Six Flags Entertainment Corp (FUN) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Cedar Fair First Quarter Earnings Conference Call.

(Operator Instructions).

I would like to remind everyone that this conference call is being recorded on May 6, 2010, 10 am Eastern Time.

I will now turn the conference over to Stacy Frole.

Please go ahead.

Good morning 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 2010 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 Corporate 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 compliance with the 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 I will turn the call over to Dick Kinzel.

Good morning, everyone, and thank you for joining us on the call today.

We appreciate your interest in Cedar Fair.

There's been some time since we have spoken with you, and we're well aware that this has been a rather busy off-season.

But I want to emphasize that we're very excited about where we are now and where we see things going, not just for the operating season as we're getting underway, but over the longer term as well.

So I'd like to take a few minutes to discuss some positive trends that we have seen contributing to our momentum as we head into this all-important spring and summer months.

I will then address our long-term strategy and targets as we continue to move forward as an independent public company.

Following that, Peter will give you more detail on the first quarter results.

And I will return to give you a brief summary of our ongoing capital and marketing programs, which we believe will help drive improvement for the remainder of 2010.

Although it's much too early to determine the kind of year we will ultimately have, we are encouraged by the trends we have seen so far.

As noted in today's release, net revenues for the quarter were 3% higher than a year ago, primarily due to the increase in attendance in our Western and Southern regions.

Another positive sign that our overall seasons pass sales are up when compared with this time last year.

This is primarily due to our aggressive marketing campaign, competitive prices, hopefully consumer confidence in the economy, and of course, better weather.

Our focus is to get people to make their plans early in the year and buy their seasons passes now at a great value, which we hope will lead to a greater number of visits throughout the year.

In addition, our group business booked-to-date is up slightly compared with this time last year.

While it is still too early to call this a trend, we are hopeful that this important segment of our customer base continues to improve as the economy recovers from last year's recessionary levels.

Again, it is still very early in the season, but attendance is up at the parks that have opened while average in-park per capita spending continues to be soft.

The slowly but steadily improving environment will be the backdrop of our strategic efforts to continue growing as a public company.

To that end, we will manage Cedar Point with a focus on strengthening our balance sheets, generating long-term profitable growth and thereby increasing value to our investors.

We have engaged JPMorgan to assist us, and over the next few months we will be addressing our capital structure, particularly focusing on our debt, and creating a stable structure that we can maintain through economic cycles.

The evaluation of our capital structure will consider total return to our unitholders through individually or in a combination, net reduction, growth of the business and the introduction of a distribution at an appropriate level, at the appropriate time.

We believe this balanced approach will provide the highest long-term value for all of our unitholders.

The combination of well-run properties, the improving business conditions, our ability to generate significant cash flows and a stronger balance sheet will support our plans to grow the value of our Company over the long run.

Before I turn the call over to Peter, I'd like to briefly comment on yesterday's news release.

We are pleased we were able to reach an agreement with our largest unitholder, Q Funding III, Q4 Funding, which will increase our board from seven directors to nine immediately following our 2010 Annual Meeting of Unitholders.

Maintaining a strong independent board of directors is critical to our long-term success.

We appreciate Q's ongoing interest in Cedar Fair, as well as its willingness to work with us in our mutual pursuit for a long-term unitholder value creation.

On that note, I'd like to turn the call over to Peter to discuss our first quarter financial results in more detail.

Thanks very much, Dick.

As a reminder and to expand on what Dick already mentioned, revenues from our amusement parks, water parks and other facilities are highly seasonal.

The majority of our revenues are realized during a 130 to 140-day time frame beginning in our second quarter.

And most of that revenue is concentrated in the peak vacation months of July and August.

Only Knott's Berry Farm and Castaway Bay are open year round.

So it's important to remember that our first quarter results are not that significant to the year as a whole, given that the first quarter typically is less than 5% of full-year revenues and attendance.

Overall, our results for the first quarter were in line with our expectations.

Consolidated net revenues for the three months ended March 28, 2010, were $27.3 million, which is a 3% increase over last year's $26.5 million, reflecting an increase in early season attendance in our Western and Southern regions.

The only park open full time in the first quarter is Knott's Berry Farm in Orange County, California.

Excluding depreciation and other non-cash charges, cash operating costs and expenses were $84 million, an increase of $5.7 million from last year.

This was primarily the result of $3.8 million in costs associated with the now terminated merger agreement with Apollo Global Management, and to a lesser extent, the negative effect of exchange rates in our Canadian operations.

Only four of our 17 properties were opened in the first quarter, while the others are preparing to open for the 2010 operating season.

