Six Flags Entertainment Corp (SIX) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Six Flags second quarter 2012 earnings conference call.

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

At this time all participants are in 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.

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

You may begin.

Good morning, and welcome to our second quarter call.

With me are Jim Reid-Anderson, Chairman, President and CEO, Al Weber, Chief Operating Officer, and John Duffy, our Chief Financial Officer.

We are going to begin today's call with prepared comments and then open the call to your questions.

Our comments 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 the statements.

Also during the call we will share and discuss non-GAAP financial measures.

You may find a detailed discussion of business risks, reconciliations of our non-GAAP financial measures to GAAP financial measures in the Company's annual report, quarterly report or other forms filed or furnished with the SEC.

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

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

As you can see from our press release, the second quarter was just fantastic for Six Flags as we drove our ninth straight quarter of growth.

We grew revenue 11%, EBITDA 24% and cash EPS by 60%.

On an LTM basis, the Company generated $4 of cash earnings per share and achieved a new industry high modified EBITDA margin of 38.7%.

Our success is directly linked to consistent execution of our strategy.

We delivered exciting innovative news in every park and launched clear and effective sales and marketing programs that helped us attract a incremental one million guests to our park in the quarter.

In the area of admissions pricing we continue to benefit from strong ticket yield due to higher front gate pricing and improved fencing of discounts.

On a per capita basis these gains were offset by a higher penetration of season pass visitation.

Further penetration of season pass sales is one of our key initiatives.

Although the higher mix of season pass attendance puts downward pressure on our per capita spending figures, season pass holders typically generate higher aggregate cash flow for the Company than single-day visitors.

Over the course of a year season pass holders spend more than single-day visitors on tickets as well as in-park items like food and merchandise.

I am extremely pleased with our success in this important initiative, and you can observe the magnitude of our success from our strong revenue, EBITDA and cash flow performance in the quarter and from our deferred revenue balance at the end of June 2012, which was up $19 million to $106 million, which is a 22% increase from a year ago.

We continue to believe we have a multi year opportunity to improve ticket yields and further penetrate season pass sales, and going forward, we believe these will be the largest contributors to our revenue profit and cash flow growth.

We also continue to see nice growth in our in-park sales with an increase of $17 million, 12% over prior year.

We were pleased with this growth given the higher attendance by season pass holders who typically spend less per visit than single day visitors.

Our growth comes from innovative new offerings.

For example, this year we have successfully extended our Flash Pass product to all of our water parks.

We also introduced a USB memory stick, which allows guests to conveniently store photos of their friends and family on our rides, and our guests absolutely love this new concept.

We have also launched exciting new food concepts such as Macho Nacho, Cowabunga Burger, and of course my personal favorite, which is Kickin' Chicken.

You actually have to go to our parks to try these chicken tenders with our special buffalo sauce.

Sorry, clearly I am getting carried away here, so let me move on.

In summary, our second quarter performance is a reflection of execution.

Two years ago we developed a strategy that would help us consistently grow revenue, increase profitability, improve guest satisfaction, strengthen innovation, and build employee morale, and I really could not be more pleased with our progress to date.

Our operational performance is excellent, our financial results stellar, and our capital allocation strategy is clearly working well.

I think you are going to enjoy hearing more details regarding our financial performance, so at this time I am going to hand over to John to provide more details on Q2.

John?

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

As Jim mentioned, we are very pleased with our second quarter and year-to-date performance.

As we had indicated on the first quarter call, our strategy to increase season pass sales has worked very well, and this positive trend continued throughout the second quarter.

The increase in season pass sales along with the marketing of our new rides and attractions significantly contributed to our double digit attendance growth in the quarter.

In addition, as a result of the calendar shift, the second quarter this year ended on a Saturday verses a Thursday last year.

The benefit of the extra Friday and Saturday at the end of June when compared to the loss of a Friday and Saturday at the beginning of April represented approximately one fourth of our year-over-year attendance gain in the quarter.

The calendar shift will reverse in the back half of the year when we will lose an equivalent weekend.

The strong revenue growth of 10.7% in the quarter was primarily driven by a $20 million or 10.7% increase in ticket revenue and a $17 million or 12.3% increase in in-park revenues.

This was partially offset by a small decline in sponsorship revenue.

Total guest spending per capita for the quarter decreased $0.30 or 0.8% from prior year.

This decline came from a $0.31 or 1% decline in admission revenue per capita to $21.97.

This slight decline was the result of our success in driving strong season pass attendance, which offset a solid non-season pass admission per capita increase from our pricing initiatives.

In-park per capita revenue of $17.08 was up slightly over prior year, which was excellent performance given our strong season pass attendance.

Year-to-date revenue increased $41 million or 10.3% due to a 10.8% increase in admissions revenue and an 11.6% increase in in-park revenues, partially offset by lower sponsorship revenue.

