Six Flags Entertainment Corp (FUN) 2015 Q3 法說會逐字稿

Good day, and welcome to the Cedar Fair third-quarter conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Stacy Frole. Please go ahead, ma'am.

Thank you, Anna. Good morning, and welcome to our third-quarter earnings conference call. I am Stacy Frole, Cedar Fair's Vice President of Investor Relations. This morning we issued our 2015 third-quarter earnings release. A copy of that release can be obtained on our corporate investor relations website at ir.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.

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 addition, in accordance with Regulation G, non-GAAP financial measures used on the conference call today are required to be reconciled to the most directly comparable GAAP measures. During today's call, we will make reference to adjusted EBITDA as defined in our earnings release. The required reconciliation of adjusted EBITDA is in the earnings release and is also available to investors on our website via the conference call access page.

In compliance with SEC Regulation FD, this webcast is being made available to the media and the general public as well as analysts and investors. Because the webcast is opened to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed. Now I would like to turn the call over to Matt Ouimet.

Good morning, and thank you for joining us today. I'd like to start by reminding all of us that the record results and positive guest reviews we plan to discuss are produced by the operating teams at each of our parks as well as our corporate associates. It is a privilege to work alongside these teams, and I want to congratulate them on their success of producing our sixth consecutive year of record results.

We are proud of what we've achieved over the past six years. Our 2015 results reflects a combination of current season initiatives along with the contributions from decisions and investments we've made over the past several years. These include investments in our people, and the guest experience, and our commitment to the growth potential of all of our parks. While we've accomplished a lot in a relatively short amount of time, we believe there is still considerable upside in front of us.

Beyond the third quarter, we can now report that our record results continued through this past Sunday, November 1. Through this period, net revenues increased to a record $1.2 billion, up 7% from the same period last year. The improvement in net revenues reflects improved results across all areas of our business including record levels of attendance and guest spending.

We credited our broad ranging success to the fulfillment of our FUNforward strategy to make every park a place to be for fun, not just a place to ride rides. This expands our audience, increases length of stay, and has a direct impact on our guests' intent to return to our parks in future years.

Our record attendance of 23.6 million guests to November 1 reflects significant increases in both the season pass and advance sales categories as well as continued attendance lift from our front gate and group channels. Equally important, our unique visitors have increased by 2% compared with the same time last year.

Three years ago, we began to do a considerable amount of research and analysis to better understand the number of unique visitors to our parks. While it is important to encourage our loyal season pass holders to visit multiple times, we wanted to ensure our parks remain appealing to new, potential repeat customers as well.

To date, we have experienced an increase in unique visitors in both our season pass and non-season pass categories. We attribute this growth to the success of our customer relationship management, or CRM platform, our incentivized group sales teams, our innovative capital programs, and of course our front-line employees who interact with our guests on a daily basis.

We have been equally pleased with the results from the guest spending front. Through November 1, our average in-park guest per capita spending increased 2%. The year-over-year improvement in guest spending was broad ranging with increases across all major categories including admissions, food and beverage, merchandise, and premium experiences.

This is a direct result of better segmentation of our guests and our ability to give to everyone their own unique experience at a price level of their choice. Initiatives that contributed to the increase in spending included the first full year implementation of our all season dining program, new group catering facilities, multi-week special events, and a good, better, and best merchandise selection. Finally, our out-of-park revenues are up 10% through November 1.

We've been pleased with the overwhelmingly positive guest response to our renovation of this historical Hotel Breakers at Cedar Point. This hotel combined with the new catering facility has truly transformed Cedar Point's underutilized beach area and was the largest contributor to the increase in out-of-park revenues. Because of this success, we are beginning to look at other opportunities to improve upon or expand our resort accommodations at Cedar Point as well as other properties.

The quality of our business model and disciplined focus of our team have never been stronger. Based on our current year results and our positive outlook, we are increasing our quarterly cash distribution by 10%.

Beginning with our December payment, our quarterly cash distribution will be $0.825 per limited partner unit or $3.30 per limited partner unit on an annualized basis. This represents the highest quarterly distribution paid in the Company's history and has attractive 5.5% yield at our current market price. We are very proud of this achievement and look forward to producing the operating results that will allow us to grow our distribution for many years to come.

I want to make just one last comment before I turn it over to Brian. One of the greatest assets we have at Cedar Fair is the quality of our relationships with our vendors. We refer to them as partners and as good as we think we are running this business, we would not be doing as well without them. They're having a very real impact on our financial performance and our guest experience.

These include: Coke, where their advice has contributed directly to the strong food and beverage per caps; accesso, our eCommerce platform with is the backbone for our online and mobile sales; C-K, our ad agency, who not only developed impactful creative campaigns but also helped to optimize our media purchases and drive the increasingly important area of social media marketing; the ride manufacturers, both those who have been with us for decades and those new to the party such as TRIOTECH and 3D Live; our partnership with the San Francisco 49ers has and will continue to create great value for Great America; Garner Holt's team helped us restore Knott's legacy; and we are excited about our newly established relationships with TE2, Electronic Arts, Rev3 Adventure, and Colorvision. Those I called out today and many others make both our jobs and our results much better.

