Six Flags Entertainment Corp (FUN) 2011 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.

During today's conference, all parties will be in a listen-only mode.

And following the presentation, the conference will be opened for questions.

(Operator Instructions)

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

Please go ahead.

Thank you, Douglas.

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 2011 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 President and Chief Executive Officer and Peter Crage, our Executive Vice President and Chief Financial Officer.

We also have two operational Executive Vice Presidents with us this morning, Richard Zimmerman and Phil Bender, who will be available for comment during the call.

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 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'd like to turn the call over to Dick Kinzel.

Thank you, Stacy, and good morning everyone.

Thank you for joining us on today's call and we appreciate your interest in Cedar Fair.

Today's call will focus on our first quarter performance, our outlook for the 2011 operating season, our recent re-filing and current capital structure, as well as our distribution expectations going forward.

Before discussing first quarter results, I would like to remind everyone that the first quarter represents less than 5% of our full-year revenues.

So it is not material to our full-year operating results, therefore, it is always risky to jump to any conclusions based on the first quarter numbers alone.

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

Net revenues for the first quarter of 2011 decreased $400,000 to $26.9 million, compared to $27.3 million for the first quarter of 2010.

The decrease in 2011 was primarily due to fewer operating days in the southern region and a dip in attendance in the western region, which was partially offset by an increased in-park guest per capita spending in the western region.

Our pre-season operating costs were in line with our expectations for the quarter, where only three of our 17 properties were in operation.

The other parks, including our largest seasonal parks, Cedar Point, Kings Island and Canada's Wonderland, were idle as those teams finalized their preparations to open for their operating seasons.

Peter will review the details behind the financial results with you in just a bit.

But first, I'd like to discuss our view on the upcoming 2011 operating season in a little more detail.

Although it is much too early to determine the kind of year we will ultimately have, we are encouraged by the initial positive trends in seasons pass and group sales at our parks.

Overall, seasons pass sales are up when compared to this time last year in terms of both units sold and total revenue.

This was primarily due to our aggressive marketing campaign, competitive pricing and hopefully continued improvement in the economy.

Our focus is to convince 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.

Approximately 50% of our budgeted sales have taken place to date.

In addition, our group business book 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 this important segment of our customer base will continue to improve, as the overall economy continues to recover from the 2009 recessionary levels.

We believe we will be able to build upon the record-setting momentum we created for Cedar Fair in 2010, as our parks begin opening for their 2011 operating season.

By continuing to focus on improving the operations and a distinctive public draw of our parks, as well as strengthening the balance sheet, we expect to generate significant cash flow to support our ongoing efforts to reward our unitholders with steadily increasing value creation through a sustainable and growing distribution.

Our recent investments in several new, leading-edge attractions coupled with the addition of new family-friendly shows will be key drivers to the Company's 2011 success.

Currently, seven of our 10 seasonal amusement parks are in operation and have strong marketing programs underway.

In just another two weeks, all 10 seasonal parks will be in operation.

We expect our 2011 capital expenditure program to be approximately $75 million.

This year's program is highlighted by four 300-foot-tall swing rides at our four largest properties, Cedar Point, Knott's Berry Farm, Kings Island and Canada's Wonderland.

We will also be introducing Planet Snoopy, a popular children's area to Worlds of Fun, Dorney Park and Valleyfair.

Kings Dominion, Carowinds and Canada's Wonderland will be lighting up the night sky with Snoopy's Starlight Spectacular, an evening light show that has proven to be very popular among our guests at our other parks.

We also continued to invest in appealing new live entertainment shows for all ages with more than 25 new shows across our parks this year.

We are particularly pleased with the level of our public interest in our new rides and attractions thus far.

As long as our parks perform as we fully expect them to and the economy and the weather cooperate, we expect to generate revenues of between $975 million to $1 billion and full-year adjusted EBITDA in the range of $350 million to $370 million in 2011.

Assuming results continue to meet our expectations, we intend to pay $1 per unit in distributions in 2011.

To that end, the Board has already declared a quarterly cash distribution of $0.10 for a limited partner unit payable on June 15.

Looking ahead with that same assumption, our goal is to double the $1 per unit distribution in 2011 to $2 or more per unit in 2013.

Before I turn the call over to Peter, I'd like to briefly comment on a letter to our Board of Directors from Q Funding that was filed with the SEC a few weeks ago.

This letter mentioned an unsubstantiated rumor that Mark Shapiro, the former CEO of Six Flags, is a candidate being considered by the Board.

