Six Flags Entertainment Corp (SIX) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Six Flags fourth-quarter and full-year 2011 earnings conference call.

My name is Mary Ann and I will be your Operator for today's call.

At this time, all participants are in a listen-only mode.

After the presentations, we will conduct a question-and-answer session.

(Operator Instructions) This conference is being recorded.

If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Nancy Krejsa, Senior Vice President Investor Relations and Corporation Communications for Six Flags.

Ma'am, you may begin.

Good morning, and thank you for joining our call.

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

We will begin the call with prepared comments and then open the call to your questions.

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 and quarterly reports filed with the SEC.

Statements made on our call today include non-GAAP financial measures, which 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.

The Company emerged from Chapter 11 bankruptcy in April of 2010.

And, since we believe it's an appropriate and useful comparison, we compare full-year 2011 results to full-year 2010 results during this call.

And do not distinguish between the 2010 predecessor and successor periods.

At this time, I would like to turn the call over to Jim.

Thank you, Nancy.

Good morning to everyone on the call.

I'm proud to say that we finished 2011 on a very strong note, with another record quarter in terms of attendance, revenue, and profitability.

Revenue in the quarter increased a strong 13%.

And this revenue growth, along with our ongoing cost management, drove a $13 million, or 60% improvement in EBITDA, which ended at $35 million for the quarter.

In the last three months of the year, we set record attendance levels for both our Fright Fest and Holiday in the Park events, generating attendance growth of 16% in the quarter.

These two programs centered around the Halloween and Christmas holidays, are extremely valuable brands to Six Flags.

And our investments in them for the 2011 season, particularly Fright Fest, reflects the type of revenue and profit growth we can generate through focused and targeted investments.

In 2011, we built Fright Fest into our biggest and scariest event ever.

And we will continue to build this national brand and our more localized Holiday in the Park brand in the future.

Throughout 2011, we went from strength to strength, overcoming some obstacles, and setting numerous financial and non financial records for the Company, while building solid momentum for the future.

We achieved our aspirational target of $350 million of adjusted EBITDA.

And we improved modified EBITDA margin to 37.4%, a Company record and an industry high.

We also generated $193 million of free cash flow in 2011, a record high, representing a 51% increase over 2010.

In addition to improving revenue growth and the efficiency of our operations, we were also laser-focused on product innovation.

Our 2011 capital investments, which were targeted at delivering news in every park, along with our newly-introduced Go Big marketing campaign, were key to driving attendance and revenue growth throughout the year.

And also helped drive double-digit increases in season pass unit sales and a continued rebound in group sales.

Because of our innovation and customer focus, in 2011, we achieved all-time high guest satisfaction ratings for our parks, including record scores for overall guest satisfaction, cleanliness, and most importantly, value perception.

These types of results are further evidence that our strategy is working, and support our belief that we have further growth opportunities for our Company.

Employee morale, as measured by our annual employee survey and other ongoing feedback mechanisms, reached a new peak for the Company in 2011.

I have mentioned to you before that our employees are our most important asset.

And it's really rewarding to see our momentum build in this area.

The last operating achievement I want to highlight is regarding safety.

Safety is the foundation for everything we do.

And in 2011, through appropriate focus, we achieved our best safety record yet.

As a result of these and other operational and financial achievements, our shareholders earned a 52% return on their investment in Six Flags in 2011, up 182% since we emerged from bankruptcy in May of 2010.

All in all, it was an excellent year for our Company, for our guests, employees, and shareholders alike.

I couldn't be more pleased with our progress to date.

Of course, the story doesn't end here.

We have plenty of opportunity for additional growth.

I'll talk more about our future a bit later in the call.

But now, I'm going to turn the call over to John, who will provide details on our 2011 financial performance.

John?

Yes, thanks, Jim, and hello to everyone on the call.

I'm going to start with a discussion on our fourth-quarter performance and then provide details for the full-year 2011.

As you saw from our press release, we really had an outstanding quarter.

Revenue for the quarter increased $16 million, or 12.9%.

This increase was driven by a 16.3% growth in attendance offset by 2.9%, or $1.15 decline in in-park capital revenue.

As Jim indicated, the strong attendance growth was the result of extremely successful October Fright Fest and December Holiday in the Park offerings.

We saw very strong season pass attendance in the quarter, which put downward pressure on our per caps.

