will be a little hard to tell, but we will able to at least share more data on that in June.
And then just last one for me as housekeeping item. The real estate EBITDA guides to mid-point were flat, now it's down five. What's driving that? And 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 have talked about before, the real estate is a little bit lumpy just in that it largely tracks with primarily land sales at this point. And so, as the timing of various deals comes together, moves that can impact guidance within any one year. 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 receipted and comfortable with pursuing partnership arrangements as opposed to owning resorts outright just thinking about the Sun Valley and Snow Basin announcements?
I don’t think we can comment on the environment per se, but I think that we are 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, they are not interested in selling and that discussion can sometimes morph into a partnership discussion.
And I think, we are going to be selective about those partnerships much like we're with acquisition. 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 those resorts that we think can be highly incremental. So, we will still be open to it, but I think just like on acquisition we’re going to be incredibly disciplined about it.
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 one investment in the acquired resorts. Can you just talk a little bit about the drivers behind that?
I think that was just us ultimately, you know, I think, when we put out some of that original guidance it was only a month or half after we closed the deal. And so, we had made an initial pass what we thought we can get done in the first year and then I think what the benefit of little more time. We’re able to then identify okay, how much of this could we get done in this, obviously our goal was to get anything down this year would be positive. So we saw some opportunities and get just assist the full plan for this year in greater detail and I think that was a good thing.
And our next question comes from Chris Woronka with Deutsche Bank.
Wanted to ask you on new build your own or daily epic pass for next year? Is that move you closer to maybe the lower price point being able to do more of a monthly subscription model? And for the second part of that is, is this you viewed internally is more like an experiment or more of something you're pretty sure is going to be permanent going forward?
So, on the monthly piece, we had taken an approach towards how people pay to 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 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 their commitment that we'll be getting.
So, we’re always going to essentially say that folks have to pay for their pass before the season begin, so that will be I don’t see 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 you know it's true that there are unknowns. We don't know how fast guest 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 path, a number of years to really move the needle and we seen that almost initiative we had and I have no doubt that we will 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 required confidence that this will be able to deliver the same kind of opportunities from company.
And our next question comes to us from Brennan Matthews from Berenberg.
Just one here and that’s on the recent decision by A Basin to I think ended the partnership with you. Do you expect this all any impact on pass sales for next season?
Again, hard to say at this point, I think we feel like the product that we are 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 have provided a lot of value I think by having Keystone open being planning to be one of the first to open in the country in terms of resorts.
And then Breckenridge opened through the more of that we feel, we are 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 opportunities for both. That said it’s a big transition. A Basin has been in our portfolio for a long time. So, I don’t think we have perfect information on necessarily what the impact is, but we certainly think we are offering a pretty compelling product even without them.
And there are no further questions in the queue at this time. I would like to turn the 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 good-bye.
Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today. You may now disconnect.