Six Flags Entertainment Corp (FUN) 2018 Q4 法說會逐字稿

Good day, and welcome to the Cedar Fair Fourth Quarter 2018 and Year-end Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Stacy Frole, Vice President of Investor Relations.

Please go ahead.

Thank you, John.

Good morning, and welcome to our 2018 year-end conference call.

I'm Stacy Frole, Cedar Fair's Vice President of Investor Relations.

This morning, we issued our 2018 fourth quarter and year-end earnings release, which can be found on our corporate Investor Relations website at ir.cedarfair.com or by contacting our Investor Relations offices at (419) 627-2233.

With me on the call this morning are Richard Zimmerman, 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 presented in the earnings release and also posted on our Investor Relations 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 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 our CEO, Richard Zimmerman.

Richard?

Thanks, Stacy.

Good morning, everyone, and thank you for joining us.

For our call today, we're going to take a slightly different approach.

Brian will begin with a brief overview of our 2018 fourth quarter and year-end results and address a few balance sheet items.

I will then take some time to discuss our 2019 expectations as well as our longer-term goals and strategy, including our new 5-year adjusted EBITDA target of $575 million.

Following our remarks, we will open the call for questions.

Before I turn the call over to Brian, though, I want to take a moment and thank our team here at Cedar Fair.

They are truly committed and dedicated to making our guests happy by providing fun, immersive and memorable experiences.

Our exceptional employees are the backbone of our business model and truly differentiate our parks from other generic regional entertainment offerings.

Our team's tenacity is what drove our record results in the fourth quarter, and we expect this momentum to carry into this year.

On behalf of everyone on the leadership team, we thank all of our employees for another great year and for continuing to make us THE place to be for FUN.

Brian?

Thanks, Richard, and good morning.

While 2018 presented its share of challenges, I want to take a moment to highlight the impressive achievements of our parks.

In 2018, we generated record revenue with increases across all key revenue drivers: attendance, average in-park guest per capita spending and out-of-park revenues, including resort accommodations.

Importantly, we accomplished this despite the challenging weather many of our parks experienced early in the year.

We introduced our new WinterFest celebration at a 5th park, Kings Dominion.

So we now have 6 parks that are open for operations during November and December.

We increased the number of unique visitors to our parks and the total visitation from season passholders when compared with 2017.

And we announced a 4% increase in our annualized distribution rate to $3.70 for 2019, which became effective for the December 2018 distribution payment and is consistent with our growth expectations going forward.

This represents an attractive 7% yield at today's prices.

In 2018, we also advanced many key long-term initiatives that we expect to fuel additional growth in the near future, including breaking ground on a new hotel adjacent to Carowinds in Charlotte, North Carolina; and a new indoor sports facility overlooking Cedar Point in Sandusky, Ohio.

Both of these facilities are expected to open during the fourth quarter of this year.

Looking at key long lead indicators, our sales of advance purchase commitments, including season passes and all-season products, are already off to a strong start this year.

While I must caution that as of this past Sunday, we had recorded a little more than 1/3 of our total forecasted season pass sales, we are very pleased with the more than 25% increase to-date when compared with the same sales period a year ago.

Now on to the financials.

Full year 2018 net revenues increased to a record $1.35 billion, up $27 million or 2% when compared with 2017.

This result can be attributed to the record performances in 3 areas: first, a 1% or 189000-visit increase in attendance to 25.9 million visits, driven primarily by an increase in season pass visitation; second, a 1% or $0.39 increase in average in-park guest per capita spending to $47.69; and third, a 6% or $8 million increase in out-of-park revenues to $152 million.

We're pleased to have achieved growth across all areas of our business.

The popularity of our parks' food and beverage offerings continue to push pure in-park guest spending to new highs, driven by the purchase of our All-Season Dining and Beverage programs.

We also saw strength in non-season pass admissions per capita spending, reflecting the value our guest continue to place on our product offerings, particularly our new rides and attractions and group entertainment facilities.

As I mentioned, we increased out-of-park revenues in 2018, largely attributable to our resort properties, which achieved higher occupancy rates and higher average daily room rates.

The great appeal and convenience of our resort locations generate strong demand, extends our guest length of stay and allows us to market both our parks and our resort properties more broadly as vacation destinations.

As evidenced by our investment in the Charlotte hotel, we will continue to seek opportunities to grow and expand our resort accommodations offerings.

Based on the success of our 2019 advance purchase commitments, up more than 25% from the same time in the last year, we expect season pass sales will again be a significant driver of attendance growth.

In 2018, season pass visitations represented more than 50% of our total attendance, which we believe is a result of our strong capital program and more immersive events.

In just a few minutes, Richard will provide some additional information on how we will evolve this program over the next few years.

On the cost front, operating cost and expenses for 2018 totaled $892 million, up $30 million or 3% from 2017.

The higher cost, which we anticipated, resulted largely from increased labor costs and to a lesser extent increases in operating supplies for the new WinterFest event at our Kings Dominion park in Richmond, Virginia.

Regarding labor costs.

In addition to increases in minimum wages, the tightening U.S. labor market continue to put pressure on wage rates across the board, increasing competition for our seasonal workforce.

Although we anticipate similar pressures through the 2019 season, we are rolling out a new workforce management system that will equip us with additional and better tools to more systematically and efficiently manage our seasonal workforce.

We are confident we have the right tools and are taking the right steps to mitigate the impact of rising labor cost on our overall operations.

Full year adjusted EBITDA, which we believe is a meaningful measure of our park-level operating results, was $468 million, down 2% or $11 million when compared with 2017.

The decrease reflects the impact of the higher operating costs and expenses, which more than offset the attendance growth in the year.

While we're pleased with our record attendance in 2018, attendance growth for the year was lower than anticipated.

