Six Flags Entertainment Corp (SIX) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Six Flags first quarter 2003 earnings conference call.

At this time all participants have been placed on a listen-only mode and the floor will be open for your questions following the presentation.

It's now my pleasure to turn the floor over to Mr. Joseph A. Mansi.

Sir, you may begin.

Thank you, Jackie.

Good morning, I'm Joseph A. Mansi of KCSA, Six Flags Investors Relations Adviser.

Last night, the company released its financial and operating results for the first quarter.

A copy of the earnings release is available on the company's website at www.sixflags.com under the heading, "About Us, Investors."

Before I turn the call over to the company's executives, they have asked me to remind you that in compliance with SEC regulation FD, a web cast of this call is being made available to the media and general public as well as analysts and investors.

The company cautions you that comments made during the call will include forward-looking statements within the meaning of the federal securities laws.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements.

You may refer to the company's 2002 annual report on form 10-K, which is also posted on its website for a detailed discussion of these risks.

Because the web cast is open to all constituents and prior notification has bee widely and selectively disseminated, all contents of the call will be considered fully disclosed.

In addition, in accordance with the newly adopted Regulation G, non-GAAP financial measures used in the company's oral presentation today, are required to be reconciled to the most directly comparable GAAP measure.

The required reconciliations are available to investors on the company's website under the same heading.

References by management in this call to EBITDA mean EBITDA adjusted, from consolidated operations, as such term is defined in the earnings release, an references to adjusted EBITDA mean adjusted EBITDA including unconsolidated operations, as so defined.

Now I'd like to introduce Kieran E. Burke, chairman and chief executive of Six Flags.

Thank you, Joe.

Good morning.

Thank you for joining us for today's call.

Yesterday, after the close of the markets, we announced our first quarter results.

Those numbers came in where we expected them to be.

Revenues for the period were lower than the prior year primarily because of less operating days in that quarter compared to the 2002 period, and the fact that the Easter holiday and related spring break operations at certain parks, occurred in the first quarter of 2002.

If one compares the 2003 results to 2001, when the calendar was similar to this year, with Easter also falling in the second quarter, we had virtually the same revenues.

Likewise our adjusted EBITDA for 2003 quarter was virtually flat 2001, reflecting good expense control.

In any event, first quarter results are not very meaningful for us, since only limited number of our parks are in operation during that period.

Example, the quarter accounts for only 3% of our budgeted attendance for the year.

As a result on the call this morning, I will speak to year to date performance and group sales and season pass sales.

It is still quite early for these categories as well, but they provide some initial indicators as to how our season is beginning to unfold.

Then, following James F. Dannhauser's comments about quarterly results, we'll open the floor to questions.

We're open now almost exclusively in weekend operations in most locations, other than Montreal, Lake George, Seattle and some of the water parks.

It is very early.

At this point in the season, we have experienced a very modest portion of the season's total operating calendar.

Just over 10% of the full year attendance has been budgeted year to date.

So, as always it's a mistake to extrapolate full year performance from results at this time of year.

Particularly, because the comparative performance of early season weekend operations can be easily distorted by the impact of calendar differences, weather, and other factors.

With the exception of Europe and Mexico City, we have experienced difficult weather on a disproportionate number of the weekend days we have been open in markets throughout the U.S., particularly in California and the northeast.

This has constrained early season attendance.

Adjusting for the holiday calendar differences in Europe, systemwide our year to date performance is generally in line with last year, with attendance about 50,000 people, or less than 1% behind the prior year.

And our year to date park level revenues trailing by approximately $2.3 million dollars, about 1.6%.

We have seen good attendance performance in a number of domestic markets when the weather has been favorable.

In Europe, where we're only forecasting modest growth and where the weather has generally been favorable, we're slightly ahead of our expectations.

Likewise our park in Mexico City, which is operated 106 days is solidly ahead of the prior year in both attendance and revenues.

In addition to poor early season weather domestically and difficult economic conditions facing all our parks, our park in Los Angeles faces a particularly challenging competitive environment.

The Disney, Universal and Knots Berry Farm parks in that market, continue to offer unprecedented discounts on admission.

Along with weather, this has constrained that park's early weekend attendance.

However, we have just begun seven-day operations in April and our new roller coaster has just opened.

We have strong promotional offers, beginning this week, in that market.