Mark Shapiro, whom I consider a friend, has never been a candidate for the CEO position and has never expressed an interest for this position.

Frankly, Mark is plenty busy right now with several projects and is currently a partner and Chief Executive Officer of Dick Clark Productions.

He is a good man and I resent that Q Funding is now trying to drag him through the mud as seemingly never-ending efforts that denigrate the Company and distract investors from our solid results and strong balance sheet.

Cedar Fair is a strong company with enviable reputation as being the best operator of regional amusement parks within North America.

We are coming off a record-setting year, despite the lingering economic choppiness and have the best operating margins in the industry.

We have a longstanding and loyal team of experienced and high-qualified management staff members at all of our parks who are hardworking and dedicated to providing their customers with the best guest experience possible.

Our balance sheet is healthy and we expect to produce a significant amount of free cash flow going forward, which will allow for increased distributions to our unitholders.

Additional capital investments within our properties and continuing strengthening of our capital structures and these are just [as a] few of the reasons as to why Cedar Fair is especially an attractive opportunity for (inaudible).

We continue to be on track with our succession plan and we expect to announce my successor by the end of the second quarter.

As anyone who has been in this industry for a while, as someone who has been in this industry for a while and personally is a large individual unitholder of Cedar Fair, I am pleased with the strategies we have in place with our succession plans.

I am confident that this Company will be very successful in many years to come.

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

Thanks very much, Dick, and good morning to everyone.

As Dick pointed out, our first quarter results represent less than 5% of our full-year results.

Given the highly seasonal nature of our business, the majority of our revenues are realized during 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 with a growing percentage starting to emerge in and around our Halloween season.

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

Consolidated net revenues for the three months ended March 27, 2011 were $26.9 million, down slightly compared with a year ago.

During the first quarter of 2011, we had fewer operating days in the southern region and a dip in attendance in the western region, which was partially offset by increased in-park guest per capita spending in the western region.

The operating loss for the first quarter of 2011 was $67.3 million compared with $60.6 million in the first quarter of 2010.

The increase in operating loss in the first quarter of 2011 was due primarily to two factors.

Slightly increased pre-opening expenses associated with our parks in the northern and southern regions that are actively preparing for their respective operating seasons and an increase in selling, general and administrative expenses, which includes $4.4 million of legal and professional costs incurred during the period, including litigation expenses and costs for SEC compliance matters related to Special Meeting requests and an increase in non-cash equity compensation costs of approximately $3.3 million as a result of a 28% increase in the market value of our limited partner units [during the quarter].

For the quarter, depreciation and amortization decreased $99,000 or 2% compared with a year ago.

Interest expense increased to $41.1 million compared to $29.6 million a year ago.

As a result of our refinancing in July of 2010, interest-rate spreads were higher for the first three months of 2011 than the same period a year ago.

This resulted in the higher interest expense for the first quarter of 2011.

During the first quarter of 2011, the net effect of swaps decreased $5.7 million to a non-cash charge to earnings of $1.9 million, reflecting the regularly scheduled amortization of amounts in accumulated other comprehensive income related to the outstanding swaps.

These charges were offset somewhat by gains from marking the ineffective and de-designated swaps to market and foreign currency gains related to the US-dollar denominated Canadian term loan in the current period.

During the period, we also recognized a $6.9 million benefit to earnings, principally due to unrealized foreign currency gains on the US-dollar denominated notes issued last July and held at our Canadian entity.

We recorded a net benefit of $19.6 million to account for the tax attributes of our corporate subsidiaries and publicly traded partnership taxes during the first quarter of 2011, compared with a net benefit of $57.8 million for taxes in the same period a year ago.

The variation in the first quarter tax benefit recorded year-over-year is due primarily to a lower estimated annual effective tax rate for the 2011 year, which was impacted by lower expected foreign taxes for 2011 and the related favorable adjustments to the foreign tax credit valuation allowance.

For clarity, we expect our actual cash taxes to be in the range of $8 million to $10 million for 2011, a reduction from previous years due to some effective tax planning strategies.

After interest expense and the net benefit for taxes, net loss for the first quarter ended March 27, 2011 totaled $84.7 million or $1.53 per diluted limited partner unit.

For the first quarter ended March 28, 2010, the Company reported a net loss of $39.9 million or $0.72 per diluted limited partner unit.

Thanks in large part to our timely, rate-favorable refinancing efforts, coupled with our strong 2010 performance, we ended the first quarter of 2011 well positioned in terms of both liquidity and cash flow.

