Six Flags Entertainment Corp (FUN) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cedar Fair first-quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. 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, Amaryllis. Good morning. And welcome to our first-quarter earnings conference call. I'm Stacy Frole, Cedar Fair's Director of Investor Relation. Earlier today we issued our 2012 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 Matt Ouimet, our President and Chief Executive Officer, and Brian Witherow, our Executive Vice President and Chief Financial Officer. Richard Zimmerman, our Chief Operating Officer, is also 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 will turn the call over to Matt Ouimet.

Thank you, Stacy, and good morning, everyone. We intend to keep our prepared remarks brief this morning, as the first quarter is a relatively quiet time of the year for us. Only 3 of our 17 properties were in operation during the first quarter, including Knott's Berry Farm, our only year-round park.

As a result, the first quarter typically represents less than 5% of our full-year revenues, so we do not advise drawing any conclusions about the full-year based upon the first-quarter numbers alone.

Overall, our first-quarter results were in-line with our expectations. Net revenues for the quarter were up 5%, primarily the result of increased attendance and guest spending per capita spending at Knott's Berry Farm.

Our pre-season operating costs were also in line with our expectations for the quarter. Our largest seasonal parks, Cedar Point, Kings Island and Canada's Wonderland, were idle during the quarter as those teams finalized preparations to open for their operating seasons.

Both Kings Island and Canada's Wonderland opened this past week, while Cedar Point is scheduled to open on May 12. Brian will review the details behind the first-quarter results in just a bit. But, first I'd like to discuss out outlook for the upcoming 2012 operating season.

Although it is much too early to determine the kind of year we ultimately will have, we are encouraged by the initial positive trends in season pass and group business sales at our parks. Overall, season pass sales are up when compared with the first quarter last year, in terms of both units sold and total revenue.

We believe this is due, in large part, to our lineup of new rides and attractions, combined with new marketing strategies and our new ecommerce platform. Our focus is to encourage people to make their plans early in the year and buy their season passes now at a great value, which we believe will lead to a greater number of visits throughout the year.

Approximately 45% of our budgeted season pass 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 pleased to see an uptick in early season sales in this category that makes up approximately one third of our overall attendance. We believe this is an indicator of the continued strengthening of the local economies that we serve.

We are also quite pleased with the new corporate sponsorship deals we already put in place. As previously announced, Pepsi will sponsor Luminosity, our new nighttime show at Cedar Point. We're thrilled to have Pepsi involved in this special family event and believe their music and live event experience, as well as the promotional leverage that they provide, will be invaluable to us.

Similarly, we're excited to offer Crave as the exclusive flavored milk at select Cedar Fair properties across the country this summer. Such sponsorships are yet another way for us to achieve our goal of providing our guests with the best day of the year experience they expect and deserve.

Regarding our new attractions for this year, we have embarked on one of the most diversed investment programs in the company's history. These investments include roller coasters, thrill rides, water attractions, family attractions and a new nighttime entertainment concept. All of this, along with general improvements in our overall infrastructure, such as better access for our guests with disabilities, will add to the best-in-class offerings of our parks and improve the overall quality of the guest experience.

As we've said before, we expect capital expenditures to approximate $90 million in 2012. Our capital program, premium guest experiences, new marketing strategies and sponsorship initiatives will be key drivers to the company's 2012 success. By continuing to focus on improving the operations and the entertainment offerings of our parks, we expect to generate significant cash flow to support our ongoing efforts to reward our unit holders and make further investments in our business.

As long as our parks perform as we anticipate they will, we expect to generate revenues between $1.055 billion to $1.075 billion, and full-year adjusted EBITDA in the range of $385 million to $395 million in 2012.

Based on this forecast, 2012 would be our third consecutive record performance, in terms of both revenues and cash flow. As we stated on our last call in February, we intend to pay $1.60 per unit in distributions in 2012 and are on track for a record distribution of more than $2.00 per unit in 2013.

To that end, the Board has declared a quarterly cash distribution of $.040 per limited partner unit, payable on June 15. Before I turn the call over to Brian, I'd like to briefly comment on our upcoming annual meeting of unit holders.

As we announced in February, we engaged Spencer Stuart to identify and help evaluate potential candidates to serve on our Board of Directors. Under the direction of the independent director Eric Affeldt, the Chairman of our Nominating and Corporate Governance Committee, a committee of the independent directors, in conjunction with Spencer Stuart, reviewed the qualifications of more than 70 potential nominees.