Operating costs increased slightly compared with last year, but were in line with our expectations for the quarter.

Depreciation and amortization decreased $325,000 or 8% compared with a year ago.

Interest expense increased to $29.6 million compared with $28.9 million a year ago.

This increase was due to higher spreads on the $900 million of term debt that was extended in August of 2009 for a period of two years.

We recorded a net credit for taxes of $57.8 million to account for the tax attributes of our corporate subsidiaries and publicly traded partnership taxes during the first quarter of 2010.

This compared with the net credit for taxes of $31.9 million last year.

We expect our actual cash taxes to be in the range of $20 million to $23 million for 2010.

After interest expense, credit for taxes and a $7.6 million non-cash charge to income for the net effect of swaps, the net loss for the quarter ended March 28, 2010, totaled $39.9 million or $0.72 per diluted limited partner unit.

For the first quarter ended March 29, 2009, the Company reported a net loss of $53.3 million or $0.97 per diluted limited partner unit.

Excluding $3.8 million in merger-related costs and the non-cash charges on the swaps, the current quarter net loss would have been $29.2 million or $0.53 per unit.

With respect to both liquidity and capital resources, we ended the quarter in sound condition.

Our receivables and inventories are at normal seasonal levels and we have credit facilities in place to fund current liabilities, capital expenditures and pre-opening expenses as needed.

Partners' equity totaled $102.2 million and our total cash on hand was $5.4 million.

The increase in partners' equity is primarily related to our ability to reduce debt over the past year.

In the last 12 months, we have reduced our debt by more than $120 million primarily through the reduction of the distribution and the sale of excess land in Canada.

At the end of the first quarter, the Company had $1.5 billion of term debt, of which $15.5 million is current and $216 million is borrowed under our revolving credit facility.

Of our outstanding variable rate long-term debt, $1.3 billion has been converted to fixed rate debt through the use of several interest swap agreements.

As a result, the cost of our debt is approximately 7.3% at the current time.

Lastly, as of the end of the first quarter, we are in compliance with all financial condition covenants.

Now I'd like to follow up on Dick's earlier comment regarding strengthening our balance sheet.

We are comfortable with where we ended the first quarter of 2010 in terms of liquidity and cash flow given our current capital structure.

And our cash position, along with existing lines of credit, will enable us to manage our near-term working capital needs.

However, we are focused on our highest priority of creating a sustainable long-term capital structure that will be positioned to endure economic cycles while retaining appropriate flexibility, so that we can consider growth opportunities, retirement of debt and a distribution at an appropriate time in the future.

As Dick mentioned, we have engaged JPMorgan to evaluate opportunities available to us in the capital markets.

We felt it was critical to leverage their experience and perspective as we consider a full range of financing arrangements to provide the greatest benefit for Cedar Fair and our unitholders.

We'll keep you posted on our progress and we will continue to take proactive thoughtful steps to address our capital structure and improve unitholder value for the long term.

Now, I'll turn the call back to Dick to discuss the 2010 outlook.

Our first quarter results are consistent with our hope that 2010 has a potential to be a turnaround year compared with what we saw in 2009.

We expect to build momentum through the $90 million in capital investments we are making this year, as well as our aggressive marketing programs.

We have invested in a variety of new attractions and shows, many of which already have generated positive response from our guests.

These include two signature roller coasters, Intimidator and Intimidator 305 at Carowinds and Kings Dominion, respectively; along with the new water flume ride at Cedar Point; 30 new light shows throughout all of our parks; and we're introducing PEANUTS characters in the parks, including four new Snoopy Ice shows and two other PEANUTS shows.

In marketing, we are focused on early season promotions to get attendance off to a quick start, and we are introducing many buy-in-advance campaigns.

We have switched some of our advertising to online and social media for 2010 such as running specials through Facebook.

We're also upgrading the children's areas at five of our parks, while three of other parks will introduce nighttime light shows similar to the shows we introduced last year at Cedar Point, which was very popular with our guests.

Shows like these help balance out more capital-intensive investments.

And they resonate well with our guests, extend in-park stay and enhance the entertainment value of our parks.

In 2010, we will also invest in upgrades for accommodations and the general appearance of our parks.

Regarding our outlook for the full year, we are hopeful that the weather and overall economy will allow these early trends to be sustained over the course of the season.

If that is the case and our parks perform as we expect them to, we are confident that we can generate revenue growth of 3% to 5% above last year's $916.1 million level.

And a full-year adjusted EBITDA, not including costs incurred in 2010 in connection with the now-terminated merger, in the range of $320 million to $340 million.

