Six Flags Entertainment Corp (SIX) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to Six Flags first quarter 2012 earnings conference call.

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

At this time, all lines are in the listen-only mode.

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

Today's conference is being recorded.

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

I will now turn the call over to Nancy Kresja, Senior Vice President, Investor Relations and Corporate Communications for Six Flags.

Good morning and thank you for joining our call.

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

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

Our comments include forward-looking statements within the meanings 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 these statements.

In addition, on the call we will discuss non-GAAP financial measures.

Investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the Company's annual reports, quarterly reports or other forms filed or furnished with the SEC.

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

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

Q1 was a very solid quarter for the Company.

Revenue was up 10% over prior year on a constant currency basis driven by a 4% increase in constant currency per capita guest spending, a 1.5% increase in attendance and a $3 million benefit from settling the third quarter 2011 business interruption insurance claim from Hurricane Irene.

Our trailing 12-month modified EBITDA margin has grown to 37.6% as we continue to effectively manage costs and make our operations even more efficient.

In addition to funding a record $33 million of dividends in the quarter, we also used some of our excess cash to repurchase $44 million of our shares.

John will share more details about our financial results in a few moments.

While only a few parks were opened during the quarter, we continue to prepare for the heart of our 2012 season, aligning all our activities with our long-term strategy and our aspirational goal to general $500 million of modified EBITDA by 2015.

For example, our ticket yields were up 6% constant currency in the quarter reflecting our ongoing success in increasing pricing and reducing discounts.

This quarter you will note several constant currency references.

We do that because Mexico represents a much larger percentage of our attendance this quarter than any other.

We continue to further penetrate season pass sales with 2012 units growing in the double digits on top of our double digit growth last year.

Deferred revenue increased to $65 million at the end of the first quarter, a gain of 18% compared with the prior year.

Season pass sales growth is accelerating which is a very positive indicator for our future.

Our Go Big marketing campaign continues to build consumer interest by providing relevant, targeted messaging to our key local audiences and showcasing our stars, our beautiful parks.

In the area of innovation, our new capital for 2012 is tremendously exciting and receiving huge publicity in our local markets.

Our guests are eagerly anticipating new attractions in each park, including rides such as X Flight, a groundbreaking wing coaster opening in Chicago, Lex Luther Drop of Doom, the world's tallest vertical drop opening in Los Angeles, Superman Ultimate Flight, a launch coaster featuring the tallest inversion in the west opening in San Francisco, Goliath, the world's tallest inverted boomerang coaster opening in New England, and Apocalypse, a stand-up coaster that will drop riders 100 feet and hurl them through two massive inversions, opening in Washington DC.

Our innovations include shows and family attractions and just as one example, in New Jersey's Great Adventure Park we are introducing four new family rides and King Cobra, a humongous one-of-a-kind water slide.

We have lots of shows as well, including iLuminate in Georgia and Texas.

Now, this is an electrifying show straight from TV and is an incredible sensory experience that features state-of-the art light-up costumes with stunning visual effects.

The show at our Atlanta park will feature soon on Ellen.

Our goal is to deliver exciting news in every park and this is the outcome of our strategic planning process that addresses each park's individual needs.

Day in and day our we provide thrills for all ages and there is no better value than a day at Six Flags.

I have to say that have also seen tremendous interest in seasonal jobs at Six Flags this year and we have a record number of our seasonal employees who have returned to work for another season.

This is a tribute to our ongoing focus on improving our work culture and it will positive impact both the efficiency of our operations and the quality of our guest interactions.

I can say definitively that morale at the Company is extremely high.

In summary, I feel very good about our 2012 season.

Now I'm going to turn the call over to John who is going to provide more details on our Q1 financial performance.

John?

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

As Jim indicated, we had another solid quarter with attendance, revenue and EBITDA gains.

Our strong season pass performance drove an increase in attendance of 1.5% to 1.3 million guests.

As you read in the press release, we received $3 million of business interruption insurance proceeds in the first quarter associated with Hurricane Irene which impacted a number of our parks in the third quarter 2011.

$1.6 million and $1.4 million of those proceeds are included in ticket revenue and in-park revenue respectively.

Also, I'd like to note that normally we do not reference the impact of foreign currency fluctuations as it tends to be immaterial to each of our reported line items.

However, although the impact is immaterial to EBITDA in Q1, due to our Mexico park being a large percentage of our operations in the first quarter and the year-over-year change in the peso, we think it is important to discuss the impact of foreign currency as we review the quarter's financial performance.

Guest per capita spending in the quarter increased $3.14 for 8.1%.