We were affected by disruptive weather patterns in the first half of the year and most importantly during the peak vacation month of July.

Although attendance growth in the calendar year was lower-than-anticipated, August and the fourth quarter produced record levels of attendance.

We expect the strong demand we generated in the second half of 2018 to continue into 2019 when we will introduce 2 new signature roller coasters as well as several new multiweek immersive entertainment offerings that we expect to create an urgency to visit our parks earlier in the year.

While we certainly felt pressure during the first half of 2018, our general managers and marketing teams did an excellent job in recognizing that the early-season challenges were not representative of a broader consumer trend.

They maintained discipline throughout the season to preserve our price integrity and to manage costs without impacting the overall guest experience.

This operating discipline and dedication to maintaining a high-level guest experience contributed greatly to our record-setting second half performance.

Importantly, we continue to delight our guests as evidenced by higher Net Promoter Scores in almost all of our parks.

As you know, this is an important metric that measures the willingness of our guests to recommend our parks to others.

Our strong fourth quarter is also worth noting, as we expanded our popular fall and winter events.

In 2018, we reported record fourth quarter revenues of $250 million, an increase of $22 million or 9% from a year ago, and record fourth quarter adjusted EBITDA of $68 million, up $7 million or 11% from last year.

The strength of our fourth quarter results validates our ongoing planned investments and commitment to enhance and expand our entertainment offerings during the early and late stages of the year.

This represents some of the most compelling growth opportunities for Cedar Fair, and Richard will be commenting on a few of these opportunities as part of the new 5-year plan.

As a reminder, our teams are committed to a dual mandate: delivering strong results in the current year and doing what is needed to protect and grow our business going forward.

We are focused on maintaining our historically high adjusted EBITDA margins, while continuing to invest in and enhance the overall guest experience.

Turning to the balance sheet.

Overall, we are extremely pleased with the strength of the balance sheet.

Our liquidity, cash flow and capital structure remains strong, and we have a high degree of flexibility to pursue value-enhancing opportunities that will benefit the growth and profitability of the company.

Cash on hand at December 31 totaled $105 million with no outstanding borrowings under our revolving credit facility.

Our consolidated leverage ratio of 3.6x is well within our comfort range based on current market conditions.

Our weighted average cost of debt is currently 5%, and our nearest term maturity is in 2022.

Deferred revenues at the end of 2018 were $107 million, up $21 million or 24% when compared with last year.

This year-over-year increase reflects robust sales of 2019 season pass and all-season products.

We introduced a new 12-month installment payment option and unlimited visits in 2018 for new 2019 season passholders.

And clearly, these enhancements were very well received.

For modeling purposes, I also want to highlight that our fiscal first quarter ending March 31, 2019, will have 1 additional week of operations when compared with the first quarter in 2018, which ended on March 25.

The fiscal calendar shift will result in 1 additional week of preopening operating costs and approximately 10 additional operating days being reported in the first quarter when compared to the same quarter a year ago.

This additional week will be offset in the fiscal fourth quarter this year where there will be 1 less week of operations when compared with the fourth quarter in 2018.

Also because of this calendar shift, approximately 60 operating days will move from the third quarter into the second quarter when compared with the prior year respective quarters.

For the full year, we anticipate the total number of operating days in 2019 to be comparable with 2018.

In summary, our financial position is strong, we delivered record net revenues in 2018 and our strong momentum is continuing in 2019.

We've got a capital structure that affords us the flexibility to pursue attractive market opportunities, should they arise, and our business model continues to generate significant cash flow, which allows us to pay an attractive and growing distribution, while investing in our assets to drive sustainable value creation for our unitholders.

With that, I'll turn it back over to Richard.

Thank you, Brian.

As I mentioned earlier, our mission is to make people happy by providing fun, immersive and memorable experiences.

We've been doing this for a long time, and our track record indicates that we are building on our success.

In fact, our 2 largest parks, Cedar Point and Knott's Berry Farm, will be celebrating their 150th and 100th anniversaries, respectively, in 2020.

These and all of our parks have adapted their entertainment offerings to changing consumer tastes from generation to generation.

Our ability to evolve and enhance the overall guest experience with modern and engaging family attractions, while maintaining the nostalgia of the past, is what brings families of all ages and generations together.

And it will be the key to our success for many years to come.

Before I go into the details of our long-term strategy, I want to touch on some consumer insights that informed the key components of our strategy.

First, consumers continue to prioritize experiences over possessions.

Today's consumer has a strong desire for multidimensional entertainment.

They want a diverse array of activities in one place with experiences that impact all of their senses and where there is something for everyone in their group to enjoy.

While we can't claim to have been the catalyst for this shift in consumer behavior, we are clearly a beneficiary as our parks provide an experiential platform where consumers can immerse themselves in entertainment at a scale not easily replicated by other entertainment offerings.

Second, we continue to live in a bifurcated economy.

The introduction of premium products for the higher-end consumer and a more disciplined approach to yield management has allowed us to simultaneously grow guest per capita spending and attendance in all guest categories.

Continuing to offer innovative products that appeal to thrill-seeking, amenity-craving and value-oriented consumers alike has allowed us to capture the broadest possible audience spectrum, while maintaining integrity in the overall customer experience.

And finally, there is the issue of time poverty.

This is a challenge for many consumers and especially families due to over scheduling and the demands technology has placed on our lives as we are all now connected 24/7.

Interestingly, through our market research and interactions with our guests, we have found that many consumers are preferring bite size experiences of 4 hours or less due to time constraints in their lives.

This is particularly relevant for our loyal season passholders who tend to live closer to our parks and have an interest in visiting more often.

