Six Flags Entertainment Corp (FUN) 2007 Q4 法說會逐字稿

Good morning and afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Cedar Fair fourth quarter and year-end earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Thursday, February 7, 2008. At this time, I would like to turn the presentation over to Brian weather row. Please go ahead, sir.

Thank you, Andrew. Good afternoon and welcome to our year-end earnings conference call. I'm Brian Witherow, Cedar Fair's Vice President and Corporate Controller. Earlier today we issued our fourth quarter and year-end earnings release. A copy of that release can be obtained on our corporate website, 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 Corporate Vice President of Finance and Chief Financial Officer. Before we begin, I need to caution you that comments made during the 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 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 required reconciliation of adjusted EBITDA is in the earnings release and is also available on our website via the conference call access page. In compliance with SEC regulation FD, the 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 this call will be considered fully disclosed. Now let me turn the call over to Dick Kinzel.

Good afternoon. As you can see from our earnings release, we generated solid results in 2007 and finished the year in excellent financial condition. The integration of the parks we acquired in 2006 continues to go well and our legacy parks did a fine job in contributing to the full year performance. Although we had a few soft spots, we're pleased with our overall performance in 2007. On the call today we'll discuss our 2007 performance on a combined and same park basis and provide our view of the 2008 season and beyond. Peter will discuss the details behind our results in just a bit. But right now, I would like to briefly comment on our performance this past year. In 2007 we entertained a record 22.1 million guests and generated $987 million in combined net revenues. Average in-park per capita grew to $40.60 from $38.71 in 2006, a 5% increase. And adjusted EBITDA on a combined basis increased $31 million to $341 million in 2007.

I'm happy to report that these results are right in-line with the board guidance we provided when we made the acquisition in June of 2006. Although we did see softness in attendance at some of our parks, we attribute much of this to the progress of modifying admission pricing to insure pricing integrity at the park level as well as eliminating many complimentary passes. While we have heard concerns from customers on pricing, we have remained flexible and made additional modifications geared to making sure the price value relationship remains intact. We continue to believe that building price integrity while maintaining flexibility is the best way to maximize attendance and per capita spending over the long-term. On a same park basis, excluding the parks acquired in 2006, revenues increased $19 million to $548 million on a 5% increase in average in-park per capita spending and a 1% increase in out-of-park revenues offset by a 2% decline in attendance.

We were especially pleased with the performance of the northern parks, where Cedar Point generated all-time record revenues and operating profit despite the continued economic weakness in the region. As I'll comment on a bit later, the historic stability of our business under many different economic conditions is an important component of our success. Although we're pleased with the results we achieved in 2007, we were challenged with August attendance at most of our parks. Helping to offset some of this softness was strong post-Labor Day attendance levels across most of our parks. As I have mentioned many times before, our fall season continues to grow in popularity and we are taking advantage of this opportunity at most of our parks. We have learned over the past few years that family's schedules are packed during the summer months and with school starting before Labor Day in many of our markets, there is a certain pressure placed on the ability to attract visitors during this time.

Nevertheless, in 2008 and beyond, we must do a better job of attracting visitors during the ever important months of July and August. To this end, I have asked our marketing department and operating managers to specifically focus on this. Aided by a spectacular capital campaign for 2008, I am confident we'll be able to improve summer attendance. Our 2008 capital program has already generated excitement in many of our regional markets. As I mentioned on our last call, our capital program is highlighted by the addition of Behemoth, the tallest, fastest and longest roller coaster in Canada, at our Canada's Wonderland Park. Cedar Fair has always been known for great roller coasters and this will be no exception. In addition to Behemoth, other exciting roller coasters will be added to Kings Dominion, Dorney Park, Knott's Berry Farm and Michigan's Adventure for the 2008 season.

At Cedar Point we'll debut Planet Snoopy, a brand new children's area featuring seven rides and a family lounge area. It has been several years since we've made a significant addition to the family attractions at Cedar Point. With Planet Snoopy we've taken a page out of our game plan of our newly acquired parks, as we focus back on the family markets there. We're confident this new children's area will be a great complement to the thrill rides and other attractions that Cedar Point has to offer. Rounding out our capital plan will be water park attractions at Carowinds, hotel renovations at Sand Castle Suites Hotel at Cedar Point and an exciting new midsize thrill ride at Great America. In all we believe we have a strong multi-aged focused entertainment package for the 2008 season. As I mentioned earlier, we experienced some softness in attendance at our recently acquired parks, which we believe was due to the pricing changes we instituted last year.