We were extremely pleased with the number of highly qualified candidates who are interested in serving on our board. From this list of strong candidates we were able to identify three excellent nominees, Dan Hanrahan, Lauri Shanahan, and Debra Smithart-Oglesby, who we believe are highly additive to our board in terms of experience, skill sets and leadership styles. For those of you who would like more details, their impressive credentials are available on our website within the news release section.

I would also like to take this opportunity to thank Tom Harvie, Michael Kwiatkowski and Steven Tishman for their years of service to Cedar Fair. These three gentlemen have played a critical role in ensuring a smooth leadership transition at both the executive management and board levels, while at the same time, the company produced back-to-back record results. It has been a pleasure to work with each of them.

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

Thanks, Matt. As Matt pointed out, our first quarter represents less than 5% of our full-year results. Given the highly seasonal nature of our business, the majority of our revenues are realized during a 130 day to 140 day timeframe 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 the Halloween season.

Overall, results for the first quarter were in line with our expectations. Consolidated net revenues for the three months ended March 25, 2012, were $28.2 million, up $1.3 million or 5% from $26.9 million for the first quarter a year ago.

As mentioned earlier, this increase in net revenues was due, primarily, to an increase in both attendance and average in-park guest per capita spending at Knott's Berry Farm, our only year-round park and our only park with meaningful first-quarter operations.

On a cost front, cost and expenses for the first quarter increased $3.2 million, or 3.6% to $93.4 million from $90.2 million in 2011. Operating results for the first quarter include normal off-season operating, maintenance and administrative expenses at our seasonal amusement and water parks, as well as daily operations at Knott's Berry Farm and Castaway Bay. The year-over-year increase in cost and expenses was largely anticipated and the result of incremental costs to support the company's 2012 initiatives, including our new e-commerce platform and general infrastructure improvements.

Both operating supplies and maintenance expenses were slightly in the current period, due to favorable weather conditions in many regions that allowed certain pre-opening projects to be accelerated into the first quarter. During the quarter we also saw an increase in employment-related costs, due largely to nonrecurring severance payments, normal merit-based increases and an increase in wage expense related to equity-based compensation plans. This resulted from the increase in the market price of our units during the quarter.

There was also an increase in self-insurance costs, due to increases in our overall public liability and workers' comp reserves, based on our estimates of future claims, as well as the settlement of a specific claim during the quarter. These increases were somewhat offset by a decrease in first-quarter SG&A expenses, due primarily to a reduction in expenses related to litigation and unit holder special meeting requests.

For the quarter interest expense decreased to $26.8 million, compared with $41.1 million a year ago, resulting from an overall improvement in our average cost of borrowing. As we mentioned on our last call, $1 billion of fixed rate swap agreements matured in October of 2011 and were replaced with $800 million of fixed rate swaps at more favorable rates. As a result, our annual cash interest costs are expected to be lower by approximately $50 million per year going forward.

For 2012, we expect our average cost of debt to be just over 6%, representing a decline of more than 300 basis points from last year, this resulting in total cash interest cost of approximately $100 million this year.

Now, let me highlight a few items from our balance sheet. We ended the first quarter of 2012 well-positioned in terms of both liquidity and cash flow. Our receivables and inventories are at normal seasonal levels and we have the credit facilities in place to fund current liabilities, capital expenditures, distributions and pre-opening expenses as needed.

At the end of the first quarter we had $1.16 billion of variable rate term debt, of which $800 million has been converted to fixed rates through the swaps I mentioned. We also had $400.4 million of fixed rate bonds, $155 million in borrowings under our revolving credit facilities and $7.3 million in cash on hand. Of our total term debt, only $15.9 million is scheduled to mature within the 12 months.

Based on our current adjusted EBITDA guidance, and our expected debt reduction of at least $25 million in 2012, we expect our total leverage ratio, excluding our revolving credit facility, to below 4 times debt to adjusted EBITDA and we expect our senior secured debt to adjusted EBITDA ratio to below 3 times by the end of this year.

Based on these performance ratios, we will have full discretion to optimized total unit holder return through a balanced approach of debt prepayments, distributions to unit holders, and investment in our business.

At this time, we'd like to open the call up for your questions. Amaryllis?

(Operator Instructions). James Hardiman, Longbow Research.

Hi, good morning. Thanks for taking my call. Matt, once upon a time, you were asked about uses of cash and this essentially speaks to the very last piece of the prepared remarks. And the answer was basically that you're going to ramp up your distribution from the $1 last year to $2-plus next year. And that over and above that, you'd wait and see how the market reacted to the increasing distribution to determine how you may go about using that excess cash.

Obviously, the stock has reacted very favorably, up almost 70% since you came onboard. Should that give us some incremental information in terms of, to the extent that you have well over $2 of free cash flow to play with next year, how you're going to go about using that?

