Six Flags Entertainment Corp (FUN) 2007 Q1 法說會逐字稿

Good afternoon. My name is Asthia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cedar Fair first quarter 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)

Thank you. It is now my pleasure to turn the floor over to your host Ms. Stacy Frole, Director of Investor Relations. Ma'am, you may begin your conference.

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

I'm Stacy Frole, Cedar Fair's Director of Investor Relations. Earlier today 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 afternoon 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 to the most directly comparable GAAP measures. 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.

In the past during this first quarter, I have been only able to discuss the current operating trends at two parks. This year I'm pleased to say that to date we have successfully opened 6 of our 11 seasonal amusement parks for the 2007 operating season including all five of our newly acquired parks. Dorney Park is also set to open this weekend, with the remaining four parks to be opened over the next several weeks.

At the end of March Carowinds and Great America were our first two seasonal parks to open their gates for 2007. Peter and I had the opportunity to visit Carowinds on its opening day and the park looked fantastic. The park was clean, employees were very attentive, guests were smiling and the sun was shining. It was a great way to kick off the 2007 season.

On the call today we will provide an update on the integration of the new parks, discuss our performance and provide our near-term financial outlook. Starting with the new Cedar Fair parks, we have continued to take advantage of operating synergies during the first quarter. To date, we believe we have achieved cost savings of approximately $25 to $30 million since the acquisition last June, consistent with our original expectations.

We continue to move forward with the integration of our information systems. During the quarter, we have been able to bring online ticket sales in house by utilizing a ticket system that we acquired with the new parks. The same system has allowed us to introduce various initiatives for season's pass sales as well as provide additional channels to sell daily admissions tickets. The consolidation of our payroll systems are continuing to go well, also.

On a combined basis, the operating loss for the first quarter was $50.9 million. This includes the regular preseason operating or opening costs of the newly acquired parks as well as our legacy parks. On a same-park basis, the first quarter operating loss was $25.1 million, 9% lower than the same period last year.

The improved same park results reflect improved quarterly results at our western region parks and our continued focus on reducing costs at the northern region parks during the off-season. Peter will review the details behind these results with you in just a bit, but first, I'd like to briefly discus the 2007 season and our expectations for the year.

On Memorial Day weekend all of our seasonal properties will be open on a daily basis. In total we've invested $83 million across our properties this year highlighted by the addition of major new attraction to Cedar Point, King's Dominion, Valley Fair and King's Island. New roller coasters at Cedar Point and Valley Fair have received great coverage in the press and our customers are anxiously awaiting the opening of these two parks next weekend to experience these new rides.

We've invested $11 million into the Water Park at King's Dominion which is on schedule to open Memorial Day weekend and are in the process of transferring a roller coaster from Geauga Lake to King's Island. The rebuilding of the ride has gone smoothly and is also scheduled to be giving rides on Memorial Day weekend.

The addition of new ice shows, restaurants and thrill rides at our other parks has also received some good press coverage in the local markets that our parks operate in. Looking at some early season indicators, year-to-date season's pass sales are trending below that of 2006 numbers at our newly acquired parks. This is somewhat expected as we did not begin selling the passes as early as the parks have done under prior ownership.

We also made some adjustments that improve pricing integrity across all Cedar Fair parks. While we expect to see lower than average season's pass sales, we plan to keep a careful eye on this and make adjustments as needed to maximize revenue and provide exceptional guest service. Although it is still too early to accurately forecast 2007's full-year performance with our capital programs, new pricing structures at the acquired parks 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 revenues of between $950 million and $1 billion, driven primarily by the first full year of operations with our new parks, improvement in attendance, and guest per capita spending and continued growth in accommodation revenues at our resort properties. We're also reiterating our guidance for full-year adjusted EBITDA in the $320 to $340 million range.

At this point, I'll turn the call over to Peter to discuss the first quarter numbers in more details.

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 a 130 to 140-day operating period beginning in the second quarter with the majority of revenues concentrated in the peak vacation months of July and August. Only Knott's Berry Farm, Castaway Bay, and Star Trek: The Experience, are open year-round with Knott's Berry Farm operating at its lowest level of attendance in the first quarter. Knott's, 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.

Since we are still in the first year of operations with the new parks I'll continue to provide you with analysis on a combined basis including the new parks since acquisition and for ease of comparison I'll then discuss our results excluding the acquisition on a same-park basis. On a combined basis, including the new parks, consolidated net revenues for the three months ended March 25, 2007 was $30 million broken down as follows -- $11.3 million-admissions revenues, $14 million-food, merchandise and games revenues, $4.7 million-accommodations and other non-park revenues.