So, I'm optimistic that with an excellent new ride, good media weight levels and compelling discount offers, we will achieve the market share that we have customarily enjoyed in that market during the important main summer season from June through August.

In season pass, we're approaching 50% of our full year pass sales target in line with last year's pace.

Group sales are, likewise, generally in good shape.

The tough economy has made selling outings difficult in some markets, but in the aggregate we're making solid progress toward our year end goals.

Again, it's extremely early, given where we are in the calendar and the tough economy, we do not have much visibility about full year performance.

We are making continued progress toward both our season pass and group sales goals.

And despite the bad weekend weather, we've seen a number of positives.

So, we remain comfortable with our full revenue and EBITDA targets.

With that I'll turn it over to James F. Dannhauser.

Thanks, Kieran.

I'll start by reviewing and provide some greater detail on the quarterly numbers which we released yesterday.

In order to keep this performance in perspective, it's important to recognize that the first quarter includes only a limited number of parks in operation, almost entirely on a weekend basis.

In terms of magnitude, the quarter accounts for only 3% of expected full year attendance and revenues.

And given the fact that the Easter holiday was in the second quarter this year, as compared to the first quarter in 2002, we would expect the 2003 quarter to be one with less revenues, more closely approximating the first quarter of 2001, which had a more comparable calendar.

With that having been said, first quarter revenues were $34.4 million, down 14.9 million from the first quarter last year.

That decrease was a reflection of the timing of Easter and spring vacations and the lower number of operating days in the quarter.

Compared to 2001, first quarter revenues were essentially flat.

In the 2003 quarter, our domestic operations achieved $25.6 million in revenues.

Our international operations generated $8.7 million in revenues, on attendance of 0.6 million and 0.5 million, respectively.

Cash expenses, including operating expenses, SG&A, and cost of goods sold, by excluding depreciation and amortization, as well as noncash compensation expense were $2.2 million lower in the quarter than in the prior year.

Excluding expenses incurred in New Orleans, which was not owned in the 2002 quarter, expenses were 5.2 million lower than in the 2002 period.

This reflects some timing differences, especially in advertising expenses reflecting the later start to the operating season for a number of parks, as well as continued good expense control.

As a result, EBITDA from consolidated operations for the quarter was a negative 75 .9 million, 12.7 million lower then the prior year, and adjusted EBITDA, including our share of the performance of the unconsolidated operations was a negative 83.1 million as compared to a negative 73.7 million in the 2002 quarter.

Park level EBITDA from domestic operations in the quarter was a negative 57.5 million, with a negative 12.8 million from international operations.

Excluding New Orleans, adjusted EBITDA was virtually flat to the 2001 quarter, including the free acquisition expenses at Sea World of Ohio and Montreal, in 2001.

Depreciation and amortization expense was $39.4 million, as compared to 36.9 million in the '02 quarter.

Net interest expense was $54 million for the quarter as compared to 60 million last year, reflecting the absence this year of the extra interest expense in the 2002 period from the January 2002 issuance of senior notes which retired other debt only on April 1st, as well as the benefit of our amended swap arrangement on our bank debt, which lowered our all end rate on our $600 million term lone to 5.26% from 7.1% at the beginning of March of this year.

We will benefit from this lowered rate through the balance of this year, all of 2004, and the beginning part of 2005.

Equity and operations of theme parks was a negative $12.1 million, as compared to a negative 15.2 million in 2002, reflecting largely the better performance in the quarter of the Dallas park.

As a result, net loss applicable to common stock was 115.6 million or a loss of a $1.25 a share, compared with a loss of 174.7 million, or a $1.89 per share last year.

The prior year loss included the impact of the good will impairment charge recognized in 2002.

Absent that charge, the loss of the 2002 quarter was 113.7 million or $1.23 per share.

As to the balance sheet, gross debt at quarter end was $2.3 billion and net debt was 2.2 billion excluding the 170 million drawn against our $300 million working capital revolver.

Those have reached $200 million dollars, the peak level as we return to the main portion of our operating season and begin the paydown of that facility.

We also continue to have our $100 million backup facility in place and have a current cash balance of approximately $123 million, including the cash which had previously been restricted.

So we remain very comfortable with our liquidity position.

Our blended interest rate, excluding the revolvers is 9 1/2%.

In April we issued $430 million in new ten-year notes at an interest rate of 9 3/4.

Proceeds of that offering are being used to retire in full the 401 million accreted balance of discount notes which would have been due in 2008.