At this time, I'd like to turn the call over to Brian to discuss our third-quarter and year-to-date results in more detail. Brian?

Thanks, Matt. And good morning, everyone. As Matt mentioned, we are very pleased with our strong operating performance through this past Sunday, November 1, which puts us on track for our sixth consecutive year of record results.

As detailed in our earnings release, for the third-quarter 2015, we recorded an 8% increase in net revenues to a record $645 million. This was the direct result of a 6% increase in attendance in the quarter and a 2% increase in average in-park guest per capita spending as well as an 11% increase in out-of-park revenues including resort accommodations.

For modeling purposes during the quarter, we entertained 12.5 million guests and out-of-park revenues totaled $65 million. We are pleased with the balanced growth we've experienced across all areas of our business. Increase in attendance of 6%, or 697,000 visits, is a direct result of our strong capital program for the 2015 season.

This includes Fury 325, our world-record-breaking roller coaster at Carowinds, and Voyage to the Iron Reef, our new interactive digital Dark Ride at Knott's Berry Farm. Both of these parks are expected to report record full-year attendance this year.

Canada's Wonderland, our amusement park near Toronto, and Valleyfair, our park near Minneapolis, have also contributed nicely to the year-over-year lift in attendance. The 6% increase in attendance is attributable to broad strength across the majority of our core ticketing channels with the largest growth coming from the very important season pass channel. The 2% increase in guest spending in the third quarter when compared with the same period a year ago came from increases in both admissions per capita spending, and pure in-park spending.

Our average admissions per cap for the quarter increased again this year as our guests continue to see high values in our product offerings. Particularly in our season pass program, group entertainment facilities, and new rides and attractions.

Going forward, we will continue to strategically increase pricing across our various ticketing channels while continuing to carefully manage discount offerings that appeal to the more value-oriented brand of guests. The increase in pure in-park guest spend in the quarter reflects increases in guest spending on food and beverage, merchandise, and premium offerings. Increases in these revenue channels were driven by strong guests response to current season initiatives such as our all season dining program. Along with continued growth of initiatives we've implemented over the past several years such as Fast Lane and Fright Lane.

We're extremely pleased with the solid per caps across all of our parks, particularly given the year-over-year growth and season pass visits which tend to place additional pressure on this key metric. The 11% or $7 million increase in out-of-park revenues in the third quarter reflects improved results from our resort properties led largely by the successful renovation of the historic Hotel Breakers that Matt mentioned earlier.

Moving on to the cost front, operating costs and expenses for the third quarter totaled $302 million representing an increase of $19 million or 7% from the third quarter of 2014. The increase in costs is consistent with the 6% lift in attendance during the period and reflects the impact of 57 incremental operating days in the third quarter related to the later timing of Labor Day this year. The increase in operating costs in the quarter also reflects the impact of higher labor and maintenance costs as we continue to invest our employees and infrastructure to support our new revenue growth initiatives.

Meanwhile, adjusted EBITDA, which we believe is a meaningful measure of our park level operating results, total $346 million for the third quarter of 2015, up $30 million or 10% year over year. Adjusted EBITDA margins for the quarter improved 60 basis points as compared with the third quarter of 2014, a direct result of the meaningful increases in attendance, guest per capita spending, and out-of-park revenues, all of which produced our record third-quarter revenues.

As for results for the first nine months of the year, revenues in the period increased $70 million or 7% to a record $1.1 billion. This year-over-year increase was driven by a 5% or 917,000 visit increase in attendance, a 2% or $0.89 increase in average guest per capita spending, and an 11% or $11 million increase in out-of-park revenues.

Operating costs in the period were up $34 million or 6% reflective of the 5% increase in attendance and an increase in the overall number of operating days. Adjusted EBITDA for the first nine months of the year increased 9% to a record $429 million, up $35 million from the same period a year ago.

It's important to note that year-over-year operating comparisons have been impacted by foreign currency translation related to our park Canada. Adjusting for the impact of foreign exchange, our revenues through the first nine months of the year would have grown 9% or $89 million and operating expenses would have been up 7% or $43 million. Adjusting for the impact of foreign exchange, adjusted EBITDA through the first nine months of the year would have increased 11% or $44 million year over year.

As we enter the fourth quarter, we do expect slight pressure on our year-over-year adjusted EBITDA comparisons as our results from the fourth quarter of 2014 benefited from the receipt of a business interruption claim at Cedar Point related to the water main break at the park that summer. Also putting pressure on fourth-quarter results in 2015 will be higher incentive compensation expense due to our record result this year and unit price increase when compared to the fourth quarter last year.