With our track record of performing well during difficult economic periods, we have every reason to believe that we continue building on the operating momentum that has already begun and, at the same time, diligently focus on improving our capital structure and strengthening our balance sheet.

We appreciate the support our unitholders have expressed for the Company.

The board and the management team remain committed to acting in the best interest of all our investors and executing a strategy that creates maximum value for the long term.

Now we will open up the call for any questions you might have.

Thank you.

(Operator Instructions).

First question comes from Scott Hamann of KeyBanc Capital Markets.

Please go ahead.

Hey, good morning.

Just a little bit more color on the seasons pass trends that you're seeing, can you kind of give us a flavor for the volume and the price mix and then if there's any regional areas of strength that you would call out at this point?

Scott, this is Dick.

Our seasons passes have been strong this year, as I mentioned in my remarks.

We went with an aggressive low package price this year, basically in trying to get ahead of the economy, if the economy does not turn around on us.

And basically, in all areas with the exception of one or two, most seasons passes are strong.

It's still early.

For example, one of our parks has a very strong Mother's Day program.

And that park is up over last year.

However, this weekend is the biggest weekend for them to sell seasons passes.

But we're very optimistic.

And if we can continue with what we have, while we certainly would be up over last year, however, with the strategy we're using, we are sacrificing some per capita in the sale of those passes.

We're going more for a volume approach this year, as opposed to the other approach of basically getting a high price and limiting the number of sales.

Okay.

And then in terms of pricing at the parks, on average, what would you say your prices have increased versus last year?

The front gate prices have increased anywhere depending on capital from $1 to $2.

Our seasons passes were either held the same or, in some areas, we've put promotions.

And if you buy four at a time, a 4-Pack, you got a special discount on that.

However, we're very fortunate that with the Internet and that now, we can certainly discount more.

If we see we're having problems, well we certainly can discount their front gate if we have to.

Okay.

And then how should we think about the marketing expenses?

You've talked about being aggressive this year.

I'm assuming you're probably pretty aggressive last year.

But for planning purposes, do you anticipate marketing expense being a bit of a headwind this year versus last year?

No, they're just about the same.

Okay.

And then just one final question, after you guys have kind of had a chance to dissect the results from last year, that 7% decline in attendance, is there any way that you've been able to kind of parse out and maybe by order of magnitude some of the impacts being weather, being the economy, and then kind of on the corporate group sales side?

And what gives you confidence that those pieces are going to turn around this year?

Scott, everything you mentioned, last year we really got hit hard.

I think a successful season depends on three things.

It depends on the capital that you put in, weather and certainly the economy.

And last year, we got hit very hard with weather in all of our parks across the sector.

And also the economy was very bad for us.

And I'm knocking on wood, but we opened the parks earlier this year.

And as our numbers indicate that we had very nice weather, very good weather over the Easter period this year and hopefully that trend can continue.

But after last year, you just never know what's going to happen with the weather.

We are a weather-sensitive business.

But we think the other sectors, is while the economy is not great, we think, we're hoping that maybe the general public knows that the bottom is here and they're going to have a little bit more confidence knowing that they're not going to get laid off this year and basically the economy is going to rise a little bit.

And with good weather and confidence in the economy, I think we have a great capital program, I certainly am confident that we can hit the numbers that we just outlined at $320 million to $340 million EBITDA number.

And our next question comes from Jeff Kauffman of Sterne Agee.

Please go ahead.

Hi.

It's actually [Conchetta Nebretti] in for Jeff Kauffman.

How are you?

Fine, thank you.

I wanted to know if you could talk a little bit about your free cash flow and CapEx outlook for the year?

Based on the EBITDA $320 million to $340 million, I'll give you a few components of cash requirements.

We had stated in our comments about $20 million to $23 million in cash taxes.

We expect cash interest expense to be in $125 million to $130 million range.

And with respect to capital, our seasonal capital is $90 million.

But our best guess right now is $75 million to $80 million on a fiscal year basis.

Great.

And then I was kind of curious, if you could talk a little bit about what you're seeing in April in terms of season pass and group sales?

Are you seeing any sort of acceleration from 1Q or not?

I think Dick has commented that we're up.

I think that has been a pretty steady rise since the beginning of the year.

We haven't seen any significant spike in April, although as I think Dick pointed out, one of our parks this coming weekend has a strong Mother's Day sales period.

And after this weekend we'll see whether or not that's exceptionally strong, the same or weaker than last year.

Got it.

Okay.

Thank you very much.

