Six Flags Entertainment Corp (SIX) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by and welcome to the Six Flags, Inc. first-quarter 2006 earnings conference call.

At this time, all participants are in listen-only mode, and we will be facilitating a question-and-answer session towards the end of today's presentation. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's conference, Wendy Goldberg, Senior Vice President, Communications.

Please proceed, ma'am.

Good afternoon.

I'm Wendy Goldberg, Six Flags' Senior Vice President of Communications.

This evening, the Company released its financial and operating results for the first quarter of 2006.

A copy of the earnings release is available on the Company's website at sixflags.com under the heading investors.

Here with me today are our Chief Financial Officer, Jeff Speed, who joined the Company early this year and took over as CFO on April 1st, and our President and CEO, Mark Shapiro, who assumed the leadership of Six Flags in December 2005.

Before I turn the call over to them, they've asked me to remind you that in compliance with SEC Regulation FD, a webcast of this call is being made available to the media and the 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 2005 annual report on Form 10-K, which is also posted on its website, for a detailed discussion of these risks.

Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all contents of the call will be considered fully disclosed.

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

Those reconciliations are available to investors in the earnings release and on the Company's website.

References by management in this call to EBITDA mean EBITDA modified, which was formally known as EBITDA adjusted from consolidated operations, but now includes the results of the four parks that were previously unconsolidated.

Now, I would like to introduce Jeff Speed, our Executive Vice President and Chief Financial Officer.

Jeff?

Thanks, Wendy, and good afternoon, everybody.

A short while ago, we announced our operating results for the quarter ended March 31st.

Before getting into the details of those results, I would like to first highlight a few important items.

First, our as-reported results reflect the operations of certain parks as discontinued operations.

These are parks that we've previously announced our intention to sell, namely our Oklahoma City parks and our Sacramento and Columbus water parks, or what I will refer to as our discontinued operations parks.

Our Houston property is also classified as a discontinued operation; however, it had no park operations during the quarter.

Also, as a reminder, this is the first quarter of our calendar year, and given the seasonality of our business, it's important to keep these results in perspective, as the first quarter historically represents less than 5% of the Company's full-year attendance in revenue.

In addition to not comprising a meaningful portion of our full-year results, the comparison of our first quarter 2006 results to those of first quarter 2005 is also complicated by the shift of the Easter vacation period, which was in the first quarter last year and was in the second quarter this year.

Primarily as a result of the vacation period shift, we had 19 fewer park operating days in 2006 versus 2005, a difference of approximately 10%.

With this in mind, it's not surprising that our first quarter of 2006 attendance declined versus 2005.

Specifically, our attendance declined to 1.15 million from 1.5 million in first quarter 2005.

If we excluded our New Orleans park, which will not be open in 2006 due to the damage it sustained from Hurricane Katrina, the attendance in the 2005 quarter was a little lower, at 1.48 million.

In addition to the reduced operating days, approximately 75% of the total attendance decline was attributable to our Mexico City park, where we experienced a significant decline in school groups, which Mark will explain further, and our Los Angeles and San Francisco parks, where poor weather was a factor compared to last year.

Although volume is clearly important, we have to acknowledge that there are certain aspects of volume that are beyond our control.

As a result, the cornerstone of our operational strategy is to diversify our entertainment to provide a better overall guest experience in order to drive additional value from admissions and in-park spending.

By that measure, we had a very solid performance in the quarter, as evidenced by total revenue per capita increasing by more than $4 or 13% to over $37.

Equally impressive was that this per cap growth was generated across all per cap categories, as guests spent more across the board on admissions, food and beverage, merchandise, games and parking.

With this strong per cap performance partially offsetting the attendance decline, total revenue for the quarter ended at $42.7 million, down 6.8 million or 14% compared to the 2005 period.

On the cost side for the quarter, total operating costs and expenses -- including cost of sales, depreciation, amortization and stock-based compensation -- were $192.9 million, up $35.3 million.

If we exclude the approximately $12 million of costs resulting from the senior management and strategy changes, as well as approximately 9 million of stock-based compensation expense pursuant to the new rules of SFAS 123(R), the increase was approximately $15 million or 9%.

This increase was driven by anticipated increases in salaries, wages and other expenses, primarily associated with the additional staffing and services throughout the organization, in order to execute our various strategic initiatives.

Net loss applicable to common stock in the first quarter 2006 was 246.5 million or $2.63 per share, compared to $1.98 per common share in the prior-year quarter.

This net loss includes a variety of non-cash costs and other items not directly related to the ongoing operation of our business, including a tax valuation allowance of about $86 million, loss from discontinued operations of 32 million, and non-cash asset write-offs of approximately $19 million.

Excluding these and other similar charges, net loss applicable to common stock would have been $0.94 per common share, compared to a loss of $0.91 per common share in first quarter 2005.

A key non-GAAP measure that we utilize for managing the business, as well as the basis for our Street guidance, is adjusted EBITDA.

On an as-reported basis, adjusted EBITDA for the first quarter was a loss of $97 million, compared to a loss of 67.8 million in the first quarter of 2005.

If we exclude the management change costs and include the operating results of the discontinued operations parks in both years, adjusted EBITDA was a loss of 87.6 million, compared to a loss of 70.1 million in 2005, a decline of approximately $17.5 million.

This decline was driven by the $6.8 million decline in revenues due to lower attendance, and anticipated increases in costs and expenses.

As the lion's share of our business is done between Memorial Day and Labor Day, we don't believe the first-quarter results provide a meaningful basis to draw conclusions regarding full-year results.

Having said that, we do believe it's at least informative to consider our results after normalizing for the Easter vacation period.

To that end, looking at our results through April 30, we note that our volumes have stabilized and total revenues have recovered to be up 4%, as we continue to see healthy total revenue per cap growth of approximately 15%.

This is the case notwithstanding the fact that our major capital additions have yet to come online, and that there were nine fewer park operating days through April 30, 2006 compared to the same period in 2005.

As a result, we are continuing with our prior guidance targeting revenue growth of 8 to 9%, primarily through per capita growth, and we are targeting cash operating expenses to increase by approximately $45 million, consistent with our strategy to diversify our entertainment offering, which requires increased staffing and services.