Now I'd like to turn our attention to the results for this past Sunday, November 1. Based on preliminary results, revenues through November 1 were up 7% or $74 million to $1.2 billion. The year-over-year increase was the result of 5% or 1 million visit increase in attendance to a record 23.6 million visits and a 2% or $0.71 increase in average in-park guest per capita spending to a record $46.28. During the same period, our out-of-park revenues increased 10% or $12 million to a record $127 million.

Adjusting for the impact of foreign exchange, revenues through November 1 would have increased 8% and our average in-park guest per capita spending would have been up 3% year over year. This is the second year in a row where we've reported record post Labor Day results.

Over the past several years, we've invested in the permanent structures for many of our haunted mazes. We've expanded our scare zones, and we've increased the number of family-friendly daytime Halloween activities. Our Halloween events offer a complete immersive experience at a quality and scale no other regional amusement park or entertainment venue can match. We clearly have benefited from the popularity and growth of Halloween, and we are looking at ways to expand our operations to other times of the year where we can offer unique immersive experiences at a scale unmatched by others.

Similar to our third-quarter results, the year-to-date increase in attendance is attributable to broad strength across the majority of our four ticketing channels. The very important season pass channel has been particularly strong and through the end of October, the percent of overall attendance from season pass visits was up approximately 140 basis points over the same period last year.

The increase in season pass visitation resulted from a combination of more units sold and our season pass customers visiting more often. I'm also pleased to say that revenues from advanced sales for our 2016 season passes and 2016 all season dining plans are off to a very strong start.

Finally, before I turn the call back over to Matt, I'd like to provide an update on our tax plan work. As we've been predicting for some time, we expect to use up the remainder of our corporate net operating loss carry forwards in 2016, which will increase our annual cash obligations going forward.

And anticipation of this increase, we've been performing an extensive review of our options regarding tax planning alternatives. Based on these efforts, I can now tell you that we intend to reorganize our operative structure beginning in early 2016. This reorganization will allow us to allocate income and expenses among all of our subsidiaries in a more tax efficient manner and at a slightly lower entity level effective tax rate since more of our people will be flowing through our master limited partnership. It's important to remind you that we do pay a 3.5% entity level tax on revenues flowing through the partnership.

Beginning in 2016, we would now expect our cash tax liability to range from $55 million to $65 million annually, and we would expect our effective tax rate to range from 20% to 25%. I need to reinforce that these are estimates based on our front forward 2.0 long-term goals and these estimates could change if business conditions change.

I should also note that our tax funding efforts may impact the information reported to investors under K-1 tax forms beginning in the 2016 tax year, including incremental income or loss allocations from four additional states. As each of our unit holders has very different tax attributes, it's impractical for us to state exactly the effect of our planning on every unit holder. If you would like additional information on the potential K-1 impact, please call our investor relations department and they will be happy to assist you.

In conclusion, our operations continue to generate a significant amount of cash, our capital structure and operating strategy provide the flexibility to increase our distribution more aggressively if we choose similar to what we've done over the past three years. At the same time, we have the ability to make additional capital investments that provide attractive returns. As always, we will continue to prudently manage our cash flow to maximize value for our unit holders.

Now, I'll turn the call back over to Matt.

Thank you, Brian. As I mentioned in my opening remarks, the quality of our business model has never been better. While I am pleased with the strong results we've achieved this year, I'm increasingly confident in what we have in store for 2016 and beyond.

Earlier this week, we issued a news release summarizing our lineup of new rides and attractions at our parks for 2016. These capital projects should make next year a memorable one for our guests as we introduce a world record breaking roller coaster at our flagship park, Cedar Point, a major waterpark expansion at Carowinds where we continue to aggressively invest, and many other new attractions at our other parks.

We're also looking forward to celebrating the 75th anniversary of Ghost Town at Knott's Berry Farm. Ghost Town Alive will be an interactive entertainment experience which immerses guests of all ages in new stories and adventures each day in the familiar town of Calico. In addition, we have partnered with Electronic Arts to introduce two new digital attractions next season. A new interactive digital experience at Carowinds, based on the popular Plants vs Zombies online gaming platform, and an all-new 4-D holographic experience at California's Great America based on the Mass Effect video game series.

Growing our unique guest base in a cost efficient manner is important to us. We believe our partnership with Electronic Arts will help us tap into a new audience and leverage the marketing channel that has not been easily available to us in the past. As these innovative digital concepts prove successful in parks where we are introducing them, we will be ready to expand this platform to our other parks in the near future.

We also expect additional growth in 2016 from our all season dining program. It was a significant contributor to our growth in guest spending in 2015 and will now have the benefit of increased awareness by our customers. We expect the adoption curve of this product to ramp up in its second year similar to our experience with Fast Lane and other premium products.

We will also move forward the expansion of our mobile applications testing. Our team at Kings Island has done a great job with this new platform, which is allowing us to find new ways to interact with our guests and improve their overall experience.

In fact this fall, Kings Island season pass holders were able to embed their pass within the app eliminating the need to carry a hard copy of their pass with them each time they visit the park. Next season, we hope to expand our new mobile app to additional Cedar Fair parks.

