Six Flags Entertainment Corp (FUN) 2004 Q3 法說會逐字稿

Good morning and welcome to the Cedar Fair third-quarter earnings conference call. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, Brian Witherow.

Sir, you may begin.

Thank you.

Good morning and welcome to our third-quarter earnings conference call.

I am Brian Witherow, the Corporate Treasurer of Cedar Fair.

Yesterday we issued our third-quarter and nine-month earnings release.

A copy of that release can be obtained on our Web site at CedarFair.com or by contacting our Investor Relations office at 419-627-2233.

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

Before we begin, I need to caution you that 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 from those described in such statements.

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

In addition in accordance with Regulation G, non-GAAP financial measures used on the conference call today are required to be reconciled to the most directly comparable GAAP measures.

During today's call, we will make reference to adjusted EBITDA as defined in our earnings release.

The reacquired reconciliation of adjusted EBITDA is in the third-quarter earnings release and also available to investors on our Web site via the conference call access page.

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

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

Now let me turn the call over to Dick Kinzl.

Thank you for joining us on the call today.

As you can see from yesterday's press release, the unusually cool and wet weather that impacted results in our seasonal parks during the first half of the year continued through the third quarter.

This offset any benefit of the 2004 operating calendar which shifted several operating days from the second quarter into the third quarter.

The poor weather impacted our waterparks the most, particularly Oceans of Fun in Kansas City.

For the quarter, combined attendance at our five waterparks was down 11 percent from last year, offsetting an 8 percent increase in combined attendance at our amusement parks which included our newest park, Geauga Lake.

Excluding Geauga Lake, third-quarter amusement park attendance was up slightly between years.

Meanwhile in-park guest per capita spending continued to improve across our properties into the third quarter.

Average in-park guest per capita spending in the period was up 8 percent between years in our waterparks and up 2 percent at our amusement parks on a same park basis.

Although our 2004 attendance expectations were higher than we achieved, we cannot be too disappointed with our results, particularly given the relatively modest $29 million capital investment program for 2004 and the poor weather that we encountered at most of our seasonal parks.

Through the first nine months of the year, consolidated revenues were up 6 percent from 2003 on a 3 percent increase in combined attendance and 3 percent increase in average in-park guest per capita spending, and a 3 percent increase in out-of-park revenues.

The growth in out-of-park revenues came from another year of strong occupancy rates at Cedar Point Resorts Hotel, as well as the addition of the Geauga Lake Hotel and Campground.

Excluding the contribution of Geauga Lake, revenues through the end of September were up a little less than 1 percent on a 3 percent increase in average in-park guest per capita spending, a 2 percent increase in out-of-park revenues and a 3 percent decrease in combined attendance.

In October our operating results benefited from improved weather and an extra weekend of operation at several of our seasonal parks.

For the month, combined attendance of our 12 parks was up 9 percent between years, and average in-park guest per capita spending was up 3 percent.

On a same park basis, in October both attendance and average in-park guest per capita spending were up 4 percent.

At the individual park levels, year-to-date results vary by park.

At our only year-round park, Knott's Berry Farm, good weather and improving competitive conditions in the Southern California market have helped the parks operating result this year.

Through the end of October, revenues and operating profits (inaudible) were up nicely from last year on increases in both attendance and in-park guest per capita spending.

Unfortunately the inclement weather throughout much of the Midwest and East this summer negatively impacted operations at most of our seasonal parks.

Our flagship park, Cedar Point, performed reasonably well in spite of the weather and the fact that the park was following up the inaugural year of Top Thrill Dragster Roller Coaster in 2003.

For the full season, attendance at Cedar Point decreased 4 percent to 3.2 million guests, while in-park guest per capita spending increased nicely and occupancy rate trends at the park's hotels remained reasonably strong.

Through the end of October, out-of-park revenues at Cedar Point were up 2 percent between years and about half of that increase coming from the park's resort hotels.

We are also satisfied with the performances of Dorney Park and Worlds of Fun this year.

Both parks overcame poor weather conditions during key points of the season to produce steady operating results.

