Six Flags Entertainment Corp (FUN) 2005 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to your Cedar Fair first-quarter earnings conference call.

At this time all lines have been placed on a listen-only mode and the floor will be open for questions following today's presentation.

It is now my pleasure to introduce your host Mr. Brian Witherow.

Good afternoon and welcome to our first-quarter earnings conference call.

I am Brian Witherow Cedar Fair's corporate treasurer.

Last night we issued our first-quarter earnings release.

A copy of that release can be obtained on our corporate website www.CedarFair.com or by contacting investor relations offices at 419-627-2233.

On the call this afternoon are Dick Kinzel 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 references to adjusted EBITDA as defined in our earnings release.

The required reconciliation of adjusted EBITDA is in the earnings release and is also available to investors on our website via the conference call access page.

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.

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.

Now I'll turn the call over to Dick Kinzel.

Thank you for joining us on the call today.

Let me begin by reminding you that virtually all of our revenues from our seasonal amusement parks, water parks and other seasonal resort facilities are realized during 130-day operating period beginning in the second quarter with majority of the (technical difficulty) in the peak vacation months of July and August.

In addition Knott's Berry Farm our only year-round amusement park operates at its lowest attendance level in the first quarter.

Thus I will caution you that the first quarter is not material to our full year operating result and it's always risky to jump to any conclusions based on first-quarter numbers.

With that in mind our results for the first quarter were somewhat mixed.

Revenues in the period were up 7% due entirely to the contribution of Castaway Bay which opened back in November 2004 and has performed very well since its debut.

For the quarter both occupancy levels and average daily room rates at Castaway Bay improved significantly from a year ago which it was a Radisson Hotel last year.

As did revenues at the adjoining TGI Fridays.

The strong performance of Castaway Bay was partially offset by a $2 million revenue decline at Knott's Berry Farm in the first quarter.

This was a result of record rainfall in Southern California which led to a loss of approximately 100,000 guest visits in the quarter compared to 2004.

Through the first three months of the year Knott's experienced 20 days of rain which included several days on which the park was forced to close early compared to only 6 rain days last year.

In spite of the poor weather in part guest per capita spending at Knott's was up almost 10% in the quarter.

We're confident that the slow start to Knott's 2005 season is entirely weather-related and that the combination of improved weather and the strong drawing power of their new inverted roller coaster, Silver Bullet, will allow the park to recoup much of its early season revenue shortfall.

Of our other parks only Worlds of Fun in Kansas City has opened its gates for the 2005 season to this point.

Cedar Point, Dorney Park, and Geauga Lake all open tomorrow and by Memorial Day weekend all of our seasonal properties including our five water parks will be open on a daily basis.

We have a nice mix of new attractions and guest accommodation facilities in place this season and we're confident they will generate strong interest in each of our markets.

In total we have invested $80 million across our 12 properties this year highlighted by the addition of major thrill rides at our three largest parks.

At both Knott's Berry Farm and Dorney Park we have introduced new world-class roller coasters which we expect to be strong attendance draws for those parks.

At Cedar Point we have added a major new type of thrill ride to complement our existing collection of top-rated rides.

Capital investments at our other parks are highlighted by the addition of a major new water attraction at Michigan's Adventure; a luxury camping complex at Worlds of Fun and a huge new water park at Geauga Lake.

Construction on Geauga Lake's new water park Wildwater Kingdom was somewhat delayed by record snowfall in Cleveland this winter and is now scheduled to open in mid-June.

Although this delay is disappointing we don't believe it will have a material effect on Geauga Lake's season as the opening will still be in time for the peak vacation months of July and August.

All of our other projects are completed or on schedule to open on time and on budget.

We're confident that each of these investments along with the new strategic marketing plan will position our parks for a successful year in 2005.

Looking at some early season indicators year-to-date bookings on group outings and seasons pass levels at several of our parks started out somewhat slowly but have picked up the past month. (indiscernible) lagging slightly behind 2004 at several parks although it is still too early to read too much into these numbers.

On a positive note early reservations at our resort hotels looks strong particularly at Cedar Point where Castaway Bay continues to perform very well.

Looking towards the 2005 season there are several challenges that lie ahead of us.

First we must overcome the early season attendance shortfall at Knott's Berry Farm caused by the heavy rain in Southern California.

Although the slow start is disappointing as I said earlier we fully believe that the combination of improved weather and the strong drawing power of Silver Bullet gives the park a good chance to recoup much of its early season revenue shortfall.

In April weather improved a bit and both attendance and guest per capita spending levels at Knott's Berry Farm were up 4% for the month.

We're also faced with the challenge of turning around our newest park Geauga Lake which underperformed in 2004.