Based on these insights and others, we have developed a long-term strategy that we believe will enable us to reach our target of $575 million in adjusted EBITDA by 2023, which implies a 4% compound annual growth rate over the next 5 years.

To achieve this target, we intend to focus on the 4 most compelling opportunities to accelerate our growth and profitability: broadening the guest experience, expanding our season pass program, increasing market penetration through targeted marketing efforts and pursuing adjacent development.

With regard to our first growth driver, broadening the guest experience, we believe an opportunity exists to leverage our management expertise and assets to offer a more encompassing, more agile entertainment experience at a quality and scale unmatched by others.

Our existing inventory of thrill rides allows us to space out our larger investments in new rides and attractions over a longer period of time, while our near-term investments will increasingly focus on interactive and immersive family attractions, special events, concerts and outdoor gathering spaces.

These less capital-intensive investments will allow for a more consistent spend across all of our parks on an annual basis, create an urgency to visit multiple times throughout the year and provide a greater hedge against disruptive weather patterns that may occur.

For example, we have already achieved great success in broadening the guest experience at our Knott's Berry Farm park in Southern California by introducing 5 Seasons of FUN events.

The success of these events has driven attendance at this property to more than 6 million visits on an annual basis and helped fuel season pass sales at that location, and we expect this growth to continue.

In 2019, we have several exciting initiatives to further broaden the guest experience.

Let me just highlight 3. We will expand our Seasons of FUN concept to more parks with the introduction of more interactive, multilayered events.

Forbidden Frontier will launch at Cedar Point.

This will be a real-life adventure where guests become part of the story, immersed in interactive encounters with island inhabitants and realistic experiences challenging their problem-solving skills as the mystery of the island unfolds during the day.

We will also add a WinterFest celebration at Canada's Wonderland near Toronto to expand that park's operating season into November and December, bringing us to 7 parks that will be opened during the winter holiday season.

These new offerings not only attract new unique visitors to our parks, they also increase the price value proposition of our season passes and encourage our season passholders to visit more often.

This leads me to our second area of opportunity, expansion of our season pass program.

It is our goal to transition from a seasonal transaction-based program to a long-term relationship-based program focused on the lifetime value for and from our guest.

A paradigm shift of this magnitude, obviously, will take time, but we are pleased with our progress to date.

The evolution of our season pass program over the next several years will focus on achieving affordability, retention and increased visitation.

We began to address the affordability concerns of our value-oriented guests in 2012 with the introduction of our new e-commerce platform.

This allowed us to begin selling our season passes through an installment payment program and provided us with the infrastructure for the upsell of new products and benefits.

Since 2012, we have introduced multiple payment options, including most recently enhancing our existing installment payment program with a new 12-month installment option.

Over the years, we have also introduced numerous advance purchase products such as All-Season Dining, All-Season Beverage, All-Season Fast Lane and All-Season FunPix.

In 2013, we began investing in a new Customer Relation Management or CRM platform, which compiles multiyear consumer data into one cohesive system.

This has allowed us to simplify our guest communications by customizing messages and images most relevant to a particular household, driving the right offer to the right consumer with the right message at the right time.

Since the introduction of the e-commerce and CRM systems, we have nearly doubled our revenues from season pass sales.

And as Brian mentioned earlier, our 2019 year-to-date sales are pacing well ahead of where we were at the same time last year.

As we look to evolve our season pass program to drive renewal rates even higher, we now have the technology and talent infrastructure in place to introduce a new loyalty and rewards program.

This new program will provide active passholders an opportunity to earn and redeem rewards throughout the operating season and even during times when the parks are closed.

We'll begin testing aspects of this program at several of our parks in 2019 in order to determine what resonates with our passholders and which rewards best motivate value-enhancing guest behavior.

We will then plan a broader rollout of the program in 2020.

We also believe our new loyalty and rewards program, combined with the broadening of our entertainment offerings, will encourage our season passholders to visit our parks more often, further increasing the average visitation of our more than 2.5 million season passholders per year.

Growing our season passholder base while increasing average visitation are important elements of our long-term plan.

Increasing our unique visitor count will be equally as important.

This brings me to our third area of focus, increasing market penetration through targeted marketing efforts.

Over the next 5 years, it is our goal to increase unique visits by targeting growing and underpenetrated audience segments within our markets.

Through consumer and market research, along with data analytics, we have identified several guest segments that we believe are currently growing and underpenetrated within our parks and could produce attractive returns if we utilize the right communication and distribution channels to reach them.

Penetrating these growing segments will require incremental marketing spend.

However, there are opportunities to reallocate some of our advertising budget for more mature segments to keep our overall marketing spend between 9% and 10% of expected admissions revenue.

To give you a better understanding of this long-term opportunity, let me use Orange County, California, as an example.

This area currently host approximately 49 million visitors on an annual basis, of which Knott's Berry Farm has a less than 2% penetration.

Beginning in 2019, we will begin to allocate additional marketing dollars targeting the tourism market in this area.

You can do the math, but by simply penetrating this market by an additional 100 basis points, we could entertain an additional 500,000 unique guests at the park.

Finally, our fourth area of opportunity is to expand our out-of-park revenue streams and maximize the value of our existing portfolio through development adjacent to our parks.

We currently have more than 1,300 acres of undeveloped land that can be utilized for resort expansion, amateur sports facilities and other entertainment concepts.

Projects currently in process include a new 129-room SpringHill Suites Hotel adjacent to our Carowinds park in Charlotte, North Carolina, and a new 150,000 square-foot indoor amateur sports facility overlooking our Cedar Point amusement park in Sandusky, Ohio.

Both of these are scheduled to open during the fourth quarter of 2019, and we're extremely excited about the opportunity that both projects represent in their respective markets.