Yes, James. Let me address that and I think we're going to see you next week, so I look forward to that. Our plan is still the same. And I would always start with, particularly at this time of year, say we are very optimistic about how the business will perform this year. And if we are fortunate enough to deliver that performance, we will go through the discipline of deciding what the best use of that cash is.

Obviously, we are pleased by the market's response to the Board's decision to do $1.60 this year. And we will go through the discipline of deciding what the best uses of that as we get into the fall and actually deliver the cash through operating results.

I would say there is no reason -- you know, we said $2 or more than $2, and so, obviously, that is not a commitment, but it's certainly the direction that we plan on going in, assuming we deliver this year.

Got it. Thanks. And then, in terms of the attendance breakdown, you sort of talked about last year, if you were to split up front gate, group business and season's pass, essentially being equally weighted a third, a third, a third, roughly. How should we think about where that gets to in 2012 and what do you think is the optimal mix of those three?

Well, it's so early it's hard to extrapolate anything. So, with that caveat, I would say we're still generally thinking about it as a third, a third, a third.

Got it. And then, in terms of the fast pass that you're going to be rolling out to the rest of your parks this year, is there anything that you've been able to glean this early in the season? I mean, obviously, you started to get some of the season's pass business, but is there anything you can take away in terms of some of those initiatives as we look forward to the start of the season?

James, what I will say is that we are very well prepared to execute against it from an operational standpoint. I'm looking across the table at Richard Zimmerman. That particular example and the other premium products we're offering this year, really have to be executed well for two reasons.

One, is to make sure the guests who buy a premium product get the experience that they pay for. And the second is to make sure that it doesn't materially affect, in a negative way, those guests who choose not to. So, I think what I'd like to just say is we are prepared to execute very well against it. We still believe that it is a product that belongs in our parks and will help our unit holders increase the value of our stock.

Excellent. Thanks and good luck this year, guys.

Scott Hamann, KeyBanc Capital Markets.

Good morning, guys. Just in terms of your guidance for 2012, the underlying assumptions driving revenue, how are you thinking about the breakdown between attendance and per capita spending?

Scott, we're not going to break that out. There are, as you are well aware, there are a lot of new initiatives embedded in that revenue. And what I would say, for the people on this call particularly, is that I think we all need to be respectful of the time it takes to educate the consumer on the availability of those products. And, in terms of our yield [management,] to make sure they start to understand which products work the best for them or the best value for them.

So, I'm not going to break that out. We feel good about the range of revenue that we put in our release.

Okay. And, just in terms of reception that you're seeing to the installment plan, as well as maybe driving people to the e-commerce website and upselling some of the premium stuff kind of early in the season?

Yes, early in the season, those decisions seem to be getting validated. But, again, the volume is so low it's hard to extrapolate that. I continue to believe that the installment purchase programs that the industry is now offering provide the consumer with the type of payment plan that it helps them in this economy.

I hope to continue to -- I hope we see continued success with it. And, quite honestly, I hope the industry continues to expand this practice.

Okay. And, Brian, do you have an adjusted EBITDA number for the quarter as you guys kind of define it?

Sure, Scott. The adjusted EBITDA number for first quarter it actually sits at a loss. It's an adjusted EBITDA loss of $61.8 million versus $59.1 million a year ago.

Okay. Thanks. And then, Brian, just finally on SG&A, I know it was down year over year due to a lot of different things, but as we look out through the rest of the year, is -- I mean, should that normalize to kind of even with last year or slightly up or how are these operating expenses going to flow?

On the SG&A specifically, Scott, I mean, as you're aware, last year there were a number of costs that we incurred during the course of the year that were specifically related to special meeting requests and other nonrecurring that, at this point in time, we wouldn't anticipate those reoccurring this year. But, you know, we'll see how those develop.

All right. Thanks a lot.

Tim Conder, Wells Fargo Securities.

Thank you. A couple of questions here. Matt, you mentioned the season passes were about 45% already of your budget for the year. Do you have a comparable number from last year?

What we said, overall revenue is slightly up from where we were last year. I'm going to leave it at that for the first quarter.

Okay. But, I mean your -- basically, if I understood your statement right, you've sold 45% of your budgeted season passes at this point, correct?

We did. That's in the earnings release, yes, or in my statement, yes.

Okay. And your budgeted -- and then what was the comparable number?

Yes, you know, it's just -- it is just hard to extrapolate it, Tim. This is such a small -- we're still so early I wouldn't want to extrapolate that.

Okay. And then you said your group sales, again, were up a little bit, any percentage that it's up at this point at this -- on the year-over-year basis?