Excluding the business interruption insurance proceeds and the impact of changes in foreign exchange rates, guest per capita spending increased $1.56 or 4.1%.

The increase is a result of pricing gains offset by an increase in season pass mix.

We have previously stated that our strategy is to convert one-day ticket buyers to season pass holders.

The shift to season pass holders is accretive to revenue and profits because season pass prices are higher than single day prices and season pass guests spend more in total dollars at our parks over several visits within the year.

I'm pleased to share that we are seeing success in this area with double-digit growth in season pass unit sales through the first quarter.

Continued success in season pass sales could dampen per cap gains; however, we also remain extremely focused on managing our ticket yields and we expect both strategies to enhance the absolute revenue and profitability of Six Flags.

As Jim noted on a constant currency basis, ticket yield was up 6% in the quarter, a very strong performance.

Total revenue in the quarter increased $5 million or 8.2% excluding the BI insurance proceeds.

On a constant currency basis revenue increased $3 million or 4.9%.

Moving to the expense side, cash operating and SG&A expenses increased $1 million or 1.6% on a constant currency basis.

Adjusted EBITDA improved $3 million in the quarter adjusting for the BI insurance and foreign exchange, adjusted EBITDA improved by $0.7 million.

As it relates to our capital structure reported net debt as of March 31 was $887 million as compared to $726 million at December 31, 2011, an increase of $161 million.

Our free cash flow in the quarter was negative $92 million.

We have always seen an outflow of cash from operations in the first quarter as most of our parks are closed and we are spending on new capital projects.

So, as part of the $92 million outflow we spent an incremental $13 million on capital in Q1 versus the same quarter last year which is primarily timing.

Our more strategic approach to capital planning has resulted in an earlier and more efficient installation of our new rides.

The remaining $69 million cash outflow was comprised at $33 million of dividends and $44 million of stock repurchases offset by a positive $8 million of other favorability.

The Company is in an excellent liquidity position with $69 million of cash on hand and no outstanding balance on its revolving credit facility.

As of this morning, there has been less than $2 million of limited partnership park put obligations exercised which the Company is required to pay in May.

The next exercise period is April of 2013.

Given our new capital introductions, our focus on season pass sales and the Go Big marketing campaign, I think we are very well positioned for our 2012 season.

Now, I'll turn it back over to Jim.

Thank you, John.

We are off to a really nice start in 2012.

Our employees are energized about the upcoming season and we remain laser focused on executing on our business strategy and long-term aspirational goal to achieve $500 million of modified EBITDA by 2015.

Now, given that this is a relatively smaller quarter for our operations, I'm not going to spend any more time with prepared comments and I'm going to open the call up for any questions that you may have.

Sherry, at this point could you please open the call for any questions?

Thank you.

We will now begin a question-and-answer session.

(Operator Instructions) Our first question comes from Ian Zaffino from Oppenheimer.

Great, thank you very much.

Two questions, I don't know if you -- did you mention deferred revenues or what they were as far as how much season passes were up year over year?

Yes we did, Ian.

John, go ahead.

Yes, and Ian you will see when we report in our Q you'll see the deferred revenue, so let me give you some numbers.

Our deferred revenue at the end of March 2012 is $64.9 million.

At the end of December of '11 it was $38.2 million, so it's an increase of $26.7 million in the quarter.

If you actually compare the end of March in '12 versus the end of March in 2011 it's actually up $10 million or 18.2%.

Just very briefly, Ian, this is a very strong performance on a record year last year in terms of season pass growth.

And, Al, would you like to comment on the impact of season pass because I think we are all excited about this?

It's really great to see double-digit growth after last year's double-digit growth.

Season pass really is the cornerstone of our revenue maximization strategy.

One thing we've found even this early in the year is that season pass is probably the indicator of how the market overall will respond to the parks and the new products.

So, the indication of season pass sales really supports how we feel the year may unfold in a very positive way.

Ian, I hope that answers your question.

What's your second question?

The other one would be, and I think you kind of answered this once before in a different form.

I know a lot of this is all about raising the admissions per cap but, again, as you mentioned you acknowledge it's somewhat diluted by the season pass effort.

Is there a way you could kind of give us an idea each quarter of how much of your sales were at the gate versus season pass versus group and other and that way we can kind of track it a little bit better, your progress?

I think we give as much detail as we give in terms of our filing, Ian, and we're not looking to expand that further but what I will say is we talked in the past about the fact that season pass historically had been in the 25% to 26% range in terms of our overall attendance.

In the last couple of years, we had pulled that up to about a third and in this last quarter we are looking at numbers that are heading towards the 40% type range in terms of attendance.