With this financing accomplished, not only is our earliest debt maturity 2007, but we now have only $422 million of senior notes to retire by year end 2006, to avoid our term lone coming due then.

Finally, I would note that with the annual limit of partner tender profits now concluded, we received no unitenders in Georgia and $5.7 million in principle amount, tendered from the Texas partnership.

The purchase of those units will close in the next few weeks.

Kieran?

Thanks, Jim.

Before opening the floor to questions, I should comment briefly on the capital expenditure program.

We're investing 130 million systemwide this year.

I'm pleased to report that our projects are on time and on budget and being very well received by our guests.

Included in our capital program are new rides in 14 of our 19 domestic theme parks with major rides in our four largest parks, a complete rebrand of our new park in New Orleans, which has been very well received by the market.

Terrific dark ride experience at our Six Flags Belgium park.

Significant expansions at our water parks at our, important, New England and Cleveland facilities and continued development of our relatively new parks in Montreal and Seattle.

Again, with an investment program of $130 million we're adding terrific product to entertain our customers but at a level which should allow us to generate meaningful cash flow this year.

With that I open the floor to questions.

Thank you, the floor is now open for questions.

If you do have a question, please press one followed by four on your touch-tone telephone at this time.

If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

We do ask that, if you're using a speakerphone, please pick up your handset to provide optimum sound quality.

Once again, to ask your question, please press one followed by four on your touch-tone telephone at this time.

Please hold while we poll for questions.

Your first question is coming from Jill Kuchek of Smith Barney.

Please state your question.

Thanks a lot, good morning.

Can you talk a little bit more about the season pass, where you are versus your budget for the overall passes?

I think you mentioned 50%.

How does that compare to the year ago period.

Similarly, for the group business, where are you relative to your budget so far?

And if you can give us a flavor for what your full season expectations are in terms of sales, up, down, and by what magnitude year over year.

Secondly, could you perhaps touch a little bit on pricing expectations for the current season?

I know you had strong pricing gains last year.

What kind of expectations do you have this year?

Thanks a lot.

Okay.

Jill, just to take them in order.

In terms of the season pass, we are, as I said, approaching 50% of our target for the full year.

And that's almost dead on where we were from a pace point of view, last year.

In terms of what that target is, we're really only looking for about a 1 1/2% increase in total pass sales.

That's good positioning in terms of those programs.

In terms of the group sales program, I think we're at about 58% of the full year target.

And again, that's almost identical to the pace that we were doing last year.

Our full year hard ticket goal in group sales, is to go up about 6%.

As I indicated in my remarks, you know, we are seeing a little bit of softness in some of the categories because the economy is tough.

But by and large, as you can see from that pacing against the full year goal, we're doing a good job in group sales.

I'm trying to think what your other question was in terms of -

Pricing.

In terms of pricing.

Yeah, I think what we've tried to do, , you know, was to come into this season, , you know, recognizing that the backup in the economy was pretty severe and in our view, was not going to improve dramatically over the course of the season.

We tried to go in and look at appropriate pricing across a broad spectrum of programs park by park, so that we would be positioned to offer the product at a level that would be attractive to consumers.

And I think by and large we have good programs in place.

We particularly focused on our, you know, discounts in New Jersey and Dallas where we know that we were overpriced last year relative, you know, to the difficult economies in those markets.

I mentioned California as well in my remarks, which is a particularly competitive environment.

It's one of the few where we have multiple parks, including the destination parks that we compete with.

And there I think we've come up with some, , you know, some very attractive pricing.

So I think we're in a good position with our pricing.

We'll continue to review that as the season progresses.

We obviously always have various contingency programs in the event that we feel we have to stimulate revenue.

As far as the overall per cap target, we're really only looking for a 1 to 1 1/2% total increase, which obviously, takes into account the pricing decisions that we've made.

Great.

Thanks, Kieran.

Thank you, your next question is coming from Bishop Sheen of Wachovia.

Please state your question.

Hi.

I think you've covered a lot of it just now in the discounting, but just going back to the question again.

You don't have that much direct head-on competition in most of your parks.

Correct.

But where you do, it's been felt with the discounting.

Do you believe -- you mentioned Disney in particular -- that the trend toward discounting is going to continue?

Is it more of a permanent shift that you're going to have to address, or do you think that this is kind of a late 2002, early 2003 pass kind of effort, that will not continue on the part of the discounters.