Our receivables and inventories are at normal seasonal levels and we have credit facilities in place for current liabilities, capital expenditures and pre-opening expenses, [as well as] partners' equity totaling $58.8 million and our total cash on hand was $7.3 million.

This past year, we have succeeded in improving our capital structure by refinancing our debt.

This provides us with long-term stability in our capital structure, as our earliest to debt maturity, the revolving credit facility, is four years out.

In addition, our recent credit agreement amendment in February increased our flexibility to pay distributions and, when coupled with the expiration of certain LIBOR interest-rate swaps in October of this year, reduce interest expense significantly over the long term, which in turn supports our strategy of providing a growing distribution to our unitholders.

At the end of the first quarter, we had $1.18 billion of variable rate term debt, of which all has been converted to fixed rate through several swap agreements, $399.5 million of fixed-rate debt and $127.1 million in borrowings under our revolving credit facilities.

Of the total term debt, $11.8 million is scheduled to mature within the next 12 months.

We expect to pay cash interest costs of $145 million to $150 million in 2011, and as a result, our projected full-year cost of debt is approximately 9.1%.

The cost of debt is expected to decrease significantly in 2012, as a large portion of our current swap agreements mature in October of this year.

Going forward, we anticipate cash interest costs will decrease to $100 million to $115 million in 2012 and beyond.

Now, I'd like to take some time to discuss our recent refinancing and our capital structure.

As part of our ongoing capital structure management, we completed a refinancing of our outstanding debt in July of 2010 by issuing $405 million of 9.125% senior unsecured notes and entering into a new $1.435 billion senior secured credit facility.

Among other things, this refinancing allowed us to greatly improve our financial flexibility needed to quickly reinstate the distribution to unitholders that had been temporarily halted under the terms of the old credit agreement in the wake of the historic macroeconomic collapse.

Then in February of this year, we again took advantage of the improving markets by amending our senior secured credit agreement, reducing interest rates, modifying certain distribution covenants and extending the maturity of our term loan by one year to December 2017, which will provide even greater flexibility in the future.

Since our amendment in February modified certain distribution covenants, I would like to take a few minutes to walk through the specifics regarding the parameters around the distribution.

As we have stated, we anticipate paying $1 per unit distribution in 2011 to unitholders should operating results meet our expectations.

Payment of a distribution is governed by both the senior secured credit agreement and the bond indenture.

The covenants and distribution capabilities within these credit agreements are somewhat involved computations and my explanation that follows is by no means a substitute for a complete reading of these agreements.

For simplicity sake, we have a $60 million basket available to us in 2011 under the credit agreement and adequate flexibility under our indenture provided on our leverage ratio, including average revolver falls below 4.75 times.

These leverage tests are performed on a quarterly basis.

This is why we are looking to our results for the year to confirm that the $1 distribution Dick mentioned can be paid and not get ahead of ourselves.

For 2012 and beyond, we have a minimum $20 million basket for distribution under both the credit agreement and the indenture regardless of leverage levels.

In addition, we have the ability to consider distribution payments from our excess cash flow of the immediately preceding year subject to a percentage sweep based on our senior secured leverage ratio as long as we maintain a total leverage ratio, excluding the revolver, of 4.5 times or less.

Excess cash flow is very closely aligned to adjusted EBITDA after cash taxes, CapEx, interest, scheduled debt amortization, plus/minus changes in working capital.

For example, the excess cash flow generated in 2011 will be available for payment in 2012 subject to the sweep, 25% at current senior secured leverage ratios and of course forward direction.

Under the indenture, as long as we comply with the 4.75 times leverage ratio, including average revolver test, we should have adequate excess cash flow flexibility.

Now in English, if we meet our result expectations for 2011, we intend to pay $1 in distributions for the full year and to have a goal to double this payment to $2 or more in the 2013 fiscal year.

By way of example, for 2011, our current adjusted EBITDA guidance is $350 million to $370 million.

Our cash interest expense expectations for 2011 are $145 million to $150 million and current scheduled debt repayments are approximately $12 million.

Fiscal year capital expenditures are expected to be about $80 million and our cash tax payments are expected to be about $10 million.

The change in working capital year-over-year is typically a minimal amount.

From these expectations, the excess cash flow available in 2012 would be between $98 million to $123 million, of which 25% is likely required to pay down debt depending on our senior secured leverage ratio, leaving $73 million to $92 million potentially available in 2012.

There are approximately 55.6 million units outstanding in Cedar Fair.

The amount available for distributions under the excess cash flow calculation will increase in 2012 for payment in 2013 and beyond, as our cash interest expense will decrease with the expiration of certain swap agreements and as we reduce our senior secured leverage ratio below 3 times.