While I have primarily focused today on our attendance and out-of-park revenue streams, I want to assure you that we continue to make investments in additional food, beverage and merchandise facilities to add more capacity and support the growing demands from the guests at our parks.

In summary, we are excited about our 4 key areas of opportunity that we expect to drive our growth over the next 5 years.

With our best-in-class assets, popular regional brands, strong attendance demand across all our parks and a resilient business model that generates significant free cash flow, we are very confident about our prospects for continued growth and value creation.

We look forward to keeping you updated on our progress over the coming quarters.

Now I would like to turn the call back over to Brian for outlook on the key uses of free cash flow going forward, after which we'll open the call up for questions.

Brian?

Thanks, Richard.

As many of you know, we pride ourselves on being transparent with respect to the allocation of our cash flow.

This is a fairly easy business to model as cash is primarily allocated to 4 areas: cash used for debt obligations, including interest payments; cash used for taxes; cash used for capital investments; and cash used for unitholder return, primarily through distributions.

Going forward, we expect annual cash interest payments to be approximately $85 million.

It's important to note that the majority of our rates have been fixed long-term, fixed-rate notes or interest rate swap agreements.

Cash taxes are expected to be approximately $45 million this year.

Based on our performance projections, our current entity structure and an effective tax rate of approximately 20%, cash taxes are expected to be between $45 million and $55 million going forward.

On the capital investment front, we continue to believe prudently investing in our business is critical to driving long-term growth.

Going forward, we believe the appropriate level of investment that aligns with our $575 million adjusted EBITDA target will be in the $140 million to $150 million range.

Investment in noncore business development opportunities, such as the activation of the 1,300-plus acres of developable land around our parks, will be incremental to this level of investment within the quarter.

For 2019, we will be investing approximately $140 million in infrastructure and marketable new rides and attractions.

We anticipate investing another $30 million to $40 million in incremental development projects, including the Charlotte hotel, the Sandusky indoor sports center and additional employee housing facilities at several of our parks.

We will continue to place an emphasis on building to scale in all of our projects, as we believe it differentiates our parks and helps to protect the integrity of our business model for years to come.

Finally and, most importantly, the remainder of our free cash flow will be returned to unitholders through steadily increasing distributions, just as Cedar Fair has done historically.

We're proud of our ability to aggressively grow our distribution over the past several years, and we believe we are well positioned with a solid balance sheet, appropriate liquidity reserve and a positive earnings outlook to continue this trend going forward.

Our goal remains to provide a growing distribution in a steady and linear path.

I'll turn it back over to Richard.

Thank you, Brian.

In summary, we produced record net revenues in 2018 by driving growth in all 3 of our key revenue channels: attendance, average in-park guest per capita spending and out-of-park revenues.

I expect 2019 to be even better.

The 4 fundamental mandates of our long-term strategy are clear.

Over the next several years, we plan to broaden guest experience, expand our season pass program, increase market penetration and pursue adjacent development opportunities.

I am excited at what lies ahead and look forward to reporting on our progress.

With that, let me now turn the call over to the operator who will open the line for your questions.

(Operator Instructions) We will now take our first question from Steve Wieczynski of Stifel.

So I guess, the first question.

I have a couple questions around your long-term guidance.

And obviously, you're kind of embedding a 4%-ish kind of growth number in terms of EBITDA.

But -- and I don't know how much you'll kind of help us think about maybe what is going into those projections.

I know you're not going to give us like the way you're thinking about attendance growth and stuff like that.

But are there certain things kind of essentially built in there, maybe like the economy rolls over, I think, some people would expect we might go into some type of recessionary period over the next, call it, 4 years?

And then maybe also what are your labor assumptions that are going into there as well given we have continued to see labor increase a good bit across some of your markets.

Steve, it's Richard.

As we thought about the LRP and we looked longer term about how we build out the plan, we've seen what we've -- the continued evolution of our approach to driving attendance.

So as we think about it, we're trying to balance, as I said in my remarks, driving season pass sales, but also driving uniques across all of our markets.

So the emphasis, as we look forward, is on driving attendance, I'll ask Brian to talk in just a second about labor.

But as we looked backwards and forwards, we constantly stress test all of our assumptions, and one of the conversations with the board is always stress testing our business model.

And as we look at it, we've got a lot more tools right now as to manage through what we see is a stable consumer base over the next few years.

So when we talk about putting in CRM systems, when we talk about our ability to leverage our e-commerce platform, also I would add to that a much more sophisticated revenue management system.

We've got a lot of tools that are focused on understanding the behavior of our guest, looking at the markets that we do business in and sizing them up and then finding a way to grow the attendance and the per cap on top of that.

So Brian?

Yes, Steve, just dovetailing off of Richard's comments.

And as he spoke about on the -- in the prepared remarks, all 3 of the top line key performance metrics, attendance, per capita and out-of-park revenues, are going to play an important role in the LRP.

And that's going to defer as we work our way through the next 5 years.

I think, as you may have taken away from some of the comments, early on, I think, some of the near traction is going to be a little bit more volume based.

Clearly, we have a lot of momentum around volume over the last couple of years.

Even in '18 in spite of the challenges early, the strength over the last half of the year, attendance up 6% at the end of July through 12/31, underscores that strength in volume.

And I think the initiatives around expanding the season pass and broadening the offerings to drive more uniques, as Richard just commented on, that will -- the early part of that strategic plan will be a little bit more maybe volume based than per capita and pricing based.

But that doesn't mean that, that won't pick up as we work our way through.

As we think about some of the cost pressures in there, we haven't assumed any Shangri-La, if you will, around labor.

We know what the pressures have been around either minimum wage hikes in various markets or the market adjustments we've had to make in order to stay competitive in a tightening labor market.