As a result of strong season pass unit sales growth, deferred revenue at June 30, 2012 was $106.2 million as compared to $86.8 million at June 30, 2011, an increase of $19.4 million.

This revenue will be recognized in the third and fourth quarters.

Cash operating expenses increased approximately $8 million or 4% in the quarter versus prior year and were up $9 million or 3% year-to-date.

The increase in expenses was primarily the result of additional seasonal labor and employee merit increases, partially offset by other operating expense savings.

We were very pleased with our record adjusted EBITDA of $141 million in the quarter.

The strong attendance, revenue growth, and focus on leveraging our operating cost structure contributed to an adjusted EBITDA growth of $27 million or 23.7% in the quarter.

Year to date, adjusted EBITDA was $95 million, a $30 million or 47.1% increase over the comparable period in 2011.

LTM adjusted EBITDA was $381 million, and our LTM modified EBITDA margin was 38.7%, up 320 basis points over the 12 months ending June 2011 and up approximately 130 basis points from our 2011 full-year margin.

The Company repurchased 1.1 million shares of its stock in the quarter for approximately $54 million, which increased the total year-to-date share purchases to 2.1 million shares for approximately $98 million.

We generated $58 million of cash in the quarter after paying approximately $54 million for stock repurchases and $32 million in dividends.

So adjusting for these non-operating net outflows, the Company generated over $144 million of cash in the quarter.

Cash EPS for the quarter was $1.78, an increase of $0.67 or 60% over prior year.

LTM cash EPS is now $4, an increase of $0.89 over the prior year LTM.

Our reported net debt as of June 30 was $828 million, which consisted of net reported debt of $956 million less unrestricted cash of $128 million.

There are no outstanding borrowings on the revolver.

Finally, I want to comment on our strong financial position and capital allocation strategy.

Our net leverage is now at 2.2 times compared to 2.6 times in June 2011.

The current low level of leverage is approximately half the leverage level when the Company emerged from its restructuring two years ago, and it is the lowest of any comparable company in our industry.

We have no significant debt maturities until 2018 and access to significant liquidity.

I feel very good about our financial position.

In addition, we have received very favorable feedback from shareholders on our capital allocation.

In the past 12 months, we have paid $71 million in cash dividends and repurchased a total of $2.5 million at a cost of $117 million, which represents an average share repurchase price of $46 per share.

This reflects our management and Board's strong alignment with shareholders.

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

Thanks very much, John.

I am really pleased with our progress through the first half of 2012.

Our performance through June certainly bolsters our view that our strategy around pricing, season pass sales and [using] every park right on track.

The outstanding performance in the quarter as well as our very positive trends in season pass sales provide good momentum into the second half of the year.

We are very focused on continuing to execute effectively throughout the back half of the year.

We are also already well into planning for our 2013 season, including of course more exciting news in every park.

And with all of our initiatives, we continue to have our sights laser focused on achieving our aspirational target of $500 million of modified EBITDA by 2015.

The foundation of our success has been excellent execution of the strategy we established two years ago that includes delighting our guests, innovative news in every park every year, improving the efficiency of our operations, delivering on our financial goals, building a high-performance organization and integrating safety and quality in all we do.

Successful execution will ensure we can continue to drive a strong financial performance, fund all appropriate business investments, and return excess cash to our shareholders via dividends and share buy-backs.

Our goal is to delight not only our guests but also our loyal shareholders.

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

(Operator Instructions) The first question is from Ian Zaffino.

Your line is open.

Very good quarter.

My question would be on the attendance line.

You had mentioned strong season passes.

Can you put a little bit more meat on the bones there as far as, how much were they up versus your daily person versus group or if you could give us any more detail to go on, that would be great.

Thanks for the comment about the quarter.

We are pleased.

With regard to season pass, for competitive reasons we don't want to give too much information, and I know you'll appreciate that.

But I think the simplest way to think about this is the data that we had provided with regard to the overall growth on the balance sheet.

And John had talked about a 22% increase there.

Maybe John, you can provide a little bit more color on that.

Yes, I think the best indication of our strength in the season pass attendance is -- and unit sales -- is the deferred revenue.

So we had mentioned that we saw a very nice increase in our deferred revenue balance at the end of June, up $19 million year-over-year.

So as you think about that, $19 million of additional revenue that we'll have in the back half of the year that we didn't have last year.

Okay.

And even if you back out that you said 25% of your growth was because of those extra days, even if you do back that out, you are still getting a massive number, 9% or so straight math.

The industry doesn't grow that much.

What are you doing?

I know it's sort of your strategy, but is there something that we can anticipate especially as we get into the third quarter where the comps become easier, or how do we think about that more holistically?

Ian, you know that we don't comment on future quarters.

We don't give guidance.

But I am happy to talk about what we are doing.

I really do believe the most fundamental aspect of performance here is the dedication to innovation that we talked about, the news in every park.

We are literally providing our guests with a reason to come to our parks.