Excluding depreciation and other non-cash charges combined cash operating costs and expenses were $76.5 million, and operating loss for the first quarter of 2007 was $50.9 million. As Dick mentioned earlier, this amount includes normal preseason operating expenses and is in line with our expectations. Interest expense for the quarter was $33.4 million, up from $7.2 million for the same period a year ago.

The increased interest expense reflects higher borrowings to fund the acquisition. After interest expense, and a small miscellaneous expense our pre-tax loss increased to $84.4 million from $34.9 million in 2006. The increased loss represents the normal first quarter operating expenses slightly offset by improved results at our western region parks.

For the quarter on a combined basis, a credit for taxes of $29.3 million was recorded to account for PTP taxes and the tax attributes of our corporate subsidiaries. This compares with a credit for taxes of $8.4 million in 2006. After the provision for taxes, combined net loss for the period totaled $55.1 million or $1.02 per limited partner unit compared with a net loss of $26.5 million or $0.49 per unit a year ago.

Now I'll discuss results on a same park basis excluding the effect of the acquisition. For the first quarter in 2007 on a same park basis, revenues increased 7% or $1.6 million to $25.5 million. This is broken down as follows: $9.6 million-admissions revenues, $12 million-food, merchandise and games revenue, $3.9 million in accommodations and other non-park revenues.

The increase in revenues is attributable to higher attendance and in park per capita spending at our western region parks. Excluding depreciation and other non-cash charges, total cash operating costs and expenses on a same park basis decreased to $47.1 million from $48.2 million in the first quarter of 2006.

This decrease is primarily due to our continued focus on minimizing costs during the off season, somewhat offset by higher operating costs at our western region parks due to increased attendance. For the quarter on a same park basis, our operating loss decreased $2.5 million or 9% to a loss of $25.1 million versus $27.7 million a year ago.

Finally I'll review the balance sheet. 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. Partners' equity totaled $326.1 million and our total cash on hand was $22.9 million.

At the end of the quarter, total debt outstanding was $1.88 billion of variable rate debt, $17.5 million of which is classified as current and $147.2 million of which is borrowed under our revolving credit facility. As of March 25, 2007, $1.27 billion of our outstanding variable rate long-term debt has been converted to fixed rate debt through the use of several interest rate swap agreements. As a result, cost of our debt is approximately 7.3% at the current time. I'm pleased to report that we finished the quarter in sound financial condition in terms of both liquidity and cash flow and consistent with our expectations, as to results for the quarter including the newly acquired parks.

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

Thank you. (OPERATOR INSTRUCTIONS)

Our first question comes from Hailey Wolf with Rockdale Securities. Please go ahead.

Hi there, good afternoon.

A few questions, can you just talk a little bit about the change in the season pass program that you referenced, how season pass pricing compares against last year at both your parks and at the acquired parks, and is there any sort of effective ticket price pickup that we can expect in the numbers for this year?

Yes, Hailey, this is Dick.

Our season's pass program this year is entirely different at the newly acquired parks than it was last year. In some cases, the prices were increased. Some of the amenities that were given out with the passes were eliminated and basically what we were trying to do is to put more integrity into the season's pass program.

On the other hand, what we did at those parks and we actually lowered the price, the regular admission price to those Paramount parks, we've introduced a child's price and we've introduced an after 5:00 price. So what we're trying to do is maybe redirect some of the attendance to walk-up business as opposed to strictly season's pass business.

And you talked about season pass sales being down year-to-date. Is there anyway that you can parse that based on when you started selling passes this year against when you started selling them last year?

Sure. Part of the reason that we're down this year is we believe that we did start selling them later this year than we have in the past, and again, our--most of our attendance decrease in the season's passes is at the Paramount parks and newly acquired parks. The legacy parks are just about even with what they did last year, but there is a decrease in the Paramount parks, in the newly acquired parks.

Is the decrease due to the changing programs or is the decrease due to the fact that you started selling later?

I believe both. Certainly we've put more emphasis on price integrity and those areas so I think that both play a role in why our passes are down this year.

All right. Thank you.

You're welcome.

Thank you. Our next question comes from [Jed Ellerbrook] with AG Edwards. Please go ahead.

