Six Flags Entertainment Corp (FUN) 2002 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by.

Welcome to the Cedar Fair 2002 second quarter earnings conference call.

At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question and answer session.

Instructions will be provided at that time for you to queue up for questions.

If anyone needs assistance from an operator during the conference, please press star, followed by the zero.

I would like to advise all participants, this conference call is being recorded on Friday August 9th, 2002 at 11 a.m. eastern time.

I would now like to turn the conference over to Mr. Brian Witherow. Please go ahead, sir.

Thank you.

Good morning, everyone.

My name is Brian Witherow and I'm the Corporate Director of Relations for Cedar Fair.

Welcome to our second quarter earnings conference call.

We issued our earnings release yesterday evening.

A copy of the release can be obtained at our website, cedarfair.com. or by contacting my office at 419-627-2173.

On the call this morning, are Dick Kinzel our President and Chief Executive Officer and Bruce Jackson, our Vice President of Finance and Chief Financial Officer.

In compliance with SEC regulation FD, this webcast is being made available to the media and the general public as well as analysts and investors.

We caution you the comments made during this call will include forward-looking statements, within the meaning of the federal securities laws.

These statements may involve risks and uncertainties that could cause actual results to differ materially, and those described in such statements.

You may refer to filings by the Company with the SEC for more detailed discussion of these risks.

Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.

At this point, I'll turn the call over to Dick Kinzel.

Good morning.

Overall, I would say we're reasonably satisfied with our 2002 second quarter results.

Particularly given the continued uncertainty of the economy during the first half of the year.

Although each park did not achieve every individual target, we were still able to produce real growth in revenues during the quarter.

In addition, through constant focus on controlling operating costs in our parks, we were able to achieve respectable growth in EBITDA in the period.

Weather trends have continued to be favorable throughout most of the first half of the season, and attendance at our parks has been reasonably good.

Through the first seven month of the year, combined attendance across our 11 parks was up 4% from the same period a year ago.

One percentage point of this increase was due to the inclusion of our two newest properties, Michigan's Adventure and Knott's Soak City Palm Springs, both of which were acquired at the end May last year.

Excluding the impact of the two new parks combined attendance was still up 3% through the end of July, while average in-park guest per spending was down 1%.

The decrease in average guest spending was due in part to the overall mix of attendance among the parks.

Through the end of July, combined out of park revenues were up 5% between years.

Driven primarily by improved occupancy at our Cedar Point hotels.

At the individual park level, the early season results range from very good to somewhat disappointing.

Our largest park, Cedar Point, has performed well this season, with the introduction of the park's 15th roller coaster, Wicked Twister, and the addition of the great new Peanuts themed ice show.

The park has also benefited from favorable weather comparisons to last year, when cooler temperatures and heavy rainfall impacted parts of the early season.

Attendance at Cedar Point through the end of July was up 4% from 2001, while occupancy trends at the park's hotels have been strong.

At the end of July, hotel revenues at Cedar Point were up 12% between years.

We've also been very pleased with early season results at Dorney Park.

The park, which is coming off a record year in 2001, has continued to build up the momentum it established last season with the introduction of the Talon inverted roller coaster.

Through the first seven months of this year, attendance at Dorney was up 4% from a year ago.

At our only year-round park, Knott's Berry Farm, attendance has been steady throughout the season in spite of the fact that tourism in southern California remains soft.

Through the first seven months of the year, attendance at the park was just about even with last year.

However, with the introduction of the park's new world-class roller coaster, Accelerator, in late June, results in recent weeks show signs of improvement.

For the month of July, both attendance and in-park guest per capital spending at Knott's were up 1% from a year ago.

Attendance at our other three smaller amusement parks have remained mixed.

At Valleyfair, poor early-season weather and the lack of a major new attraction led to a slight decrease in attendance through the first seven months of the year.

And at Worlds of Fun, the introduction of a new ride helped to produce a 2% increase in park attendance through the end of July.

At our newest park, Michigan's Adventure, rain and cool temperatures at the beginning of the season, got us off to a slow start and in spite of improved weather over the past few weeks, attendance has remained below our expectations.

Through the end of July, attendance at the park was down 4% from 2001.

However, revenues over that same period were up nearly 10%, as we've been able to generate significant growth and in-park guest per capita spending levels. And the park looks great after completion of our 2002 capital improvements.

