Six Flags Entertainment Corp (FUN) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Raheem and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Cedar Fair fourth-quarter and year-end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS)

It is now my pleasure to introduce your host, Miss Stacy Frole.

Good afternoon and welcome to our year-end conference call. I am Stacy Frole, Cedar Fair's Director of Investor Relations.

Earlier today, we issued our fourth-quarter and year-end earnings release. A copy of that release can be obtained on our corporate Website at www.cedarfair.com, or by contacting our Investor Relations offices at 419-627-2233.

On the call this afternoon our Dick Kinzel, our Chairman, President and Chief Executive Officer, and Peter Crage, 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 recent directly comparable GAAP measures. During today's call, we will make reference 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 let me turn the call over to Dick Kinzel.

Thank you for joining us on the call today. As you can see from our earnings release, we are very pleased with our 2005 fourth-quarter and full-year results. Thanks to a record fourth-quarter performance, we recorded the first fourth-quarter operating profit in the history of the partnership and were able to come in well above our most recent full-year earnings guidance.

Much of our success in the fourth quarter can be directly attributed to the strong performance at Knott's Berry Farm, as well as solid October weekend results at several of our seasonal parks. With favorable October weather and the continued appeal of our fall promotions, combined attendance at our parks was up 13%, or approximately 200,000 visits in the fourth quarter.

During the period, attendance at Knott's was up 15% over last year and in-park guest per capita spending at the park improved by 3%. Improved results at the Knott's Berry Farm Hotel and the introduction of a new TGI Friday's restaurant during the second half of the year also contributed to Knott's success.

To summarize the key factors in the success of our 2005 season, effective capital programs and marketing strategies, combined with favorable weather late in the year to produce solid attendance and revenue figures at most of our parks and disciplined expense controls dropped most of the revenue increase to the bottom line.

In 2005, both Dorney Park and Michigan's Adventure produced strong operating results. At Dorney Park, attendance finished the year at 1.5 million guests, up 9% from last year, and in-park guest per capita spending increased 7%. At Michigan's Adventure, full-year attendance totaled 550,000 guests, an 18% increase over 2004, while per capita spending increased 1%. These parks were critical to the overall Company performance in 2005.

As I mentioned earlier, our only year-round park, Knott's Berry Farm, performed very well during the second half of the year. For the full year, attendance at Knott's increased 1%, or 25,000 visits, to 3.6 million guests, while in-park guest per capita spending was up 6%. Out-of park revenues were up also up 14%, or $3.8 million, primarily due to strong increases in accommodations and merchandise revenue. The successful opening of a TGI Friday's in July also contributed nicely.

For the full season, attendance at Cedar Point, our flagship park, decreased 3% to 3.1 million guests, while in-park guest per capita spending remained unchanged. For the year, out-of-park revenues at Cedar Point were up 11%, or $6.3 million between years, due to Castaway Bay's continued strong performance compared to 2004, when it operated most of the year as a Radisson Hotel.

For the year, attendance at Valleyfair was down 5% to 986,000 guests, while in-park guest per capita spending was up 5%. At Worlds of Fun, attendance decreased 10% to approximately 800,000 guests, while in-park guest per capita spending increased 3%.

Our newest park, Geauga Lake, finished the year well below our expectations. For the full year, attendance at the park totaled approximately 700,000 guests, or unchanged from 2004. However, we did see improvement in in-park guest per capita spending, which was up 5% between years, as well as guest satisfaction levels during the year.

At our five waterparks, combined attendance totaled 1.5 million guests, up 7% from last year. The majority of this increase came from our two midwest waterparks, Cedar Point Soak City and Oceans of Fun in Kansas City. In addition, in-park guest per capita spending increased 3% across the five parks. Across all 12 properties, average in-park guest per capita spending was up 3% between years.

Before I turn the call over to Peter for a more detailed review of our fourth-quarter and full-year results, I would like to briefly discuss our position with regards to the announced sale of the Paramount Parks or any acquisition opportunity that may become available to us.

As I mentioned in our last call, we feel we have an obligation to our investors to review all opportunities that are presented to Cedar Fair, including the Paramount Parks. Decisions will not be made until we have time to fully review and analyze the information that is provided to us by the seller.

Now Peter will give you a review of the financial highlights, after which I will comment on the 2006 season.