The cash interest savings in 2012 will be somewhat offset by the cash termination costs of the Canadian cross currency swap in February of 2012.

Based on currency exchange rates in place at the end of the first quarter of 2011, we estimate the cash termination costs of these swaps will total approximately $48 million in February 2012.

However, we do not believe this will impact our ability to pay the $2 or more per unit distribution in 2013 should operating results meet our expectations.

Hopefully, this has helped to provide some clarity surrounding the distribution covenants.

Of course, both Stacey Frole and myself are available anytime should you have any questions regarding this important item.

We believe the combination of our well-run properties, the improving business conditions, our ability to generate significant cash flow, and the refinancing we accomplished over the past year support our plans to grow the distribution over the long run.

At this time, I would now like to open the call up to your questions.

Thank you, sir.

(Operator Instructions) Michael Walsh, Wells Fargo.

Good morning everyone.

Just filling in for Tim Conder here.

Just wanted to see, what are you assuming in terms of debt payoff.

You had mentioned possibly getting to $2 or more in the distribution by '13 and with your cash interest forward cash.

What are you thinking there on the revolver balance?

What are you going to carry and is there going to be any early payoff of some of the term debt?

Michael, this is Peter.

We expect some amount of debt payoffs in 2011 even if we move forward and our results are at the level where we can pay the $1 in distribution.

It's difficult to tag what our revolver balance will be, but clearly there is a desire to manage that down below a quarter turn on EBITDA so that we can meet these covenants with enough headroom.

With respect to debt payment going forward, we've laid out a plan here for increasing the distribution and that will be something that we would obviously discuss with the Board and make that decision accordingly when the time comes.

Got you.

And then could you just talk about overall pricing and how that's going to look in '11 versus '10, maybe at the gate and then group season passes and then maybe even a little bit on food, which I think you had talked about last time and do you expect pricing to be up year-over-year?

Yes.

Sure, Michael, this is Dick.

We have seen -- we have increased our prices depending on our capital expenditures (inaudible) into the park.

We have seen increases in commodities this year, which I think everyone is experiencing.

Where we can we pass those costs along.

I think we do have some flexibility in our front gate pricing and we're a very value-oriented commodity for our guest to visit the parks, so we do have some flexibility in our pricing, but we adjust accordingly -- and we watch our margins very closely and adjust accordingly.

If we have to raise prices, we do it.

Would you categorize the price increase as maybe as modest or low single digits, is that kind of fair?

Yes.

At most parks -- some of the parks we held from last year, but where we put the bigger attractions in, we raised the price approximately $1.

Okay.

And that was at the front gate, of course, depending on season passes did not go up that much or the group business, but the front gate price did go up.

Okay.

And then lastly, kind of going back to your overall strategy that you guys have laid going into 2015 of low single-digit revenue and EBITDA growth.

What's the biggest drivers there for you guys to meet those?

I mean is it going to be volume, you did record attendance last year, is it going to be pricing, the combination of those things, recovery in the overall economy?

Well, I think it's going to be a combination of all those things, Michael.

Certainly, weather and the economy play a big part, the weather more than anything, but then certainly, I think the capital expenditures you put into the park has a great deal of influence on attendance also.

All right.

Great.

Thank you.

You're welcome.

Scott Hamann, KeyBanc Capital Markets.

Hey.

Good morning everyone.

Just a couple ones here.

Were there any delays that you experienced weather-related as it relates to getting rides up and ready for the opening weekends?

Yes, Scott, this is Dick.

Of course, when -- we do have a limited window for construction of these big rides and the four rides we're putting in this year are prototypes.

As you can see from the weather map, we've had very severe weather and winds in the south, especially in Ohio.

And so we are experiencing some problems with -- but we expect them being open very, very quickly and we expect these to be very, very successful rides for us.

But certainly, the weather that we've had, especially here in Sandusky and in Cincinnati has played a role in construction time.

Okay.

And then --

We do have other things that have already opened like I mentioned in my prepared comments, the Planet Snoopys and things like that are open and running well.

But it's just a prototype rides in the shorter windows we have to get those constructed where we seem to be having a little bit of a problem this year.

But are we talking about weeks or months?

No, I think we're talking at the latest Memorial Day.

Okay.

All right.

That's fair.

And then, Peter, just trying to understand a little bit more on your revenue guidance for this year.

I mean it kind of implies up 1%.

I mean should we think about the volume component being -- I mean how should we think about the price volume component there?

