Six Flags Entertainment Corp (FUN) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Cedar Fair third quarter 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, November 6, 2008.

I would now like to turn the conference over to Stacy Foley.

Please go healed.

Thank you.

Good afternoon and welcome to our third quarter conference call.

I'm Stacy Foley.

Earlier today, we issued our third quarter earnings release.

A copy can be obtained on our corporate web site at www.cedarfair.com or by contacting 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.

On the call today, we will discuss our third quarter results and our performance through this past weekend, provide an update on 2009 capital expenditures and provide our near-term outlook.

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 list.

In accordance with Regulation G, non-GAAP measures are required to be reconciled to the most directly comparable GAAP measures.

During today's call, we will make reference to 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 web site 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 wi be considered fully disclosed.

Let me turn the call over to Dick Kinzel.

Thank you for joining us on the call today.

I have to say overall we're pleased by our parks' ability to improve year-over-year results in such a challenging consumer market.

Through the end of the third quarter, our parks entertained a record 20 million guests, up 2% from this time last year.

During this same period, average in-park guest per capita spending was down less than 1% to $20 -- I'm sorry, to $40.28, I'll repeat that one more time.

During this same period average in-park guest per capita spending was down less than 1% to $40.28 and out-of-park revenues were comparable to last year at $94 million.

This resulted in a $5.5 million increase in net revenues to $877 million for the first nine months of the year.

Higher gasoline prices, a troubled housing market, rising unemployment rates, and most recently the credit crisis were all challenges our parks had to overcome this past season.

Peter will provide more detailed information behind the third quarter results shortly.

Before he does, I'd like to take a moment and discuss our performance this past weekend, which completed the 2008 operating season for the majority of our parks.

Knott's Berry Farm and our Castaway Bay indoor water park resorts are the only properties that operate year round.

Strong results during the peak operating months of July and August more than offset attendance shortfalls that we experienced in May and into early June.

A favorable calendar with October 31 falling on a Friday this year, also added to our success.

Through this past weekends, our parks entertained a record 22.1 million guests.

This is a 3% or 607,000 visit increase when compared with this time last year.

During this same period, average in-park guest per capita spending decreased $0.54 or 1% to $40.15 from a year ago.

Excluding the impact of the restructuring of our Geauga Lake property, attendance through November 2 increased by more than 1 million visitors or 5%.

Our 2008 attendance and per capita spending results reflect a fundamental shift in our attendance mix.

At many of our parks this year, we witnessed a shift towards seasons pass admissions which historically have had a lower per capita spending level associated with them.

We believe our customers are taking advantage of these value associated with our seasons pass program in these tough economic times.

For 2009 and beyond, we'll continue to monitor these parks as we determine the optimal mix of attendance and per-capita spending to maximize their operating profit.

The largest increase in revenues and attendance through the year through November 2 was in our northern region.

Canada's Wonderland was a standout performer this year, reporting a strong increase in both attendance and revenues.

The other parts within the northern region also contributed nicely through October including Cedar Point.

In the southern region, attendance increased 8% while per capita spending decreased 6%.

This resulted in a 2% increase in revenues.

This region was impacted the most by the shift toward seasons pass admission.

The western region's revenues through this past weekend increased 1% on a 3% increase in average in-park per capita spending, offset by a 2% decrease in attendance.

Combined out-of-park revenues through October were down approximately $500,000, due to the closing of our Geauga Lake hotel at the end of 2007.

Based on the preliminary results through October, we are reaffirming our guidance of full-year revenues of between $990 million and $1.02 billion and adjusted EBITDA of between 340 to $355 million.

Looking forward to 2009, our capital expenditure program will total approximately $62 million, and will be highlighted by Diamondback, a $22 million roller coaster at King's Island near Cincinnati, Ohio.

Diamondback will be the tallest and fastest coaster at the park.

The ride will stand 230 feet at its highest point, and will reach speeds in excess of 80 miles per hour.

We're confident Diamondback will become a signature steel coaster at King's Island, and a nice complement to the park's award winning wooden roller coaster, The Beast.

In addition to Diamondback, we'll introduce two other roller coasters within our family of parks.

Worlds of Fun, our park in Kansas City, Missouri will introduce Prowler, a wooden roller coaster that takes advantage of the park's forested terrain and Carowinds, in Charlotte, North Carolina will throw riders will introduce the Carolina Cobra, the 125 foot steel coaster.

Family attractions will also be introduced in other Cedar Fair parks.