This leads us to an adjusted EBITDA target of $340 million, compared to approximately $300 million in 2005, or growth of approximately more than 13%, noting that for this purpose, we are excluding the management change costs and including the operations of the discontinued operations parks in both years.

Before concluding, I'd like to provide an update on a couple of other items that have recently occurred.

First, effective April 21st, we successfully amended and repriced our bank facility.

The amendment and repricing enabled us to, among other things, reduce the interest rate on our $644 million term loan by 0.25% and obtain pre-approval to sell up to an additional $300 million of assets and/or take on an additional $300 million in bank debt, with the proceeds from either the asset sales or the additional bank debt being able to be used to pay down high-yield debt, preferred stock or other specified uses.

With respect to our Houston property, on April 26th, we entered into a contract to sell the former site of our Houston AstroWorld park for $77 million.

If we consider that this park generated $5 million of EBITDA in both 2004 and 2005, we effectively sold this asset for more than a 15 multiple of EBITDA.

We expect to close the transaction in early June, and we intend to use the proceeds to reduce debt.

And finally, we are progressing with the sale of our Oklahoma City parks, and are targeting to have the sale completed before the end of the year.

Proceeds from this sale are also intended to be used for debt reduction.

With that, I will now turn the floor over to Mark.

I want to kick it off here by highlighting a couple of the items Jeff mentioned.

The bottom line is you need to cut through a lot of the noise on our net loss.

So I would ask in the press release that you turn to page nine -- that's why we've itemized it for everybody -- and you cut through that to get a real gauge on the net loss.

Again, we will take questions once I finish the preamble here.

But at the end of the day, I think that that chart on page nine will give you a clear look on where we are at and the true net loss on the first quarter, if you will.

Secondly, just to underscore Jeff's point, we are talking about an adjusted EBITDA target of $340 million, a number today we still stand very confident putting out there.

That is an increase specifically from 299 last year while, at the same time, adding in $45 million of OpEx, not just to improve the business but to fix the brand, which arguably is almost as important as the numbers.

Because the brand we inherited is certainly not one we want to continue on with.

And finally, while I'm going to get into some detail, as I did the first time we got together, I do want to temper any comment -- temper enthusiasm while, at the same time, temper any opinions I'll share on the other side of it with the simple fact that 5% of our volume is in the first quarter.

That's what this business is.

That's what this business is for Six Flags.

It's very seasonal.

We have a quarter where we do 5% of our volume while, at the same time, our expenses are front-loaded.

So, of the 45 million in incremental OpEx for the year, 15 million of that 45 is pumped into the first quarter.

Let's talk about '06 to '05 bottom line and what Jeff said.

To be very specific with you, attendance was down at the end of the quarter 350,000.

That's primarily because of the Easter shift, which contributed to 19 less operating days.

Yet the total revenue per cap was up 13%.

On the last call, we talked about standardizing our food operations across the board.

The specific example I cited was pizza.

Why is a slice of pizza in Los Angeles 5.99 when we are serving a super slice in Atlanta for 2.99?

It's because, even though this company claimed to share best practices, the simple fact is they didn't do it enough, if they did it at all.

As I mentioned, I think our GMs met once as a group in 2001; that's the last time they met.

But standardizing the food operations is working.

Our food per cap is up 15%.

The new initiatives we talked about -- Brunch With Bugs, character breakfasts and lunches -- you can sign up for lunch with Bugs online.

You can call into a toll-free number and sign up for Brunch With Bugs.

You can sign up inside the park.

We are charging 14.99 a child and 17.99 an adult.

Just as an example, last weekend we had a Saturday in New Jersey, did 124 signups for Brunch With Bugs.

Atlanta did 82.

St. Louis did 80.

And we are just getting started with this.

Every child that signs up for Brunch With Bugs becomes immediately a member of our Carrot-Head Club.

They get a little carrot head, Styrofoam hat, they get hugs and kisses with Bugs, they get photos, they get food.

And of course, they get a newsletter that we're going to send every single month.

So it gives them a sense of affinity.

We are building a loyalty program, if you will.

We are building a reason for children to come back, and Brunch With Bugs is getting traction.

Our parking has been a big score for us this year.

Valet parking is just about to come online, beginning Memorial Day, for many of our parks.

The 45th anniversary has been a big hit.

Our guests are celebrating with us and, more importantly, they are spending more time with us and they are buying retail.

Our retail is up 10% on the per cap, 10% driven primarily by the 45th anniversary.

In parks like Atlanta that are getting a new ride -- they have got a huge roller coaster in Goliath -- that's the other initiative that's driving the retail for that park, specifically.

Flash Pass is a big winner.

These are people paying $15 to avoid lines.

Our Flash Pass revenue -- because, remember, some parks had this system, if you will, last year.

But it wasn't branded.

It wasn't marketed.

It really didn't work well.

They stuffed you through an exit line and didn't create the kind of separate queues that we're creating now.

But our Flash Pass revenue is up 80%, the revenue thus far for Flash Pass, versus what they did last year, is up 80%.

And we're really experimenting everywhere possible.

As Jeff said, we want to diversify the entertainment options.

Petting zoos are working for us.

The characters are working for us.

Last weekend, we made $5,000 on pony rides in New Jersey.

We need to continue to diversify anything to bring in the kids and keep the kids.

So our revenue was down less than $7 million, even though the volume was off $350,000.

So that's a good story for us, and that bodes well for the future.

To get specific with you on why the volume is down, aside from the 19 less operating days, Mexico City, which they passed a law in Mexico where no longer can schools go to Six Flags or any theme park as a field trip; it's got to be a zoo or a museum.

Believe me, we are fighting this as hard as we can.

But at the end of the day, 100,000 of that 350,000 -- 100,000 was attributed just to this new law and the school group issue.

Clearly, we had bad weather in California.

I think specifically in San Francisco, it rained 25 out of 31 calendar days, since it opened for weekends on March 4th.

So I don't need to tell you.

You saw Arnold Schwarzenegger declare a state of emergency on those levies.

And we suffered from it, but we're coming back.

We're bouncing back.

We had a terrific weekend this past weekend in San Francisco -- amazing what the beautiful weather will do.