Admissions per capital revenue declined $0.36, as pricing gains were offset by a higher mix of season pass attendance.

However, as a result of the strong attendance, admission revenue increased $8 million, or 14.2%.

And in-park spending increased $8 million, or 16.8%.

In-park per capita spending grew by $0.07.

Sponsorship revenue declined by $800,000, or 6.9% in the quarter as a result of the migration away from no- or low-margin deals that we have referenced in prior quarters.

The combinations revenue at our Great Escape Hotel and Water Park increased 4.9%.

We continue to see a favorable trend in cost of products sold, which represented 17.6% of in-park revenue versus 19.8% in 2010.

Our cash operating and SG&A expenses of $99 million increased $3 million in the quarter versus prior year.

The increase was primarily due to higher labor costs and marketing investments in our expanded Fright Fest and Holiday in the Park offerings.

Cash operating and SG&A expenses as a percent of sales decreased by 678 basis points.

Our EBITDA performance in the quarter was a record for the Company.

The strong revenue growth contributed to an adjusted EBITDA of $35 million versus $22 million of adjusted EBITDA in the fourth quarter of 2010, representing an increase of $13 million, or 60% over prior year.

Now, to put this in perspective, just two years ago in 2009, we had an adjusted EBITDA loss in the fourth quarter of $7 million.

The modified EBITDA margin in the fourth quarter was 21.4% versus 14.5% in 2010, an increase of 695 basis points.

The fourth-quarter pretax loss included a nonrecurring $47 million loss on debt extinguishment as a result of our December debt refinancing, and $20 million of non cash stock-based compensation expense.

Switching to the full-year 2011 performance, total revenue increased $37 million, or 3.8% over 2010, as the result of a 5.9% increase in admissions revenue.

And a 3.3% increase in in-park revenue.

Offset by lower sponsorship and licensing fees.

Total guest per capita revenue was $39.33, an increase of $1.78.

With admissions per cap up $1.24, or 5.9%, and in-park per caps up $0.54, or 3.3%.

Cost of products sold decreased $2 million versus prior year.

Even with a $13 million increase in in-park spending.

And represented 18.7% of in-park revenues versus 19.7% in 2010.

This favorability is the result of purchasing and efficiency programs initiated during the year and the more favorable mix of products with higher margins.

Cash operating and SG&A expenses decreased $20 million in 2011, driven by the cost reduction efforts that were put in place in the third quarter 2010.

Offset by investments in our expanded Fright Fest and Holiday in the Park offerings.

Cash operating and SG&A expenses in 2011 were 55.1% of revenue versus 59.3% in 2010, a 414 basis point improvement.

We were extremely pleased to achieve adjusted EBITDA of $350 million in 2011, representing an increase of $55 million, or 18.7% over 2010.

Modified EBITDA margin of 37.4% is now an industry high and compares to a margin of 33.1% in 2010, and 24.4% in 2009.

Total capital spending in 2011 was $91 million, or 9% of revenue.

We continue to believe that capital spending at 9% of revenue is the appropriate level for our business going forward.

We were also pleased with the recent debt refinancing that we closed in December.

Assuming current LIBOR rates, the refinancing reduces our annual cash interest cost by approximately $13 million and extends our debt maturities to 2018.

In addition, it provides us with the flexibility to make restricted payments, including dividends and share repurchases.

Up to $250 million in 2012, as long as our liquidity, which includes both our cash on hand and available revolver remains above $250 million.

In 2013 and beyond, we can make restricted payments up to the amount of the prior year's excess cash flow, as long as our liquidity is above $175 million.

Full-year cash earnings per share, which we believe is a better reflection of our earnings versus reported GAAP EPS, due to Fresh Start accounting and our $1.1 billion operating loss carry-forward, was $3.51.

Now, if you adjusted for $13 million in lower interest costs I just referenced, pro forma cash earnings per share for 2011 was $3.81.

We purchased 452,000 shares of the Company stock for $18.5 million in the fourth quarter, under the $60 million stock repurchase program approved by the board in February 2011.

This took our total purchases to $60 million in 2011.

As you saw from our press release in early January, the board authorized an incremental $250 million of share repurchases over the next four years.

Reported net debt as of December 31 was $726 million, which consisted of gross reported debt of $957 million, less cash of $231 million.

The Company is in a very good position with significant cash on hand, no outstanding borrowings on its revolver, and a net leverage ratio at December 31, 2011 of 2.1 times.