At Dorney Park, attendance finished the year at slightly more than 1.4 million guests, up almost 2 percent from last year.

At Worlds of Fun full-year attendance totaled approximately 900,000, which was in line with 2003, while in-park guest spending improved nicely.

At two of our smaller parks, the lack of a major new attraction and poor weather combined to negatively impact attendance in 2004.

Both Valleyfair and Michigan's Adventure enjoyed good weather in 2003, and this season the parks were unable to match last year's attendance level.

For the year, attendance at Valleyfair was down 7 percent to 1 million guests, while attendance at Michigan's Adventure decreased 2 percent to approximately 470,000.

However, both parks were still very profitable and contributed very nicely to free cash flow.

Our newest park, Geauga Lake, finished the year well below our expectations due to a combination of poor weather, a late start to our early season advertising and promotional programs, and the elimination of animal life attractions.

For the full year, attendance at the park totaled approximately 700,000 guests -- well below our original estimate.

However, we did see solid improvement in guest per capita spending and guest satisfaction during the year, and we are confident that with a strong capital investment program and a full-year advertising and promotions, the park will rebound nicely in 2005.

At our five waterparks, the comparisons entering 2004 were very difficult coming off of record performances at several of the parks in 2003.

For the full year, combined attendance at our five waterparks totaled 1.4 million guests, down 11 percent from last year with the majority of that decrease coming at Oceans of Fun in Kansas City where temperatures stayed well below average all summer long.

As I mentioned earlier, although we did not achieve all of our attendance targets, we are very pleased with the growth in guest spending levels.

Through the end of October, average in-park guest per capita spending at our amusement parks was up 2 percent from last year or 3 percent on a same park basis.

Meanwhile, in-park guest per capita spending at our five waterparks was up 9 percent helping to offset some of the attendance shortfall at those parks.

Before I turn things over to Bruce for a more detailed review of our third-quarter results, I would like to take a moment to update you on our capital plans for the 2005 season.

With the 2004 operating season concluded at all of our seasonal parks, we have already begun to focus on next season, and construction is well along in some of the new rides and attractions that we will be adding at the parks.

Our 2005 CapEx program will total $80 million and will feature the introduction of new world-class roller coasters at both Knott's Berry Farm and Dorney Park, as well as the addition of new intermediate-sized thrill rides at several of our other seasonal parks.

We believe next year's capital program, along with more normal weather conditions, will combine to produce solid attendance and guest spending across the Company.

Not included in the $80 million CapEx figure is the addition of Castaway Bay, our new $22 million indoor waterpark at Cedar Point which opens to the public today.

We are confident that Castaway Bay is going to be a great year-round complement to our other resort properties at Cedar Point.

Construction is also nearing completion on Silver Bullet, the new world-class roller coaster at Knott's Berry Farm.

Silver Bullet is scheduled to open in about a month and should be a strong for Knott's from day one.

In total we are investing approximately $23 million at Knott's Berry Farm and our three California waterparks for this upcoming year.

We have also announced plans for an outstanding new roller coaster at Dorney Park for the 2005 season.

The new coaster, which will be called Hydro the Revenge, will be the park's eight roller coaster and the third world-class coaster that we've introduced at the park since 1997.

We are confident that Hydro will continue to build up the momentum we have established at Dorney Park over the past several years, and with normal weather conditions, the new ride will help the park generate strong operating results in 2005.

In total we will be investing approximately $16 million at Dorney Park for the upcoming season.

In 2005 capital expenditures at Valleyfair will total $4 million and will feature the introduction of a new midsize thrill ride.

This same new ride has been proven very popular with the guests at both Knott's Berry Farm and Dorney Park in recent years.

At Michigan's Adventure we will be investing roughly $3 million highlighted by the addition of a giant funnel waterslide in the waterpark section of the park.

We are confident that both of these new attractions will be received well by the park's core markets.

The remaining $34 million of our 2005 capital program will be invested in various new rides, attractions and upgrades at our over three seasonal parks -- Cedar Point, Geauga Lake and Worlds of Fun.

Specific details on our capital plans at these parks will be announced in the upcoming weeks.