Late last year we sat down to evaluate the sales levels of our parks, seasons pass program products for the 2008 thus far, and to discuss the input received from customers and our park employees regarding the changes we made. As we receive feedback, we have the flexibility to modify our approach to pricing without serious short-term impact to our price integrity. The modifications we made during the fourth quarter of 2007 are having a positive impact on 2008 seasons pass sales thus far. And although we did not consider seasons pass sales a reliable barometer for our ultimate annual performance, it remains an important piece of our business for us and we're focused on maximizing our opportunity here. In addition, our advertising will continue to focus on rider and young family targets. Advertising for all parks will begin prior to opening. We're also expanding on-line efforts and are adding new marketing initiatives at all of the parks.

We're also increasing our efforts in building sponsorship opportunities to extend the reach of our marketing programs through these potential relationships, as well as the more near-term financial benefit. Recently we hired the Kempton Group to assist us in this area. As I have stated before, unless a sponsor relationship has a clear benefit on the bottom-line, including related costs, we'll not enter into it. Before I turn the call over to Peter, I wanted to comment on our unit price. Certainly the last few months, and particularly the last few weeks, have not been kind to our price. No one is more concerned about this than me. I have heard many possible reasons for the decline, including concerns over consumer spending, the credit market problems and anticipated economic weakness in 2008.

Of course, these are things we have little control over except to the extent to which we have dealt with them favorably in the past. As I mentioned in our third quarter call, we have always believed that our regional amusement park operations are recession resistant. In the past 20 years, we have experienced economic downturns and have performed well, only seeing a small decrease in EBITDA in three of the last 20 years. This is a testament to the stability of this business and the flexibility of a seasonal business can afford when operated efficiently. As you know, the Ohio Michigan economy has suffered terribly the past five years. Nevertheless, we've produced record results at Cedar Point in 2007. Yes, we had great weather in the fall, but I believe that we have the resiliency not seen in many other businesses when confronted with economic uncertainty.

While we make no promises about the future, as a management team, we're focused on the long-term future of the Company and not short-term decisions. The acquisition in 2006 provided us a diverse group of great assets and we provide a quality entertainment experience difficult, if not impossible, to duplicate in other venues. We have the experience and flexibility to run these parks well. I continue to see a bright future for Cedar Fair. And finally, as an indication of our ability to remain financially strong and keep our commitment to our unit holders, early this week the board of directors approved a $0.02 increase in the annual distribution to $1.92 per unit effective with the upcoming May 15th distribution. At this point, I'll turn the call over to Peter to discuss the 2007 numbers in more detail.

Thanks, Dick. As Dick mentioned, we're very pleased with our performance and our ability to generate strong revenue and EBITDA in a less than perfect economic environment. In the interest of continuing to provide you with a clear view of our performance given our acquisition in June of 2006, I'll begin by providing you with analysis on a combined basis, including the new parks, since the acquisition. And for ease of comparison, I'll then discuss our results excluding the acquisition on a same park basis. On a combined basis, consolidated net revenues for the year totaled $987 million, broken down as follows -- $552.1 million in admissions revenues; $360.1 million in food, merchandise and games revenues; $74.8 million in accommodations and other non-park revenues. Excluding depreciation and other noncash charges, combined cash operating costs and expenses totaled $646.3 million or $125.2 million higher than last year, primarily due to a full year ownership of the new parks in 2007.

Those of you who regularly follow our results know we believe that adjusted EBITDA, earnings before interest, taxes, depreciation and other noncash items, provides meaningful insight into our operating results, since we use it for budgeting and measuring park level performance. Because it is important to us, we make it a point of sharing it with investors. For the year, on a combined basis, adjusted EBITDA increased $30.4 million to $340.7 million. After depreciation, an impairment charge of $54.9 million for the restructuring of our Geauga Lake amusement park and other noncash charges, operating income decreased $64.9 million to $154.6 million, principally due to the impairment charge as well as increased depreciation, the result of a full year of ownership of the new parks in 2007. Interest expense for the year was $145.6 million, up from $88.3 million last year. This increase reflects a full year of increased debt needed to finance the June, 2006 acquisition.