For example, Valley Fair, our park in Minnesota, will introduce a brand-new wave pool, complete with pool side cabanas.

A variety of new shows will also be introduced at several of our parks, including a new ice skating show and the expansion of our all-wheels extreme show.

We have found that these shows are not capital intensive, but resonate well with our guests, bringing a new layer of entertainment to our parks.

In 2009, we'll also be investing in upgrades to accommodations and general park appearance, including new signage, water fountains and landscaping.

It is likely that many of the challenges we faced in 2008 will be present in 2009, and we believe we are well positioned to face these challenges.

We will continue to force our -- to focus on adding value to our guest experience through new shows, thrill rides, family attractions and special events that everyone can enjoy.

I believe we have an excellent overall entertainment package lined up in our parks for 2009 season.

Our parks are a family tradition and we believe they continue to be for many generations to come.

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

Thanks very much, Dick.

In general, we are pleased with our third quarter results, which helped offset early season short falls.

Since the third quarter reported results are not directly comparable to 2007 due to the timing of our quarterly fiscal closes, I would first like to discuss our nine-month results where we are comparing a similar 39-week fiscal calendar between years.

This time period also includes the vast majority of our operating season.

For the nine months ended September 28, 2008, net revenues increased $5.5 million to $877 million.

This increase is the result of a 2% or 402,000 visit increase in attendance, average in-park per capita spending that was down $0.34 or less than 1% to $40.28.

Out-of-park revenues of $94 million, which were comparable to the same period a year ago.

On a regional basis, attendance increased 2% or 249,000 visits in the northern region, and increased 6% or 231,000 visits in the southern region.

These attendance increases were slightly offset by 1% or a 78,000 visit decrease in the western region.

During the same time, average in-park guest per capita spending in the northern region remained comparable to 2007 at $40.18, and decreased 6% to $39.53 in the southern region.

In the western region, in-park guest per capita spending increased to $40.06, or 3%.

Every year we make a concentrated effort to control our operating costs and this year is no different.

Through September 28, 2008, cash operating costs and expenses increased less than 1% or $1.8 million to $542.4 million.

Those of you who regularly follow our results know we believe 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 performance.

Because it is important to us, we make it a point of sharing it with investors.

Through the first nine months of 2008, adjusted EBITDA increase $3.6 to $334.6 million from $331 million dollars for the same period a year ago.

Excluding a one-time favorable lawsuit settlement during the third quarter of last year of $4 million, EBITDA increased $7.6 million from 2007, and operating margins improved 50 basis points from 37.7% to 38.2%.

Interest expense for the nine months ended September 28, 2008 decreased $11.7 million to $98.9 million, due to lower interest rates on our variable rate debt and our ability to fix an additional $300 million of variable rate term debt at a favorable rate through an interest rate swap agreement entered into during the first quarter of 2008, coupled with a lower average daily balance on our revolving credit facilities when compared with 2007.

After depreciation and amortization of $111.3 million interest expense and a $52.1 million provision for taxes, net income for the nine months totaled $62.5 million, or $1.12 per diluted limited partner unit, compared with net income of $4.5 million or $0.08 per unit for the same period a year ago.

In order to give you a view on a comparable park basis, excluding Geauga Lake where we closed the ride park beginning with the 2008 operating season, total revenues through the first nine months of the year would be up 3% or $24.7 million to $874.1 million.

This increase is a result of a 5% increase or 849,000 visits in attendance, to 19.9 million visits and a less than 1% decrease in average in-park guest per capita spending to $40.43.

Looking at the third quarter for a moment, when analyzing third quarter results it is important to note that the fiscal three months ended September 28, 2008 consisted of a 13-week period that included a total of 1255 operating days, compared with 14 weeks and 1421 operating days for the fiscal three-month period ended September 30, 2007.

166 or 12% fewer operating days in the 2008 third quarter is primarily the result of the additional week of operations during the third quarter of 2007 coupled with a decrease in operating days from the Geauga Lake restructuring and the closing of Star Trek: the Experience in September.

Closing of star trek was due to an expiration of our lease with the Hilton Hotel in Las Vegas.

Closing of this property will not have a material impact on the profitability of the company going forward.

Net revenues for the third quarter decreased 5% or $27.2 million to $540.3 million dollars.

This is a result of a 3% or 441,000 visit decrease in attendance, a 5% or $2.8 million decrease in out-of-park revenues and a slight decrease in average in-park guest per capita spending.