At this point, I will turn the call over to Bruce to discuss the third-quarter numbers in more detail.

Thanks, Dick.

In spite of cool and wet weather throughout March of the third quarter at several of our seasonal parks, net revenues in the period increased 8 percent to $305.6 million from $282.2 million in 2003.

This included $159.9 million in admissions revenue, up 8 percent from last year; $113.8 million in food and merchandise and games revenue, up 9 percent, and $31.9 million in accommodations and other non-park revenues, up 11 percent.

The revenue growth in the quarter was the result of a 5 percent increase in combined attendance, a 3 percent increase in average in-park guest per capita spending, and an 8 percent increase in out-of-park revenues, including our resort hotels.

Excluding results from our newest park, Geauga Lake, revenues still increased 3 percent to $289.7 million on a 3 percent increase in average in-park guest per capita spending, a 6 percent increase in out-of-park revenues and a 1.5 percent decrease in combined attendance for the quarter.

Total operating costs and expenses for the quarter before depreciation and other non-cash charges increased 15 percent to $154.9 million from 134.9 million for the same period a year ago.

Excluding operations at Geauga Lake, total cash, operating costs and expenses for the period increased only 4 percent or $5.6 million due to having more operating days in the quarter.

Each of our parks did an excellent job of keeping operating costs in line this season, and all major costs as a percentage of revenues remained in line with historic levels.

After significantly higher depreciation due to the acquisition and a non-cash charge for (inaudible) adoptions, operating income in the period decreased slightly to $125.2 million from $126 million last year.

Excluding Geauga Lake's third-quarter operating loss of $1.8 million, operating income in the quarter actually increased $1.0 million or 1 percent.

We believe that a very meaningful measure of our operating results, which we use in budgeting and monitoring our park level performance is adjusted EBITDA, or earnings before interest, taxes, depreciation and other non-cash charges and credits such as option accounting.

For the quarter, adjusted EBITDA increased 2 percent or $3.4 million, approximately 1.4 million of which was attributable to Geauga Lake.

The rest of the increase was due to growth in in-park guest per capita spending during the period, as well as having more operating days due to the timing of the operating calendar.

In the current quarter, we recognize the non-cash credit to income of $1.2 million from the change in fair value of two interest rate swap agreements in the period, which was comparable with last year's third-quarter credit.

This amount represents purely a timing issue and $1.4 million originally expensed in 2002 remains to reverse into income over the next two quarters as the swaps continue to serve their purpose of leveling cash interest costs through their maturity in the first quarter of 2005.

After this non-cash credit and after interest expense and a provision for partnership taxes, both of which were up between years due to the impact of Geauga Lake, net income for the quarter was $108.9 million or $2.02 per limited partner unit compared to $111.4 million or $2.16 per unit a year ago.

Excluding results from Geauga Lake, net income in the quarter would have actually increased almost $1 million over the prior year to $112.1 million or $2.16 per unit.

For the nine-month period, net revenues increased 6 percent to $473.8 million on a 3 percent increase in combined attendance, a 3 percent increase in average in-park guest per capita spending, and a 3 percent increase in out-of-park revenues.

Excluding Geauga Lake, revenues in the nine-month period would have increased only slightly to $451.1 million on a 3 percent decrease in combined attendance, a 3 percent increase in guest per capita spending and a 2 percent increase in out-of-park revenues.

Over this same nine-month period, adjusted EBITDA decreased slightly to $171.4 million from 172.3 million in 2003, which included Geauga Lake's adjusted EBITDA loss of $1.3 million since its acquisition.

On a same park basis, adjusted EBITDA for the first nine months of the year increased just slightly to $172.7 million, which is a pretty solid performance given the below normal weather we had to deal with this year.

Excluding depreciation and other non-cash charges, operating costs and expenses through the first nine months of the year increased 9 percent to $302.4 million due almost entirely to the operations of Geauga Lake.

On a same park basis, cash, operating costs and expenses in the same period increased only $1.8 million or less than 1 percent as we continue to put strong emphasis on controlling expenses at each of our parks.