And then, we had nine rain days in Los Angeles as well, I would mention.

And then, also, we're restoring price integrity to the season pass.

Season pass, I would argue, has been a bad story for Six Flags in the pass.

We're not going to let it be our [heroin].

It historically discounted the brand.

It was the worst ticket per cap we had.

The clientele was primarily teenagers who weren't spending on retail, who weren't spending on Brunch With Bugs, who weren't spending on Flash Pass, even, and believe it or not, weren't really spending on food the way you would think families do.

And of course, they were leaving their cigarette butts on the ground.

So that's not a good story for us.

We raised the ticket price on that.

So, for an example, what you see is in Los Angeles, while we are off 25% in the number of season passes sold -- again, some of that is clearly due to the volume -- we are only off $1 million in the revenue.

And that's because the ticket per cap is up $10.

We're getting a $10 per cap on a ticket per cap.

I would also tell you one of the reasons we are off on season pass isn't just the pricing, but it was strategic.

As you know, we pushed back the marketing.

We delayed the marketing to coincide with our capital.

Most of our capital-intensive projects are coming out within the next two weeks, and this is where we're going to ramp up the marketing.

Our marketing department has scheduled $20 million of media for May and June to jive with the new marketing coming out.

So Saturday is a big day for us.

Tatsu, which is the tallest, fastest, biggest flying coaster in the world, launches in Los Angeles.

We have a lot of media surrounding this, which started last week, all to coincide with that.

We're having a huge press event that I'll be out there for on Thursday night.

Radio stations will be out there.

Media is running like crazy on television.

Ralph's is doing big promotions.

Burger King is doing big promotions.

We need to capitalize on this $20 million roller coaster, and we expect to do that.

As an example, last week we sold 18,000 season passes versus 2,000 the same week a year prior.

So we expect our season pass to get a lift, and hopefully it's going to clean up that clientele a little bit, because the price is higher.

It's going to bring in more families.

It's not going to discount the brand, and we're not going to sell ourselves out, kind of all hands on deck just for the season pass.

Keeping in line with the capital, the delayed marketing, keep in mind the following parks have capital opening in the next two weeks, and that is where our media's going to be concentrated.

San Antonio is a total relaunch of the water park -- rebranding, new slides, a kids' area.

That opens up on Friday.

Chicago has got an awesome water park ride called Tornado, which has been a big score for us in many parks in years past.

That is going to be opening up, and Marvin the Martian, to coincide with one of our characters, we're opening up a 3-D movie in what was previously our IMAX theater in Chicago; we have redesigned it to be a 3-D movie.

That opens up by the end of the month.

Montreal launches its big $20 million roller coaster, Goliath, which opens up when the park opens on May 11th this week, as well.

I talked about Tatsu.

Dallas just opened up two weeks ago 10 family rides, the largest expansion in the park's history.

It has been a home run.

Dallas and the GM there, Steve Calloway, are having a phenomenal season thus far, knock on wood.

And of course, New Jersey within the next three weeks is going to open up one of the biggest wooden roller coasters in the world, called El Toro, and we expect to get a lift from that.

And St. Louis has a new ride, Superman Tower of Power, which launches.

So right now, it has been all software.

It's been the brunch, it has been Flash Pass, it has been parades, it has been fireworks, it has been characters, it has been petting zoos, it has been pony rides, it has been dolphin shows, it has been Tava's Jungleland, which is a new kids' playground area in San Francisco which we just opened up last week and had a terrific opening for.

But now, we're moving into the capital.

With marketing going hand-in-hand, that's going to be a powerful message, and we expect to see that attendance take flight.

I want to bring you up to speed on where we are through April.

As Jeff said, our revenue is now up 4%.

So we went from being down 14% at the end of March to being up 4% now.

And keep in mind, while attendance was off in that first quarter, it has now stabilized.

At the end of March, we were down 350,000.

We have cut that to 325 at the end of April.

All things being equal, we are essentially flat.

And guess what?

While I want to grow attendance as much as we possibly can, stabilizing is good news for us when our total revenue per cap is up 15%.

So, kind of bottom line in that attendance, we go from being down 23% at the end of the quarter to now down just 10% when you, of course, exclude New Orleans.

So I am not pleased with that attendance.

But again, I would remind you it's on nine less operating days, and it is stabilized.

Remember, attendance is not totally in our control, either.

We want to drive it.

The media is going to drive that.

The new rides are going to drive that.

The marketing is going to drive that.

The buzz, the publicity, our new gas campaign, which got a lot of traction on Friday -- I'm going to go be on Squawk Box tomorrow morning.

They want to talk about that ad campaign.

It's going to be a good story for us.

But at the end of the day, our strategy is taking hold.

We are not doing it with gimmicks.

We're not doing that with a bald, scary Mr. Six running around saying, please come to Six Flags.

We're doing it with the experience.

We're doing it with the diversification of entertainment.

We're doing it because our parks are cleaned up.

We're doing it because people are buying into the 45th anniversary.

As I said, our retail is up 10%, 45th anniversary and digital photos, which we talk a lot about.

And our food is up 15%.

Moving on to other parts of the business, corporate alliances -- this morning, we announced a big deal to Home Depot, one of the best brands in America, and this is an extensive deal for us.

Just like Papa John's, I'm not just excited about the sponsorship fee that we will be getting annually;

I'm just as excited about the marketing.

Having Home Depot stores, the Home Depot stores selling our tickets, every store within a 100-mile radius of our Six Flags branded parks, is a great story for us because we need more touch points.

So that's going to be a terrific opportunity for us.

We will be able to use some NASCAR tie-ins.

As an example, we are going to use Six Flags; we will get the hood of Tony Stewart's car for one of the races.

And this is all part of our strategy to get the brand out there and raise the consciousness of Six Flags as a family destination.

Other corporate alliances -- we are still in discussions with several, anywhere from 20 to 30 different advertisers on specific corporate alliance deals.

All of them anticipate some kind of sponsorship fee, and in the next couple of days here, we will be announcing that Carnegie Deli in New York will be coming online for Great Adventure in New Jersey.

So again, it's also about bringing in new brands, big brands that will ultimately lift our brand.