We believe the park's poor performance last year is not indicative of its long-term potential and the changes we've made for 2005 should improve its attendance and profitability.

These changes include a new marketing focus that promotes Geauga Lake as two parks in one, an approach that has worked very well for us at Dorney Park and an everyday low pricing policy like the one we employ at Michigan's Adventure.

These new marketing philosophies combined with the addition of a huge new water park and several other attractions should help the park rebound nicely this year.

In 2005 we also continued to face uncertain economic conditions in several of our key regional markets as well as rising gas prices.

As we've mentioned in the past because our parks are primarily regional draws there was an easy driving distance of their major markets.

We continue to believe that they serve as an attractive alternative to more expensive long distance vacations.

This makes the parks less vulnerable to soft economic conditions or rising gas prices.

We recently completed a survey through our Cedar Point website that was designated or designed to determine how gas prices are affecting the travel plans of our potential guests at the park.

The results of the survey were very encouraging and supported our belief that the rising costs shouldn't materially impact their attendance.

Of the survey respondents 50% indicated that gas prices have not affected their travel plans at all.

Only 1% mentioned that they were not going to take a summer vacation at all due to higher gas prices and 16% indicated that they planned on visiting Cedar Point or will visit the park more than once instead of taking a vacation further away from home.

Although it was still too early to accurately forecast 2005 full year performance with the strong capital improvement program a year under our belt at Geauga Lake and the excitement surrounding Castaway Bay we believe the Company is well positioned for the upcoming season.

As we indicated on our last conference call we expect to generate full year revenue growth of 6 to 8% over last year's $542 million level.

We expect to achieve this growth through improvements in both attendance and guest per capita spending as well as a continued increase in guest accommodations revenue at our resort properties.

Including Castaway Bay.

We also are reiterating our guidance for full year adjusted EBITDA in the 185 to $195 million range.

At that level we should be positioned to achieve our goal of continued growth in cash distributions through our unitholders in 2005.

Before I turn the call over to Bruce Jackson I would like to mention his upcoming retirement.

As you may have seen in a recent press release Bruce has announced that he will be retiring in the near future.

This most likely will be his last conference call and I'd like to take this opportunity to thank him for all of his hard work and efforts of the past 16 years.

His service and dedication to the company have been invaluable and he will surely be missed.

I know we all wish him well and the best in his retirement.

No specific date has been established for Bruce's departure, however he has agreed to stay on through a transition period while a search is undertaken to identify his successor.

The board has established a committee to perform this search and is currently interviewing candidates.

We hope to have a successor named in the next few weeks.

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

Thanks very much Dick.

I really enjoyed my time working here and look forward to following the partnerships continued success as a unitholder in the future.

Before I get into the details behind this quarters' numbers I'd like to discuss the 8-K that we filed yesterday which restated 2004 quarterly results to show the effect of deferred income tax accounting under FAS 109 on those interim periods.

As we mentioned on our last conference call during the 2004 audit we were told by our new auditors that were not properly recording and disclosing the deferred tax attributes of our corporate subsidiaries.

As a result we performed a complete analysis of these tax attributes as of December 31, 2004 and 2003.

As we expected there was no net effect on cash flow or the provision for taxes or net income.

In the 2004 or 2003 annual financial statements.

However, the impact on a quarterly basis was significant due to the seasonality of our operations.

After identifying this interim reporting issue we determined that we should restate our 2004 quarterly results to recognize deferred income taxes of our corporate subsidiaries in the same way that we are in 2005 interim periods.

Those details were filed yesterday in a form 8-K.

For the first-quarter of 2004 our net tax credit of $9.4 million was recognized which had the impact of reducing the net loss for that quarter from $29.9 million to $20.5 million.

This compares to a tax credit of 9.8 million in this year's first-quarter related to the corporate subsidiaries.

No adjustment was made to the trailing twelve-month period ended March 28, 2004.

As the net effect of the tax credits and provisions under FAS 109 during that period was negligible as was the case at the end of 2004.

Now to the details behind our first-quarter operating results.

For the quarter net revenues increased 7% to $24.8 million from 23.2 million a year ago including admissions revenues of 8.2 million down almost $1 million from last year.

Food, merchandising games revenues of 11.2 million down about $200,000 from last year and accommodations and other revenues of $5.4 million up 2.7 million from the prior year.

The increase in accommodations and other revenues was entirely due to the first-quarter performance and contribution of Castaway Bay which opened last November.

As Dick mentioned occupancy levels and daily room rates at Castaway Bay increased significantly in the period.

The decreases in admissions revenue and food and merchandise and games revenues were the direct result of first-quarter attendance shortfall at Knott's Berry Farm.

Consolidated operating results for the first quarter include normal off-season operating maintenance and administrative expenses at our seasonal amusement of water parks, together with daily operations at Knott's Berry Farm and Castaway Bay.

