Six Flags Entertainment Corp (FUN) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Sandra, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Cedar Fair’s 2006 first quarter conference call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Ms. Stacy Frole. Ma’am, you may begin your conference.

Thank you, Sandra. Good morning, and welcome to our first quarter earnings conference call. I’m Stacy Frole, Cedar Fair’s Director of Investor Relations. Last night we issued our first quarter 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 morning are 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 with the most directly comparable GAAP measures. In compliance with the SEC regulation FB, this web cast is being made available to the media and the general public, as well as analysts and investors. Because the web cast is open to all constituents and prior notification has been widely and unquestionably 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 the press release that was issued last night, results of the first quarter were down slightly from last year. However, this was to be expected. The decrease of 4% or $856,000 from a year ago was primarily the result of lower occupancy and average daily room rates at Castaway Bay, and the later Easter timing in 2006. This was offset by improved operating results at Knott’s Berry Farm, which benefited from favorable weather comparisons to the first quarter of 2005, when southern California experienced record rainfall.

As I mentioned in the fourth quarter conference call, we had anticipated softness at Castaway Bay, due to the increased competition in the Sandusky area, and following a highly successful inaugural year in 2005. While we do not expect Castaway Bay to produce the record revenues that it did in 2005, we still expect this property to contribute nicely to the bottom line in 2006.

A net loss for the quarter increased to $26.5 million or $0.49 per unit from $24.6 million or $0.46 per unit a year ago. Peter will review the details behind these results with you in just a bit. I’d like to take some time and talk about our upcoming season and our expectations for the year.

World’s of Fun, our park in Kansas City, opened it’s gates for the 2006 season back in early April, and this coming weekend, Cedar Point and Dorney Park will open. By Memorial Day weekend, all of our seasonal properties, including our five water parks, will be open on a daily basis.

In total, we invested $58 million across our twelve properties this year, highlighted by the addition of a major new roller coaster at World’s of Fun. The new inverted roller coaster, Patriot, is receiving a good response in its market. I had the opportunity to ride Patriot on opening day, and the coaster is every bit as exciting as we had hoped it would be.

New rides at Cedar Point, Valleyfair, and Michigan’s Adventure, and water park expansions at Dorney Park and Geauga Lake are also complete, or on schedule to be opened on time and on budget. This year we will also be introducing the haunted Valleyscare, a new HalloWeekend themed event that will provide guests at our park in Minneapolis with the opportunity for thrills and chills all through October. Halloween events have been very successful at our other Cedar Fair parks, and we believe Valleyscare can extend our season and add significant value to the park’s experience.

In 2006, we know that many of our guests will be feeling the pressure of increased prices at the gas pump. As we have previously mentioned, to help alleviate some of this pressure we have changed our pricing strategy at our parks. This new pricing structure has already generated a lot of excitement within our regional markets.

As we’ve mentioned in the past, because our parks have primarily regional draws that are within easy driving distance of their major markets, we continue to believe that they serve as an alternative to more expensive long-distance vacation. We are confident with the combination of exciting new rides and attractions, along with our new pricing strategy, our parks will continue to be viewed as an attractive and affordable family get-away.

Looking at some of the early season indicators, year-to-date bookings on group outings and season’s pass sales are trending slightly ahead of 2005 numbers at most of our parks, although it is still too early to read too much in to these numbers. Early reservations at our resort hotels remain somewhat mixed. Accommodations at Knot’s Berry Farm and World’s of Fun are trending ahead of last year, while Cedar Point resorts are trailing last year’s pace, primarily at Castaway Bay, where, as I mentioned, we have seen increased competition in the Sandusky market.

Although it is still too early to accurately forecast 2006 full-year performance, with our capital programs and our new pricing, and continued focus on exceptional guest service, 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 3 to 5% over last year’s record $569 million level, primarily by improvements in attendance and in-park guest per capita spending, continued [technical difficulty] revenues at our resort properties and an extended operating season at Valleyfair. We’re also reiterating our guidance for full-year adjusted EBITDA is a 195 to $205 million range.

At this point I’ll turn the call over to Peter to discuss the first quarter numbers in more detail.