No, Tim, we're not going to be that specific. We feel good about it. I think this is the -- you know, to some way, a leading indicator, I think, of how the local economies are feeling.

Okay. Okay. Another question more on your calendar. I think you have a few more operating days this year in the second quarter and a few less in the third. Could you give us a little more color on that? And then, given that you've got a little bit less in your key third quarter, do you anticipate that of maybe making a little more difficult comparisons or maybe how you guys are adjusting to that on the year-over-year basis?

Yes, Tim, it's Brian. From a calendar perspective, overall when we look at the operating calendar over the full year, they're fairly comparable, a day or two here or there just based on which park. Based on the way our fiscal quarters end, there's going to be 100, roughly 100 operating day shift between the third quarter and the second quarter, compared to last year. So, in the current second quarter we'd be looking at roughly about 100 more operating days in 2012 than the second quarter of '11 and then that'll be made up in the third quarter where we'll give up about 100 operating days in the third quarter of 2012 versus '11.

Okay. But there's no -- in your view, I mean you don't see too much of an issue here with given that the second quarter, historically, isn't quite as robust as the third, as far as maybe having a lost opportunity with some of that revenue? Or whether you feel very comfortable that that will be offset with some of the -- obviously the new measures and things that have been put in place?

Yes. And, I mean, really all it is is it's not related to any operational changes, it's just that what the ending -- the fiscal end of the quarter that's driving it. So, it'll be made up by when we get to the end of the third quarter we should be back to more of an apples-to-apples comparison.

Okay. And then, the other thing, just a couple more housekeeping items. The CapEx in the quarter, Brian, and then -- I figured I could get that and then maybe one other question. Should there be -- with some pull-forward of projects into the first quarter, should there be some timing of some of the incremental expenses year-over-year difference here? I think it was maybe alluded to in one of the earlier questions.

So, Tim, on the CapEx side, the cash CapEx spend for the quarter was $27.5 million.

Okay.

For the quarter. As far as the operating expenses, I mean, as you know, having followed us for as long as you have, we've always been extremely disciplined cost managers. That's not going to change. So, while cost in the first quarter are up compared to the prior year, they're in line with our expectations going into the year. So, some of these accelerated projects were anticipated. Others that weren't were offset a little bit. So, we still feel very good about our full-year outlook for costs.

Okay. That's what we thought, thanks for confirmation. Thank you, gentlemen.

Sri [Raja], Deutsche Bank.

Good morning. In terms of uses of cash, how are you thinking about -- obviously, it's a very strong free cash flow business. How are you thinking about -- are you thinking at all about any -- from an acquisitions standpoint or use of the land you acquired last year at Dorney Park and Carowinds? I just wanted to get a sense of whether there's any shift towards that.

Yes, I don't think there's any significant shift. What I always say when we talk about our uses of cash is because we're an MLP and because we have -- a lot of our unit holders rely on us in terms of the distribution, the Board continues to consider the distribution as one of the primary considerations whenever we have extra cash.

That being said, we are pretty disciplined about the amount cash that needs to be invested in the continuing operations to maintain the free cash flow levels that you mentioned. And we will still have the flexibility to do acquisitions as we've done in the past, what we call one-off tuck-in acquisitions of individual parks should they become available. And I would say that pool of acceptable candidates probably gets smaller as time goes by.

But, our plans are about the same as they've always been, including continue to modestly pay down debt as it makes sense so that we can protect, not only the amount of the distribution, but the sustainability of the distribution.

Fair enough. And with the groundbreaking recently at the new 49ers Stadium were you expecting any disruptions for the Santa Clara property?

Not significant. We've been able to work with both the City and the 49ers and to the extent that we do feel any disruption, I think the marketing leverage that we're getting through the 49ers and with the City probably offsets anything we would see there.

All right. Thank you, guys.

Jeffery Thomison, Hilliard Lyons.

Great. Thank you. I think you hit on pieces of this question during your prepared remarks, but wanted to make sure all was clear. And the question relates to the take-aways from expected adjusted EBITDA, to get a rough free cash flow figure, that is expectations for cash, taxes, interest and CapEx. Would your CapEx figure that you gave earlier, would that be what you expect to spend in calendar 2012?

Yes, we generally are about 9% of revenue. And I think the number we put out for 2012 is roughly $90 million.

Yes, the $27.5 million that I commented on earlier, Jeff, was just the first quarter number.

Okay. And did you mention cash interest expectation earlier?

Yes, in our prepared remarks, we anticipate roughly $100 million in cash interest costs. Cash taxes should be something in the $10 million to $12 million range.