So, in summary, we are extremely pleased with the fourth-quarter and full-year performance.

With a strong Fright Fest and Holiday in the Park, we were able to fully offset the attendance softness we incurred in the third quarter as a result of the poor weather.

And finished the year flat with attendance.

Our ongoing strategy to improve yields and enhance product offerings, as well as the continued focus on cost management, has resulted in record EBITDA, strong cash flow generation, and positions us well as we head into 2012.

Now I would like to turn the call back over to Jim.

Thanks very much, John.

2011 was an extremely gratifying year for the entire Six Flags team.

After celebrating our 2011 success, we rapidly began working to deliver another action-packed season in 2012.

While simultaneously keeping our sights set on our 2015 aspirational goal of $500 million of modified EBITDA, or $5 in cash earnings per share.

As we drive toward our aspirational goal, we will build upon our initial progress on initiatives to improve ticket yields, increase attendance, grow in-park sales and other forms of revenue, while carefully managing our operating costs.

We are especially excited about our 2012 lineup of new attractions, since it will be the first full year that our capital investments are tied directly to our long-range plans.

We announced our new attractions last September the 1st, and they are all on track to open as scheduled this spring.

These new additions will be the primary focus of our Go Big marketing campaign, which has been highly successful in reaching our targeted guests.

By taking our 2012 new capital and related communications up one more notch last fall, we once again generated double-digit increases in full season pass sales, which is positive news as we enter the 2012 season.

In addition, the debt refinancing in December positions us very well, allowing us to maintain an appropriate leverage ratio, reduce cash interest costs, and provide flexibility to return excess cash flow to shareholders.

Our capital allocation strategy at Six Flags is simple.

Our top priority is to consistently invest in our parks.

We target to spend 9% of revenue in CapEx every year to ensure our parks maintain their excellent condition.

And that we continue to deliver exciting new rides and attractions for our guests, in every park, every year.

After meeting our relatively small debt repayment obligations, we believe it is prudent to return excess cash flow to shareholders via stock buybacks and recurring dividends.

With this capital allocation strategy in mind, our board authorized a four-year, $250 million stock repurchase plan in January, followed by a ten-fold increase, or $2.40 per share annual dividend, that we announced last week.

These actions speak to the confidence that both our directors and management team have in the future of Six Flags.

And of course, to our alignment with shareholders.

The core of our success has been our clear and focused business strategy.

We are squarely focused on the regional theme park industry and our key imperatives are delighting our guests, generating innovative news in every park, every year, optimizing the efficiency of our operations, developing a high-performance culture, delivering safety and quality in everything we do, and, of course, creating shareholder value.

If we can execute well on these key imperatives, I have no doubt that Six Flags will continue to be a great place to invest and work for many years to come.

Mary Ann, at this point, could you please open the call up for any questions.

(Operator Instructions) Ian Zaffino from Oppenheimer.

Very good quarter.

The question would be, I know the whole thesis and the whole story has always been reducing the discounts, but at the same time, you're trying to push season pass sales, which is the right thing to do.

It's very profitable, but they seem to be offsetting.

And as us analyst track this by revenues per capita and that's something we plug into our model, but you really do have these two offsetting inputs.

Is there a better way to look at the Company and follow how you are progressing?

Or maybe if you take your Project 500, what type of revenue per caps are you expecting at that point?

What type of attendance levels are you expecting at that point?

Just to help us really think about the Company and follow your progress.

Ian, we are not going to provide detailed guidance around attendance or per caps looking out to 2015.

I think you know that, but I will try to address your question as clearly as I can.

We have said that we believe that there is an opportunity around pricing, longer term, and we have been executing on that basis and we continue to do so.

We have also said, though, that we really see a very big opportunity around season passes.

And that this in itself will provide tremendous revenue and profitability growth for the Company for the future.

Unfortunately, if you're in a position where you achieve tremendous success in season pass, that will place some pressure on your per cap.

But, at the end of the day, it's really not going to matter, because with that success comes incremental revenue and profitability along the lines that we saw in Q4 that more than offset any of that downward pressure.

So I'm sorry I can't provide you with specific numbers to help you model, but I would say that double-digit increases in season pass has proven to be very positive for the Company.

Okay.

And then also, in your commentary, I didn't hear you mention anything about the snowstorms in the Northeast.