I mean record attendance last year, I mean is that kind of flattish with some of these price increases kind of getting us up 1% or (inaudible)?

Yes, I think that's a good approach.

Record attendance last year.

Building on that although early in the year here we have good feel -- we're feeling good about season pass.

Volume, the increase for the coming year is principally price-driven.

But again, as Dick pointed out, it's a balance.

As you get into the year we'll evaluate it.

But I think from the outset here, it's a little bit more pricing than it is attendance growth.

Okay.

And then just lastly on operating days, I mean do you have a total count of what it's going to be this year versus last year and are there variances and which quarters?

Yes, for this quarter we just completed there is one less operating day this year than last year and for the total year there are four less operating days in 2011 as there were in 2010.

Okay.

Thank you.

You're welcome, Scott.

(Operator Instructions) James Hardiman, Longbow Research.

Hi, good morning.

Thanks for taking my call.

I just want to make sure that I understand some of the puts and takes in the SG&A and I guess also operating expenses to a less degree in the quarter.

You had the $4 million of merger costs last year, you had the legal costs this year about $4.4 million.

On an apples-to-apples basis though, it still looks like SG&A was up meaningfully this year over last year.

I'm just trying to make sure I understand what that was.

You mentioned equity comp expenses.

Was that the remaining delta and if so, how should I think about that throughout the remainder of the year?

James, this is Peter.

[I said of] the equity comp.

Just to go through the numbers real quickly with you again.

$2.3 million was operating expense increase and we had the $4.4 million of legal and professional and then we had $3.3 million of equity comp and that's of course a non-cash cost as our unit price increased in the market over the year that increased.

Going forward, how to look at that going forward, it totally depends on the performance of our units over the year, as that number will increase or decrease with the market price of our units.

And so that $3.3 million of equity comp, that was all in SG&A?

Yes.

And that's -- I should know the answer to this, but explain one more time what the difference between that and the equity comp piece that you put in the EBITDA reconciliation is?

That's a much smaller number?

What does that number represent?

Which number are you talking about and the reconciliation [I leave it there].

Yes, there is a -- bear with me, there is a equity-based compensation number of about $228,000 for the quarter.

Right.

Those are the same things.

The $3.3 million and the $228,000, I guess what's the --

Why don't we take -- can we take that -- I just want to make sure I'm not giving you the wrong answer.

Okay.

And we can take this one offline and make sure that we get you the right answer.

Sure.

My apology that it is probably a better question for offline.

And then just so that I understand the guidance between sales and EBITDA for the year, the sales guidance is basically flat to up 2%.

The EBITDA guidance is down 3% to up 3%.

I guess I can understand why at the high end 2% revenue you'd get some leverage, get the 3% EBITDA.

I guess I'm just trying to figure out why at the low end in a flat sales environment EBITDA would be down that 3%?

Well, we have to take into consideration cost increases, although we think we believe we can pass along pricing here, because of the brands in our markets are very strong.

We just want to make sure that the guidance is appropriate and that we don't -- we take into consideration the fact that we have some cost pressures.

Okay.

And then just sort of back to the sales guidance, up 2% is the high end of your guidance, obviously, last year was a good year, up almost 7%.

What do you think this year that makes you think that it won't be sort of as robust as last year?

Is it a weather issue?

Is it a fuel price issue?

It seems like the group sales numbers are coming in pretty strong or is that just ultimately being conservative on your outlook?

We're coming off of a very weak year in 2009, James.

And 2009 was -- 2010 was a rebound of 2009's recession here and we're just going historically, we think we can increase the numbers that we'd given you.

But basically we never expected 2009 to be the way it was, we did rebound in 2010.

And now our goal's to keep that momentum going.

Great.

And then just last housekeeping question here.

The tax guidance, which is always helpful.

Is that a fair assumption to make that $8 million to $10 million you guys mentioned for 2011, is that a safe assumption moving forward beyond 2011?

I think for a few years, I think it's a fair assumption.

Okay.

Great.

Thanks, guys.

(Operator Instructions) There are no further questions in queue.

I'd like to turn to call back over to management for closing remarks.

Okay.

On behalf of the management team, I'd like to thank you again for your time this morning and also like to let you know we appreciate the continued support of our unitholders.

As we head into our full operating season, we feel very good about Cedar Fair's progress and potential.

And we remain committed to acting in the best interest of all of our unitholders by executing a strategy that creates maximum value for the long term.

Stacy, I'll turn it back over to you.

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

Thank you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for your participation.

You may now disconnect.