Okay. And then, finally, on the $25 million debt reduction in 2012, what piece is that coming from and when will that happen and could that recur in 2013?

Sure, Jeff. The $25 million payment that we are anticipating making this year for '12, or projecting to make, $16 million of that is required to be made by the end of June under the excess cash flow covenant or construct within the credit agreement. The remaining $9 million will be discretionary. And so, that'll be made sometime before the end of the year. And it'll go all against term.

And then next year we will, in theory, based on those leverage ratios that I outlined being below 4 on total and being below 3 on senior secured, will take us outside of that excess cash flow calc where the $25 million payment next year will be fully discretionary.

Okay. Got you. Okay, thank you.

(Operator Instructions). [Jeremy Conn] with [Bow Street].

Hi, Matt. I was wondering if you can talk about what your expectations are for Speed Pass and also sponsorship in the guidance?

Yes. Great. So, two of the most common questions I get, Jeffery, so on the Fast Lane Pass, I'm strongly encouraged by what we saw last year at Kings Island. I'm also encouraged by the early results from this year, although that is a product that certainly is much more valuable and sought after during our peak periods of the summer, which we're yet to enter into.

So I haven't -- we have decided we don't disclose any specific numbers around it. I will tell you, I look at it like a lot of the other stuff we're working on as what I call industry validated initiatives that we now are operationalizing in our parks. So, if you're looking for a reference point, you know, it's probably best to go look throughout the industry and see how more mature programs are doing. I feel very confident in it. But, it's still going to ramp up over the course of the year.

On sponsorship, the same is true. Only I think the sponsorship is a little more complicated because it happens over multiple years. You can think about it like layering a portfolio. Some agreements will be as long as 10 years, some will be as brief as a single year or three to five years. And as we are out there starting to educate people on the out of home impression market that we represent, we're seeing very good receptivity. But those things take much more time to bring to the table and bring to fruition.

Got it. And those two initiatives are both in your EBITDA guidance for the year?

They are. I would say the first year ramp up of those are in our EBITDA guidance.

James Hardiman, Longbow Research.

Yes, just a couple of quick follow-ups here. I believe you also terminated the cross currency swap in the first quarter and there was a charge associated with that. Was that the case? And I think you had guided to $50 million. Did that happen in 1Q?

It did, James. And it was just a hair over $50 million.

Okay. And so, as I think about the first quarter run rate from an interest expense perspective, that should step down a little bit as we work our way through the rest of the year?

Well, the cross currency termination did not impact that. That had already basically flowed through interest expense over the life of the swap. So, we termed that at basically near the beginning of the quarter. So, as we said, the interest costs are going to decline second quarter versus the second quarter a year ago. But that's more so driven by the swaps that were in place, the $1 billion that I had mentioned or referenced, that were in place a year ago versus the $800 million at more favorable rates this year. Overall, cash interest costs, as I said, are going to be about $100 million, roughly, for the full year.

So, I guess what I'm trying to get at is if I take -- I know there's a difference between your cash interest cost and your income statement interest cost, but what we've got is basically a $27 million number for the first quarter. You annualize that you're at closer to $108 million for the year. Is that going to step down just as a function of lower debt as you pay down some of that debt or is there more just a difference between cash and income statement?

It's more driven, James, by the impacts of those swaps going away. They went away in October, so they were a fourth quarter item, so that the first through third quarters of this year are going to be at more favorable rates. So, you will see that begin to step down.

Got it. And then, just the last piece here, I mean you spoke to a weather drag or a weather-driven increase in some of your operating expenses in the first quarter. Care to quantify that? And, I guess, conversely, does that then roll into a little bit of benefit in 2Q?

It's not material. And it's interesting because we're talking about the favorable weather that essentially allowed us to do some of our maintenance and some of the painting earlier than we normally would do it. But I would say it's immaterial relative to our total operating costs.

Got it. Thanks, guys.

It just happens to stand out in a quarter that's as small as this quarter.

And I'm showing no further questions. I'd like to hand over to management for any closing remarks.

Thank you. So, on behalf of theBboard and our management team, I'd like to thank you, again, for your time this morning. I'd also like to acknowledge an appreciation for the continued dialogue with, and support of, our unit holders. As we head into our full operating season, we feel very good about Cedar Fair's progress and potential, driven by the highly talented personnel at our parks, with the support of our team here in Sandusky and our Board of Directors.

We remain committed to acting in the best interest of all unit holders by executing a strategy that creates maximum value for the long-term. 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 with you again in about three months to discuss our second-quarter results.

Take care, all.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation, and you may now disconnect.