Real estate -- on that front, as Jeff mentioned, Houston is sold here and will officially be complete at the end of May -- $77 million, a 15 multiple, proving the true value of our parks and the land that they sit on.

Oklahoma City -- we sent out a large number of books.

We have a number of meetings, actually, this week in Oklahoma City, people touring the park, people touring the office there.

The Staubach -- a lot of people ask us about the Staubach report.

Yes, phase one is done.

Phase one was designed so that we could have a definitive portfolio.

As I mentioned on the last call, it simply was a tough time getting our hands on really solid information in terms of what we own, what we lease, acreage, developable land, undevelopable land, et cetera, et cetera.

They went out and did an extensive report and visited each of the parks, worked with the counties.

We now have a definitive portfolio on what we own and what is developable, the acreage, the lease, land values.

And they even were out there exploring feasibility, zoning and what those values potentially on some rezoning could be lifted to.

So that brings us to phase two.

Where are they?

Well, they are working with local officials, some county commissioners.

They are assessing demand in the marketplace.

They are having some conversations on a host of areas, a host of parks.

That doesn't mean we are going to sell a host of parks, but we have asked them to have these conversations.

They are reviewing development plans, they are reviewing and exploring economic impact studies, all in an effort to deleverage -- end of story -- to use the sale of assets as a means to deleverage.

We will be dispassionate about it and we do expect to be on the market, if you will, at the end of the season with either one or two with big parks or a handful or cluster of some of the smaller parks, all depending on demand.

So in summary, we have stabled attendance.

Revenue is up 4% over last year on less than nine operating days.

The majority of our capital is about to come online.

The marketing is just set to ramp up when the new capital comes online.

Our total rev per cap through April is up 15%.

We are cleaning up the parks.

We are bringing back family entertainment.

We are improving the image, and we are not doing it with gimmicks.

And I think we've shown a relationship with those on this phone and many of our shareholders and the analysts that are out there that we want to be very transparent.

I think this company suffered from hoarding information and not making themselves accessible or accessible enough in the past, and that is not going to happen going forward.

We're going to be transparent.

We're going to have better disclosure, we're going to have good governance, we're going to be fair, and we're going to be more accountable.

And having said that, we're going to hold a call on June 22nd.

I think that's a Thursday, Wendy?

Thursday, June 22nd, where we are going to give you a midyear report, if you will.

At the end of the day, I just don't think it's healthy for you to hear from us next time come August.

So middle of June, I think, is a good date because the end of May signifies the end of our part-time season, if you will, where most of the parks are just open on the weekends, to the beginning, Memorial Day, of our full-time season, when all of our parks are open daily.

So June 22nd gives us a chance to report on the spring, the part-time season in whole and also give you a little flavor for the first few weeks of June, our summer full-time season.

All right.

Having said all that, we're going to open it up to questions.

(OPERATOR INSTRUCTIONS). [Lauren Holland], Citigroup.

I have a question with regard to your bank deal that you mentioned.

You mentioned that you amended it recently, got a 25 basis point reduction on the term loan?

Yes.

And then, you mentioned that you had up to 300 million of proceeds you could use to, I think you said, either buy back bonds or preferred stock.

Or what was the other thing that you could do with it?

We got pre-approval for two things.

One, because obviously the assets or security for that loan, we have to go to our banks to get approval to sell assets.

And we had previously gotten approval to sell the Houston property; that was already pre-approved.

So in addition to that, we obtained the approval to sell up to an additional $300 million worth of assets and pre-approval to take on an additional $300 million of bank debt, both of which we can use the proceeds for paying off high-yield debt up at our parent company or paying off the mandatorily redeemable preferred stock or other specified purposes.

A certain amount could be used for capital and the like.

So basically, just giving us enhanced flexibility to execute our strategy, in terms of delevering and asset dispositions.

Is there a particular priority as far as where you can allocate those resources (multiple speakers)?

No.

Is it that all of them have equal priority?

Yes, it's our choice.

Obviously, operating within the confines of our financial covenants under our bank deals, but it's all within our sort of choice and decision.

As far as the ability to allocate that, sort of like CapEx, is there a time limit, meaning like would it have to be before the end of this operating season or the next operating season?

There's a specified period under which you would have to use the proceeds for CapEx, yes.

And it's limited to 100 million of CapEx.

Again, cash is fungible, so it's sort of -- you get into the notion of what is being used for debt repurchase versus what is being [CapEx in sort of a tracking].

But in any event, yes, there is a timeframe with which we would have to use those proceeds, yes.

And if you were to go after debt repurchases, would you do those through the open market?

Would you look at notes that are currently callable?

I'm not going to comment on sort of the strategy for our liability management, for obvious reasons.

We're obviously going to look to generate the most value for the Company when we decide to see which debt will be ultimately bought back.

So obviously, you can understand why I am being a little bit cautious in laying out our strategy on where we're going there.

Glen Reid, Bear Stearns.

I might have missed it, but you had put out an announcement or a promotional program about gas receipts.

Could you explain kind of your thinking here, and what sort of implications you sort of worked into your assumptions on yields on a guest basis?

And then, the per caps in the food and then retail -- maybe you could talk about how much of that or sort of break apart actual price increases, and then just sort of people buying more stuff.

And then I guess, finally, maybe you could just sort of break down, weather aside in the particular areas where it was problematic, where you saw particularly strong or good traction in some of the things that you're doing with character branches and so forth and where, maybe, things were a little bit light and why.

I'll tell you, as we talked about -- really, the only thing that concerned me at the end of the first quarter would be attendance.

And I knew I had the Easter shift there, but as you kind of flow into April, you wait for that to come back with the Easter.

The bad news is it didn't come back.

The good news is it stabilized.

And the better news is those that came not only are coming back but they are spending more time there.

And as they are spending more time there, they are actually spending more money, which has been a terrific story for us.

And it has also allowed us to upgrade, then, in the park.

We're now running a promotion where you can upgrade to a season pass for a more inexpensive price, once you are in the park.

So I'm not trying to paint a good picture here.

I'm just trying to paint the real picture for you.