Many of them have not had that reason.

We are also communicating directly with them through the media and also via email.

And the more season pass holders we have, the more we can get straight to them.

So those, I think, are really driving the success of the strategy, and we are seeing the people come to our parks as a result.

So the Company did not have that approach in the past, didn't have the focus on news in every park, did not have that direct line to consumers, and did not have a focus on season pass sales.

And I think it's paying off for us.

Al, would you add anything to that?

The only comment I would add is, keep in mind, and it's really what John says.

It ties up revenue in the deferred revenue area.

When we up-sell single day season pass, we actually get multiple visits in the immediate time as well as the rest of the year.

So it actually has an amplification of visitation when you up-sell to season pass.

So it's a strong strategy but it also adds a little bit of downward pressure to the per capita, which has been mentioned.

Okay.

And then a final question then, a hypothetical.

If you were to shed some non-core assets, what would be the preferred use of that cash?

Would it be buy backs, dividends?

I think you have been more of a buy back proponent.

But just help us out there.

Ian, I think in that hypothetical scenario where we generate extra cash, our approach would be to look at both and talk to our Board and come to a conclusion.

In the current scenario, it would probably be stock buy backs, but we would judge each of those on an individual basis and make a call.

All right.

Great.

The next question is from Ian Corydon.

Your line is open.

Just two questions related to attendance.

Can you walk us through how the calendar shift plays out in the third and the fourth quarter?

And then with the strong increase in attendance, are you having any capacity issues or lines at the park?

How are you executing against that big increase?

There was clearly a calendar shift in the quarter, and we thought it was important to note.

The first thing I want to say is that in the year it all washes out.

But you do have shifts from quarter to quarter.

Typically, it's just a one-day shift.

Because of Leap Year this year, it was a two day shift.

So we picked up a Friday and a Saturday in June that would have otherwise -- last year was in the third quarter.

We did lose a Friday and Saturday in April at the beginning of the quarter.

But if you think about it, all of our parks are open in June versus a handful in April.

So that obviously translated into year-over- year attendance growth for us.

As you think about in the back half of the year, it's going to impact both quarters, both the third and the fourth quarter relatively evenly.

We are going to -- we lose that Friday and Saturday at the beginning of July, but we do pick up a Saturday and a Sunday in September.

But that Friday and Saturday in July is worth more than the pick up that we see in September.

And then we'll lose that Saturday and Sunday in the fourth quarter.

Does that help?

Yes.

That's perfect.

Ian, we didn't hear your second question.

Apologies.

Second question is just around how you are executing in the parks relative to the strong attendance.

Are you having any issues with capacity, or is there plenty of room to have these kind of attendance gains?

Al is chomping at the bit.

He is ready to go, Ian.

That's great, Ian.

Yes, I think we have talked about it in the past.

The parks really operate at 40% of peak capacity already, so we have a lot of room for extra guests to come in the park, obviously.

And our IPS people in park really have a good sense of the trend on a day-to-day basis and respond accordingly.

So we have sufficient capacity, we staff for the numbers we think will come.

And it really shows off how strong our per caps have been even though our attendance is up in a dramatic way.

And I have to bring the softer side of Six Flags to the story here, Ian, by mentioning that now we are at a point where we are able to measure guest satisfaction much faster.

We are doing it online, and we've got a tenfold increase in the number of guests that we are surveying.

And we are at an all time high in guest satisfaction even with the increases in the attendance.

So we are tracking this by park, literally by line.

We know exactly where our strengths are, where we have areas for improvement.

And we are working on them, and it is showing through.

That's great.

The next question is from Scott Hamann.

Your line is open.

Can you speak of any regional variations you are seeing throughout the portfolio, and then, just with some of the hotter weather that you have seen recently, how are people responding to that?

What's kind of the impact you are seeing there?

Scott, in terms of regional comp, we don't break down the regional detail.

But I would say that we are really seeing very strong performance across all our parks.

There isn't an area where we'd say, goodness that's weaker or that's a lot better.

It's been good everywhere.

With regard to weather, I am not going to comment on anything with regard to the third quarter or forward.

But what I will tell you is, you get ups and downs on weather.

I think the weather was very good in the second quarter.

What we found is that weather tends to even out over the year unless you have big hurricanes that hit you.

It tends to even out.

We are looking forward not only to the third quarter but the fourth quarter.

(Operator Instructions)

Okay, Jeff.

It seems like we don't have any other questions.

At this time there are no questions.

Okay.

So let me wrap up by just thanking everyone on the call not only for your participation but also for your ongoing support of the Company and the management team.

And now that we're in the peak months of the season, I really do encourage you to visit one or more of our parks to experience all that we have to offer.

I think you're going to enjoy your visit and see first hand how we can continue to build on that nine record quarters as we go forward and continue to drive shareholder value in the months and years ahead.

Thank you very much, and take care.

This concludes today's conference call.

You may now disconnect.