After higher depreciation resulting from the acquisition and a $3.4 million non-cash charge for unit options, operating income for the nine-month period was $124.0 million compared to 129.2 million in 2003.

However, excluding the impact of Geauga Lake, we would have actually reported nine-month operating profits up $1.1 million from last year.

As Dick mentioned, weather improved somewhat in October, and our operating results reflect that.

For the month, consolidated revenues on a preliminary basis were up 12 percent between years or 8 percent on a same park basis.

Based on third-quarter numbers and our preliminary results for October, we are reconfirming our most recent guidance of full-year revenues of $530 to $550 million compared with 510 million in 2003 and full-year adjusted EBITDA of $165 to $175 million compared to $175 million last year.

With the modest level of 2004's capital investment program, this level of operating cash flow will allow us to continue to fund our current cash distribution rate of $1.80 per unit and could allow for consideration of another increase next March at the Board's discretion.

Turning to our balance sheet for a moment, as we mentioned on our last conference call in July, we completed an equity offering of 2.4 million limited partnership units with an additional 167,000 units sold to the underwriters in August.

The net proceeds of approximately $73.3 million were used to repay revolving credit borrowings that we incurred in the acquisition of Geauga Lake.

At that same time, we reduced our revolving credit facility which had been expanded to $230 million in order to complete the acquisition back to its original capacity of $180 million.

At the end of the quarter, total debt outstanding was $409.4 million, including $385 million of fixed-rate term debt, 20 million of which is classified as current and $24.4 million of borrowings under our bank revolver.

We have converted $100 million of our fixed-rate term debt to very favorable variable rates through the use of several interest rate swap agreements.

The fair market value of these swaps, which have been designated as fair value hedges on long-term debt, was a net asset of $2.7 million at the end of the third quarter.

Under the applicable accounting rules, this amount has been reflected on our balance sheet in intangibles and other assets with a corresponding increase to term debt.

At the end of the quarter, partners equity totaled $407 million and our total cash on hand was $9.8 million, both amounts in line with normal seasonal levels.

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

Tony?

(OPERATOR INSTRUCTIONS).

Kit Spring.

Stifel Nicolaus.

Good quarter considering the inclement weather.

My question is what your appetite for acquisitions might be over the next year?

Historically I think you've done an acquisition every three years.

I am speculating that your competitor, Six Flags, again may have to shed some assets.

I know you made an acquisition this year.

Would you consider doing another one just a year later as opposed to your historical timeframe of one every couple of years?

You are right.

We average about every two or half or three years for an acquisition.

That has purely just been coincidentally.

Our acquisition mode has always been that if the right property comes along, we certainly will take a look at it, and even though we've only made an acquisition every two or three years, we've looked at several in between the time that we purchased the properties and we have turned down probably more than what we have acquired.

Our philosophy has always been that it has to be accretive in a very short period of time, but I think that -- I know we have the management team that is willing to take on more responsibilities and wants to grow the Company, and I believe our balance sheet is such now that we are positioned that we can make more acquisitions.

So certainly if the right opportunity presents itself, we are in a position both from a management standpoint and from a balance sheet standpoint that we could go forward.

Okay.

I think the Jobs Act passed, and that will now allow mutual funds to buy limited partnerships starting in January if I'm right.

Does that have any impact on how you manage the Company going forward?

It probably will not impact our management, but it certainly does open up a very large pool of investment money that may for the first time be focused on publicly traded partnerships.

I don't think anybody expects it to be an immediate and huge impact, but it will be good over the long haul I think for PTPs to have mutual funds taking another look at it.

William Keller.

Key McDonald.

A question about out in California you mentioned better competitive environment for Knott's Berry Farm.

I believe I saw something about one of your competitors doing a promotion where a single day ticket becomes a season pass of some sort.

I am wondering if you can comment a little bit about pricing in the environment going forward out that way?

This is Dick.

It is a very competitive market out there.

However, I think we have been -- I believe what you're talking about would be Magic Mountain, and they came out with a Gold Pass or something like that.

You buy one ticket and I believe you get the next year free.