After interest expense and a small miscellaneous income of $735,000, pretax income decreased to $9.7 million from $126.6 million in 2006. For the year on a combined basis, a provision for taxes of $14.2 million was recorded to account for PTP taxes and the tax attributes of our corporate subsidiaries. This compares with a provision for taxes of $39.1 million in 2006. Please note that we're in the process of a final review of our accounting provision for taxes and although we do not believe the fourth quarter 2007 provision will change, the possibility does exist. After the provision for taxes, our combined net loss for the period totaled $4.5 million or $0.08 per diluted limited partner unit, compared with net income of $87.5 million or $1.59 per unit a year ago. Given the significant decrease in net income between years, it is important to reiterate how we manage the financial aspects of our business. Our focus is to generate adequate cash flow through our daily operations to cover all cash requirements and to support our quarterly distribution payments, while continuing to invest in our properties for the long-term.

When reviewing net income or loss, it is important to consider the noncash accounting items, including the $59 million impairment charge, that are also included in this amount, that have no impact on our cash flow available for capital expenditures, distribution payments and other cash needs. In 2007 we made a decision to close an underperforming amusement park at Geauga Lake and operate only the water park. This was an informed economic decision aimed to ultimately improve our free cash flow over the long-term. This is why adjusted EBITDA is a meaningful measure of park level operating profitability. When reviewing and discussing free cash flow, we use adjusted EBITDA as a beginning point, but also take into consideration cash payments made for interest, taxes, capital expenditures and finally, distributions.

After reviewing 2007 and projected cash flow, we feel confident in our ability to meet our cash flow requirements for the foreseeable future, including distributions. For further clarity, our $341million in 2007 adjusted EBITDA will cover the following cash requirements -- CapEx of approximately $80 million to $82 million; Cash interest expense of $138 million to $139 million; Cash taxes of $15 million to $18 million and lastly, distributions of $102 million to $104 million. We have made a conscious decision to fund all CapEx out of annual cash flow to ensure we do not incur additional debt. Based on the results for 2007, our full year cash flow is sufficient to fund our newly declared distribution rate of $1.92 per unit or approximately $104 million in the aggregate. Now, I would like to discuss park level results on a same park basis excluding the effect of the acquisition. For the full year net revenues on a same park basis increased 3.4% or $19.1 million to $584.2 million in 2007.

The increase in net revenues reflects a 5% increase in average in-park per capita spending and a 1%, or $1.3 million, increase in out-of-park revenues partially offset by a 2% decrease in attendance. The growth in revenues is primarily attributable to the strong performance of our northern region parks, including Cedar Point, which Dick mentioned earlier. Excluding depreciation and other noncash charges, total operating costs and expenses on a same park basis decreased slightly to $360.1 million from $361.5 million in 2006. This decrease was primarily due to decreased costs at Geauga Lake, the result of a final closure of the amusement park in September, offset somewhat by higher costs at Knott's Berry Farm. Geauga Lake will be operated exclusively as a water park beginning in 2008.

For the year on a same park basis, adjusted EBITDA increased $20.5 million to $224.1 million from $203.6 million in 2006. I will now briefly summarize our fourth quarter results on a combined basis as compared to 2006. It is important to note that the fourth quarter in 2007 was negatively impacted by less operating days when compared to the fourth quarter in 2006. The additional operating days in 2006 provided a benefit to revenues for that period of approximately $14 million. Having said this, on a combined basis, 2007 net revenues were $115.4 million, down $4.4 million when compared to 2006, and cash operating costs were $105.4 million, down $4 million from 2006. After depreciation, a small noncash charge for unit options and a charge for asset impairment on the Geauga Lake amusement park, our fourth quarter operating loss was $19.6 million compared to an operating loss of $1.9 million in 2006.

We continue to see strength in the fourth quarter across our entire portfolio of assets, an area on which we continue to focus. Finally, I will review the balance sheet. At year-end our receivables and inventories were at normally low 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 $285.1 million and our total cash on hand was $5.5 million. At the end of the year total debt outstanding was $1.753 billion of variable rate debt, $17.5 million of which is classified as current and $34.1 million of which is borrowed under our revolving credit facilities. As of December 31, 2007, $1.3 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. In January of this year, we fixed another $300 million of variable rate debt at 4.68% fixed for an 18-month period to further reduce our cash interest costs.

We expect 2008 average interest rate on all debt to be in the 6.8% to 7.2% range. As we mentioned on several occasions in the past, we continue to monitor the market conditions for an equity offering and will act when we can ensure that an optimal capital structure can be obtained, while avoiding unacceptable levels of dilution to our unit holders. We remain convinced that at some point in the future, expanding our equity capital base is in the best interest of existing as well as future unit holders. I'm pleased to report that we finished the year in sound financial condition in terms of both liquidity and cash flow. Moreover, from a financial performance stand point, we are where we planned to be when we made the acquisition in June of 2006. Our profitability and operating cash flows provide us with the capital we need to operate and continue to grow our business, while honoring our commitment to our unit holders. We look forward to the 2008 season. At this point, we'll open the call to questions.