Thanks, Dick. As Dick mentioned, we're very pleased with our record fourth-quarter performance and the fact that we were able to finish the year on a positive note. For the quarter, consolidated revenues increased 9.9 million, or 15%, to 78 million due to the strong performance of Knott's Berry Farm and successful fall promotions at several of our seasonal parks.

Both Cedar Point and Knott's generated solid operating results in the period, driven primarily by good weather and the growing appeal of our fall and winter promotions. For the period, combined attendance at our 12 parks increased 13% between years, while guest per capita spending increased 5%. Over the same period, combined out-of-park revenues were up 1% from a year ago.

For the full year, consolidated revenues increased 5% or 26.7 million to 568.7 million. This included 292.4 million of admission revenues, 219.1 million of food, merchandise and games revenues, and 57.2 million of accommodations and other non-park revenues. The overall increase in net revenues for the year was achieved through a 1% increase in combined attendance, 3% increase in average in-park guest per capita spending and a 12%, or $10.2 million, increase in out-of-park revenues.

For the entire year, combined attendance at our 12 properties increased 1% to 12.7 million guests from 12.6 million in 2004. At our seven amusement parks, combined attendance remained unchanged at 11.3 million guests, and attendance at our five waterparks totaled 1.5 million, up 7% between years, driven by strength at our Cedar Point and Worlds of Fun waterparks. As it Dick mentioned, growth in in-park guest spending levels continued to be steady in 2005.

The 3% increase between years was due to solid improvement in guest spending on admissions at our amusement parks. For the year, average in-park guest per capita spending across our 12 properties increased more than $1 to $37.68 from $36.59 a year ago.

Total operating cost and expenses in 2005 before depreciation and other non-cash charges increased 2% to 374.5 million from 369 million a year ago. This was primarily due to the additional operating costs and expenses of Geauga Lake, which was acquired in April 2004, and the incremental operating costs of Castaway Bay, which opened in November 2004.

Each of our other properties did an excellent job of managing operating costs this season, and all major costs as a percentage of revenues remained at or below historical levels. After depreciation and a non-cash charge for unit options of 1.1 million, operating income for the year increased 17%, or 19.5 million, to 137.3 million.

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 all other non-cash items. For the year, adjusted EBITDA increased 12% or $21.2 million to 194.2 million, in large part due to strong operating results at Knott's Berry Farm. Increased attendance and solid operating results at Dorney Park and Michigan's Adventure also contributed nicely.

The consolidated adjusted EBITDA margin in 2005 increased to 34.1% from 31.9% in 2004, with adjusted EBITDA margins improving at all of our parks due to a continued focus on managing operating cost and expenses and our high operating margin leverage.

In 2005, we recognized a non-cash credit of $459,000 for the change in fair value of swap agreements that expired in the first quarter. This compared to a non-cash credit of 4.5 million in 2004. After non-cash credits, interest expense, and a provision for partnership taxes, net income for the year totaled 160.8 million, or $2.93 per diluted limited partner unit compared to 78.3 million, or $1.47 per unit a year ago.

Reflected in the 2005 net income is a net tax benefit of 49.3 million resulting from the reversal of 62.6 million of contingent liabilities recorded and prior periods related to publicly-traded partnership taxes, offset by publicly-traded partnership taxes payable and the tax attributes of our corporate subsidiaries.

As I reported at the end of the third quarter, management determined that the partnership's accrual for PTP taxes was no longer required, based on the accumulation of relevant evidence since the adoption of the PTP tax in 1998. Excluding the impact of the PTP tax reversal and computing a 2005 accrual consistent with the treatment applied in 2004, net income for the year would have been 87.6 million, or $1.59 per diluted limited partner unit, an increase of $9.3 million from 2004.

Based on these results, our full-year cash flow is sufficient to fund our current partnership distribution rate of $1.84 per unit, or approximately $99 million in the aggregate. As we mentioned on our last conference call, our Board will consider another increase in the distribution rate at its March meeting.

Turning to our balance sheet for a moment. At year-end, our receivables and inventories were at normally low seasonal levels, and we had the necessary credit facilities in place to fund current liabilities, capital expenditures and preopening expenses as required.

At the end at the year, total debt outstanding was 470.9 million, including 365 million of fixed-rate term debt, 20 million of which is classified as current and 105.9 million of borrowings under our bank revolver.

At the end of the year, partners' equity totaled 432.5 million, and our total cash on hand was 4.4 million, both amounts in line with normal seasonal levels.

At this point, I'll turn the call back to Dick for some comments on the upcoming season.