Our next question comes from Joe Lackey of Wells Fargo.

Please go ahead.

Hi guys.

Welcome back I guess.

Thank you.

Thank you.

I guess starting with the guidance here, I had a couple of questions there.

If you look back to the merger proxy, you guys had indicated that 2010 projected EBITDA of roughly $342 million.

And I think that was a far out kind of assumption, correct me if I'm wrong, that you guys made back in October.

When you filed I guess the proxies in the February-March time frame, you didn't update that figure.

And I guess given that your Q1 was in line with expectations, what's kind of changed here?

You're now going with a lower $320 million to $340 million.

Joe, this is Peter.

When we put together the projections for purposes of the -- of Apollo's evaluation of the Company that were disclosed in the proxy, we did those in the September-October time frame of 2009.

At that point in time, we have yet to hit the October business and we didn't have a good feel for how the weekends' business.

I'm referring back to the fourth quarter of 2009.

Since those were not updated, since they were included in the proxy based on what we had projected in September and early October of 2009, the fourth quarter had an impact on our view with respect to our budget and our projection and our forecast for the rest of this year.

Joe, just our Labor Day or after Labor Day, numbers this year, basically we lost over 150,000 visits after Labor Day.

And we lost about 11% revenue just after Labor Day this year, mainly -- that was all because of the weather.

Okay.

Okay, that makes sense.

Can you talk a little bit about an update on the refinancing and how that's going?

Is there any sort of time table you're working under?

And obviously, your term debt and revolver don't expire for a couple of years here.

But is there any sort of internal time frame you're wanting to get as far as refinancing goes?

And then any sort of options you're exploring?

Or maybe I guess a different way, can you rank in order of preference the options you're looking at with JPMorgan?

Joe, with respect to your first question, the time table, we do have runway as you pointed out.

Our revolving credit facility expires in August of 2011 and our 2012 maturities of term debt are, obviously, they mature in February and August of 2012.

We do have runway.

But after the merger was terminated, we met with a number of banks.

And the story and the background we're hearing now that we've reentered the market is that it's a very strong market, both on the high yield as well as in the bank market, for a number of reasons.

So our time frame is to look and do something here over the next few months as we have disclosed in our prepared remarks.

It obviously depends on the market.

It depends on JPMorgan's recommendations.

But having said that, we do have runway.

But if the market is strong, I think the board is comfortable with moving forward with something here over the next few months.

With respect to your second question, the preference, we don't have a preference right now.

We're finalizing our thoughts and finalizing our plan.

We do obviously have $1.5 billion in debt.

Some of that we would consider permanent capital.

So we're trying to evaluate the best mix to number one, create a structure, as we said in the prepared remarks, that's stable but flexible.

So given those two objectives, we're going to put together something here that makes sense.

And, Peter, you had to borrow essentially on your revolver to pay down some of the term debt in order to meet your covenant in the fourth quarter.

I think it was $39 million.

Yes.

Did you have to do that in the first quarter and do you foresee any sort of issues under the current structure of the covenants, meeting that by the end of the year when it shuts down again?

The answer to the question is yes, we did at the end of the year and yes, we did in the first quarter.

The good news is though we don't see an issue with respect to covenant compliance under the current credit agreement unless the season -- as we disclosed in our 10K, unless the season was incredibly bad.

As Dick points out, we have some interesting trend, some good trends, so we don't see that as a concern at this point in time.

Having said that, those are temporary issues.

At the timing, our seasonality creates periods of very strong cash inflow and periods where we have very strong cash outflow.

Those were measures that we're taking to deal with our covenants in the early part of the year, based on definitions that were part of the former credit agreement.

And that is the reason why we're in the market right now.

And last question here, can you give some details on the swaps here that are causing these non-cash charges?

What are we exposed to here?

Is it foreign exchange swaps or are they interest rate swaps or what's going on there?

It's all of the above.

Let me start by saying that the reason we entered these swaps a number of years ago was in response to our distribution policy.

We wanted to create stable interest cost.

So we fixed a good portion of our variable rate debt.

So having said that and the fact that we had commented in the call there, all-in interest rate is about 7.3%.

These swaps now migrating to the P&L are really an accounting issue.

The swaps themselves went ineffective by definitions within the applicable accounting rules.

It doesn't affect interest expense.

Cash interest expense remains the same and these swaps are still doing as we intended them to level cash interest cost.

Clearly as we look to refinance our debt, we'll be reevaluating the swaps and reevaluating our posture with respect to fixed versus variable rate debt going forward.

And since they're classified as ineffective swaps, are -- do you just have open exposure there?