With good weather conditions and higher than normal temperatures over the past two months, we've also produced strong early season results at our five water parks.

Through the first seven months of the year, combined water park attendance was up more than 15%.

Excluding the impact of our newest water park, combined attendance was still up more than 10% through the end of July.

As I mentioned earlier, we've also been pleased with the ability of the individual parks to control operating costs this year.

With our industry continuing to face the overall uncertainty of the country's's economy, we've made a concentrated effort to control costs while not sacrificing guest service.

The result was a 2% reduction in operating costs and expenses, in the current period, and a continued excellent guest rating satisfaction ratings.

While attendance trends at most of our parks have continued to be reasonably good, in-park guest per spending levels have fallen short of our expectations.

On a combined basis, average guest per capita spending across the 11 parks was flat between years in the second quarter, due in part to the overall mix of attendance among the parks, particularly the growth in the water park attendance.

In addition, our efforts to increase seasons past sales at several of our parks, including Cedar Point, has proven very successful, but has contributed to softer per capita spending at those parks.

Based on our preliminary July results, which indicate that revenues were up 3% through the first seven months of the year, we continue to believe that our expectations for a 3 to 5% revenue growth for the full year are still realistic.

Along with the combined emphasis on controlling operating costs over the remainder of the season, this should translate into solid increases in both full-year EBITDA and net income over last year's level.

This would then allow us to increase our cash distribution rate again later this year, for the 15th straight year.

Before I turn things over to Bruce to discuss our second quarter results in more detail, I'd like to take a moment to update you on our response to the recent corporate govern issues and our selection of a new independent auditor.

As many of you may have already seen, on June 17th our audit committee recommended, and the board of directors approved, the appointment of PricewaterhouseCoopers as our new independent public accountants for 2002.

This decision followed a thorough evaluation process by the audit committee and the board, and reflects their strong view that Pricewaterhouse Coopers is highly qualified to serve as our external audit firm.

I'm confident that they will uphold our own longstanding commitment to quality financial reporting.

Based on our commitment to accurate financial reporting as well as the integrity of our people and our own internal controls and procedures, I can say with confidence that both Bruce and I are more than happy to sign off and certify Cedar Fair's financial commitments as regulators are now requiring us to do.

At this point, I'll turn the call over to Bruce Jackson for more analysis of our second quarter numbers.

Thank you, Dick.

Let me begin by emphasizing that virtually all of the revenues from our five seasonal amusement parks and our five water parks are realized during a 130-day operating period beginning in early May.

With the majority of revenues concentrated in the third quarter, during the peak vacation months of July and August.

In addition, Knott's Berry Farm, our only year-round park, operates at its highest level of attendance in the third quarter.

Thus I will caution you that it's always risky to jump to any conclusions about our full year results based on second-quarter numbers.

This is particularly true because this years' second quarter has one more week of operations than last year's second quarter, which ended on June 24th.

That being said, net revenues in the second quarter increased 19% to $147.6 million dollars, with the breakout being $71 million dollars in admissions revenue, $62 million in food merchandise and games revenue and $15 million in accommodations and other non-park revenues.

The big increase between years was due primarily to the inclusion of the additional 7 days of operations in the current period.

Excluding that extra week of operations, revenues for the period totaled $123.6 million dollars, essentially even with last year.

This was the result of a 1% increase in out of park revenues and slight decreases of a fraction of 1% in attendance and in in-park guest per capita spending in the quarter.

The increase in out of park revenues was primarily from improved hotel occupancy at Cedar Point hotels.

For the quarter earnings before interest, taxes, depreciation and amortization, and non-cash and non-recurring items or adjusted EBITDA, increased 43% to $48.2 million dollars.

After backing out the impact of the extra week of operations, adjusted EBITDA still increased 6% to $35.7 million dollars from $33.8 million a year ago.

Total operating costs and expenses for the quarter before depreciation and non-cash charges increased to $99.4 million dollars due entirely to the additional week of operations in the quarter.

Excluding the extra week, our operating costs and expenses for the quarter actually decreased 2% to $87.8 million from $89.8 million in 2001.

Consistent with prior periods, we also had to mark our variable priced unit options to market at the end of the quarter. Based on additional vesting of the options along with the change in the market price of our units from the end of the first quarter to the end of the second.