That's why I give you the -- for us, where we are really concentrating on the attendance and hoping this capital and this marketing and the weather will all play together and signal a great story for us, because the rest of the story has been a home run so far -- knock on wood again.

And remember, as we said at the beginning, tempering it, only 5% of our volume is in the first quarter.

So I don't want to get too excited, but that retail is up 10%, being driven by the 45th anniversary.

Our food is up 15%.

The Papa John's story has been a huge story for us.

Remember that, aside from the marketing we're getting, which starts at the end of the month here, where every pizza box within a 100-mile radius of Six Flags for the next three months is going to carry a Six Flags offer.

And every single Papa John's store within 100 miles of Six Flags is going to carry a Six Flags standee promotion inside the store.

And online, every pizza you order from Papa John's, when you get your confirmation, is going to carry a Six Flags coupon on that as well.

Plus our Regal deal with Anschutz and CineMedia -- that begins June 1 as well, where we have got a lot of promotion and advertising in the movie theaters for big movies that are coming out -- The Da Vinci Code, MI:3 is going to be out there, Cars is going to come out.

So it's a perfect time for us to be in the movie theaters, where they are going to have a big summer.

And you can take your movie stubs and use it as a discount to Six Flags.

So that is working.

As I said, food is working.

Retail is working.

Even our games -- people are playing more games, because we couldn't really raise prices on squirt guns, et cetera.

The games are working for us.

On the ticket per cap, we are up what, Jeff?

Well, through April 30th we are up north of 15% on our ticket per cap through April 30th, and that is really driven by -- obviously, pricing is a significant contributor there, but it's also the mix in terms of main gate and other higher-fare tickets versus season pass and discounted fare.

And we are seeing more families.

That shift is taking place, which is a good story for us.

Again, with the marketing and the media about to take hold, the capital coming online, the full-time season opening up for many of these parks -- Chicago just opened up a week ago -- we're enthusiastic, but we want to be cautionary on that, because our season hasn't really kicked in.

As far as the gas goes, I don't want this to come off the wrong way, because I'm not a fan of these gas prices.

I have to pay them like everybody else.

My wife as to pay them like everybody else.

But the bottom line is, as those gas prices go up, you are going to see what you have seen in the last couple of weeks with American Airlines and JetBlue and the rest of these airlines to follow.

Those airfares are going to go up.

And as those airfares go up and as the hotel [counts in], as the -- whatever it is to go to Disney, that's who's going to suffer.

People are not going to take those trips.

They are not going to be as inclined to stay four days and take the days off work and put in the investment they have to have.

I had lunch with somebody today that said the gas was concerning them and, more importantly, they are having a tough time finding four days; they are just busy these days.

Wanted to know about Six Flags and was really questioning.

This is somebody that interrupted my lunch because they knew I worked for Six Flags.

That's where we are going to take advantage.

This campaign was designed to remind folks gas is expensive.

Airfares are going up.

Why go to Disney when you can get a similar experience at a more affordable place that delivers the same kind of value and is closer and more convenient to home?

So we are going to prosper from that.

That is the plan.

And our print campaign is going to be sustained in the USA Today every Friday for the next three weeks, that big ad that we took out in the Times and USA Today on Friday, last Friday.

And also we're going to advertise with that ad in every market of Six Flags branded parks.

So in Chicago, it will run in the Sun-Times and the Tribune.

In Louisville, it will run in the Courier-Journal.

In San Antonio, it will run in the Express.

In Los Angeles, it will run in the L.A. Times.

We are going to bombard the major papers of our Six Flags branded parks with this message, and we are going to have a television campaign which they are trying to get me to star in -- I'm not sure what I'm going to do there -- and kind of creative, where the President speaks up, what are you doing about gas prices, and drives Six Flags and the discount.

I really want to mention, too, where we are seeing success is -- remember, we trimmed down the discounts for Six Flags, too.

We had way too many discounts in the marketplaces.

I want touch points.

I want more opportunity to get Six Flags tickets, but we need to be more consistent on the discounts.

So across the board, we pretty much limit our discounts to two or three in every marketplace -- $10 off or $15 off, not 20 and 25 that you have seen everywhere else.

Only Jersey and Los Angeles are going to carry the buy one, get one free with Coke, and that's because they have been doing it for 20 years.

Other than that, you are talking 10 or 15.

So we are not just gaining in lifting the prices.

We are gaining on the discounts on the back end.

Real quick, could you remind us what percent of ticket sales are at the gate?

Very low.

Very low at the gate or anywhere from 5 to 10%.

But more importantly, it's the gate price that we use as the bench for the rest of our sales.

So group sales catering, non-catering, VIP, promotion, consignment, season pass -- everything is based off the ticket of the gate price.

So when you lift the gate price, it lifts everything else across the board.

Kathy Styponias, Prudential.

Mark, could you give us a sense on how big the dollars were with Home Depot and the Papa John's deal?

You did 23 million, roughly, in sponsorship revenues last year.

How much do you expect to do this year?

How much do these two deals represent?

And just to double-check something, I'm assuming that that number, the sponsorship revenues, are not included in your per cap.

Is that correct?

Actually, the total revenue per cap includes all other revenue, so that would include sponsorship.

The ticket per cap obviously does not, which I gave you the through April 30, up 16%.

The total revenue per cap is simply our total revenue.

That's ticket, that's in park and other revenues, mainly sponsorship, divided by our attendance.

So the $37 includes this?

Is that the total or just the ticket?

That's the total.

That's the total, as they have always -- as we have always disclosed.

So compared to the $33 last year, total revenue divided by attendance.

And can you give us a sense of how much of that was the new -- did the new sponsorship deal contribute to any of that $4 increase?

No, not this year, because they won't be largely impacting us until the second and third and fourth quarters and beyond, because they weren't signed in the quarter.

And just keep in mind, too, on the specific deals -- fortunately or unfortunately, whatever, I just want to be fair here and upfront -- we are bound by confidentiality on what these sponsorships fees are over the course of those both long-term deals, so I can't break that out.

At the same time, I want to just be on the record here.

When we came into this company, Jeff in early February and myself in late December, we inherited $19 million of sponsorships on the books.

So everything we're going for was 19.

They might have done 23 million last year, but the Company I walked into was $19 million.