The buildout of free Wi-Fi and mobile applications at our parks will also allow us to benefit from new initiatives within our long-term growth strategy. This includes FunPix, our new digital imaging platform which will be offered at our five largest parks next year. We want to create an environment where digital photos become an intrinsic part of the overall park experience. Our new platform will allow our guests to instantly share memories digitally with friends and families creating an engagement that extends before, during, and after their park visit.

While we are not ready to provide all the details behind our 2016 plans at this time, I want you to know that we will continue to expand our operating fees into additional multi-week special events including a new winter holiday event at California's Great America.

We also continue to make progress on the multi-million dollar youth sports facility, which will be located across the bay from our Cedar Point amusement park. We currently anticipate this facility to open in late 2016.

Finally, we continue to explore opportunities to use cutting edge technology to create exciting new categories of attractions and other enhancements of the guest experience at our parks. An example of this is the virtual reality coaster experience we have been testing at Canada's Wonderland in partnership with VR Coaster and Mack.

Brian and I recently had the opportunity to ride the coaster with the virtual reality headset and it is amazing how the overall ride experience can change when integrated with digital technology. We will continue testing this product in the off-season and into next year. It is not certain where this new experience will take us, but we believe as this technology continues to advance, our opportunities to revitalize existing capital and improve the guest experience are limitless.

Given the business we're in, it is appropriate to say we are thrilled with our prospects for the future. We believe our long-term strategy is working, and we remain fully committed to executing this strategy to drive the greatest experience for our guests and in turn strong returns for our unit holders. Our confidence in our business model and our strategy reaffirms our belief that we are on track to achieve our FUNforward 2.0 long-term growth goal of $500 million or more in adjusted EBITDA by 2018.

Now we will open up the calls for any questions you may have.

(Operator Instructions)

We'll move first to Afua Ahwoi with Goldman Sachs.

Hi. Thank you. Good morning. First on the -- I think at the analyst day you mentioned some parks in your system could grow in size. Any update here and what with the implications be for CapEx especially as we're coming off the Carowinds sort of spend. What can we expect going forward?

And then two other questions. Generally, how do you think weather helped your attendance this year. We know you were lapping some easy comps last year so was this average weather above?

And then just finally, I was interested in hearing your comments on expanding the season was pretty interesting. How far do you think that can go? Obviously, you can't become a 365 day a year resort or park, but how far do you think you can go in terms of how many days of the year you can operate? Thank you.

Good morning, Afua. This is Matt. I'll hand off to Brian a little bit on the CapEx but let me see if I can address each of these. I'll do them in a little different order if it's okay.

I think what we would conclude on the year is we had average weather. It started off a little slow, a little wet, got nice in the summer, and by the time we got -- we closed a couple of parks on a couple days because of some storms and by the time we got to the end, I think we would tell you that weather averaged out, not spectacular but certainly not unfavorable either.

From the park growth standpoint, the way I've been characterizing internally to the Board is I probably did a poor job on Carowinds because I think we underestimated the potential of that park. And even given what we had assumed going in with our new CapEx, it is exceeding our expectations and has for the first time jumped over the hurdle of 2 million plus in attendance. We are doing the same type of exercises that we did for Carowinds as we mentioned before for Valleyfair and for Great America, and to some degree for our other parks and I'm optimistic.

I don't know that the opportunity will be the same size as Carowinds, but I think that given our success at Carowinds, it makes us beyond curious for what might happen at Valleyfair or Great America. I should say in those cases, by the way, we have more site restrictions than we have at Carowinds and that may ultimately prove to be a limiting factor, although we recently filed a rezoning application for Great America, which will expand our opportunity for what we can add to that park.

And Stacy just reminded me, I'd be remiss because I'm sitting there today, we still believe that Knott's Berry Farm has a long way to go. It has for the first time in its history exceeded more than four million in attendance, and we don't think that's going to stop anytime soon. Brian, I would like you to address the CapEx.

As it relates to the CapEx, I think to Matt's point, we still need to get through some of those hurdles around the rezoning at Great America. Some more of our internal analysis and modeling for Valleyfair is two examples before we'll know what the impact will be on CapEx. The but it would be our goal to as we have in the past prioritize our existing capital dollars accordingly. So I can't say at this point that there wouldn't be incremental CapEx, but there's still more work for us to do on our side before we know what the true opportunities lie at those other parks.

Your third question, or your fourth question I guess it was, was about expanding the operating season. And I guess, because we're coming off a hugely successful Halloween season, it makes us think more possibly about what is available to us, particular in markets where the climate is more favorable.

So we will start with Great America this year, I'm sorry, in 2016, this coming year. And we have high hopes for that particular property, and obviously if that proves successful you can expect to see it in multiple parks, maybe not at all parks but at multiple parks. And that would be the primary growth driver when we talk about expanding the season.