As we look to the coming season, we believe we had a good plan in place to capitalize on opportunities and overcome challenges we might face. With the right mix of capital investment, pricing strategies and marketing, we plan to further grow revenues and cash flow.

We will be investing a total of $58 million across our 12 properties in 2006 as compared to the 83 million spent in 2005. Our CapEx program will include a new roller coaster at Worlds of Fun, new rides at Cedar Point, Valleyfair and Michigan's Adventure, and waterpark expansions at Dorney Park and Geauga Lake.

The 2006 capital program will be highlighted by a world-class roller coaster at Worlds of Fun called Patriot. At a cost of approximately $14 million, Patriot will be the park's sixth roller coaster and the largest single investment in Worlds of Fun's history.

At Cedar Point, guests will have the opportunity to ride the world's highest swing ride. At $6 million, Skyhawk, located in Frontier Town, will tower 103 feet above the midway. Cedar Point is also lowering a number of its admission prices for the 2006 season. This is a bold step, a first for our largest park, but we feel it is in the right response to difficult economic conditions that exist in northern Ohio and southeast Michigan, two of Cedar Point's major markets.

Our goal is to make Cedar Point more affordable for more families and to introduce the park to those who have not had the chance to experience all we have to offer.

At Knott's Berry Farm, we are adding a new water attraction, Pacific Spin, to our adjacent waterpark, Knott's Soak City, Orange County, and to Knott's Soak City, Palm Springs, similar to the waterslides which debuted in 2005 at Geauga Lake, Michigan's Adventure and Knott's Soak City in San Diego.

Dorney Park and Wildwater Kingdom will add a new wave pool to its list of attractions for 2006. Valleyfair will be introducing Extreme Swing, a high-powered swing that's similar to the Skyhawk at Cedar Point. Also new for 2006 is the Haunt at Valleyscare, a new Halloween themed event that will provide Valleyfair guests with the opportunity for thrills and chills all through October.

At Geauga Lake and Wildwater Kingdom, we will open the second phase of our two-year waterpark expansion. Overlooking Geauga Lake, Tidal Wave Bay is a 30,000 square foot wave pool. And finally, to celebrate its 50th anniversary, Michigan's Adventure is adding Grand Rapids, 1500 foot long river rapids ride.

I believe we have a strong lineup of new rides and attractions and improvements at our parks. We will also continue to invest in the physical infrastructure of our parks -- utility lines, parking lot paving, restroom upgrades, new food equipment, paint, concrete, signage, benches and landscaping. This investment is critical to the long-term success of our parks and to our partnership.

Although it still too early to accurately forecast 2006 full-year performance, we are confident that each of our investments, along with new strategic pricing and marketing plans, will position our parks for a successful year in 2006. Looking at some of early season indicators, year-to-date bookings on group outings is trending slightly ahead of last year, and season pass sales at several of our parks are lagging slightly behind 2005, although it is still too early to read much into these numbers.

Thus far, 2006 occupancy rates at Castaway Bay are lower than last year. This was expected, as Castaway Bay is coming off of its inaugural year and has increased competition in the Sandusky area. We expect this to change as we begin to enter the spring break season, and we still expect this resort to produce strong results during Cedar Point's peak operating season.

On a positive note, early reservations at our other resort hotels look strong, particularly at our Cedar Point resort properties. We are hopeful that we can carry the momentum we had at the end of 2005 into the 2006 operating season. We believe the combination of our capital programs, our new pricing and continued focus on exceptional guest service, all communicated through an exciting new marketing program will improve operating results companywide in 2006.

For the full year, we expect to generate revenue growth of 3 to 5% over last year's $569 million level, driven primarily by improvements in attendance and in-park guest per capita spending, combined growth in accommodations revenues at our resort properties and an extended operating season at Valleyfair.

Based on these revenue expectations and continued disciplined expense controls, we hope to generate full-year adjusted EBITDA in the 195 to $205 million range. At that level, we should be well positioned to achieve our goal of continued growth in cash distribution to our unitholders in 2006.

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

(OPERATOR INSTRUCTIONS) Chuck Cerankosky of Keybanc McDonald.

Good afternoon, everyone. First question, I think, is I just want to check Peter on this reversal of the PTP tax. Was that totally non-cash and the liability went away and stockholders' equity went up by the same amount?

Effectually, yes. It was all non-cash.