I mean why aren't they --

Correct.

Because they're ineffective.

They migrate from other comprehensive income that flows through the equity section --

Yes.

-- to the P&L.

So again, it's a non-cash charge that flows -- that instead of showing that in other comprehensive income and equity, it shows up in the P&L, again, non-cash.

The effect of those swaps and the intended purpose of those swaps have not changed, even though the accounting has migrated from the equity section to the P&L.

Okay.

Thanks.

Okay.

Our next question comes from Hayley Wolff of Rochdale Securities.

Please go ahead.

Hey guys.

Hi there.

Long time no speak.

Yes.

A couple of questions; first, you said something about exchange rate, foreign exchange.

When we move into the heart of the operating season, you should get a foreign currency benefit from the Canadian parks?

Sure, yes, because we have expenses in the first quarter.

That weaker dollar affected us.

And as we generate revenues, yes, you're right, it would help us.

Okay.

And then can you comment on how operating days fall this year versus last year?

And then related to that, the Halloween falling on a Sunday, how that fits into everything?

Operating days are pretty similar to last year, Hailey.

It shouldn't have any effect at all.

Okay.

We opened a little bit earlier, but it makes it up on the other end.

And then Halloween on a Sunday, does that have any positive effect, negative effect on -- [the Fright festivals]?

Could you repeat that?

I'm sorry.

With Halloween falling on a Sunday, does that influence visitation in any way, shape or form?

No, it shouldn't.

Okay.

You know what, I have to ask you, is that in Nov -- how late in November is Halloween?

Or is it in October?

Thirty first.

Thirty first.

That will be our last.

Probably most likely, that'll be our last operating day.

Yes.

It shouldn't have any effect at all, Hailey.

Yes, no.

Okay.

Right, thanks guys.

Thanks, Hailey.

Good to talk to you again.

(Operator Instructions).

We have a follow-up question from Scott Hamann of KeyBanc Capital Markets.

Please go ahead, sir.

Okay, just to follow up on the operating days' question, it sounds like it's the same year-over-year.

But in terms of the timing for the quarters, is that also going to be very comparable for each of the quarters?

Yes, the quarters are comparable.

You won't see periods with significantly more or less operating days versus last year.

Okay.

And the assets that you had up for sale last year, the two parks, are those currently up for sale or what's the status there?

No, I think what we're concentrating on now is getting our balance sheet in shape and then we'll make our decisions based on what's in the best interest of the unitholders going forward.

But our primary concern right now is to get our balance sheet in shape and get our debt in line.

Okay.

And then, Peter, on the interest expense number that you gave, how much debt does that contemplate you pay down this year?

That contemplates, based on the cash flow calculations, that we would pay down a good portion of the remaining cash flow, $70 million to $80 million over the year.

Okay.

And then is the plan still what you laid out last year in terms of paying down a $200 million bucks over the next couple years?

We're obviously reevaluating that right now.

If we're going to go into the markets, clearly, we want to look at the three things that Dick had mentioned.

Number one, obviously a stability but looking at repaying debt, looking at growth opportunities, also looking at a distribution at the right point, at the right amount.

So those of -- if we can achieve the levels of EBITDA that we'd like, the $320 million to $340 million, we'd have that available cash flow.

The question is what would the construct of a new credit facility look like, and we'll be -- we're evaluating that as we speak.

Okay.

Are you still looking at the partnership structure?

And I was kind of curious how your current partnership structure kind of dovetails with the distribution strategy over the long term.

I mean I know you don't have to pay one, but I believe in one of the filings you said that your current strategy was kind of inconsistent with being a partnership.

Well, obviously when we had to suspend the distribution, that isn't the -- necessarily the approach you want to take in an MLP.

Having said that, we look at that every couple of years and evaluate it.

We have to evaluate a number of things with respect to that, both an 80% vote of our unitholders, as well as the fact that there's a potential tax impact if we were to convert it.

So those are things that we look at on a regular basis.

And that's going to be part of this evaluation as well.

Okay, thank you.

Ms.

Frole, gentlemen, there are no further questions at this time.

Please continue.

In closing, I want to thank you for your questions and your interest in Cedar Fair.

You can be assured that the board and management team will continue to make every effort to maximize the near and long-term value potential of Cedar Fair as a public company.

We believe we are headed in the right direction in our effort to improve our capital structure and we have a sound business strategy in place to generate profitable growth.

We look forward to reporting our progress to you in the future.

Stacy?

Thank you, 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 to you again in about three months to discuss our second quarter results.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating.

You may now disconnect your lines.