And several of the parks out there, Universal, they have some discounts, but again I don't think it's nearly as bad as it was a couple of years ago where there was a lot of buy one and get one free.

It certainly has reflected in our admissions per capita at Knott's Berry Farm and also more people coming into the park.

Now whether that is a result of tourism increasing back in Southern California, we really have not been able to put our finger on that yet.

But certainly the (inaudible) and his team at Knott's has certainly proven successful.

But what we have found certainly in Orange County in the parks that we are in direct competition with, the competitive situation on discounts is certainly letting up a little bit.

There is less discounts in the marketplace in Orange County now I think is what I am saying.

That certainly is affecting our admissions per capita.

Great.

Thank you very much.

(OPERATOR INSTRUCTIONS).

Robert Routh.

Jefferies.

Yes, good morning.

A few quick questions.

First, I was wondering if you could just comment on the general state of the industry as you see it, given the consolidation that we are seeing, as well as the divestitures that Premier Parks is going through?

Where do you kind of see the regional-based amusement park industry in, say, four or five years going out?

And where do you see Cedar Fair's placement within that world that you envision?

And second, I am wondering if you can tell us what percentage of Company stock is owned by management at the current time?

Robert, this is Dick.

Your first question is really tough.

As you know, Six Flags did a great job of consolidating the industry and eliminating the mom-and-pop organizations and putting them under a corporate structure.

But the main thing I think that has affected our industry is there is now a major amusement park or a large amusement park in every major Metropolitan area in the United States.

So it is stymied our growth somewhat as it has into the '90s.

I'm certainly not saying that we have a nongrowth company.

Certainly what we have to do is we have to give people reasons to come back.

We have to give them a clean and safe family environment with good rides and attractions.

But as far as the growth of the '90s, I think pretty much that the industry has matured somewhat basically because of the markets -- all the markets do have big parks.

And there is just so much competition for the discretionary dollars.

But certainly our industry is one that has been around for a long time.

For example, Cedar Point has been around for 134 years, and it has been a very very successful park for all those years.

We think not only our companies, but we think the entire industry is going to be successful going into the future.

With respect to the question about stockownership by management, I think it is 5 or 6 percent.

I would have to look back at the proxy statement from last year, but I think 5 or 6 percent is a pretty good estimate of units owned by management.

Just one quick follow-up.

Originally obviously the Company was an amusement park company, and now you have really grown on the waterpark side.

And with the addition of hotels, it seems as though you have expanded into waterparks, and in addition to that, you're becoming more of a location-based destination instead of a day park, more of a multiple day park type of a company.

I am wondering if you can comment a little bit from a strategic point of view as to whether that is where you are going and how far down that road you plan on going from where you are today?

Sure.

The waterparks are basically just an extension of the amusement park.

What the waterparks are is basically an entertainment with rides and slides as opposed to hard rides.

It's basically waterslides and inner tube rides.

So it's basically an extension of our business.

We first got into it years ago when we found it to be very very profitable, especially putting parks next to or adjacent to our existing amusement parks and then charging an extra charge attraction, and trying to make the parks the destination resorts.

Again, going back to your first question, Robert, is do we see the industry growing?

Well, we think maybe we have mature parks now in every major market.

We think that an area that Cedar Fair can expand in is certainly something of hotels and indoor waterparks like you will see open today at Castaway Bay in Sandusky, Ohio.

If that concept is successful, I think what you will see is we will be expanding that concept into the other markets into our other parks.

One of the advantages that we have is that we already have the property available in six other cities.

We also have the management team in place.

We already have aquatics people, we have marketing in place and food and merchandise and arcades.

So again going into year-round facilities like the indoor waterpark is again just a natural extension of our business.

What we will do is you have been falling us, I think you know we are a very conservative company.

We will probably take a year, a year and a half to weigh the success of Castaway Bay to make sure it's just not a fluke and that the people will come to these indoor waterparks during the winter.

And if it is successful, certainly it is a natural extension of our business.

We are very excited about it.

We are excited about the way Castaway Bay has opened, and we think that is going to be a very successful extension of our business.

Great.

And just one final question.