Thanks very much, Dick. Let me begin by reminding you that virtually all of the revenues from our seasonal amusement parks, water parks, and other seasonal resort facilities are realized during the 130 to 140-day operating period beginning in the second quarter, with the majority of the revenues concentrated in the peak vacation months of July and August. Only Castaway Bay and Knott’s Berry Farm are open year round, with Knott’s Berry Farm operating at its lowest level of attendance in the first quarter. Thus, I’ll caution you that the first quarter is not material to our full-year operating results, and it’s always risky to jump to any conclusions based on first quarter numbers.

Having said that, our first quarter results were down slightly, resulting from some softness at Castaway Bay and the later timing of the Easter holiday this year, offset somewhat by stronger results at Knott’s in January and February. Net revenues increased 4% or $856,000 to 23.9 million from 24.8 million a year ago, including admissions revenues of 8.5 million, up 0.3 million from last year. Food, merchandise, and games revenues of 11.8 million, up 0.5 million, and accommodations and other revenues of 3.6 million, down 1.7 million.

As Dick mentioned earlier, the decrease in accommodations and other revenues was largely due to lower occupancy and average daily room rates at Castaway Bay in 2006, as well as the elimination of management fees at the Mall of America. In addition, the first quarter results for 2005 benefited from the earlier timing of the Easter and spring break seasons, compared to the current year, which should benefit the second quarter.

For the month of April, Castaway Bay has seen a slight improvement in operating results compared to 2005, and the property, through the first four months of the year, is still contributing nicely to our bottom line.

The increases, in addition to revenues, include merchandise and games revenues within the improved operating results at Knott’s Berry Farm, which is benefiting from favorable weather comparisons to the first quarter of 2005, when southern California experienced record rainfall. Consolidated operating results for the first quarter include normal off-season operating maintenance and administrative expenses in our seasonal amusement and 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 1% to 48.2 million from 47.8 million in 2005. After depreciation and small non-cash charge for unit options, total operating costs and expenses decreased 1% to 51.6 million from 52.2 million in 2005.

Interest expense for the first quarter increased $700,000 or 11%, due in large part to higher short-term rates. In addition, the unamortized loan fees from our previous revolving credit agreement, which was replaced with a new facility in the period, were charged to interest expense.

Included in the 2005 first quarter net income is a non-cash credit of $459,000 to account for the change in fair value of two interest rate swap agreements that expired in that quarter. As such, there is no similar non-cash credit in the current period. After non-cash credits, interest expense, and credit for taxes, our net loss for the quarter increased to 26.5 million, or $0.49 per unit, from 24.6 million, or $0.46 per unit a year ago.

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 pre-opening expenses, as required. At the end of the quarter, total debt outstanding was 544.6 million, including 365 million of fixed rate term debt, 40 million of which is classified as current, and 179.6 million of borrowings under our bank revolver. At the end of the first quarter, Partner’s equity totaled 282.7 million, and our total cash on hand was 4.5 million, both amounts in line with normal seasonal levels.

At this time, I’ll conclude our prepared remarks and allow for any questions that you might have.

[Operator Instructions] Your first question is coming from Bill Gresser of A.G. Edwards.

Hey, guys, good morning. First question here is on competition in the Sandusky area. Obviously with the late Easter and the increased rooms there from Kalahari, its put some pressure on you guys. But if you could kind of put that aside and look at your operations, kind of versus Great Wolf, do you guys see, kind of on a normalized basis, picking up any market share? Or how are you guys kind of fairing versus that competition? And then second question is just regarding acquisition update. If you can give us any new details on Paramount Parks and/or Six Flags. Thanks.

Hi, Bill. This is Dick. We expect, even though reservations are coming in a little light at Castaway Bay, we certainly expect that to pick up and, no matter what the conditions, we certainly expect our accommodations department to have about the same occupancy, if not greater, than last year. If nothing else, at Castaway Bay with the addition of the water park, it certainly has increased our rate there. Our ADR certainly is much improved from three years ago, and it’s a much more profitable operation.

Certainly, Kalahari and the Great Wolf, both very, very great operations, has cut in to our market share, but all in all, coming in to the summer season, why it seems like there’s almost never enough rooms in Sandusky. If it’s a good, sunny afternoon, why most of the hotels and accommodations facilities have very good years at Cedar Point and so we’re looking for that. At Cedar Point, with the addition of the new ride we expect that they’ll have a good year. We certainly think that will drive all the hotels in the Sandusky area to record years.