I should point out again since I'm sitting here, we already have an extremely successful Merry Farm program here at Knott's Berry Farm, and so we're going to take a lot of the lessons we've learned there about what entertainment worked, what food product worked, and how to market that product in order to leverage the attempt that we're making up at Great America.

The other thing, Afua, just to follow on Matt's point that I would highlight is we view expanding the season almost in a little bit of a different light in that we're looking to expand the season within the existing calendar we already operate in. You've seen us this past year introduce a number of springtime events to drive incremental growth. So it doesn't mean necessarily adding more days as it does adding more urgency around the existing days, and we saw a lot of success this past year as well as last couple of years here at Knott's with their Boysenberry Festival. At Carowinds we introduced something called Taste of the Carolinas.

So you'll see us do more of those and that's a little bit of a blend of some maybe some small CapEx investment with probably more OpEx dollars. So some of that is reflected in the incremental operating expenses that you see so far in the year-to-date numbers.

Okay. Thank you.

And we will now take our next question from Tim Conder with Wells Fargo Securities.

Thank you. And congratulations to the whole team for ongoing great execution of the strategy. A couple of things here.

Matt and Brian, you commented that year-to-date through November 1, the results continues as you saw through Labor Day. But Seaworld just on their call prior to yours mentioned that they were impacted by some of the remnants of Joaquin, and obviously that would've impacted your Carowinds Park and then some of your other parks up the East Coast to a degree. Any way to quantify how much that limited what is still extremely good results here?

Yes, Tim. The honest answer is we had to close for couple of days but we think the vast majority of that attendance loss was recovered in the balance of our Halloween season. So I don't know how I would quantify it but I would say to you qualitatively, we didn't think by the time we got to the end of the year that we lost much associated with those days. And you're going to have those days occasionally whether they be in June or October.

Right. Right. Okay. And then two other questions, if I may. The mobile app, again you commented that you've tested it and it sounds like it's going pretty well. At Kings Island, you're going to roll it out. Have a total of five parks in 2016.

Any additional color you can give other than the integration and going digital with the season pass, any other things that you can share with us on that.

And then the last question is, Matt, on the looking at to expand resorts and accommodations and things that you've done with the upgrade at the Hotel Breakers, maybe areas that you could be targeting over the next one to two years there, and any additional color, please.

Let me -- I need to give you a little correction, Tim. So we're rolling out the Wi-Fi to five of our parks this year. We are going to continue to test the mobile app at Kings Island and then expand beyond that as we get more traction.

The real benefit of the mobile app ultimately is to give the consumer a better experience, so ride wait times and other benefits associated with that. But it allows us to communicate on a real-time basis with the consumer in the park and make incremental purchase behavior.

And so we are trying to find the right bells and whistles associated with that, Tim, so I will tell you I expect the app, which we refer to as T2, to roll out to other parks this year but we've still got some testing to complete at Kings Island before that happens. Brian, do you want to talk about the resort strategy?

Yes. Sure, Tim. As we said in our prepared remarks, we're extremely pleased with the guest response to the Hotel Breakers renovation that took the past couple of years to complete. And it has in 2015 delivered all of the qualitative and quantitative measures we had put in place. And as Matt said on the call, quite frankly, quantitatively exceeded what we had anticipated.

Based on that, we are taking a harder look across the system. As you know, we have resort accommodations of some scale or another at five or six of our properties. A number of them are more of a campground, high-end cabin orientation. We'll look at the opportunities to expand those existing facilities as well as add facilities like that to other parks.

I don't know as we look at the portfolio that we have 10 or 11 parks where hotels make sense. Clearly the majority of our hotels are at Cedar Point with another here at Knott's Berry Farm. Those two parks, Cedar Point and Knott's, are probably the only two parks in our system that you would say qualify as a regional resort destination.

The looks at the other parks are probably going to focus more on the high-end campground, cabin set ups, other than I will say will say Carowinds presents a unique opportunity that we're going look at some -- across a couple different platforms, hotel, cabins, boats. And so that's going to take a little bit of time but we're excited about. We do think that the scale and the quality of the accommodation offerings that we have in our portfolio differentiate us from just about anybody else in the space.

Okay. It would seem like the cabin campground obviously would fit within your existing CapEx parameters and then if you do anything beyond that, that could be more of a one-off type of little blip if you would do that longer term.

Yes, I think that's mostly fair, Tim. We've got to complete our analysis. I will tell you and I just want to emphasize it. I think the differentiated element that it provides, the direct returns it provides along with the strategic value it provides in terms of defining our properties is multi-day business, et cetera, is exceeding our expectation and I want to make sure we take that lesson and apply it and Carowinds is clearly high on our radar in that regard.

Okay. And then just one clarification on the mobile app, Matt. You said Wi-Fi. How many parks have you got that fully rolled out to?

Five parks will get installed free Wi-Fi this year, Tim. Part of what's -- it's a basic consumer expectation these days, but also it is in the infrastructure for which we hang on a lot of what we want to do with the consumer. The best example is of our new digital picture initiative will be much more effective when it's implemented in the parks with the Wi-Fi, allowing us to communicate with the consumer and the consumer to instantly share that message.