I know you had mentioned weather, but I think you were referring to the hot Texas weather in the third quarter.

But the fourth quarter, you were also faced with some weather.

I don't know if you addressed that.

What was the attendance impact from that?

Yes, there definitely was an effect.

And, Al, would you like to comment on fourth quarter?

Yes, Ian.

As you're mentioning, we had snow in the last weekend of October at a couple of parks in the Northeast.

Obviously that has an impact on the business.

But overall, if you look at the quarter, the weather was generally on par with weather in the previous year.

So if you look at the overall quarter, it wasn't a benefit or a hindrance in the business.

Obviously the last weekend was a little interesting and surprising.

But all-in-all, it was a very solid quarter from a weather standpoint, which allowed us to generate incremental attendance compared to previous year.

Okay, great.

Thanks again, and good job.

Ian Corydon of B.

Riley & Co.

Couple follow-up questions.

Just looking at the strong increase in attendance in the fourth quarter, and understanding it looks like you were able to bring a bunch of season pass holders into the park for the holiday promotions.

Does that success impact at all your thoughts on your ability to grow your attendance more meaningfully than you've guided to in the past in the coming years?

Ian, it's a great question.

But again, we won't provide any guidance on attendance.

I think the approach that we've always tried to take in describing how we come at this is that through our innovative marketing and innovative capital programs, the news shows -- and we've got a fantastic lineup for 2012 - we believe that we are going to pull guests into the park.

It's going to happen as we continue to build on the momentum that we've seen.

However, we try not to plan on that basis.

We plan on a very conservative basis so that in the event we have the sort of snowstorms we saw or the bad weather, that we can protect the P&L and the balance sheet against that.

If that attendance comes in much stronger, then that's a wonderful upside to have.

So we're not going to predict what the attendance will be.

We assume it's moderate, and we work very hard to get the highest possible return on attendance and our bottom line and cash flow.

And just a point of clarification on the attendance growth for the quarter, we actually did see very good attendance growth on our one-day tickets, as well.

We were just referencing the higher mix of season pass as it relates to the downward pressure on the per caps.

But in both areas, we saw very good growth.

Got it.

And so it sounds like the plan going forward is still to try to continue to increase the ticket per capita, and you did get a nice increase for the year.

So that's still the plan.

And if that ends up being offset by attendance, at the end of the day you still get to where you want to be.

Ian, this is Al.

That's correct.

We obviously manage these things together, the season pass business, as well as non-season pass.

The season pass is an upsell from the single-day visit.

But all-in-all, we do think we can move success with both areas going forward.

Okay, and my last question was on the cost of goods sold.

You did mention a nice improvement there, and it seems like the improvement really came in the fourth quarter.

If you could just give any more detail around what you've done there and what the opportunity is, that would be helpful.

Yes, I think you can look at it in two separate areas.

One is just initiatives that we continue to take around our purchasing, buying power, taking advantage of that to lower overall costs.

I think we've been successful on that all year.

And then the second is just in terms of the mix.

We saw a pretty nice movement in the fourth quarter in particular, shifting to the mix of higher-margin products.

And that mix shift, was that driven by actions that the Company took, or was that just something that happened?

Yes, I think it's really actions that the Company took in terms of just having better offerings.

Okay, great.

Thank you.

Lisa Brozewicz of KeyBanc.

Congrats on the nice quarter.

My first question, what percentage of season pass sales are completed by, say, the end of February, the beginning of March for the total year?

We don't give those numbers out, Lisa.

And obviously, they can vary year to year.

Okay.

And then can you just remind us, what was the magnitude of price increases for the 2012 season?

And then if you could talk about any major regional variances that you may have had.

Lisa, was your question 2011 or 2012?

We didn't hear the question fully.

2012.

Lisa, this is Al.

We have increased the front gate attendance modestly at a number of the parks, as is traditional on a year-to-year basis.

A lot of the yield, though, and per capita increase that we've had in the last year or so is generated by being a little smarter about our discounting and fencing these promotions in off non-peak.

So it's really the mix of discount that really drives the yield forward, as well as some modest pricing increase.

You asked about regional differences, as well.

Al talked about modest increases at the gate, and when he's describing that, they tend to be in the $1, maybe $2 range.

We also looked at season pass pricing.

And there, there were modest increases, except in a couple of areas on the East Coast, specifically Great Adventure.