And so we've assumed a similar pacing, if you will, Steve, as it relates to labor going forward.

I think, as I mentioned in my prepared remarks, there are a number of initiatives that we have in place or in process, particularly around the implementation of a new workforce management system, that, I think, are going to bear fruit.

We haven't necessarily assumed all the wins from that.

I think we want to leave some of that to be a little bit of icing on the cake, if you will.

So our plan right now and that target, that $575 million, assumes a comparable amount of pressure from labor that we've seen over the last several years.

And if I heard you right, I assume that, if you kind of look at just, in terms of any type of disruption to like in terms of weather, I assume you've just kind of assume normal-ish for the next couple years pre the events and also the economy as well.

Is that -- are you kind of assuming the consumer stays where he or she is today?

Can you have them softening up a little bit?

That might be helpful as well.

Yes.

I would say, it's hard, right, to ever sit there and look at the 5 years and say that another 2009 is going to occur in a year after that plan.

And so the LRP is an appropriately aggressive target.

It assumes that the consumer and the economy stays about where it's at right now.

It assumes that weather, as you said, is normalized, although as we talk about internally, we're not quite sure what normalized weather necessarily is anymore because there's been so many challenges over the last couple of years.

So yes, I think, you basically have to sort of assume a normal course on a lot of those macro factors that are outside of our control.

And one of the things that I would add, Steve, is, as we look at the broadening of the guest experience and in particularly events we're going to roll out, I think, Halloween Haunt and WinterFest give you an example of how we can use events to create urgency when we go to scale.

As we think about rolling out the events, the immersive events that we're going to roll out earlier in the year, just as we've seen success with the Boysenberry Festival at Knott's in the springtime, we think one of the keys irrespective of economic conditions is that we use events to create urgency and give people a reason to come out with limited duration events.

We think that works at any point in the economic cycle.

And that will be a key driver going forward.

Okay, got you.

And then second question, I guess, might be a little bit of a bigger picture question.

And I guess, what I want to focus on is how do you guys envision yourselves still being able to take price from your customer?

What I mean by that is it seems like you might be changing around the way you think about spending your capital, and this does or historically has seem like it's an, somewhat of an arms race in terms of you've got to build the best, the biggest, the fastest roller coasters.

And if -- maybe I'm reading too much into this, but are you guys changing the way you spend that capital?

And I guess that goes to the -- the question is if you do change the way you think about spending capital, will you still be able to push price as easily as you have in the past, if that makes sense?

Great question, Steve.

From a capital perspective, we've made a number of significant investments over the last several years that we think we can continue to leverage during the future.

When you look broadly at our capital program, yes, they were large-scale significant coasters like Fury325 or -- at Charlotte, Steel Vengeance here at Cedar Point.

The great examples of roller coasters that were impactful during the year, but we can continue to leverage those for many years in our marketing campaigns.

When I think about the Hotel Breakers renovation, park-wide Wi-Fi at all of our parks, group catering facilities supporting our group sales efforts, the water park expansions, which really broaden our appeal to our season passholders and families in the regions.

I think the emphasis in the capital on what we call our marketable capital is always going to be on driving demand and leveraging the investments we've already made.

So we think that while we're probably going to stretch out the cadence of the more significant investments, we're still going to make significant investments in any given year, but we're also going to make sure that we've got something that we can go-to-market with in each of our markets to promote demand.

And increasingly, in regards to our ability to take price, we've seen an ability with our events to be able to drive price as we create that urgency.

So with our revenue management system and the talent we have behind that, internally now, when we see demand, we're going to price into demand.

The best example I can give you of that is Halloween Haunt which is an event, not a coaster.

And some of our highest per cap days in our busiest days of the year, each year, are in October.

And I think it underlies the focus on demand more than on any given product and how it ties together.

We will now take our next question from Tim Conder of Wells Fargo Securities.

Congrats on a great wrap to the year despite a difficult first half.

Thank you also for the color.

And I wanted to maybe circle into a couple things.

Going to the 12 month on your proposal on your ability similar to pay out the installment plan, can you remind us?

You had the 9-month plan.

What's going to change other than 3 more months?

And is there a premium?

And how does the accounting go in related to recognizing that revenue and controlling breakage, so to speak?

Yes, Tim.

It's Brian.

The 12-month plan and the evolution to that was very similar to what we've done over the last several years where when we rolled these payment plans out originally several years back, we started with 3- and 4-month payment plans and as you indicated, gradually, migrated up to 9 months.

Going to 12-month doesn't change necessarily the accounting other than as you just articulated we're spreading the payment for the consumer, the guest, over 12 easier installments.

And so there's no change necessarily in our accounting recognition.

We still have draws on those visits much like we do at the other payment plans.

As opposed to more of it, what we would characterize is as a subscription model.

And so as Richard said in his prepared remarks, our intent with the 12-month was, one, to address affordability even more aggressively; and two, test with the consumer, with our guests, what their reaction would be to a payment plan that had them paying for the pass over even a broader window of time when many of our parks aren't in operation.

And as I said in my prepared remarks and Richard commented as well, extremely pleased with the reaction from the guests in terms of not only the new payment plan option, but also the unlimited visits and the benefit and the value it added to our sales, as evidenced by the deferred revenue being up as significantly as it is year-over-year.

Okay, okay.

And then just wanted to be clear.

Was it the units were up 25% or your deferred revenue was up 25%?

The sales dollars are up north of 25%, combination of both units and price.

Okay, okay, okay.

And wanted to maybe get into some of your annual metrics here.

Richard or Brian, whoever wants to take this.

As it relates to your attendance, you alluded to that over 50% of your attendance came from your season passes.

Competitor gives an annual specific number.

Can you be a little bit more specific than that?

And then the frequency of visitation.