The decrease in attendance and out-of-park revenues were due to the additional operating days in 2007 as previously mentioned.

Cash operating costs for the quarter totaled $257.8 million and are broken down as follows.

Costs of products sold, $47.8 million.

Operating expenses, $153.1 million.

SG&A, $56.9 million.

For the quarter, adjusted EBITDA decreased 3% to $282.5 million from $291.4 million a year ago.

The $8.9 million decrease is due to the additional operating days in 2007 as previously mentioned.

Our operating income for the quarter totaled $215.3 million, up $30.3 million from the third quarter of 2007.

This increase is primarily due to the restructuring of Geauga lake, offset somewhat by additional operating days in the 2007 fiscal quarter.

In 2007, we recorded a noncash impairment charge of $39.2 million at Geauga Lake.

And in 2008, we recognized less depreciation due to the restructuring of this property in 2007.

Interest expense for the third quarter of 2008 decreased $9.2 million to $31.8 million.

This decrease is due to a combination of lower interest rates on our variable rate debt, the additional fixed rate swaps that were entered into during the first quarter 2008, a lower average daily balance on our revolving credit facilities, and fewer days in the third quarter of 2008 versus the third quarter 2007.

Comparing the third quarter of 2008 and 2007 on a comparable operating week basis, in other words, 13 weeks versus 13 weeks, revenue would be up 3% or approximately $18 million.

And a 5% or 585,000 visit increase in attendance, and 1%, or $0.56 decrease in average in-park guest per capita spending and a 4% or approximately $2 million increase in out-of-park revenues.

This is the result of strong operating results in July and August, primarily in our northern region where revenues increased across the board.

Again, providing a view on a comparable park basis, excluding Geauga Lake during this same period, revenues would be up more than $30 million or 6%.

The increase in revenues reflects an 8% or 878,000 visit increase in attendance and a 1% or 47 cent decrease in average in-park guest per capita spending.

Out-of-park revenues also increased 5% or $2.6 million to $53.5 million.

Finally, I'll review the balance sheet.

At the end of the third quarter, our receivables and inventories were at normal, seasonal levels.

We have the necessary revolving credit facilities in place to fund current liabilities, capital expenditures and operating expenses as required.

Partners equity totaled $275.1 million and our total cash on hand was $71.7 million.

At this time last year, our total cash on hand was $37 million and total partners equity was $364.4 million.

As of September 28, 2008, total debt outstanding was $1.71 billion of variable rate debt, $17.5 million of which is classified as current.

There were no outstanding borrowings on our revolving credit facilities.

As of September 28, 2008, $1.6 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, our cost of debt is approximately 7% at the current time.

I'm pleased to report that we finished with the core operating season in sound financial condition in terms of both liquidity and cash flow and consistent with our expectations.

Our cash position, together with existing lines of credit, which expire in August 2011, provide sufficient flexibility to manage working capital and support growth through our capital expenditure program.

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

Thank you.

We'll now begin the question and answer session.

(OPERATOR INSTRUCTIONS).

Our first question is from the line of Joe Lackey with Wachovia.

Please go ahead.

Thank you.

Congratulations on a great quarter.

Thank you.

Thanks, Joe.

I was wondering if you could give us an update on the pending or potential land sales in Toronto and Geauga Lake?

Sure.

We have sold the hotel property at Geauga Lake.

The land in Canada, unfortunately, due to the economic conditions in the capital markets, that has not progressed as fast as we had hoped to do.

We're still marketing and hopefully in the near future, we can come to an agreement to sell that property.

Right now it's sort of been put on the back burner.

Great, thanks.

Secondly, can you give us an update on season pass sales for '09, maybe where you are compared to where you were last year at this time?

Joe, it's just way too early to speculate on that.

We start advertising the seasons passes in late August and early September.

It's just way too early.

We tried a few new early programs last year if you remember jackets and things like that, the first reports I've got is we're running about the same as last year.

There's nothing really I can give you a firm estimate on.

Okay.

Okay.

I appreciate the guidance you gave on Cap Ex here for '09.

Any additional guidance you can give us, revenues, adjusted EBITDA, et cetera?

This is Peter.

We really haven't gone through our complete budgeting process for 2009.

We'll complete that in the latter part of December, early part of January.

And then be prepared to provide guidance generally, I think we do that in our fourth quarter conference call in early March -- early February, early March of 2009.

We'll look forward to that.