So, to give you a high-level view, there is a much higher major shift towards season pass.

John talked a little bit about the dilution effect and you referenced it there, we are not concerned about per cap dilution.

As you've seen, even with the growth in the season pass and the strong performance that we've seen, we have actually grown per cap and the yield was up 6% in the quarter, phenomenal yield gain and with the season pass growth we will see revenue growth and we believe we will see very strong profit growth.

So, right now we're firing on all cylinders and even if per caps were to diminish slightly in this process, our overall revenue and profitability will still power ahead.

Great.

Thank you very much.

Thanks, Ian.

Our next question comes from the Ian Corydon from B. Riley & Co.

Thank you.

Just a quick follow up on season pass sales.

Can you just talk about what you have done in order to grow that part of the business and how that strategy evolves through the year?

Al is going to take this one, Ian.

Ian, yes.

A couple thoughts on this.

First off is John Duffey mentioned earlier season pass is really an up-sell strategy from single day admission.

So, as we up sell, we actually increased the revenue piece but what we've done overall is really create a consistent program offered to the market that actually creates a high value for people who want to stay closer to home and visit one of our parks multiple times over the course of the year.

In addition to that, the marketing Go Big campaign is really well suited to communicate the message of season pass.

And the third thing we've done, especially this year, we've actually reevaluated some of our price points in a few markets to generate what we believe is a higher penetration and higher season pass count on certain markets.

All those things together have generated incremental season pass sales and incremental revenue.

Two points to add to what Al is saying, the first and most important is that we really did do a strategic review of every park, every demographic to try to assess not only who was visiting our parks from where but also what the price points appropriate to each park were.

So, in certain cases we took price points up on season pass and in some cases we took them down in order to be able to drive the revenue.

That is really succeeding overall.

We put into place a strategic framework that allows us to push pricing up step-by-step by up selling in different circumstances.

So, we literally have a step process that we go through to try and sell people up.

I think the only other thing I'd add, and this is really, I think, helping to propel the season pass is that we are launching, as you know, our news in every park campaign consistently and trying to ensure that there's something new at every single park.

And, for the first time ever last year we announced our capital campaign basically at the same time we started to sell our season passes.

That had never been done before.

We found that we got people buying even earlier and excited about the potential to buy.

Got it.

That makes sense.

Last year you tweaked the number of planned operating days a bit.

Are there any tweaks this year that would be material for the results?

No.

For the year there's no material change.

We're roughly on the same sort of program.

Great.

Thanks.

Thanks, Ian.

(Operator Instructions) Michael Broudo from Miller Tabak, you may ask your question.

Yes, can you remind us how much is left on the potential stock buyback for fiscal year 2012 and how you might think about buying back stock with your stock trading here in the mid $40s?

It seems like you've been pretty aggressive throughout Q1.

Wondering how you might stretch that out over the remaining three quarters?

Just as background, we had an original $60 million program which we had initiated last year and we went through the full program and spent that $60 million and then this year we spent $44 million.

Yes, $44 million of the $250 million that's been approved.

In total throughout the two programs $310 million and we have spent $104 million, so you got a remaining amount there.

About $206 million.

So, just how do you think about that with your stock in the mid $40s?

Again, you spent $44 million in Q1.

Do you see that progressing evenly throughout the quarter?

Are you thinking you might be more aggressive with your stock price at these levels?

Michael, we obviously are very positive.

I'm hoping you're hearing very clearly that we're extremely positive about the Company and the outlook.

We feel very good about where we are and how we're positioned, but we're not going to outline right now how we're going to pursue the stock buyback.

We will do that on a case-by-case basis as we go forward and we will publicly announce purchases that we've made in every quarterly call.

Okay.

Thank you.

Thank you.

(Operator Instructions) At this time I have no questions in queue.

Okay, well thank you, Sherry, and for those of you on this call, thank you so much for joining our call today.

I hope you hear the excitement in all of our voices.

We're sitting in the room here, Nancy, John, Al, and myself.

We had the chance yesterday to be the first people on testing X Flight in Chicago and we were all blown away by what we saw and what we felt.

I visited almost all of our parks now in the last couple of weeks and I am finishing off the rest of them in the next couple and I can tell you that they look spectacular.

So, I really hope you take the opportunity to visit one or more of our parks this season.

I think you are going to really enjoy the experience and see first hand how our outstanding portfolio of parks and, even more importantly, our dedicated employees can drive incremental shareholder value in the coming quarters and years.

So, take care and I hope to see all of you very soon.

Sherry, that is the end of the call.

Thank you.

This concludes today's conference.

Thank you for participating.

You may disconnect at this time.