I think, in the past, you always talked about 4x to 5x as the number of visits that the season pass customer comes.

Maybe give us a little color as to where that was in '18?

And would appreciate that.

Yes.

Tim, it's Richard.

Thanks for the question.

As we look at it, as we said, season pass is more than 50% of our attendance.

And while I can't give you an exact number, I can tell you that increased from last year in terms of a percentage.

But at the same time, as Brian pointed out in his remarks, we also increased our unique visitors.

So I think we're really excited and I'm personally very excited about both of those.

From a visitation perspective, we've gone from less than 4 visits several years ago to now around 5 visits on average, but we've got many of our parks in our system that do 6 or more visits on their average pass.

So as we look at that and look at our long-range plan or look at our business, we think that will continue to grow into the future.

Okay.

And then can you talk about, one, did uniques grow across both the season pass, day visitors and group?

And what's your penetration of your season passes off your unique base, and then maybe also the dine and any color you can give there?

Yes, Tim, it's Brian.

So I can tell you, uniques, we're up in both the season pass and non-season pass channels, which, as Richard said, is a critical metric for us as we're constantly looking to bring in new guests, not just continuing to add visits to our existing guests.

As it relates to penetration rates, there is -- we don't give out specifics on a lot of those.

I will tell you that penetration rates on the all-season products, primarily dining and beverage, are the 2 that are the most material.

In terms of the number of units and overall dollars, those continue to go up each and every year as awareness of the products continues to improve, as we make enhancements to the products or programs.

And so we're very pleased, but we know there's still a lot of runway because those penetration rates aren't anywhere near the levels that we think they can ultimately get to.

Okay.

And then lastly, if I may, given (technical difficulty).

We will now take our next question from James Hardiman of Wedbush Securities.

Hopefully we didn't cut off Conder there.

Sounded like he might have had another question.

But my question was surrounding the distribution.

Obviously, we grew the 2019 distribution 4%, which is in line with the target, despite EBITDA being down a little bit last year.

Obviously, tax has helped you do that.

I'm assuming that's not something that you could repeat going forward.

Maybe help me with some of the parameters around growing that dividend 4% in 2020.

Would you be able to do that if you weren't able to grow EBITDA 4%?

Obviously, the hope is that this would be a moot question, but how bad would things need to get to force you to actually cut that distribution, would be the other question?

James, let me jump in here.

We just increased, as you referenced, our distribution 4%, show the confidence we have in our business model and what we were seeing at the time as we came into the end of the year.

In particular, I'll tell you one of the things that I'm very pleased with.

When we look at the strength of our deferred revenues and our season pass sales, we're up in season pass sales at every park in our system.

So our growth in demand is very broad based.

So we look at our business model and we've talked to our investors, our investors have told us that they all prefer a steadily increasing distribution.

The plan we built supports the sustainability and the continued growth in our distribution.

As you know, as an MLP, we always -- the quality and sustainability of the distribution is one of our highest priorities.

So we balance all of our investment decisions up against the use of cash against the distribution.

Yes.

James, it's Brian.

Just dovetailing on Richard's comment.

The balance sheet over the last several years was rebuilt really at management's urging and the board's urging to sustain a year like a 2018, where the growth in EBITDA wasn't there, not because of a fundamental shift in the underlying business or a change in the consumer, but because of sort of a macro disruptive event like the weather that we saw for 6 to 7 weeks during the key months of June and July.

So as Richard said, the board's confidence, our confidence in the business model underscore that.

But your point is a good one or your question is a good one.

In terms of 2019, we need to deliver the growth that we've indicated is available to us.

Minus that, if that were not to happen, I would say that the distribution isn't at risk.

Growth in the distribution would be reviewed should '19 not turn out to be as strong of a year as we believe it's going to be, but the distribution in terms of sustaining where it's at isn't at risk in our minds, but growing it would be up for discussion.

That's really helpful.

And then I wanted to circle back to a question I've asked a couple times in the past, but it seems maybe even more relevant.

We're coming off the third year in a row where the peak season was somewhat disappointing, and then you finished pretty strongly certainly this year, very strongly.

So I guess, the question sort of comes back to cannibalism for lack of a better word.

As you collect data from your various parks, are you seeing that when you open a WinterFest and people plan on going to that WinterFest, maybe they're opting not to go in the peak season?

And I guess, more broadly, are you just seeing trends of people preferring the fall or the wintertime to come to your parks versus what has historically been the peak summer season?

James, I think, what we're seeing in the back half of the year is the strength of our event programming of Halloween Haunt and WinterFest and what that means in creating urgency and giving our guest a reason to come.

Again for both those events, they drive both our season passholder base, but they also drive uniques.

So as we look at that and as we've laid out our long-term strategy, you're going to hear us specifically announce in the next several weeks, events that are targeted at earlier in the year.

I referenced Boysenberry Festival at Knott's as one of the prime examples of how we've driven the early part of the year at Knott's Berry Farm.

It's a 2 or 3 of the highest attended weeks that Knott's has in the course of the year and happens in the springtime.

We think the strength in the back half of the year validates our event strategy as we roll out limited time events that are immersive, that are of scale and, again, I don't want to steal the thunder from our marketing folks.

Those -- a number of those will be announced over the next several weeks.

We think targeting those earlier in the year can grow our uniques, can grow the incremental, the new attendees to our parks.

And that rather than looking at the shift of the back half of the year or something that cannibalizes, our view is it's validation of our approach embedded on our long-range plan.

Okay.

And then just real quick clarification.

Sounds like you're getting an extra week in the first quarter.

Remind me how Easter impacts you guys this year?

Is that not a negative for this year that maybe offset some of that?

Yes.