We recorded a non-cash charge of $1.4 million or 3 cents per unit in the current period.

This compares to a non-cash charge of $3.6 million or 7 cents per unit during the same period a year ago.

After depreciation, and the non-cash charge, operating income for the quarter increased to $32.3 million from $17.4 million, last year.

After interest expense and a provision for taxes, both of which were comparable between years, net income for the period was $20.7 million or 40 cents per limited partner unit, compared to $6.6 million dollars or 13 cents per unit in 2001.

Approximately 18 cents of the increase is from the extra week of operations in the current period.

Don't forget that this extra week will be coming out of the third quarter numbers later in the year.

For the six-month period, net revenues increased 19% to $171.5 million from $143.6 million in 2001.

Again, largely due to the extra week of operations.

As well as the addition of our two newest parks.

Excluding the impact of the two new parks and the extra week of operations, revenues for the first six months of the year increased 2% to $145.9 million on a 1% increase and combined attendance, a 6% increase in out of park revenues, and flat in park guest per capita spending.

Over the same period, adjusted EBITDA increased 19%, excluding the two new parks and the extra week of operations.

Turning our balance sheet for a moment, in the second quarter we completed the funding of our new $100 million senior debt placement at very favorable rates.

At the end of June, our total debt outstanding was $445 million, including $250 million of fixed rate term debt and $195 million in borrowings under our revolver.

Partners equity at the end of the period was $256 million, cash on hand, totaled $14 million.

At this point, I will conclude our prepared remarks and allow for any questions that you might have.

Brenda, take over.

Thank you very much, sir.

Ladies and gentlemen, we will now conduct the question and answer session.

If you have a question, please press the star followed by the one on your touch tone phone.

You will hear a three-toned prompt acknowledging your request.

Your questions will be polled in the order they're received.

If you wish to decline from the polling process, please press the star, followed by two.

Our first question comes from Dean Jancovik from J.P. Morgan.

Please go ahead, sir.

Hi.

Just a few questions.

First, can you comment on your season pass and group sales to date?

Secondly, can you can talk about your comfort with consensus estimates and then finally, can you talk about your debt level, whether you would be willing to take that higher or whether you'll sort of sit here and maybe take it down over the course of the year?

Thanks.

Hi, Dean. This is Dick.

I'll take first part, then Bruce can handle the balance sheet issue.

Our season passes to date in all of our parks are doing extremely well, which I think reflects in the lower per capita spending levels that we are reporting.

I think what we find with seasons pass holders, they'll come more often but however they will not spend as much each time into the park, especially on merchandise and games.

Our group sales business pretty well across the board is soft, and I believe the reason for that being the economy.

We noticed that beginning last year and that trend has continued this year.

Bruce, did you want to comment?

On the debt levels, we're comfortable with where the debt levels are now.

We have a little bit of additional credit available, but I don't think right now there's any particular imperative to reduce the debt levels significantly, although every year in the fall when the season is concluded, the seasonal parks, we take another look at it and when we make the distribution decision at the board level, that's one of the components of it.

But I'm very comfortable with our debt level. We're still investment grade.

We just redid the long-term placement at very good rates, and the revolver is at good rates, and I'm pretty comfortable now.

Our cost of capital is very comfortable and low.

Just a quick comment on consensus, how you feel about that right now?

The consensus, we're still looking at the guidance that we gave earlier in the year as being still good numbers, and of course a lot depends on August and the weather and the weekends and such.

But so far, we've got no complaints on any of those aspects, and so we're still on target to hit those numbers.

Great.

Thanks a lot.

Our next question comes from Patrick Dedrickson from H&R Block Financial Advisors.

Hi, gentlemen.

This is Lisa Bocci and I'm calling for Patrick.

I have two questions.

First question is given the introduction of Wicked Twister and the favorable weather conditions experienced at Cedar Point, we were a little surprised by the softness in July, attendance numbers, as well as guest per capita spending.

Could you discuss how much you believe weakening consumer confidence and as well as consumer spending impacted the softness in expected traffic numbers in July?

Lisa, I believe that goes right back to Dean's question, we have seen a considerable lack of consumer confidence and I think that's reflected in per capita spending.

Our group business is down, and of course group business for us comes from companies that have annual picnics to the park and that business certainly is down, and there's more of an emphasis towards discounted -- discounting tickets.