So going forward, I suspect Wi-Fi will be in all of our parks over the next two to three years. It's just becoming a consumer expectation.

Great. We'll see you at our conference this week.

Yes, looking forward to it, Tim. Thank you.

And we'll now take our next question from James Hardiman with Wedbush Securities.

Hi. Good morning. Thanks for taking my call and congrats on a real strong quarter here. A couple questions for me. Obviously, Labor Day helped, certainly based on my math, it wasn't the entirety of the strength that you saw. Obviously it's difficult to quantify Labor Day, but can you help us dimensionalize how much of the strength that you saw was Labor Day versus some of these other items?

Sure, James. This is Brian. As we did say, 57 incremental operating days in the third quarter because of the timing of Labor Day. That was generated at six of our parks where their natural operating calendar fit with the later Labor Day to create those extra days.

And with that said, we know that, as you alluded to, not all of the attendance generated on those incremental days is wholly incremental attendance. There's a shift in visitation and a meaningful portion of the attendance that comes from our day gaps as well as our season pass visitors is a migration from another day that they would have planned to visit. As we go through and we try and estimate the impact of what I would say is, it's likely somewhere in and around 100,00 to 150,000 in visitation from that -- those extra 57 days.

On the flip side, what I -- it's important to note and as we said in the prepared remarks, there is incremental operating costs that are entirely incremental to those 57 days, so having the extra 57 days this year or any extra days in an operating calendar, it's a balancing act because not all of the attendance you're going to generate is wholly incremental, and all of the costs are. That said, we're very pleased with the results we saw post-Labor Day and through the end of October with [Haunts].

Very helpful. And that dovetails into my next question with respect to EBITDA margin. Loved to see the 60 basis points of expansion, but just help me understand, Labor Day, was that a net positive to that EBITDA margin number neutral or negative and then how did FX affect that? And ultimately, is this sort of a turning point for margin? Obviously the prior couple quarters of margin growth have been somewhat anemic. This is really good. How should we think about that going forward?

As you've heard us say in the past, James, margin expansion is something that we are focused on. It's not the only metric. If it was, there are a lot of other initiatives that we've put in place over the last couple of years that either immediately put pressure on margin or over the long term take a little bit of time before they start generating their returns. The 60 basis points of expansion that we've seen through the third quarter we're very pleased with.

Hard to tell you exactly how much that Labor Day, those extra days played in. I would say our overall feel is at a high level that though the incremental attendance and the incremental days was well worth it and so from a cost perspective, you will take it every day of the week.

And as we look toward the end of the year, as we said on the call, you do just want to caution that there's going to be some pressure on EBITDA in Q4 and indirectly or directly on margin as we've got some anomalies in the fourth quarter of last year that benefited us nicely. Most notably the $2 million to $3 million of insurance proceeds we received, the business interruption claim at Cedar Point, all that flowing right to the bottom line, so we don't have that coming in this year.

And then ultimately, where we end up is going to depend in large part to how Knott's fares over the last two months of the season. They're coming off of two straight record Decembers with their Knott's Merry Farm, as Matt alluded to. If we can get that kind of performance again this year, it'll go a long way to holding onto a good chunk of that margin expansion that we see through the end of the third quarter.

But we've got some pressures like El Nino, the threat of El Nino that's out there that we're paying close attention to. So what I would tell you at this point is we're going to have margin expansion by the end of the year. Will it be 60 or more or will it be inside of 60? I'd probably have to couch it and say it would be inside -- a little bit inside of 60 based on what I know today.

Okay. And then two more for me. So the distribution. Maybe just walk us through that decision-making process. Remind us. Once upon a time it was based on debt covenant factors. Now this is essentially entirely up to you guys.

Reminds us if you're looking at trailing versus forward numbers. Are you trying to tie it in to a payout ratio? How should we think about your rainy day fund in terms of the balance on -- balance of cash on the balance sheet?

And then last question, if I may, just tax adjustments that you've made. Remind us had you not done anything, what your tax burden would look like and ultimately how much savings you're deriving by reorganizing the business.

I'll start on the distribution. Brian, feel free to jump in, and then I will defer the tax comment to Brian. Look, I think, James, what we can say tentatively is that the distribution is core to the investment thesis for FUN. We understand that for investors and we pay a lot of attention to it.

As we spoke of in the past years, as you indicated, we are no longer restricted by covenants in terms of what we would pay out in any rational basis. And the balance sheet is to the point, both from a rainy day fund and a degree of leverage stand point where we no longer feel like we need to build up the bank of liquidity any further.

So it remains a priority for us. Over the last several years, we've done what we said we were going to do which is grow it aggressively vis-a-vis once we understand our operating performance and this year is another good example of that. So we are not looking to a specific payout ratio but I will tell you we're not looking to build a larger rainy day fund at this point. Brian, anything?