I think that, I would say, that I think it is temporary, generally.

The $64,000 question, of course, will be how temporary, which I think is going to be in direct relationship to improvements in the economy, generally, and people, you know, obviously responding to that.

We certainly, you know, think that for this season for sure, it's going to be important to be well priced.

And I don't have any way to foresee what happens the following year.

I think, where we're seeing it most significantly relative to our business, is really just in LA, , because we have a couple of markets where we have competitive parks, but LA is really the one where you have a large number of parks, including Disney, Universal, Knott's Berry Farm.

I think, everyone would have to concede the level of discounting Disney has been doing, two parks for the price of one, those type programs, is certainly unprecedented for them.

I don't have any inside view as to their long-term strategies.

But I would be shocked if they were assuming they needed to do that on a long-term basis.

I'm sure that's not something that they're planning to do beyond this period.

I would remind everyone we've always, in terms of our business, had a lot of categories of pricing.

So, only 8% or so of our main gate -- of our customers are main gate paying customers, in any year.

We've got a lot of different tiered pricing from our least expensive, very important, season pass programs, up through group sales, and obviously, our various discretionary market-wide promotional offers.

So that is going to, I think, just going to be generally the case on a go forward basis at it has always been, and it's really just the level of the economic, , you know, uncertainties right now that are probably putting more downward pressure on pricing that would, , you know, presumably go away when things improve.

Really it's LA, I'd have to say is the only real market for us where that's a significant issue.

Is Universal discounting as well?

Sure.

Jim, can I ask you two quick housekeeping question?

Sure.

As I remember, April was the magic month where you no longer have any unrestricted cash.

No, we no longer have restricted cash.

Yeah, restricted cash relating to your partnerships?

That's correct.

Okay.

So that's all free and clear.

And secondly, the swaps that you have in place, the majority of them go through '04?

All of them go until March of '05.

Until March of '05.

Then roughly you are hedged now fixed to floating in your bank -

100%.

100%?

That's correct.

So, the all end rate on $600 million term loan is 5.26%.

Very good.

Thank you, Sir.

Thank you.

Your next question is coming from David Miller of Sanders Morris Harris.

Please state your question.

Good morning, a couple of questions.

Jim, if you could give us a breakdown of admissions versus food for the quarter and also a breakdown of domestic versus international on the revenue line, that would be helpful.

Kieran I take it from your prepared remarks you're prepared to stick with your current revenue guidance of 4 and 5%?

Thank you very much.

I'll take that first.

On a same park basis we're absolutely sticking with that 4 to 5% revenue growth.

So, you're not really concerned about the hole you're currently in right now based on the Q1 results.

I think it's important to realize just how extremely early that is, particularly the fact that even, it's only like 3% of the full year in that quarter.

Obviously, we would have preferred better weather and get off to a different start.

It doesn't affect our ability to hit the full year numbers, assuming we do the business we're expecting in the June, July, and August period, which is really when the lion's share of our business comes.

Theme park admission revenue is $14 million 887 for the year, food, merchandise and other was $19 million 465.

Domestic revenues, $25 million 603.

International revenues, $8 million 747.

Okay.

Thank you very much.

Thank you.

Your next question is coming from Katherine Styponias of Prudential Securities.

Please state your quest.

Hi, thanks.

Couple of questions.

First for your, Jim.

Given the importance of getting the 2007 debt refinanced, could you talk a little bit about what the tone of the market is, how much that's going to -- how much refinancing that paper is going to cost you in terms of incremental interest that you're borrowing cost that you would have to take on, and you know, what you think the timing of that would potentially be?

And then the second question is, I was just wondering, you know, you're looking at the top line results versus 2001, you have more parks now than you did back in 2001.

No more in operation during the quarter.

Okay.

Because of the parks that bought in were -

They were all closed during the first quarter.

I was just wondering if you had seen any war impact to your parks, where you seeing any sort of aberrational trends in your attendance, realizing that it's early and the parks weren't open, that you might be able to attribute to people's consumption patterns because of war.

I don't think there's any war affect in our numbers whatsoever.

At the point about the parks that we acquired since 2001 or in 2001, number one, they did not generate any revenues in the quarter in '01 or in '03, but we did obviously have the expenses associated with those parks in '03.

But, to come back to your point about the '07matuity, Kathy, number one, that's a significant period of time away.