So while we were soft in July, I feel that we have held up with pretty much what our projection was for the month of July, based on what the economy has been.

Okay. Thank you.

A majority of it has been, in all of our parks, has been in the group sales business, where we depend on customers or our customers to entertain their employees with group days at the park.

Okay. Thank you.

I have one more question.

Could you also discuss how well you feel Wicked Twister has been received by park visitors compared to other thrill rides like Millennium?

Sure.

It's rated right up there.

Of course the cost of the Wicked Twister was nowhere near the cost, about a third of the cost of Millennium Force.

But we do in-park surveys and ratings on all of our new rides and Wicked Twister rated right up there. Certainly not with Millennium Force or with the Magnum, but it's rating was somewhere around 4.5 based on a 5 scale, so we were pleased with it, and the in-park comments from our guests have been very favorable to it.

We think it's a nice addition to the park and it's going to continue to pay dividends for us.

Great, thank you.

I think, Lisa, if I could comment, a real unknown about this year has been the acceptance of the Snoopy Ice Show.

We've gotten great response from that, and besides just being gearing the park towards the thrill riders, we've made a concerted effort to target the park towards families.

And that show has certainly done it for us.

All right. Thanks.

Ladies and gentlemen, as a reminder, if you wish to ask a question, please press the star followed by the one on your touch tone phone.

The next question comes from Robert Route from Arnhold.

Please go ahead.

Yes, good afternoon, or good morning.

Few quick questions.

Given the situation that Hershey has and the fact the trust will sell the candy company, I was wondering if they were inclined to possibly sell Hershey Park as well, whether or not you would be interested considering the local focus and the name that park has, and your ability to operate theme parks.

Second, given where your stock is, if you've considered doing a 10% stock dividend in the form of stock split or something like that to increase liquidity so investors who are looking to establish big positions could get it, sizable position without moving the stock up dramatically.

And finally, could you comment on if you have any plans to take the Camp Snoopy concept you have going, and possibly do that with other properties in conjunction with third parties, for example, Pokemon or something with Marvel.

I know they have deals with PKS.

But just wondering if that's something you may consider doing in the future?

Robert, as far as the reports we've read on Hershey, that basically it was the chocolate operation was for sale, the food end of the business was for sale and not the entertainment side of the business was for sale.

But again, our statement on acquisitions has always been if it's a good acquisition, a good business decision, we certainly would look at any way of increasing the growth of the Company and through that part of that is through acquisitions if the right accusation came along we certainly would be interested in it.

As far as the Camp Snoopy goes, we do have Camp Snoopy at all of our properties, with with the exception of Valleyfair.

And the reason for that is we do have the Mall of America.

We do have the management contract for the Mall of America, and so we can't put it at Valleyfair.

But as far as expanding it, why, we have looked at other ways going into malls and things like that, if that were necessary.

If the opportunity presented itself, we would certainly look at it.

I'll have Bruce comment on your second question, on the 10%.

That's something we'll be talking about again as we do every year to review in the capital structure of the Company.

But I don't see, Robert, anybody pushing right now for a stock split at the level we're at now, we've been in the low to mid-20 dollar range for a better part of the last five years, so not sure what we would get out a 10% stock dividend.

But it's certainly something to continually be on the agenda.

Great. Thank you very much.

Our next question comes from Gene Singer from B.C.S.

Please go ahead.

Good morning.

Most of my questions were just answered. I only have one more.

The coming anniversary of 9/11. Could you comment how you think that would affect Knott's Berry Farm attendance?

We're certainly expecting a much better fourth quarter at Knott's than we had last year.

We know it affected a lot of people's patterns of spending and entertainment and everything else last year in the fourth quarter.

So we should be having some pretty favorable comparisons.

It occurred late enough in the season for our other seasonal parks that it didn't really have a significant effect but there's no question, it did at Knott's, so we're hopeful to have a much better fourth quarter this year.

Thank you.

There are no further questions.

Please continue.

At this point, there are no further questions, I'd like to thank everyone for sitting in, and you can expect to see our next release in the first several days of September to discuss August comparisons.

And in the meantime, if you have any follow-up questions, contact me, my direct line is 419-627-2173.

Thank you again.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating.

Please disconnect your line.