(OPERATOR INSTRUCTIONS) One moment for our first question, please. Our first question will come from the line of Kit Spring from Stifel Nicolaus. Please go ahead.

Ok. Good results, guys. Good afternoon.

Thanks, kit.

Thank you.

I have several questions. First, what kind of -- what are you assuming kind of for the economic backdrop or weather, whatever, in your guidance for next year.

Kit, as you know, the weather is just what it is. Any time you have an outdoor venue, the way that the Cedar Fair or any of our competitors have, we sort of just figure that right into the blend when we do our projections for next year. We have -- some years we have good, some years we have bad weather. Normally on the average-wide, they pretty well balance out.

Yes.

We don't sit down and say are there going to be three or 30 days of rain or cold weather. But we just take an average of what we've been doing the last few years and the big barometer for us for capital or for projecting attendance is the capital we put into the parks.

Ok. And as far as -- assuming -- I agree with you that when you look historically your business has been recession resistant. But if for some reason this recession is different, what EBITDA level at the current dividend in CapEx would you start to hit some kind of covenant that would force you to reduce the dividend or cut back in CapEx? What kind of cushion do you have?

Sure, Kit. This is Peter. All we can do is look at -- of course, we look at this historically as well. And look at the three or so years that we've had a decline in EBITDA. It has been relatively minimal in those years, less than -- I think our worst year was 6%. If this is a completely different recession, obviously, that's something we have to deal with. The exact amount of cushion, I don't have in front of me. But we would have to have a fairly steep decline, steeper than we've ever seen in the past. But there are other things we can do to manage that. As you know, in a seasonal business, we can react and cut costs rather rapidly. We can shore up our profitability at these parks and we have some nonoperating assets that we can look at as well. So, I don't think that's something to worry about unless it is just a deluge, which we just don't see happening.

Ok. Then on Geauga Lake, can you remind me how much that lost last year?

We don't -- we didn't carve out specific parks, operating profits.

Did it lose money?

I'm sorry?

Could you just tell me if it lost money?

Yes, it did.

Ok. And then how about cash tax projections for the next few years.

We talked about $15 million to $18 million today. Our projections are $15 million to $20 million over the next three to four years.

Ok. Then any update on the San Francisco park?

Kit, we're still in negotiations with both the city and with the San Francisco 49ers. They have looked at -- we have agreed to look at a secondary site, an alternative parking site. They're reviewing some requests that we've made. So, we're still in negotiations with those folks.

Ok, great quarter. Thanks again.

Thank you, kit.

thank you.

Our next question will come from the line of [Jack Ellerbrecher] with Wachovia Securities. Please go ahead.

Hi, thanks. Can you, and I'm not sure perhaps I missed it, but can you say what the advance ticket sales are versus last year at this time and also maybe the sensitivity of EBITDA to like say a 1% or 2% change in revenues. I am sure it is different on the way up versus the way down. If you can just sort of give any help there. That would be great. Thanks.

Advance ticket sales is basically two parts, Jack. Number one is our group bookings, which -- the reports I've seen are very right in-line with what we expected and right in-line with last year. We don't put the same emphasis on seasons passes that our competitors do. However, we do think they're very important. And as at this time, the seasons pass sales are down just slightly from last year. However, revenue on the sales, season's pass side of it is up. It is basically about the same.

Ok.

Jack, on the sensitivity to revenue, as you know, we're a fairly high fixed cost operation and of course, when revenue falls, EBITDA is affected, can be affected materially. Although even with ebbs and flows in our revenues, we've been able to obtain 34% to 35% margins over the long-term. We have some flexibility in managing our costs for shortfalls in revenue fairly well.

Ok, thanks, guys.

Thank you, sir. (OPERATOR INSTRUCTIONS) One moment for our next question, please. Management, at this time we have no additional questions in the queue and I would like to turn the conference back to you for any closing remarks.

Well, I want to thank everyone for joining us on the call this afternoon. If there are any follow-up questions, please feel free to contact the Investor Relations department at Cedar Fair. Once again that number is 419-627-2233. Or feel free to contact myself, Brian Witherow, at 419-627-2173. We look forward to speaking with you again later in '08 for the first quarter call. Thank you.

Thank you, management. Ladies and gentlemen, we thank you for your participation on today's teleconference. At this time, we'll conclude today's conference call. You may now disconnect, and please have a pleasant rest of your day.