Thanks for answering my questions.

Thanks.

Thank you.

Our next question comes from the line of Scott Hamann with KeyBanc Capital Markets.

Please go ahead.

Peter, on the Cap Ex guidance, clearly, you guys typically do between 80 and $90 million annually.

The 62 for next year, should we assume that the difference there would be used toward that reduction or what are your plans there?

Yes.

That essentially will have the excess there.

We would plan on using that for debt reduction so that's a good -- that's a good question.

Okay.

Then on the tax provision, for the quarter it seems like to was pretty high.

Last year, you kind of had a similar phenomenon, and then that reversed out on the fourth quarter and provided a benefit.

Is that a similar situation that you expect this year?

How should we expect the taxes to fall the rest of the year?

Now, the provision, really as I said, Scott, in previous calls, we focus strictly on our cash taxes which we believe between $15 and $20 million a year.

The tax provision is affected by a number of things included our embedded C Corp subsidiaries last year.

Due to our Canadian operation and various allowances for deferred taxes.

Looking at the provision, you won't see the same situation in the provision this year as you saw last year.

Okay.

Finally, on '08 guidance, on the last quarter you endorsed the lower end of the range, is that still where you're comfortable now?

We're comfortable with the 340 to 355 at this point.

We have not given an indication, high, low, or the middle.

We're still comfortable at that range.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Hayley Wolff with Rochdale Securities.

Please go ahead.

Hi, guys.

Hi.

Can you comment on the October variance between attendance and revenue in terms of, was it mix, were people just spending less, and then related was there a currency impact from that or was there a currency impact that was meaningful throughout the course of the year?

Hayley, this is Peter.

What we saw in October as we reported, was good, strong attendance, but no question, people were spending less.

A couple of things.

Taking advantage of their season pass and then we saw food and merchandise per capita that weren't as strong as we saw during the peak season.

With respect to the second part of that question on a currency effect, yes, during the year, we began to see the US dollar strengthen against the Canadian dollar, which as you know will put down the pressure on our reported GAAP earnings.

We've seen quite a lot of volatility in that in the past month, month and a half, but that didn't have a significant impact on our reported October results.

Okay.

The capital expenditure guidance for '09 of $62 million,that a number that is really just to keep you guys safe in the event we have a bad economy next year so that you don't have any covenant risks?

Hayley, this is Dick, not really.

We have to plan our capital two or three years out.

Actually, the coaster that's being put into King's Island was actually ordered two years ago.

We have a coaster going into Worlds of Fun.

That was ordered last year.

We actually had another coaster ordered for California at Great America, however, we ran into some zoning problems with the City of Santa Clara, so we had to postpone that.

That coaster.

So the $62 million is right in line with where we think is going to keep the attendance and per capitas going up.

As a reminder, I would like to say Hayley, another 70, $80 million of CapEx does flow through the P&L.

When we talk about the $62 million, that's basically what we're putting into rides and attractions into what the public can see.

Right.

But that's 20, $25 million below where you've been, so it gives you a lot of grieving room next year.

Yes.

Can you talk about what percent in pass sales did you this year versus prior years?

With attendance?

Yeah.

Don't have those numbers in front of us.

Okay.

Hayley, we can get back to you on that.

Just in terms of Cap Ex.

Just want to make sure this is not a new level where you're going to bring down on a sustainable basis, right?

No, Hayley, basically, if you put back in the coaster was going to go in California, we'd be close to the 80, $90 million that we talked about in the past.

Okay.

Then what was CapEx in the quarter?

CapEx for the quarter was $12.5 million.

Okay, great.

Thanks a lot.

Thanks, Hayley.

Thank you.

Our next question was a follow-up with Scott Hamann with KeyBanc Capital Markets.

Please go ahead.

Dick, is there anything new with the negotiations with the 49ers and is there kind of an expected timing for decision what's going on with that situation?

Scott, there really is nothing new and there is no timing preference or no timing period that we have in place.

As you know, they want to put the stadium in the parking lot.

We've offered them an alternative, and pretty much now, it's up to them to decide what they want to do.

We've been very cooperative with the city and very cooperative with the 49ers.

We have not heard from them in quite a while, so where it stands right now is we are going to continue to operate the park the way we've always operated it.

Continue to put capital into it and make it a park the people of northern California would be proud of.

Okay.

And then what are you seeing in terms of increasing costs, commodities, utilities and to what extent do you think you'd be able to offset those impacts going forward?

