Six Flags Entertainment Corp (SIX) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Six Flags first quarter 2011 earnings conference call.

My name is Tracy and I will be your operator for today's call.

I will now turn the call over to Nancy Krejsa, Senior Vice President, Investor Relations and Corporate Communications.

Good morning, and welcome to our first quarter earnings call.

A live web cast of this call is available on the investor relations page of Six Flags' website.

With me today are Jim Reid-Anderson, Chairman, President and CEO of Six Flags, Al Weber, our Chief Operating Officer and John Duffey, our Chief Financial Officer.

Before we begin our prepared comments, the Company would like to caution you that comments made during this 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, and the Company undertakes no obligation to update or revise them.

For a detailed discussion of these risks you may refer to the Company's annual report on form 10-K as filed with the SEC.

In addition, statements made on our call today include non-GAAP financial measures.

These financial measures have been reconciled to the most directly comparable GAAP measure and included in our earnings release or other forms filed or furnished with the SEC.

You should be aware that the Company emerged from Chapter 11 Bankruptcy in April of 2010 and during this call we will share certain financial results such as revenue and adjusted EBITDA and compare those results to similar periods last year without distinguishing between the predecessor and successor periods since we believe this is an appropriate and useful comparison.

I would also like to remind you that as a policy the Company will not be providing detailed financial guidance.

And now we would like to begin our prepared remarks and I will turn the call over to Jim.

Thank you very much, Nancy, and good morning to everyone on the call.

Our 2011 season is off to a great start with 7% revenue growth and an 18% improvement in adjusted EBITDA loss for the first quarter.

Only a handful of our parks were open during the first three months of the year, making it a typical low revenue and negative earnings quarter, but we were really pleased with our results as we gain traction around several initiatives we have been focused on during the fall and winter months.

Our attendance and revenue growth are even more impressive when you take into account the fact that we had 19% fewer operating days versus last year, about half of which related to the shift in the Easter holiday and related spring breaks and the other half related to planned closures in order to return our operating calendar to a more traditional schedule which in turn improves the efficiency of our operations.

In the area of pricing, we successfully implemented modest increases in ticket prices going into the season and reduced the level of discounting.

Both without negatively impacting attendance levels.

We also benefited from solid growth in park revenue.

All of our new capital programs for the 2011 season are right on track.

In addition we officially launched our Go Big marketing campaign in Q1 and we think the messaging is right on target for three reasons.

First, our impressive parks are now the heroes of the commercials instead of Mr.

Six.

Second, our marketing is more localized and highlights the character of individual parks and our investment in new rides.

And third, the campaign appeals to both teens and families.

We are introducing the campaign in the respective local markets approximately one to two weeks ahead of each park's opening day.

Some of you may have begun to see our advertising in March and April as more of our parks open.

We are running ads on tv, on-line, on the radio, in cinemas, with billboards and in several other places.

Our corporate sponsorships also continue to gain momentum, and we are pleased with our progress in developing these partnerships at this stage of the year.

I am also pleased with our progress in managing costs.

In addition to the annualized benefit of restructuring charges we took last year, we are focused on further improving the efficiency of our operations.

We have done this successfully while investing some of our savings back into the business, primarily in our people.

The result of implementing our strategy was an $11 million improvement in EBITDA, about two-thirds of which came from more effective cost management and the balance from improved ticket yield and in-park sales.

We also generated a 2,500 basis point improvement in our modified EBITDA margin.

Overall, a great start to the year.

And now I'm going to ask John Duffey, our CFO, to provide you with more details on the quarter's financial results.

John?

Thank you, Jim and hello to everyone on the call.

Our first quarter revenue increased $4 million or 7% driven by an 11% increase in ticket revenue and a 10% increase in in-park sales.

We continue to see positive results in our season pass sales, some of which may be due to timing.

Sponsorship revenue also grew in the quarter, but was more than offset by declines in licensing and management fees, given we no longer receive management fees from DCP.

Attendance for the quarter was 1.3 million, an increase of 1%.

For Q1, total revenue per cap was $48.02 as compared to $45.43 in the first quarter of 2010, an increase of $2.59 or 6%.

This is a clear indication that our strategy, focused on more effective management of pricing and discounts, continues to drive favorable results.

You should note that since we have lower attendance in Q1 as compared to our peak season, the total revenue per cap number in the first quarter tends to be higher than average for the year.

We continue to see the benefits from our cost reduction initiatives and operating calendar efficiencies with cash, operating and SG&A expenses on a comparable basis declining approximately $6.5 million or 6% in the quarter versus prior year.

Adjusted EBITDA was a loss of $49 million in the quarter, an improvement of $11 million or 18% as compared to the first quarter of 2010.