Total operating costs and expenses in the quarter excluding depreciation and all other non-cash charges increased 13% to $47.8 million from $42.5 million in 2004.

This increase was primarily attributable to the cost and expenses of Castaway Bay, and Geauga Lake which was acquired in April 2004 and thus is not less not reflected in the 2004 first-quarter results.

After depreciation and $1 million non-cash charge per unit options total operating cost and expenses increased $4.9 million or 11% to $52.2 million.

After interest expense and a provision for taxes our net loss for the quarter increased to $24.6 million or $0.46 per unit from $20.5 million or $0.40 per unit a year-ago.

Excluding Geauga Lake's first-quarter net loss of $4.6 million the combined net loss for the period would have been $20.0 million or $0.39 per unit.

In the twelve-month period ending in March '05;

Geauga Lake impacted our consolidated EBITDA by a negative $7.7 million and after deducting depreciation interest and taxes, net income for the twelve months was reduced by $18 million or $0.39 per unit.

Improving Geauga Lake's profitability is clearly one of our most important challenges and opportunities.

Turning to our balance sheet for a moment at the end of the first-quarter our receivables and inventories were at normal seasonal levels and we have the necessary credit facilities in place to fund current liabilities, capital expenditures and preopening expenses as required.

At the end of the quarter total debt outstanding was $536.3 million including 385 million of fixed-rate term debt, 20 million of which is classified as current and $151.4 million of borrowings under our bank revolver.

At the end of the year partner's equity totaled $323 million and our total cash on hand was 4.6 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.

(OPERATOR INSTRUCTIONS) Chuck Cerankosky Key McDonald.

Can you give us any idea Dick what Geauga Lake season pass sales are like at this point in the year?

And how they compare to last year and even other years if you have that.

I can go back to last two because that's the information we have Chuck.

Geauga Lake's season pass sales are considerably behind last year and very considerably behind it when the Six Flags organization had it.

And we believe the reason for that is basically we are going with a new 24.95 price and we believe that we're going to trade some of the season pass holders for walk up business.

But the season passes are down significantly from last year.

Have you seen that sort of pattern at other parks where you have reduced the gate charge that had aided in the season pass sales.

This is the first time we've done that; we're sort of modeling this after Michigan's Adventure and the Michigan's Adventure model states that we do not sell a whole lot of season passes there either.

What was their daily admission at Michigan's Adventure.

I think its right around $24.

$24.95, just about what Geauga Lake is.

Before the end of the call I will check that and get back to you and make sure, Chuck.

And again Bruce, congratulations.

Thank you very much Chuck.

The next question is coming from Robert Rouse of Jeffers.

Two quick questions.

First, you had mentioned that you would like to continue the increased distributions and I know that you did just put through an increase.

I'm wondering if at this point you think it's possible we may see another increase in September or whether or not its way too soon to tell and if it's more of an '06 event.

And second I wondered if you could comment on a macro level -- there's been a lot of talk about Six Flags and obviously the Paramount Parks being for sale.

Whether or not Cedar Fair has any interest in any of those properties?

Whether you are looking at anything or at the moment it's more a function of just focusing on the core operations that you currently are running.

Robert, I think your first question pretty much answers the second question.

Our number one goal is to increase that distribution and that certainly is our primary purpose to be here is we feel that that's what drives the price of the units is the distribution.

And we certainly are not going to do anything to justify or to disrupt that distribution.

Whether it will be increased in September or not we really don't know.

We certainly have to wait and see what happens for the next four months.

As far as acquisitions go our acquisition policy has always been the same basically that we feel we have the management team and also we have the balance sheet in place to do it, but of course price means a lot to us.

We are not in a position some people are that they can leverage a lot of debt.

Again the distribution means so much to us that we would rather be paying it to our unitholders than pay it to the bank.

So for us the price has to be right; it has to be accretive in a very short period of time and that's really what dictates whether we're going to make any further acquisitions.

We are always looking but in all honesty we have turned down more than we have done.

One quick follow up.

I was wondering whether you have ever had a land evaluation done on all the Company's properties or whether or not you have done that and if you haven't, if you have any intention of doing that in the future?

Because it would seem as though the land is worth significantly more than you carried it on the books for.

No, we really haven't other than any time there's an acquisition, of course the land is pretty well marked on the balance sheet at market value.

So Knott's land I think was on the books for $90 million based on the appraisal back in 1977 and '98.

But Cedar Point's land is on the books at the 1983 evaluation when the going private transaction occurred.

That was the last time there was any accounting for land on the Cedar Point and Valley Fair.

But no we really haven't because I think any study of the value of the land would show that we're making a lot more profit on the operations that are on that land than selling the land and doing something else with the money.