So as I mentioned on the call, we definitely are picking up an extra week of operations in the first quarter based on the timing of the fiscal quarter close.

Given it's the end of March and most of our parks are going to be outside of their operating calendar, James, that's more what we call downtime or the ramp up cost associated with.

So a little bit of pressure on Q1 from that perspective, with more opportunity, the shift in where the calendar falls, including Easter, will benefit us in Q2.

And that will -- some of those incremental operating days in results will swing out of Q3.

Got it.

That's helpful.

I think I misunderstood the point about the first quarter is that it's a negative -- that there's an extra week, given that you have cost and not revenues.

Correct.

We will now take our next question from Chris Prykull of Goldman Sachs.

I just wanted to ask about sort of 2 components of the longer-term plan.

I guess, first, on the capital spending strategy.

What drove maybe the view?

I don't want to call it a change in view, but maybe to become a little bit less capital intensive or more efficient with your capital spend.

Can you point to test cases in certain markets where maybe you've switched from heavier attraction-based spend to more events?

And what the customer reaction has been to that?

Could you still push price in those markets?

And then should we expect more OpEx instead of CapEx as you launch some of these events or maybe even more advertising?

Chris, I'll give -- great question.

I'll give you the best example we have and it's one of our most successful park.

Knott's Berry Farm has been a site that we've not invested in large signature steel coasters.

What we have invested in is events and this family attractions, immersive -- Ghost Town Alive!

was our best example of product that was really targeted at the middle of the summer, very immersive, very interactive.

Knott's has grown, as we said, to over 6 million people a year, probably the most attended regional theme park in the world now.

So very, very successful strategy in a highly competitive market.

And one of the things we've seen at Knott's is we've generated attendance increase, gotten volume, while we've also been able to get price.

So we think that's a validation of the quality of our guest experience and the value that our guests put on it.

Yes.

And Chris, just dovetailing on Richard's comment, I think, one of the things that we should clarify is that the CapEx coming down a little bit is not necessarily reflective of a fundamental shift in how we think about it as much as it is also reflective of just efficiencies in our capital spend.

And Richard alluded to this a little bit earlier on one of the questions.

There are a lot of areas that we've spent the last 6 or 7 years investing in, that we are now at a point where we're checking the box that they are essentially, let's say, done or at least the investments going forward are borne around maintaining.

And there's things like reinventing and completely rehabbing all of our guests' pavilion and catering areas.

Park-wide Wi-Fi was not an inexpensive investment for us over the last several years, and we're wrapping up the last 2 parks this year.

So as those things fall off the list, there aren't as many or anywhere near as big of dollars coming in behind the scenes.

I think in terms of the marketable new attractions, as Richard just said, there is a wide range of opportunities for us from park to parks.

2019 has still got 2 big signature coasters, one in Toronto and one in Charlotte.

So we're not walking away from those investments, though, be complemented by the events as we talked about on the call.

And I think to your question around OpEx, it's fair to say that the events tend to be a little bit of a 50-50 split, if you will.

The initial capital outlay isn't as great as the new ride, but the OpEx hits a little bit heavier than a ride.

So I think WinterFest is the best example of that where there's no doubt that WinterFest in its first few years puts a little bit of margin pressure on the company.

But long term, it is a strategic initiative that is critical to our ongoing growth in both season pass as well as attracting unique visitors.

And so it's one of the reasons why within our model we don't assume in the new strategic plan a lot of big margin expansion, at least in the early years, because some of these initiatives are a little bit more OpEx heavy than they are CapEx heavy.

And then, Chris, let me circle back.

I'll give you one more example of how we've seen a broad-based approach help on a particular site.

If you go to Cedar Point here, we've got 1-mile long beach.

Several years ago, we renovated the historical Hotel Breakers.

We renovated the water park last year.

We've taken steps to really open up the beach.

And whereas several years ago, there was limited traffic, limited activity on the beach, now we've activated it with all kinds of daylong family-type activities, food and beverage on the beach, and now it's just packed all during the day.

So anything we can do to give a higher-quality experience, a broader appealing type of experience, we really think that has long-term benefit to all of our guests.

And by the way, we hope to show that off to our investors later this year, so.

Great.

And then just on the second topic of the enhanced marketing or better targeting from a marketing perspective.

Can you just maybe give us some examples of segments where you feel you are underpenetrated?

Is it really certain regions or is it certain demographics?

And then, along that vein, what was the factor in the decision to initially focus on that marketing in Southern California?

Chris, when we looked at all of our markets, we've gone through and updated the market size in studies that we've done the look at our different segments.

Tourism quickly jumped out at Southern California because the economy is so robust out there, and we've got such a good opportunity.

But we looked at a number of different demographics, Gen Z. We've done a lot of research around Gen Z and what that should mean to us.

Moms with kids are our target audiences now, heavily based in the millennials, but the up and coming Generation Z looks at the world a little bit differently.

So as we think about the experiences that we fold into our overall guest experience, we're really looking at what the up and coming generation, like Generation Z, wants out of their experience and how we can fold that in.

So that's why you'll hear us talk about gathering places.

We continue to see that food and beverage and the quality and the enhancements we put in our food and beverage program are both important to our guests, not just as a revenue generator, but more and more it's part of the price of entering part of their decision-making set when they choose to go someplace, be it us or somebody else, it's the quality of the food and beverage.

It's just a much more important part of their overall lifestyle.

So as we think about those things, those are what we're looking for, is the segments we can start to identify, start to understand what expectations are and, more importantly, how do we reach out and communicate to them.

We will now take our next question from Barton Crockett of DCF Stocks (sic) [B.

Riley FBR].

I had a question about the per cap -- the in-park per cap trend in the fourth quarter, which was down a little bit year-over-year.

And I was wondering if you could kind of unpack for us what was going on in the quarter.