One follow-up comment. I think as it relates to the distribution and Matt alluded this, it's a decision that's not made in complete isolation. It's bounced -- any other decision on the use of cash is bounced up against it and a little bit of vice versa. What we're very pleased with and I think our investors I hope are pleased with is that we've shown the ability not only to aggressively invest in the business over the last several years but also grow the distribution aggressively. And so I think you will continue to see us with the support of the Board take that approach which is more of an and discussion from a use of free cash flow.

So and then as far as, James, as far as the tax reorg, we haven't given any guidance really beyond 2015 in terms of absolute dollars as to where cash taxes we're headed. But I think what we had talked about publicly was that on a rough effective tax rate basis, what I commented on here in the prepared remarks was that we would be more in the 20% to 25% range. That previous range had we not done anything it was probably more the 25% to 28%, high 20%s. So you can see from that -- the shift in the effective tax rate going forward, there is savings there.

The other thing, though, that I think was a focus for us was trying to create a little bit more predictability, and so we feel very comfortable that that $55 million to $65 million range is a range that will be in place for the foreseeable future and that we don't see it escalating like it would have under the previous structure.

Excellent. Thanks for the color, guys.

Sure, James.

And we'll now move to our next question from Joel Simkins with Credit Suisse.

Hi. This is Christie on for Joel. Brian, in your prepared remarks you mentioned that you'll continue to increase pricing. I was just hoping you could give some more color there and how you're thinking about pricing in 2016 compared to 2015.

Sure, Christie. From a pricing perspective, if it's probably a different answer for each one of our parks. It's often tied back to where they're capital program is.

We went into 2015 as we were very open about with maybe taking the foot a little bit off of the gas pedal when related to pricing as that we were a little bit more focused on volume. That wasn't to say that we felt that we had bumped our heads broadly anywhere.

I think as we look toward 2016, we're focused again on pricing. I don't know that we'll see broad pricing increases across the spectrum, but again, where we feel we've got strategic opportunity to take pricing, we will. But as we've talked about, there still is a very heavily bifurcated economy that we're operating in, and so we're also at the same time very focused on trying to create the value proposition for those folks that maybe are struggling to figure out how to afford the visit.

I think you'll continue to see us take pricing in the peak periods where we have demand and then in the shoulder periods where demand is a little softer, we'll continue to go after discounting in a very discrete basis.

Christie, the other thing I want to add is when you separate from the foreign currency impact, per caps across the board admissions at in-park peer were up between 3% and 4%. And I think that is a very good balance given what we've seen in terms of driving attendance and in-park spending in terms of a larger season pass base.

Great. Thanks.

Thank you.

(Operator Instructions)

We'll move next to Barton Crockett with FBR Capital Markets.

Thanks for taking the question. I was curious about the momentum in Carowinds relative to the CapEx. So you had a big program this year. Fury 325 helped the park. Next year, I think you've announced an expansion of a waterpark there.

Does this feel like the type of CapEx that's kind of drive the type of returns you got this year or is the CapEx profile less and maybe we should assume a deceleration of the trend there at Carowinds?

Well, first of all, it is a major expansion. It's the largest waterpark expansion we've ever made. It also is -- will make it the largest waterpark available in North Or South Carolina.

Barton, Carowinds continues to exceed our expectations. We are going to continue to invest strongly behind that. We think it's a market that ultimately can match what we do in Cincinnati and maybe beyond.

I'm not looking for it to slowdown; but when you see such a big jump in a single year, you have to be a little thoughtful about what you might achieve in the second year. So therefore, we are anticipating growth but I don't know that it would be responsible for me to tell you we'd get equal growth to this year. But it's a great market for us. It was a great decision by management and we're going to continue to strongly invest behind that product until we see the curve bend a little bit.

The bigger part of our capital next year, by the way, is that our biggest park which is Cedar Point. And so as I watched that go up, and with the strong results we've seen from Hotel Breakers this year, I think that the star of the portfolio next year, although I got to tell you, Carowinds is getting a lot of attention. I think Cedar Point has got something on the radar for next year that will make up a big difference and I hope we're right.

Okay. And to that point, if you look at the portfolio of attractions that you've outlined relative to the big kind of initiative you have in 2015, does it feel similarly impactful overall or maybe somewhat less impactful? How would you characterize it?

I think it's going to be great, Barton. I tend to -- I hope you guys realize on this call that we tend to moderate our comments a little bit. But I'm as excited about 2016 as anything I've seen since I got here. I like the mix of traditional steel, big steel at Cedar Point clearly has been an anchor for us in a good way over the last decade, several decades.

But the digital interactive, I think it's going to tap into a new audience. My favorite line that was posted online about our product with [app affected] Great America was a guy that said -- I don't know Great America is but I'm going.