We felt that our season pass pricing was just too high, so we actually reduced that.

Then there are a couple of smaller examples like that.

But on the whole, we moved up.

Okay, great.

Thank you.

Robert Kirkpatrick of Cardinal Capital.

As a shareholder, I would like to say thank you to the board and the Company for the capital return program.

But with respect to the dividend, I wondered whether or not there was some thought given to the payout ratio.

And then, secondly, with respect to it, I was wondering what the American tax policy implications were as you debated between a dividend and a larger return of capital through a share repurchase program.

Thank you.

Rob, thanks for the feedback.

With regard to a payout ratio, obviously within the board, we discussed various aspects, but we are not disclosing a payout ratio on the dividend.

When we look at the number for this year, we've described a $0.60 per quarter or $2.40 dividend.

John described earlier that if you adjust the 2011 cash EPS, you end up at about $3.81 per share.

That's in the 60% to 65% range, which the board felt very comfortable with.

But that's not setting a base or any form of ratio.

We will look at this every single quarter and every year and determine what the right payout will be for the Company.

With regard to the tax side, John, do you want to describe?

Yes, as relates to the tax side, we absolutely did take a look at that.

But I'll be honest with you, that could change in the future.

So we looked at it from the standpoint of what we thought was the appropriate cash dividend to be paying out.

Okay.

And then a follow-up on a different area.

With your capital spending program really being in full effect for the full year coming up, how are you going to measure the effectiveness of the spending on a park-by-park basis?

It's a great question, Rob, and I'm going to have Al talk in detail.

But a very high level.

We have implemented at the Company a really great analysis of capital programs on an ROI basis and we force rank the top projects.

And Al can describe maybe in a little bit more detail what we do and then how we go back and measure.

Rob, this is Al.

Again, our capital spend at 9% of revenue really covers three big buckets.

It has asset maintenance, IPS -- in-park spending -- as well as ROI, as well as new marketable product.

As Jim mentioned in his comments earlier, this is the first year, 2012, that the product selection really fits within our overall long-range plan that we completed last year that hadn't been done in a number of years.

So the product that's selected, the long-range plan, really is focused on a park-by-park basis, looking at history and the future opportunities.

And addressing market gaps or specifics that we feel will drive the business forward from an attendance and revenue standpoint.

That's a relatively detailed process that starts at a park level and bubbles up that we consolidate corporately.

We spent a lot of time, the teams in the field have spent a lot of time identifying key product they feel that will drive the business forward, and match the opportunities that we believe in the short- and long-term.

And then we post audit, basically.

As a team, we go back and look at how different cap projects have worked, Rob.

And one of the beauties of this Company is that we have almost 2,000 shareholders who work for the Company.

And the leadership team, the park presidents are all shareholders.

So there's a great interest in insuring that the money we spend is spent very wisely.

So for example, in a given park, you would look at the goal of the particular capital spending, which might have been, in this particular park, to attract more families.

And you would then look at the increase in family, perhaps, ticket sales or something like that.

And that's how you would evaluate the effectiveness of that particular subsection?

Yes.

In terms of individual year measurement, that's a good example, Robert, of course.

But what's important to remember, we have to look at this over multiple years moving forward.

It isn't just a one-year, one-slot evaluation.

We do look at demographics.

We look at market origins.

We do have a very intensive view on the demographics.

You come to the park on a weekly basis.

So we do match and look at what movement has occurred based on not just the capital; that's only one of the pieces.

Also, we buy media, we have creative that's designed to energize a certain piece of the market.

Holistically, we look at the movement and the initiatives against that as an evaluation.

But it is a multi-year view.

Great.

And then also as a shareholder, I wanted to comment that I noticed that both Jim and John had exercise options and retained the shares, and that's also appreciated by us as shareholders.

Thank you.

(Operator Instructions) At this time, there are no other questions.

Okay.

Thank you, Mary Ann.

When you look back, 2010 was a very good year.

I think 2011 was outstanding.

But I do want you to know that we really are looking forward to what I would describe as an epic 2012 season.

Our goal is to continue to pleasantly surprise our guests and shareholders.

We hope you take the opportunity to visit one or more of our parks this year.

And as always, I really want to thank you for your continued support of our Company and management team.

And I look forward very much to talking to you soon.

Take care.

This does conclude today's conference call.

You may disconnect your phones at this time.