At the same time, Jeff and I have mentioned through April 30th, [Kathy], that we're up 15% in total per cap.

If you actually back out sponsorship, just because of the way we account for it, we're actually up 16% in spending.

I know it's probably more detail than you want.

But because of the way we account for it, the sponsorship is actually bringing the number down.

Yes, sponsorships through April 30 were actually down about $1 million.

Just to the point Mark mentioned last year, the number was about 23 million, but a lot of those -- or not a lot but a portion was rolling off, so we inherited 19 million, about 4 million less before our new deals, and about a quarter of that rolled through the first four months.

I guess, of your 8 to 9% revenue growth, then, is there a way you can kind of give us a gauge as to how much you expect that to come from sponsorship?

I don't mean to appear evasive.

It's still just too early to tell here.

Our corporate alliance division is in several conversations.

We're now talking with each of the credit cards, because we happen to have all three credit cards in our park.

And I'm not sure that's going to continue, depending on who wants to be preferred or who wants to be exclusive provider and who wants to use Six Flags as an opportunity to reach people.

That's what Bob Nardelli at The Home Depot and Nigel Travis got.

It's not just -- the exclusivity is important, because Six Flags reaches 35 million people.

They are spending up to 10 hours a day in the park.

And the more and more we can get advertisers and consumer product companies and marketers to see Six Flags as a true out-of-home play, a way to reach people, a smart way to reach people, seamlessly reach people, the more we are going to prosper.

And those conversations are going well;

I couldn't be more thrilled with the Home Depot deal.

Plus they're going to help us in an area that I believe we're going to end up seeing savings by going through them.

We're going to get preferential pricing at The Home Depot, so we're going to be buying our supplies and our materials for less than we are buying them today.

Just one final question.

I think I read in one of your filings that Red Zone is looking to recoup some of its proxy fight costs.

Could you remind us of what it is that they spent and how that might be recouped and how that would affect your guidance, if at all?

We had mentioned at the end of the year that there may well be some proxy costs that we would have to be reimbursed.

The Board took this issue up and retained counsel to look at the issue, look at the expenses, and concluded that of the 11.4 million of expenses that were incurred by Red Zone in the context of their proxy battle, which consisted mainly of investment banker fees, travel, legal and the like, that of the roughly 11.4 million, the committee through their outside advisor recommended that the company reimburse 10.4 million.

However, and importantly, the Board recommendation was subject to shareholder approval, that basically, the shareholders would make ultimate decision on the appropriateness and reasonableness of the expenses.

And therefore, those amounts are not reflected in our expenses for the quarter.

To the extent shareholders approve at our upcoming shareholder meeting May 25th, that expense will hit our second quarter.

It will be the sort of below-the-line cost, if you will.

And that is not reflected in our guidance.

And just one final housekeeping question.

The other expense line in the income statement -- was that basically the write-off you took?

That's the write-off of various assets scattered throughout the various parks, the so-called boneyard assets that we did a thorough analysis of.

Let me just cut in.

I'm sorry, Jeff.

We're just trying to give out all the dirty laundry, if you will, Kathy.

And we want an extensive analysis of these so-called boneyards I kept hearing about.

We've got a boneyard in Indianapolis, and we don't even have a park in Indianapolis.

But we essentially went through boneyard to boneyard to figure out what these rides were, are they in good condition, are they in great condition, are they in excellent condition?

Can they be moved?

At what expense?

Anything that was below subpar -- and there was a lot of it -- we got rid of it.

And that's the write-off on those --

That's basically exclusively it.

Soup to nuts, we have been through it now.

[Z.

Ryan], [Boone Capital].

What's happening with the equipment at the Houston park?

Was that reallocated early in the year to other parks, or is that still to be determined?

We reallocated everything we could across the board.

Unfortunately, given what Houston had been, which was neglected for years, there were not a lot of A-list rides, if you will.

The two main rides there -- the biggest ride, the Cyclone, which had a lot of history to it, was [shoveled].

I think you can pick up a piece for 2.99 at the local retail shop in Houston right now.

We took that stuff apart.

Everything else we could, we reallocated across the board.

We are talking picnic tables and trash cans.

Everything else has kind of been spread across the board.

And then we took some of these small family rides and we refurbish them, we repainted them, we rebranded them.

And that was part of the expansion in Dallas, which was very well-received.

We got a lot of publicity for opening day a week ago.

We have been doing blockbuster numbers, even this past weekend.

We killed the budget, and it was raining.

So that was a good story for us.

But there were not a lot of A-list rides we were able to move.

Fair enough.

And then, hit upon the sponsorship agreements again.

You mentioned you're in discussions with 20 to 30 different [types].

And how many of those do you plan to execute or to be in effect for this operating season versus outer years?

And -- well, I'll let you hit that one first.

We don't want to overcommercialize the park because I think, at the end of the day, that hurts your brand.

We recently did a deal with A&E for their new show, John Force.

We did a deal for chocolate with Willy Wonka.

Of course, we have The Home Depot.

Of course, we have Papa John's.

Of course, we have Carnegie Deli.

We redid our [Diffendach] deal.

We redid our Panda Express deal.

So we have done a lot of other deals that we haven't necessarily -- it has not been a big marketing and sponsorship alliance, and that is why you have not necessarily heard of.

But we are going to be aggressive in this area.

Lou Koskovolis runs our corporate alliance division, and he and his trusty lieutenant, Randy Gerstenblatt, have been pounding the pavement, which is something that did not happen here in years past.

And we have also gone about hiring local sponsorship heads, so we have corporate alliance folks at each park that are driving up local and regional business.

That's a good story for as.

We're going to be able to pick off somebody for 50,000, pick off somebody for 100,000, pick off somebody -- we're in discussions with one brand in one of our bigger parks for $200,000, which would be the biggest local deal we have done in 15 years at this specific park.

I wish I could get more detail for you than it, but the deal is not closed and I don't want to jeopardize it.

And those kinds of deals are essential for us.

It's not just about national dollars and the marketing national sponsorships and that kind of reach; it's about the local deals.

So we have 11 local folks we're hiring across the country to represent the 13 branded parks, and I believe that Randy and Lou have nine who have just been hired and two that they have eyeballed for the last two spots.