Thanks. You guys have mentioned previously that you expect to achieve cost savings of roughly $10 to $15 million in '07 and I was wondering if you could speak to that and if you've seen any, or if you expect anything different or if anything's changed there? Thanks.

No, Jed, this is Peter. I think we're on track for that, and the first quarter, and the second quarter, the two quarters that we have yet to operate the new parks, and we have no reason to believe we won't be able to achieve those numbers.

Okay. Thanks.

Thank you. Our next question comes from [Richie Parrack] with KBC. Please go ahead.

Hi. I wanted to ask, looking at your Carowinds facility, that new Hard Rock park property that's under construction, is that going to be formidable competition for you guys?

Richie, all competition, or all new parks are certainly competition. We have not seen it yet and I understand the ground has been broken on it. We really haven't analyzed to see if it's going to affect us or not.

What we've done in other marks where we have competition is we build rides and we compete accordingly, and we price accordingly. So it sounds like it's going to be a very nice facility, but we really don't know too much about it and then when it gets up and running and starts advertising we'll make adjustments accordingly.

You say it's broken ground. Is a year enough time to open a park?

Richie, I don't know, from our perspective, it's a pretty big order but there's a lot of good people out there so I'm not really the person to answer that question.

When you guys are getting ready to open up a new facility and you have all the equipment in place, how long does it usually take you to train everybody in the park?

Richie, we've never really been in a position that we've opened a brand-new park. What we do best is we acquire properties and then we go in and try to manage them and run them better and institute best practices.

So but we have training going on here almost in our seasonal parks where we start right after Christmas and continue on, and I was in the--driving through the park last Saturday and there were kids out in the parks from Johnny Rockets and running rides and if you walk through the park today, why, you'd see rides running and things like that. So, for us, on a seasonal basis, our training starts pretty much right after Christmas, at least on written correspondence with our supervisors and things like that.

I see. I apologize if you'd already talked about this, but did you guys speak about the outlook for gas prices and what you think about how that is going to affect attendance?

No, we did not speak about it. We're going to have to just--I was disappointed to see today that they were talking about perhaps $4.00 gas. We felt that it had some impact on us last year. Again that affects discretionary spending but again, it's one of those things we don't have control over and we'll adjust accordingly.

What about regional sensitivities? Would you say since you guys are diversified geographically, would you say there are some regions that are more sensitive than others in your opinion?

Absolutely. Especially the area that we're concerned about most, we've spent the most time advertising and looking promotions add is Cedar Point right here in Sandusky.

Again, driven by the depressed area of Detroit and the auto industry, we have seen our market in Detroit decrease year after year for the last five years, and that certainly is the area that we're concerned about. And the other areas that we have, and again, what the acquisition does is certainly gives us not only weather but also economic--create a diversity, we think we're all right in all other areas. The area that we are just very uncertain about again is Cedar Point and that's because our biggest market, Detroit, is such in economic depression.

You guys need a casino. What about the Carolinas?

We tried that.

What about the Carolinas? Is that a market that's more resilient, do you think?

Yes, our season's passes at the Carolinas, our season's passes at the Carolinas are down, and in the southern regions, why our presales bookings are looking favorable. So we're very optimistic that we've got--we feel we've got a real good capital program going in all the southern parks and we're looking for a good year there.

Excellent. Thank you very much.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS)

Your next question comes from Kit Spring with Stifel, please go ahead.

Hi, guys. Looks like a good start to the year. Can you talk a little bit about how you see your dividend progressing this year and the next couple of years? I think at least in my model the free cash flow is a little bit below the dividend now but should ramp above the dividend over the next couple years. So wondered what you think we should kind of model or think about dividend increases? Thanks.

As we've said before, the distribution is very important to us. We've increased it every year for the last 20 years. That certainly is our hope to keep increasing the distribution; however, it's certainly not going to be at the rate of $0.06, $0.07, or $0.08. We look for the next few years to increase the distribution maybe a $0.01 or $0.02 a year just to keep the--to keep that record going of 20 years plus. What our goal is is to get some of the interest off the books and perhaps in four or five years be in a position that we can look for another acquisition

Thank you.

You're welcome.

Thank you. Our next question comes from Dean Gianoukos with JPMorgan. Please go ahead.

Hi, this is Charles Chung in for Dean Gianoukos. First of all, can you just touch a little bit more on attendance and then just a housekeeping question if you could just break out the cash expense for us?

Charles, you broke up at the end, what was the second part of the question?

Oh, I'm sorry. If you could just break out the cash expenses for us?