The increase in Q1 adjusted EBITDA was due to $1 million from attendance gains, $4 million from increases in per capita spending and $6.5 million from operating cost reductions offset by slightly lower sponsorship, license and accommodation revenue.

We have reached a settlement with our former Chief Financial Officer in our pending arbitration.

The terms of the settlement are confidential, however we incurred a restructuring charge of $27 million in Q1 to reflect the settlement and related costs.

Moving on to our capital structure, reported net debt as of March 31 was $896 million as compared to $784 million at December 31, 2010, an increase of $112 million.

Our free cash flow in the quarter was negative $82 million.

The $30 million delta is comprised of $20 million of stock repurchases, $2 million of dividends, $2 million of noncash EBITDA interest at DCP, and $6 million related to working capital which included $20 million of payments associated with pre-petition claims and bankruptcy fees.

We have approximately $8 million of pre-petition claims and bankruptcy fees remaining to be paid.

The Company is in an excellent liquidity position with $75 million of cash on hand and no outstanding balance on its revolving credit facility.

In April, approximately $1 million of limited partnership park obligations were exercised which the Company is required to pay in May.

The next exercise period is April of 2012.

On February 24, the Company announced a $60 million, three-year share repurchase plan.

Management and the Board routinely evaluate our capital structure to determine the appropriate leverage ratio and appropriate uses of excess cash.

Given the views on the future potential of the Business and the Company's stock price, the conclusion was to continue the quarterly dividend and implement a stock repurchase plan.

During Q1, the Company repurchased approximately 296,000 shares at an average price of $66.03 and a total cash outlay of $19.5 million.

As Jim said, we are very pleased with our Q1 performance and believe it provides good momentum going into the 2011 season.

Our focused business strategy is clearly taking hold.

So now I would like to turn the call back over to Jim.

Thank you very much, John.

We are really looking forward to a continued, successful execution of our strategy as we enter our peak season during the second and third quarters of the year.

As you are aware, most of our parks are open for weekends in May and daily operations primarily begin Memorial Day weekend.

I believe that we are well prepared operationally and also from a marketing and new capital perspective.

I shared our exciting 2011 lineup of innovations on last quarter's call.

All are in good shape, and some have already opened.

For example, we have already opened Gotham City Gauntlet, a wild mouse coaster in Six Flags New England; Superman - Escape from Krypton at Magic Mountain outside of Los Angeles, where you are torpedoed 100 miles an hour, 400 feet into the air backwards; and we have opened the new Texas Giant coaster at Six Flags Over Texas in Arlington.

This is a unique ride that has the steepest drop and the most bank turns greater than 90 degrees on a wooden coaster.

Tim Baldwin, who is the editor of Roller Coaster Magazine, rode the Texas Giant on opening day, and noted that, "this is the smoothest coaster I have everriden, and I have ridden over 800 roller coasters." He loved it.

I've had the opportunity to ride several of these rides, and the new Texas Giant is quite exhilarating.

You get plenty of air time on this wonderful ride.

We are also celebrating our 50th anniversary season at Six Flags Over Texas and had a wonderful celebration in April to kick off our season at this park.

We have several other thrilling rides and attractions that will be opening in the second quarter.

They include Daredevil Dive at Six Flags Over Georgia, which includes a 90 degree vertical lift and a 95 degree, beyond vertical drop; a stand up Green Lantern coaster at Six Flags Great Adventure in New Jersey that includes five inversions; a three-acre water park expansion at Six Flags Great America near Chicago, with free fall slides; a new Terminator laser attraction at our park in Mexico City; new giant SkyScreamer Tower swing rides in Six Flags St.

Louis and Discovery Kingdom outside of San Francisco; a new laser show at Fiesta Texas near San Antonio, projected on the canyon wall where the park resides; and two other roller coasters at Magic Mountain near Los Angeles, after which we will reclaim the title of Roller Coaster Capital of the World.

The Company really is introducing the best lineup of new rides, shows and attractions in the past decade.

We are prepared and really looking forward to the height of our 2011 season.

In summary, I have to tell you I am really pleased and encouraged with our Q1 performance.

We will continue building a strong foundation for the Company and work to execute our plans flawlessly.

This Company is on a very solid footing, and we are working to create shareholder value in a very thoughtful manner.

I am now going to ask the operator, Tracy, to open up the call so that Al, John and I can take any questions that you might have.

Tracy?

(Operator Instructions).

Your first question comes from the line of Ian Zaffino, Oppenheimer and Company.

Your line is now open.

Great, thank you.