So we're looking forward to driving that.

And for the bigger, more nationals deals, can you give us a sense of the duration of those agreements?

Are they multiyear?

Do they have a pricing reoption annually?

How does that work?

They are all multiyear, and they are both marketing deals.

They are both sponsorship deals.

And there is no [look-in] on the marketing part of it.

Grant Jordan, Wachovia Securities.

One just clarification -- I believe on the 45 million of incremental operating expenses, you said 15 million of those were already booked in Q1.

Is that correct?

That's right.

We had an increase in our total operating costs and expenses of about $35 million in the quarter, but included in there is about 20 million of costs related to the management change costs, as well as the stock-based compensation.

So when you strip those out, it's a 15 million cash OpEx increase in the quarter, and that's compared to the 45 million of cash OpEx that we expect for an increase for the full year.

Just to highlight for you, a lot of that is being driven by more labor, park to park, especially.

Again, we're really concentrating here on the 14 Six Flags branded parks.

Of our 30 parks, 14 of the big ones are responsible for 85% of the attendance and 85% of the EBITDA.

That doesn't mean the other parks are not important.

That doesn't mean we are selling them.

But at the end of the day, our business in these 14 Six Flags -- that's what is driving as.

And we have added a lot of labor to work on the cleanliness.

We have added a lot of labor to work on the security.

And, most importantly, 10 million of the expenses were for the characters.

We have 15 to 20 characters -- Bugs Bunny and his gang, Superman and his gang and Scooby-Doo -- that you will see and driving a lot of these new initiatives every hour of every operating day at the Six Flags branded parks. $10 million went into the staff for those characters and, of course, the costumes for those characters.

And I guess the other point there is we are also building new organizations that didn't exist -- the new marketing and entertainment organization, a new corporate alliance organization, with the national/regional/local sales force that quite frankly has already paid for itself.

And signage.

Signage is such a big thing.

It's a pet peeve of mine, but people need to know where they're going.

So besides handing out these awesome souvenir maps that we used to charge 4.50 for in the old days that now we give away free to every car that comes in, which we've gotten great response from, we're putting signs up everywhere, which are adding [life], that are helping us for branding and are so essential.

When I was in San Francisco, there wasn't one directional sign telling you anywhere to go.

So we've got this brand new food location, awesome food court that we spent $1 million on and has got two Papa John's stores plus a Panda Express coming, yet you had no idea it's there because there's no sign for it.

So we're trying to reallocate some CapEx to take care of that.

Whenever you look at your attendance for this year -- you referenced the 35 million people coming into the parks.

Whenever you are looking at your internal plans, how does weather play into that, to the positive or the negative?

Do you think it's a plus or minus 10% kind of beta for weather?

I'd just like to hear your thoughts about that.

That's a tough one to obviously respond to and put a percentage on.

I think it's -- we've acknowledged that last year, generally speaking, the attendance benefited from generally favorable weather across the park.

So coming into this year, we have a somewhat difficult comparison in terms of the favorable weather last year.

But to put a percentage on it, it's very difficult.

We are not sort of in the weather business to be able to forecast that, but just acknowledge that there are certain things in the attendance side that we just can't control.

Yes, and that's -- marketing is going to drive attendance, but people are also fickle.

Competition is going to drive attendance.

We are in the business of competing for people and competing for eyeballs.

And I'm not going to tell you that weather doesn't play a factor.

But there isn't one cloud over 30 of our parks.

So we're not going to tell you it's the sole reason, and we're not going to cry about it.

Or if we do, at least we're not going to tell you about it.

You know, there's no secret that the school groups whacked us in Mexico City and the weather in San Francisco and Los Angeles hurt us.

Those were our three trouble spots.

But you know, at the same time, we had a glorious weather in New Jersey.

We had terrific weather in Atlanta.

We've had good weather in Dallas.

So at the end, hopefully it all washes out -- and forgive the pun or the turn of phrase.

But hopefully in the end you're up, or you're at least stabilizing and neutralizing it as we are right now.

I was blown away that our numbers this weekend were so good in Dallas for the attendance, given that it was raining.

So it must have been a drizzle instead of a washout, which is -- one day they had such severe flooding in Dallas in the early part of the season, they had to shut the park down for a Sunday.

And that's what really kills you.

I guess the other final concluding point is that if we could sustain these double-digit per cap growth, you can afford some softness in your attendance and still hit your number of 8 to 9%.

I mean, if you're delivering double-digit per cap growth, the attendance, you have some cushion there.

(OPERATOR INSTRUCTIONS).

David Miller, Sanders Morris Harris.

Jeff, the land underneath the AstroWorld property -- you mentioned in your press release you essentially sold it, or you have entered into a contract to sell it for $77 million.

Can you just flush out who the buyer is?

Is it a consortium?

Is it some sort of local developer?

We are a Houston-based company, so we would be curious in that.

Yes.

Also, the sponsorship revenues -- you mentioned in your previous discourse that these are multiyear deals.

Can you be a little bit more specific as to how long the deals are?

And do they have a tiered structure to them in the sense that -- are they performance-based?

Are the proceeds yielded from, say, the Papa John's, Sunkist, Home Depot deal?

Do they tick up in years two, three, four, five, et cetera, depending on the performance of year one?

I'll take the Houston, and Mark will take the sponsorship.

On the Houston sale, we can't get into names and so forth; we have confidentiality to honor here.

But it's a local developer that is the buyer, and actually I think you are the one on the last call that threw out the sort of comps per acre of 600,000 to 800,000.

And, given this is a 100-acre site, we're obviously at the high end of that range.

And then, on the marketing and sponsorship, they are all three-plus years, just so you know.

They are above three years.

That's really all I can say to most of the -- to the big deals, at least, the Papa John's and The Home Depot.

And all the other deals range anywhere from two to three years.

We will take some on as an exercise, if you will, a test to see how well it does for a year or two.

But those are mostly smaller deals.

The big corporate alliance deals, and to date -- you're really talking Coca-Cola, you're really talking about Papa John's, you're really talking about The Home Depot -- those are three-plus years.

That's where you're talking marketing and sponsorship.