And on acquisitions?

On acquisitions, pretty much what we said in our fourth quarter call. We continue to look at all acquisitions, and certainly Paramount was one of those, and we’re in that process.

Fair enough. Thanks.

Okay. Thanks, Bill.

[Operator Instructions] Your next question is coming from David Brenner of Jefferies.

Good morning, guys.

Good morning, David.

Quick question. I guess you said in your opening comments that Castaway Bay is not going to hit the same numbers that it hit in 2005. I’m wondering if that changes in any way your idea that you might open more indoor water parks. And, as far as the water parks in California, do you have any growth plans for adding seasonal water parks in that market or other markets?

David, what we’ve done is after we opened Castaway Bay, we made a decision when we first put it in that we were going to take a year or two just to study the results of it, and that’s what we’ve done. Certainly it would have been very easy, after the first year, to say we should put these in every market. But the barriers to entry are relatively low in this part of the entertainment industry, as Kalahari has shown us, and certainly the Great Wolf. There’s only so many rooms that you can put into an area. With the decrease that we’ve seen at Castaway Bay, we’re studying it very closely, but certainly we never expected hotels to throw off the same margins as the amusement parks. So what we’re doing is we’re looking at what’s going to give us the best return on our money, and certainly that’s still on one of the front burners is to expand that Castaway concept. But we just want to take a little bit more time, study it, and make sure that our markets are ready for it when we put it in.

Great. And also, is there any incentive to get multi-day stays in the hotels that don’t have indoor water parks? Most of your other hotels like Knott’s Berry or the other ones at Cedar Point, are there goals, sort of, to sort of get people to stay over the extra night, or whatever it might be?

Sure, David. We have a full line of packages available online, in our brochures. We have a distant market program we use at Cedar Point and also at Knott’s Berry Farm that gives them discounts on their second day of park admissions or extra charge attraction discounts and things like that. So we have a full force of sales people out there pushing our hotels all the time, year round.

Great. And last question is, I guess the March board meeting passed without the dividend increase. Are you guys optimistic that if you hit the guidance that you put in the press release that we might get an increase at the end of the year?

David, we did increase that from $1.84 to $1.88.

I’m sorry. Okay, great. And are you optimistic of another one this year, or -- any chance?

David, you only need to -- you can’t look too far ahead, but with the capital program that we’ve had, we’ve had 19 straight years of increasing that distribution. That’s certainly a goal of mine, is to keep that distribution going every year, it’s the way we keep score, increasing the EBITDA and increasing that distribution. We’re going to do everything we can to see that that distribution continues to increase.

Great. Thanks very much.

You’re welcome. Thanks for calling.

Thank you. [Operator Instructions] Your next question is coming from Jane Pedreira of Lehman Brothers.

Good morning. I’m wondering if you could just comment through April, so as to normalize for Easter, how you’re doing with your season pass sales, whether -- at least directionally if you can’t give us the precise number.

Jane, they’re really about the same as last year. We don’t put a lot of emphasis on the season’s passes as some of our competitions do. Most of the parks are running just about even with last year.

Okay. And then you mentioned something about lowering prices. Is that only at Cedar Point and Knott’s Berry Farm, or was that pretty much system-wide?

No. What we did is we reduced it -- system-wide we reduced the adult or the senior price or the junior price across all the parks. And we held most of the prices at some of our parks -- World’s of Fun did go up $1.00 with the addition of the new coaster. But in most cases, we’re holding most of our prices, and the big thing, of course, is we’re introducing the $9.95, at Cedar Point, adult and junior price. Senior and junior price. And also at $14.95 at the Knott’s Berry Farm.

Okay. And I didn’t hear, what was the price for the adult at Cedar Point?

The senior price at Cedar Point is $9.95, along with the junior price. And the regular price is $39.95, down from $44.95 last year.

Okay. So that reduction, is that a similar reduction that you took across the board at all parks?

Oh, no, it’s not, Jane. Each park was evaluated on its own merit. Yes, Knott’s introduced a junior/senior price and a similar reduction.

Okay. And then how about parking? Did you take any discounts with parking, or is that --?

Parking remains stable across all the properties this year.

Okay. Thank you very much.

Thank you. At this time 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 August to discuss our second quarter results. Thank you.

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time, and have a wonderful day.