Okay. Do you want to handle the cash expenses?

Sure. Cash expenses--total cash, be with you in a second.

Okay. This is combined, right? Cash cost, cost of goods, $4.4 million, operating expenses, $58.1 million.

Okay.

And SG&A, $14.1 million.

Okay, great.

It comes to 76.5, give or take, rounding.

Charles, what was the question on the attendance?

Yes, if you could just kind of give us a little bit more color, whatever you can on the attendance numbers. I know the Paramount numbers aren't in for last year, but maybe--what does attendance look like at the Paramount parks compared to attendance at those parks last year around this time?

Charles, it's really so early that in--none of our parks have really introduced the capital programs that we put in place this year and it's really too early to even speculate on what--how we're doing on attendance.

Okay.

Charles, this is Peter. As Dick had mentioned earlier, we're taking a look at keeping an eye on season passes. That's the first indicator and although they're off somewhat a few more weeks, as you get closer to Memorial Day in June as Dick had mentioned, you start to get a better feel for what the season is really going to look like.

Okay, great. Thanks.

Thank you. Our next question comes from Jeff Thomison with Hilliard Lyons, please go ahead.

Thank you, good afternoon.

Could you touch on your expectations in Mason this season, specifically your initial co-marketing efforts with the Great Wolf Resorts and what we might expect there?

Jeff, we really don't break out parks on an individual basis. We do have a working relationship with the Great Wolf and if they're successful, we think that certainly having--drawing people to any area will help our parks. But we really, we're very optimistic with the introduction of the coaster that we've transferred from Geauga Lake, that we're going to have a very successful year at King's Island this year.

Is that coaster--will that be up and running on the first day?

No, it will be on Memorial Day weekend that that will open.

Okay. Thanks.

You're welcome, Jeff. Thank you.

(OPERATOR INSTRUCTIONS) Your next question is a follow-up from Hailey Wolf from Rockdale Securities. Please go ahead.

Hi. Can you detail some of the in park initiatives behind the cost savings programs for the year? Talk a little bit about per cap differentials between the parks and some of the initiatives that you're undertaking to even those out, and then also back to the season passes, if we look at the new season pass program that you've put in place at the Paramount parks, is there an average price increase that we can derive from that?

Hailey, I'll start with the season's pass question first. The answer to that is, yes, because of some of the amenities that were done away with on the season's passes, we are seeing a higher per capita in all of our parks on the number of passes sold. While the number may be down, why certainly the price per ticket has went up a little bit.

On cost savings, Peter, you want to jump into the --

On cost savings, a lot of the low-hanging fruit and a lot of the changes that we made in the last half of 2006 will continue to bear fruit in 2007, and some of those were identifying levels of full-time management that were no longer necessary in our model. Looking at seasonal labor and identifying opportunities to operate more efficiently, insurance, for instance, finding ways to use our buying power and our claims management experience in reducing our insurance costs. Those are a few of the areas that we've addressed and we continue to look at those and we find those and hone those in 2007.

And on your per capita, were you just referring to how we look for capita spending to be this year, Hailey?

Yes, and some of the initiatives you put in place at the parks, particularly the Paramount parks to drive the per capitas higher?

Again, the season is awful early for--to get real good indicators. We're pleased so far with the per capita spending in the park. Of course we had to raise prices this year with the increase in the minimum wage that certainly affected us and we felt we had to pass that along. So there are some higher prices in the park and so far, the higher prices have been reflected in the per capita.

Now, going forward, again, it's too early to see exactly how that's going to play out, but right now, we're pleased with the per capita.

Sure, Peter?

Another thing, Hailey, we're looking at in the per capita is trying to look at the best of both worlds and best practices on both sides. The Paramount park is under previous ownership and of course our model that's worked for many, many years and identify food, merchandise, games offerings that have done well in either environment and perhaps transfer that opportunity to the other parks.

And those are embedded in the savings for this year?

Per capita increases would not be embedded in savings. That would only be cost savings. We look at operating costs on one side of the ledger, if you will, and opportunities on per capita and attendance on the other side, and those would be in addition to savings that we've identified.

And of course Hailey, with the introduction of new rides, merchandise associated with those new rides certainly tends to increase per capita spending, also.

All right. Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS)

There appear to be no more questions at this time. I will now turn the floor over to Ms. Frole for any closing remarks.

Thank you. At this point in time, 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 Cedar Fair first quarter earnings conference call. You may now disconnect. Have a wonderful day.