And the way those fees are primarily built is there's an increase annually, and it is not about units or purchased or what has been sold.

These are marketing sponsorship deals where they are paying for signage, they are paying to run promotions, they are paying for bounce-back couponing, they are paying for advertising inside the park.

They are paying, essentially, for us to do joint promotions as well, in and outside the borders of Six Flags.

Just a quick follow-up.

There are reports local here in Los Angeles about Knott's Berry Farm downticking their pricing structure a little bit to account for the nosebleed gas prices that exist out here.

As you know, gas prices our in Los Angeles tend to over-index relative to American averages or US averages.

And to mitigate against that, it looks like Knott's may decrease their daily fee pricing.

Do you guys have any plans to do that?

Absolutely not.

We are getting 15 to 16%, depending on the way you look at it, on our total revenue per cap through April.

We're going to drive that home.

We told you on the first call, spending is the most important thing to this business.

We need people staying longer, we need them coming back and we need them spending money while they are having fun at Six Flags parks.

I can't speak to Cedar Fair.

I know that Knott's Berry Farm had a bad year last year, and I suppose that some of their strategy to lower discount, lower ticket prices, goes hand-in-hand with the performance of the park last year.

I see they are dropping prices on cotton candy.

I see they are dropping prices on hotdogs.

Look, at the end of the day, Cedar Fair is a regional part.

Six Flags is a national brand with a regional reach.

We cannot discount this brand any further than we have already.

We have got to maintain price integrity.

The best example I will give you is when you look at Los Angeles and you see how well they did on season pass last year -- and I told you what we were down this year -- what they did was they charged $49 for a season pass last year.

That's the same price for a one-day admission.

The whole promotion was buy a day, get a year for free.

And that's absurd.

You can't do it.

Now, we inherited that.

And because the number was so high and we knew that there was an expectation for it, we couldn't ditch it.

But if I was putting it in originally, I would not have done it.

So all we did was we upped the price by $10, and that is why our ticket per cap is -- we're seeing a $10 hike this year.

We have gone from 49 to 59.

And we will continue to raise that price, because at the end of the day, the value that we are putting out there with a daily parade now, with fireworks, with the 17 coasters you can't get anywhere else, with the characters, with the commitment to cleanliness, with the commitment to keeping all of our food stands and our rides open all the time, all year-round -- which is something they did not budget for in the past -- that is something that is going to to improve our business there and strengthen the brand.

And we have got a lot of strengthening of the brand that needs to happen at Magic Mountain, specifically.

Jeff, just so I have everything correct here, the guidance of the 340 is contingent on the 87.5 in adjusted that you did in Q1, or the 97?

I assume it's the 87.5?

Yes, the 340 is excluding the management change costs, and obviously our definition of adjusted EBITDA excludes the stock-based compensation as well.

And then, subject to the proxy costs that would be expensed in the second quarter, exclusive of those as well.

The language in the press release is confusing.

So is it the 87.5 or not?

Yes, the 87.5, excluding management change costs and including the discontinued operations parks.

That's the 340 basis.

And one other thing I would add is just on the gas -- remember, nobody is staying home.

It's just not going to happen.

I have two boys of my own, and we are looking for things to do right now.

I'm sure we'll take a trip to Disney somewhere along the line.

I'm sure we'll take a drive out to wherever, to get away.

People are not going to sit in their home; it's just not going to happen.

They might play out in the yard more than they normally do, but they are not going to sit in their homes.

That's where Six Flags has a leg up.

By the way, that's where I believe Cedar Fair and the rest of the regional parks have a leg up.

It's more convenient and it's more affordable to put five people, put four people, put six people into a car for the price of one gas tank and get out to Six Flags, as opposed to the airfare for six separate people to Disney.

And we are going to take advantage of that, and that's what that $15 discount is built upon.

[David Schmokler], MTR Securities.

A couple of housekeeping things first.

What was the cash CapEx in the quarter, and were there -- are the dollar amount of partnership units that were tendered, I think it was last month?

The partnership interests that were tendered was roughly a half a unit.

It's less than $1 million that we will have to fund for the partnership parks tendering.

Cash CapEx -- we will be providing that in our Q coming out in the next 48 hours.

Fair enough.

And one thing I don't think I've heard discussed, and it seems to be a pretty decent chunk of the revenue, is the group sales and the outlook for that.

Kind of what are you guys doing with that, and how is that looking for the year?

At the end of the day here, we are essentially flat on our group sales right now, and maybe up a couple percentage points.

We're really seeing great strength in our hard tickets, people that are booking catering, big events, if you will.

It's our soft ticket that's kind of offsetting that, our VIPs and some of our retail promotions that are kind of offsetting the strength in hard tickets.

But we have got a new division there.

Steve Brown is heading it up.

He has come over from Disney to head up all of our ticket strategy and our group sales, and we're looking for a big jump on that.

Historically, that has been a big winner for Six Flags.

Last year, I think 30% of the ticket revenue was just from group sales.

So it's good to see that that's flat;

I want to see us grow that, though.

[Seth Linder], [Tracer Capital].

Jeff, I just have one clarification for you.

The 340 million in adjusted EBITDA -- what does that equate to on a free cash flow basis for the year?

Free cash flow, we're targeting roughly breakeven free cash flow for the year, given -- and obviously, that would be after our interest costs and our CapEx, that we're targeting CapEx in the 125 to 130 million range for the calendar year.

And then, you have the interest costs including the dividend on the preferred stock that approximate about 200 million.

So that gives you roughly free cash flow breakeven.

All right.

Well, we want to thank everybody for taking time out of their schedule at the end of the day.

Jeff and I are available tomorrow morning for any follow-up or phone calls or clarification, or if you want to schedule any meetings in the future.

But I do want to reiterate, we are going to be transparent.

We are going to be as candid as humanly possible in the details of how this company is doing and where it's going.

And to that effect, we will speak as a group again on June 22nd, where we will give you a "mid-year report" as we bridge out part-time spring season to our full-time summer season.

Thank you very much, and have a good evening.

Ladies and gentlemen, we thank you for you for your participation in today's conference.

This concludes your presentation, and you may now disconnect.

Good day.