And so I think the collection of that, Knott's Berry Farm, with the 75th anniversary of Ghost Town plays very strongly to the legacy that's worked so well for us in a highly competitive market. And so 2016 for me is we're really well positioned from a capital standpoint and with that, some of the older stuff behind us. The Breakers Hotel, behind us is good and the reputation is built this year because of the job the team did in restoring it has to lead to better results next year as well. So look, I've got to stop there. It's now my usual approach, but I'm really excited about 2016.

And Barton, one follow-up question is really to Carowinds. The addition of the waterpark in the major expansion that is going on, there is very strategically placed. For Carowinds to ultimately to get those levels that Matt was alluding to Kings Island, Canada's Wonderland level of attendance, it needs to grow a season pass base beyond where it's currently at. It had a nice lift this year. But it's got to get to a much bigger number to get to the overall attendance numbers.

We know from prior experience that a waterpark expansion of this level, particularly in this kind of climate, is what will drive season pass sales. The waterpark visit is a much more repeatable visit in high volume.

Kings Island's probably our best example. When we expanded their waterpark, the lift we saw in season pass was huge. And so that's the reason to follow up the big coaster with this kind of thing. It will have an attendance lift.

To Matt's point, there are a lot of factors at play. Can we assume that it will have quite the same impact that Fury 325. That would be a big bet at the same time, it's not out of the question.

The other thing I just want to pile on is we have taken the opportunity here at Carowinds to look at what I would call the next generation waterpark, and the biggest part of that is how do you drive per caps once they're in the waterpark. So it will have the largest dining facility we've ever put in a waterpark. It will have shaded walkways to keep people there longer that like to stay. We'll have bigger areas for young families. I mean I think it's designed in a way that I think you can take advantage of when you go to scale on an expansion like this. So I think it will make a big difference, and we'll look forward to see what happens.

Okay. That's great color. Thank you very much.

Thanks.

We will now take our next question from Ray Cheesman with Anfield Capital.

Congratulations on a very good year, Matt. Your team did a terrific job.

Thank you, Ray.

I wanted to ask you your thought process since you have I think some pedigree from this company in the past, this whole argument about variable demand pricing. I don't know if your technology supports it. I don't know if you think it's a great idea. Obviously, adding 1 million people a year must mean that you get some days that are pretty busy and I'm wondering how you can benefit from it.

Ray, I will tell you our technology absolutely supports the ability to do dynamic pricing. And not only for the front gate pricing but also for the products inside the park where we -- the best example from a dynamic pricing standpoint is literally changing on a daily if not an hourly basis for Fast Lane passes based upon the demand we see in the park. So we can do it.

I think there has to be a balance to it because I think in a lot of cases, consumers need to know what the band of affordability is. And so in our case, we will do it but I also -- I don't know that we'll change it on a daily basis. We clearly will mix it up ultimately between weekday and weekend.

The biggest emphasis for us in terms of that I think is to continue to educate the consumer that the early season for our regional parks is both the most affordable time to come and also one of the best times to come because we are less crowded. I think ultimately, the systems will allow you to do it. I think you've got to be careful that it doesn't ultimately confuse the consumer, but there is clearly an opportunity from a revenue management standpoint.

Second question was macro oriented. There was some write ups in the Wall Street Journal recently about another movie studio deciding it's going to take its library of themes and concepts and create more amusement parks. And since you guys are in that business, I'd be very pleased to learn about the difficulties of making more amusement parks out of Hunger Games.

I find it very -- an amusement park of scale, we've said this before, there are barriers to entry. We are seeing it in the regional amusement park business are very substantial in the United States. And so I continue to believe that you won't see a regional park of scale being built other than maybe a Lego park here and there in this country in the foreseeable future. Some of the concepts that Lions Gate and others have talked about I'm not all that familiar with but I suspect they're ultimately going to be much more successful trying those overseas than they are in the US.

Matt, if you have an opinion, can you share, why did the Hard Rock Park fall on its face in such a high visitation area, not that far from your Carowinds, actually.

So I don't -- we've studied it, Ray, because we want to make sure we're smart about it. I suspect there's 10 other reasons but part of the challenge is when you -- by the time you get the roads built and the infrastructure and all the stuff that it takes to open up a piece of land, it's hard to have money left over to build to scale. So if it's not a full-day experience, you can't charge a full-day price and those economics break down very quickly. And so I think that's exactly a validation of what we see in terms of our barriers to entry.

And that does conclude our question-and-answer session. I'd like to turn the conference back over to today's presenters for any additional or closing remarks.

Look, I want to thank you for your questions this morning and your ongoing interest in Cedar Fair. As I hope comes across I'm proud of our team and their commitment to the guest experience. And I'm proud of our world-class properties.

The decisions we make today are grounded in our desire to ensure we will still be proud of those decisions 10 years from now. And although I've done more today than I usually do, I want to emphasize it again, we've accomplished much in the short period of time but we believe there is still considerable upside in front of us. We appreciate the open dialogue with and the support of our unit holders but we remain committed to executing strategy that creates maximum value in both the short and long term. With that, 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 fourth-quarter and year-end results.

Once again, that does conclude today's conference. We thank you all for your participation.