Is there any flexibility in the cost structure?

As everyone else is seeing, we certainly are seeing costs in commodities and utilities and that escalate every month.

What we can do with that is we try to control costs as best we can, however, we certainly could never give up the things that brought us to the party at four cornerstones mainly of safety and giving up service to the customers and things like that.

So the end result is we always kept our operating expenses as low as we can go.

We've always operated this as a mom and pop operation with very low expenses.

What we have to do is we have no place else to go but to increase prices.

Okay.

And just on weather trends, what did you see this year relative to last year favorable, unfavorable?

The first part of the season started out very unfavorable.

We were, May and June were very soft months across the whole universe of parks and then the fourth of July came, the weather improved.

I don't know if the stimulus package had an impact in it or not, Scott, but July and August attendance really picked up.

Then when we got back into September after Labor Day into our fall promotions, the weather as just as beautiful and we had a great fall promotion last year.

We duplicated those numbers this year.

We were very very fortunate to have great weather especially in October.

Last year here in Ohio which is right on Lake Erie, the Sandusky Park, we had two 80 degree days in September and October of last year, and we duplicated that this year.

As a result, we had record attendance both years.

We were very, very fortunate in the latter half of the season.

Peter, just as a reminder on the covenants, they ratchet down here at the end of the third quarter.

Can you tell us what that is and where you are based on the calculation that you need to get there?

Yeah.

We're at you can think of a couple of different calculations.

Two you remember in the last conference call we talked about distribution limitation calculation which really is cash in versus cash out.

We've always believed since we're hitting our numbers that we put together when we entered into the credit agreement we still have what we believe sufficient cushion there.

With regard to the other covenant, and that being a debt to EBITDA ratio, we're at five times right now.

The tightest of the covenants, the distribution suspension covenant ratchets down to 5.25 this year.

We have at least a quarter turn of cushion at this point in time.

Okay.

Thank you.

Thank you.

Our next question comes from the line of [Shield Stay] with Regiment Capital.

My question was on the covenant which was just answered.

Thank pup.

Thank you.

Our next question is from the line of Justin Harrison with Ramsey Asset Management.

Please go ahead.

Hey, guys.

Hey there.

Could you provide any commentary on the other accommodations and other line item kind of on a per capita basis?

It looks like that was down from last same quarter last year.

I was wondering if is that true and did you see anything in particular just in that line item that was different from maybe the others?

Out-of-park --

Out-of-park revenues for the quarter were down about $500,000.

Is that the one we're looking at?

It was down again, 2007, Justin.

If you're just looking at the third quarter, remember we have an extra week in the third quarter of last year.

Right, right.

But even when you kind of adjust for that, it seems to be down I have like 10%.

I don't know what the exact attendance is.

One of the things you have to take in there, Justin, is the Geauga Lake Hotel contributed some part of that last year.

Castaway Bay was down a little bit, the Knott's hotel was down a little bit, and our branded concepts were down a bit.

So Geauga Lake's Hotel would have been in that last time?

Yes.

Okay, thanks.

Thank you.

Our next question is a follow-up from the line of Hayley Wolff with Rochdale Securities.

Please go ahead.

Hi there.

In the fourth quarter, is there anything different about your cost structure with the extra operating week during October that will directly shift any margins or even the drop off in in-park spending that we need to be cognizant of when modeling out fourth quarter?

I can't think of anything.

Through the end of the third quarter we've caught up, if you will in our fiscal 39 week to 39 week basis.

So no, we've looked at the fourth quarter internally here without any differences because of operating periods to last year.

Having said that, as Dick mentioned in his prepared remarks, October 31 fell on a Friday so that gave us, you know, the extra weekend of operations.

But we've already commented on our results November 2.

So other than that, I can't think of anything.

So in terms of the EBITDA margins there's nothing to give a head's up in terms of having the extra week in there or whatever?

Not at this point.

It's primarily a cost quarter if you will.

A few years back, we turned our first operating profit and we hope to do that this quarter.

No, there's nothing that would jump out at me right now and give me an indication of a substantial difference in our margins.

Okay.

Perfect.

Thank you.

(OPERATOR INSTRUCTIONS).

One moment, please.

I show that there are no further questions at this time.

Please continue.

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 February to discuss our fourth quarter and full-year results.

Thank you.

Ladies and gentlemen, this concludes the Cedar Fair third quarter earnings conference call.

Thank you for your participation.

You may now disconnect.