All right. Good deal. Dick, in looking at just the fourth-quarter breakout of your revenues, you had what looks to me like a sharp drop in the Accommodations and Other line versus a year ago just in the fourth quarter. I was wondering how you explain that, especially with Castaway Bay in there.

Castaway Bay -- last year, Chuck, we opened Castaway Bay in early November. And as Dick had commented in his comments, the early part of the year in '06 was very similar to the late part of the year in '05, where we were going up against the inaugural year, as well as 600 rooms of additional competition in the Sandusky area. So we saw a little softness at the end of the year as well.

There was an additional 600 rooms in the marketplace beginning in July of last year, and of course that affected us into the fourth quarter of this year, Chuck.

Okay. All right. In looking at this fourth quarter -- and congratulations on putting together a profitable quarter and the big swing in operating cash flow -- do you see some of these same trends carrying into the fourth quarter of next year, Dick, so that we can expect breakeven to small profit each year, or say even a similar level of adjusted EBITDA?

Chuck, the fourth quarter, you know, is certainly very unpredictable to us. This year, we were very fortunate; we had excellent weather in Southern California at Knott's Berry Farm, which produced -- it was 200,000 additional guests that we didn't have last year. We just don't know -- the fourth quarter is so unpredictable, we have so much fixed costs that it all depends on the weather and how well Knott's Berry Farm and how well the other seasonal operation we have here in Sandusky, Castaway Bay, does.

Certainly, the trends look good as far as our occupancy rates go in both our Southern California properties, those hotels, and also at Cedar Point. But when you get into the fourth quarter, we are so dependent on Knott's carrying, that I just would hate to go out on a limb and -- we're very pleased with turning a profit this year, but I certainly would not want to go out on a limb and guarantee it every year.

Then I see that Michigan's Adventure had an attendance increase in the year, while perhaps being impacted by some of the economic issues going on at Cedar Point. Could we be seeing a substitution of -- at least in the Michigan market -- of a lower-priced park for a more expensive park experience?

We think that was the result of the economic conditions in our largest market, which was Detroit. When looking at surveys from Cedar Point, our attendance out of the Detroit area was down and our attendance at Michigan's Adventures was up.

And certainly that could have been -- we think it was a result of the economic conditions and people basically looking for a cheaper alternative. As you know, Michigan's Adventure is a one-price, lower-priced park. So I think we might have lost some Cedar Point attendance due to economic conditions, but fortunately, it went to Michigan's Adventure.

All right. Finally, Dick, if you sort of review the third-quarter and fourth-quarter guest responses to some of the pricing and ticket changes for admission you made at Cedar Point, why does that affect your confidence for those changes going into the 2006 season?

Chuck, I'm very confident about it. As I hope all of you know, we listen to what our guests say, we review the surveys inside the park. One of the points that we check inside the park is median family income. And of course, we have Michigan's Adventure, we can base (indiscernible), when we knew we were losing attendance out of Detroit and some of our other areas to Michigan's Adventure, which is a lower-priced park.

So we've taken a very bold move. We have reduced prices at Cedar Point by $5.00; we've introduced a $9.95 senior price, a $9.95 child's price. We are going to have 25-cent cotton candy in the parks this year. What we're trying to do is to get -- we're trying to maybe get back some of the people that haven't been here for a few years. And if it's going to take a price reduction to get them in and reintroduce themselves to the park, that's what we're going to do.

But I'm very confident going in, our management is very confident going in. And so I think with good weather, 2006 could be a real good year here at Cedar Point. As everyone knows, Cedar Point is the engine that drives Cedar Fair. And if Cedar Point has a good year, why, Cedar Fair generally has a good year.

Dick, can you specifically speak to what was happening to the average income of the Cedar Point guests?

Sure. What we've noticed is the last three years at Cedar Point, attendances went from 3 million 3 down to 3 million 2 and then this year was 3 million 1. At the same time, our median income inside the park was rising substantially. To me and to our marketing department, that was an indication that maybe we excluded a certain section of the population from coming to the park. And so we've adjusted that and hopefully why we're going to have a broader market to appeal the park to this year.

Thank you very much.

(OPERATOR INSTRUCTIONS) There appear to be no further questions.

Great. At this point, if there are no further questions, I'd like to thank everyone for joining us on the call today. Should you have any follow-up questions, please feel free to contact me at 419-627-2227. We look forward to speaking with you again in early May to discuss our first-quarter results. Thank you.

That does conclude today's conference call. You may now disconnect and enjoy the rest of your weekend.