Has management considered given where your stock is, splitting it, or would they consider that at this level in order to increase liquidity?

The last time we did split the units was about 1997, '98, and I think was at the $40 level.

I think that is probably at the level where we would start talking about it.

(OPERATOR INSTRUCTIONS).

Jeff Siebel (ph).

Gannet, Wells & Gotler (ph).

If I missed this earlier, I apologize.

But I was wondering if you could talk about your per capita spend improvements?

What has been driving that, and then maybe what initiatives you have going forward to continue that improvement?

Per capita spending increases have been -- our admissions per capita of all our parks have been increasing.

We have been doing less and less discounting, less discounts than we did last year as far as --.

Food has been going up very nicely at all of our parks.

Merchandise has been up somewhat.

We got hurt somewhat at Geauga Lake this year.

That hurt our per capita because they had a great market with the Looney Tune characters and that certainly affected the merchandise per capita there.

But we offset a lot of that with increased per capita in the foods and merchandise area.

But I think the big reason for -- the only reason -- or the biggest reason for the increase in the per capita spending would be on the admissions side where we have reduced discounts.

We went with less discounts this past year.

That is great.

Do you see that continuing going forward?

Yes, I think we are at a point now that the parks are getting close to $45 or $50.

I think we have to look at -- be creative and look at other ways of getting people to come into the park and perhaps holding our prices and decreasing discounts is probably a way that we are seriously thinking about going in the future.

Jim McCary (ph).

ICS (ph).

Just thinking about Geauga Lake a little bit, and maybe if you could update us a little bit on what you have learned about that park this past season, and if there are any thoughts you could share in terms of plans that you might have, tactical moves or strategic, anything of that nature?

Jim, I will tell you that Geauga Lake was a very big disappointment for us this year.

We underestimated or I will say I underestimated the market.

We only had five weeks to get ready to open the park, and so consequently we hurried up a promotional plan and an advertising plan that perhaps maybe was not the right one.

But Bill Spain and his management team, we took all of our top management at that park.

We brought it from either other Cedar Fair parks.

They did an outstanding job.

They worked 12, 16 hours a day, five, six, seven days a week to try to get the park to Cedar Fair standards as far as we had to put -- we put pain into it and things like that.

We just underestimated the market.

We underestimated the strength of the animals.

Those were a tremendous draw.

We got an awful lot of comments after we opened the park.

The people were disappointed.

We did not have the animals.

In the long run, I still think this is the right way to go by not having the animals in the park.

So certainly 2004 was a very big disappointment for me.

We only did 700,000 people there, and I believe when we were on the conference call after we acquired the property, we felt we were going to do 1.5 million, which was about a 300,000 decrease from what Six Flags had done.

And to do only half of that, again is very disappointing.

But we certainly don't have our heads down, and Bill and his team have a marketing plan in place for next year.

I think we have an exciting capital program that is going to be revealed next Wednesday, that I think is really going to turn that around.

What we're trying to do is to make it to be complementary to Cedar Point not competitive with Cedar Point.

We have a new pricing structure there that I think the public will really take to, and I think that next year at this time I think we will be very pleased with the results of Geauga Lake.

We will have a whole year to get ready, and we have a very dedicated management team there that is completely devoted to making that a very very successful operation.

Outside of the indoor waterpark, that sounds like your big opportunity for improvement next year.

So best of luck with that.

Thank you very much.

But if I could just, you know certainly we think that Geauga Lake has an opportunity, but certainly Dorney Park is putting in a great coaster next year, too, and their weather the last two years has not been that great.

So I think that we could have a good year in the East next year also.

That would be great.

Thank you.

Gentlemen, there appear to be no further questions at this time.

I would like to turn the floor back over to you.

Thank you.

If there are no further questions, I just want to thank everyone for joining us on the call today.

If anybody has any follow-up questions, please feel free to contact the company and myself directly at 419-627-2173 We look forward to speaking with you again in late January to discuss fourth-quarter and full-year numbers.

Thanks, again.

Thank you.

This does conclude today's teleconference.

Please disconnect your lines at this time and have a wonderful day.