Number two, we have a lot of options as we focus on that maturity.

First we're going to be generating cash flow from operations, which we can deploy to go against that obligation.

Secondly, and just so everybody has the number, it's $422 million of those notes that have to be paid off by the end of 2006.

So we have all of the operations of 2003, 2004, 2005, 2006 to go against tha obligation.

Secondly, we have the ability in our bank lone to expand that facility should we choose to do so by up to $150 million to go against that obligation or others.

We have obviously the $75 million of restricted cash which is now unrestricted, which is also available to go against that.

And then there would be the possibility for high yield issuances.

The timing of any of those things is going to be a function of market conditions and a reflection of the fact that we want to make certain that, we also are deploying the cash that we generate from operations in primarily to reduce indebtedness.

I would expect that we would see a reduction of our interest expense, if we were to go into a refinancing of that obligation in the high yield market today, tomorrow.

The refinancing that we did in April, actually was neutral from a cash interest expense perspective, and I would anticipate that were we to do any financing in the intermediate term against that $422 million issuance, it would be either interest expense neutral or positive.

Okay.

Thanks.

Just quick follow-up for you, Kieran, could you remind us what capital you're deploying in your larger parks, Dallas, Cleveland, an New Jersey, specifically in terms of what kind of rides?

And just from an operational standpoint, in general, how do you gauge whether or not what you've deployed is being successful during the season.

And how quickly can you react to that if it turns out the rides your deploying is not enough to draw the attendance you thought you were going to get.

In terms of those four largest markets, we have what are referred to as lay down coasters, which are really exciting new rides which are both named Superman, one going in our New Jersey park and one in Chicago.

We also have another floorless coaster that's gone into our Los Angeles park.

And in Dallas we have about a 300 foot drop ride which has gone in there.

Those are really significant exciting attractions.

Each is up and running.

The way in the early period -- I guess obviously the way you gauge ultimately a ride's success, although many factors go into a season, , you know, weather, pricing, marketing, commercials, but the ultimate measure of success is, you know, the patrons that are coming as you are hitting your targets.

But early in the season, you know, before you have, you know, really strong trend lines, the other way we gauge is how long are the lines for the rides, how often are customers coming off the exits and getting back on the lines?

And those are really, in addition to, you know, talking to our customers about the ride experience, those are the ways we gauge it.

I'm very pleased that on all those measures, customers are really enjoying those major rides that we've put in.

And I think frankly, we're having similar reactions to some of the other rides in other markets, which we should be careful not to undersell their market ability.

The water park expansion up in New England is huge.

For very controlled dollars, we've really, virtually doubled the size of that water park, making it the largest in the northeast by most measures, other than our great adventure park.

Likewise, very significant additions in Cleveland and a bunch of other rides.

I think that the equipment we have in place is very marketable and is being well received.

You know, what is really going to be more a function of is does that combine with our pricing and marketing give us the ability to breakthrough what are obviously difficult economic, you know, that we're , you know, environments that we're operating in.

So far, I remain convinced that we can do that.

That's really the approach.

If you get into the period later in the season where whatever reason you feel a ride didn't do its job, obviously, there's not much you can do about that particular ride, because it's there, I think what you try to do is take an approach of, you know, changing your advertising mix to, you know, direct people against the other attributes of the park and to really, you know, make sure that you're providing other reasons for people to come.

But, I'm not particularly concerned about any of the equipment we've deployed.

I think that all of that is fine and should do the job that we expected.

Thanks, Kieran.

Thank you.

Once again, if you do have a question, please press one followed by four on your touch-tone telephone at this time.

Your next question is coming from Howard Wang of Aries Management.

Hi, thanks, I had just a quick follow-up in regard to season pass and group business.

Just to get a sense of the pacing, has it been consistent with last year, or did you kind of see a slowdown as the war approached?

In the last couple of weeks has it been ramping up with a little steeper trajectory?

Any color you could give would be appreciated.

I think I've said it's just generally been consistent.

I really don't think we've seen any material bumps or slow downs in and around the war.

And I think, again, you know, we're probably, you know, in a position where I just call the pace kind of pretty similar, you know. .

Thanks.

There appear to be no further questions at this time.

I'd like to turn the floor back to the speakers for any closing comments.

Again, as always, very much appreciate your participation today and your attention, and we look forward to coming back and chatting with you again when we have more of the season under our belt and can really have a better view of the full year.

Thank you.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.