Because I know there were a lot of moving parts in terms of there were some accounting skews from adding some more winter festivals that stretched out, I think, accrual of season pass.

There was a mix issue with growth in season pass penetration.

But I was wondering if you could unpack that and talk a little bit also about what the kind of core pricing trend was.

I know you flagged that you had growth in non-season pass pricing, but what happened with the season pass pricing there as well?

Barton, thanks for the questions.

I'll jump in here and then I'd let Brian answer some of the specifics.

But when you look at the attendance growth and you look at the impact of WinterFest, WinterFest by its nature is a nighttime event.

It's a slightly shorter length of stay.

So you won't get the same length of stay that, for instance, we get in October as we do with our Halloween Haunt event.

Having said that, it's -- WinterFest is multigenerational.

We're seeing grandparents come with grandchildren.

So we think it's not only a great example of broadening our audience.

We think it's key in driving our uniques and bringing an incremental audience.

Does put pressure mechanically on the per cap and maybe Brian can speak to that.

Yes, Barton.

I mean Richard just hit one of the components that are right.

In the fourth quarter, October is some of our highest per caps and November, December, the WinterFest event, while attractive and per cap on a per-hour basis is very good, in terms of the much shorter length of stay, the overall dollar per cap for those events is a lot smaller.

So when you add another event and one very successful event like Kings Dominion WinterFest, there is a little bit of a mechanical effect there pulling it down.

I will tell you that the food and beverage line, which is a big focus for us, was up meaningfully in the fourth quarter, reflective of the strength of that channel.

So that's something that we look at very closely because, in theory, if we can affect the kind of behavior we want out of consumers and the kind of purchasing we want, that's something that shouldn't have a lot of that, sort of, accounting noise mixed into it.

But there's no doubt that a little bit of the draws around season pass play into it, and then adding another WinterFest park pulls down that fourth quarter number a little bit as well or dilutes it.

Okay.

But is your core pricing that's kind of mix, how would you describe that, typical pricing growth or something different?

Yes.

No, in terms of pricing -- or we like to talk about internally a little bit more of the net yield we're getting on tickets, because, as Richard said in his prepared remarks, it's really about the offers that are out there, the right offer to the right time to the right person.

And so pricing or those offers were all consistent.

If I break apart, sort of, the 2 parts of the quarter, Haunt, we continue to be very aggressive in terms of either the advertised pricing or the discounts and the lack thereof and pushing a higher net yield.

So our pricing around Haunt this year was as aggressive as it's ever been, in large part fueled by the momentum we had coming out of August and September and the record August, very strong September.

And then WinterFest, we continue -- the parks that are a little further along, Great America is in its third year, so we're gradually taking more pricing on WinterFest there.

Kings Island, Carowinds and Worlds of Fun, we're in their second year.

They are starting to step into it.

But as we've said before, that's a 3 to 4, maybe 4- to 5-year run rate to normalized profitability and pricing around that event.

And so each parks have maybe a little bit of a different point in life cycle when it comes to pricing around WinterFest.

We have one question remaining in the queue.

We will take our next question from Tim Conder of Wells Fargo Securities.

Would it be reasonable to say that potentially '19 here could be a little bit of the snapback in the rubber band from the weather-depressed years we've seen?

And essentially, in '19, at least, we could see above that 4% growth assuming, let's call it, a "normalized year?"

Tim, as you know, we debate internally.

We've shared with everybody on the call.

The impact from weather on any given year, clearly, we saw impact, and it was evident in all the numbers that we shared with you.

We're trying to be as transparent as possible.

As we look at '19, we don't know where weather will impact.

We do know that the most important thing about weather is when and where.

If it's a Tuesday in June, the impact is a lot less than a July Saturday.

I will tell you that, from a demand perspective, we see strong demand as evidenced by our deferred revenues.

I think our event program is going to be stronger than it's ever been this year.

I feel good about our capital lineup and the 2 signature coasters we've gotten going into 2 very important parks for us, Canada's Wonderland and Carowinds down in Charlotte.

So I think we're poised and positioned for a good year.

But by the same token and we've really hit this in our prepared remarks in the long-range plan, we're about driving as much as we can in terms of demand, but we also want to invest in the things that will fuel our growth in years to come.

So the balance we have is making sure that while we're optimizing any given year, we're also laying the foundation for things that will grow in the future.

WinterFest is a great example of that as well.

The first year is a little cost heavy.

There's start-up cost.

And as we've seen, as Brian just referenced in his remarks a second ago, as you get to second and third year of those events, you see a lot of growth.

So we're not going to be shy about making sure that we're investing in things like the targeting marketing efforts, which will pay off more in years to come than they will in their first year.

So I think the balance for us is always in terms of thinking about any given year, making sure we're balancing that tension in the system.

Okay.

And then you are anticipating having an analyst event later on during the year?

Yes.

We want to get everybody out to a park.

Likely I think, we're pointing towards shortly after our second quarter call.

So likely be in early to mid-August.

It appears there are no further questions at this time.

I'd like to turn the conference back to you for any additional or closing remarks.

Thank you, all, for your interest and ongoing support of Cedar Fair.

As I'm sure you can tell from our comments today, we're excited about what's in store over the next 5 years, including 2019, which we certainly expect to be another outstanding year for Cedar Fair.

I encourage all of you to visit our parks over the summer and experience firsthand what differentiates our parks from other entertainment offerings.

Thank you, all.

And back to Stacy.

Thank you, everyone, for joining us on the call today.

Should you have any follow-up question, please feel free to contact me at (419) 627-2227 or our Investor Relations department at (419) 627-2233.

We look forward to speaking with you again in about 3 months to discuss our first quarter results.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may now disconnect.