Question with the -- and this might be a little bit difficult to answer, but can you give us an idea between how much you have reduced the discount versus raised the actual ticket price?

Or is it -- can you give us maybe an idea of how many people are actually paying full price this year versus last year?

Or really some type of metric that would give us an idea of whether you are reducing the discounts or you are raising ticket prices?

Thanks.

Ian, thank you for the question.

In very simple terms we are not going to be able to break down the exact detail that you want, but I think that the real result shows up when you look at our total revenue per cap at $48.02 versus $45.43 last year.

In essence what we are doing is we are moving on every front.

We are taking up ticket prices a little bit, we're managing the yield and the fencing around discounts.

We are really looking at in-park sales and managing those up, tweaking them.

So it is actually coming across all areas, not just one.

It really is across every single area.

Okay.

And the other question would be on the season pass sales, can you give us a break out between, let's just say, volume and pricing?

Or is it just too difficult?

We are not going to break out volume versus pricing.

What you should know is that we feel very good and have seen good results on both.

Okay, great, thank you very much.

Thanks, Ian.

Your next question comes from Ian Corydon with B.

Riley and Company.

Your line is now open.

Thank you.

Absent the calendar shift and the closure days, the attendance was obviously quite strong.

Do you have a sense for how much of that was driven by the economy versus some of the steps you guys have taken in terms of advertising marketing?

I think we are cautiously optimistic about the economy, and we are certainly feeling that things are looking up, but I have to say that in our opinion, and we are biased, that the single greatest factor here is the significant steps that we have taken over the last several quarters to shift the strategy of the Company to focus on the parks and really do two things.

One is to create innovation in the shows, the rides, the attractions that we have and also to get our news in a much more targeted way to our guests.

Al, would you add anything to that?

The only addition to that, Jim, would be, keep in mind, Ian, that while we have a great lineup of new attractions for 2011, only one park had a new ride in the first quarter, which was Magic Mountain.

The new attractions are all open Q2 will come into play now as we go through the second quarter.

Okay, great.

And then you mentioned season pass sales being strong in the first quarter.

Can you provide any detail around the magnitude of that?

And you also mentioned potentially a timing issue around that?

Ian, we did see a very nice growth in the season pass revenue, and you will see when we file our Q, that deferred revenue more than doubled from the end of last year to the end of March, which is normal in the first quarter as we start to sell the season passes.

We continue to see a nice bump up in the season pass.

And did you mention that there might be a timing issue impacting season pass sales?

Yes, there may be some of that which is timing related so people buying earlier because we have been out there aggressively marketing the season pass, and our goal is to get people to lock up in the season passes earlier.

So some of this could be timing.

And then just a housekeeping issue, do you have the ticket per cap dollar number for the quarter?

We do.

The ticket per cap -- our total per cap was $48.02 of which the ticket per cap is $20.62, in-park was $17.95 and then the difference is the other revenue.

Got it.

Thank you.

Thanks, Ian.

(Operator Instructions).

Your next question comes from Eric Wold with Merriman Capital.

Your line is open.

Thank you, and good morning.

Hi, Eric.

Quick follow-up question on the economic question from a previous person, can you give us a sense of across the park perform -- I know there is not many open now, but in terms of one, kind of what you saw in terms of attendance there, but two, more importantly I think you look into the season pass sales.

I know you can't tell everything, but where those were purchased kind of an indication of certain areas of strength in the country, maybe areas of weakness by park?

Yes, we are not going to break it down by park, but what I can tell you is across our system we are seeing very strong season pass interest and purchases and we have also been very pleased as I said with the attendance at all of our parks.

And on the selective price increases that were taken, maybe a sense of the range by -- maybe not by region, but what would be the range -- I'm going assume that prices maybe not have been increased across the board by the same level around the country.

Is there a certain range, a low-level and high level?

Pricing is very specific to the local park and the local market.

We are not going to break down -- we have done this in this market versus another.

What you need to know is that we have gone pretty much across the board and made sure that we are taking the right sort of pricing for that market.

Perfect.

Understood.

Thank you very much.

Thank you, Eric.

Your next question comes from the line of a participant who has not left any information.

If you could please state your name and your company?

Your line is open.

Tracy, that sounds like there is actually no one on the line so we may want to cut that off.

At this time there are no further questions in the queue.

Okay.

Thank you, Tracy.

Ladies and gentlemen on the call, we really appreciate you joining our call this morning.

And mostly we hope that all of you have the chance and the opportunity to visit one of our parks in the near future.

Thank you very much for your on-going support and we look to seeing many of you at the numerous conferences and meetings that we will be attending in the coming months.

Take care.

This now concludes today's conference call.

You may now disconnect.