Just backing up a minute Chuck in answer to your question, Michigan's Adventure daily rate is $23 compared to 24.95 at Geauga Lake.

And on the season's pass side where Michigan's Adventure gets $95 for their season's pass, where Geauga Lake it's 79.95.

Kit Spring of Stifel Nicolaus.

I think your guidance for the revenue growth probably assumes about 3 or 4% attendance growth.

Is that a normalized level or are you assuming that you get some easy comparisons from last year's difficult rainy weather.

I think the biggest part of the increase and the overall attendance that we expect is at Geauga Lake.

That is clearly we never expected attendance to drop below a million people last year and clearly we don't expect that to happen again.

So I think it's probably not normal to say across the company you can expect 3% annual attendance growth, but there is certainly an upside opportunity this year off of Geauga Lake.

But you are not including any -- assuming a normalized weather pattern.

Yes just normal weather; right, we never assume best case and we certainly don't expect it to rain everyday like it has a couple of summers in some of the markets where we operate.

(OPERATOR INSTRUCTIONS)Dean Gianoukos from J.P. Morgan.

Actually this is Romey (ph) for Dean.

Just a few questions.

One, I wanted to see if you could tell us you said Knott's is off by 100,000 guests, what that means for attendance?

I don't know if you mentioned that.

Also, I wanted to know what you guys are doing to improve the performance at Geauga Lake.

Obviously you are pointing out that that was something that hurt you guys pretty significantly in 2004 and you have pointed out that excluding Geauga Lake you did a loss of $0.39 for the quarter.

I wondered what it was if you exclude Castaway Bay as well?

I don't have that broken down that many different ways but -- let me go back to where the $0.39 came from.

While you're looking at that, why don't I talk about Knott's.

We are down 100,000 at Knott's right now as we said in the opening remarks.

We do think we can pick some of that up.

We have a great coaster that opened over Christmas there so I think we can pick up a lot of that 100,000 attendance and the early indicators on per capita have been real good there so I'm not overly concerned about Knott's.

It's going to be difficult to certainly achieve higher than what we have budgeted for starting off 100,000 in the hole but I'm still optimistic that we are going to have a good year at Knott's.

At Geauga Lake, you are right it was a very disappointing year last year and our plan is pretty much we are copying off of the success we had at Dorney Park and their Wildwater Kingdom is that we are promoting Geauga Lake as two Parks in one.

Geauga Lake has a tremendous ride selection.

It has seven roller coasters; a lot of round rides.

We are putting live shows in there.

It really is a beautiful park.

Where we made our mistake last year I think is we -- as we mentioned -- we underestimated the value of the animals.

And quite frankly we did some PR things wrong that I take full responsibility for as far as cutting out some of the discounts and the free passes that were given out there.

Again going along with the 24.95 price to get in and the combination in advertising it the two Parks for the price of one, I think it's really going to help Geauga Lake.

I think it's going to drive attendance there.

And I think it's going to complement Cedar Point as opposed to competing with Cedar Point.

What was the pricing on Geauga Lake when Six Flags owned it?

It was 24.95 now.

It was 34.95.

It was 44.95 when we took it over then we immediately dropped the price $5 and then this year we are dropping it another $10.

It was like a lot of their other Parks are priced very high with lots of discounts.

Back to the question on Geauga Lake.

The effect on the first quarter of Geauga Lake was about $0.07 per unit and that was where the $0.39 would've been the first-quarter loss.

From $0.46 if Geauga Lake had not been in.

And this is the last quarter where that is a comparison issue that has to be broken out separately because now starting April 8th last year Geauga Lake was a part of the Company and this is the last quarter were there's apples and oranges in the P&L that need to be pro forma to show you what the real comparison is.

On the Castaway Bay, I don't have a pro forma with or without Castaway Bay, but it's a new operation and I think what you see there is real dollars in the bank that are going forward going to be a part of the company going into the future.

I guess it's your take that you guys think Geauga Lake will be profitable by the end of the year?

There's a lot of people who would be very disappointed if it isn't.

And I don't think anybody expected that we could run an actual EBITDA loss there and for a combination of reasons that won't recur it all came together last year that way.

But we have got a lot riding on Geauga Lake and we have got a great new waterpark that people are really going to like that's going to be opening in the middle of June.

And that alone I think with any kind of normal weather should result in a significant improvement in the profit picture at Geauga Lake.

There appear to be no further questions at this time, gentlemen.

If there are no further questions I would like to thank everyone for joining us on the call today.

Should anybody have a follow up question please feel free to contact the company directly.

And we look forward to speaking with you again in early August to discuss second-quarter results.

That does conclude today's teleconference.

Please disconnect your lines at this time and enjoy your weekend.