Six Flags Entertainment Corp (SIX) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

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

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

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

After 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 Kresja, Senior Vice President, Investor Relations and Corporate Communications for Six Flags.

Ma'am, you may begin.

Good morning and thank you for joining our call this morning.

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

We will begin the 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 these statements.

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

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

At this time, I will turn the call over to Jim and let him begin with his prepared comments.

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

In the fourth quarter of 2012, we set record attendance levels for both our Fright Fest and Holiday in the Park events, generating 3% attendance growth in the quarter despite an unfavorable calendar shift.

This strength propelled us to a fantastic finish to 2012 as we delivered yet another record year for our guests, employees and shareholders and established new benchmarks for financial performance in the theme park industry.

This strength really put us in a position where we saw not only attendance grow in 2012 by 6% to 25.7 million guests, but simultaneously we achieved record safety metrics and record guest satisfaction ratings, including all-time high scores for overall just satisfaction, safety, cleanliness and value perception.

Full-year revenue grew to almost $1.1 million, fueled by our ongoing commitment to pricing discipline and Season Pass penetration.

We successfully improved the yield on every major ticket type and are firmly committed to our ongoing multi-year pricing strategy, which presents a significant growth opportunity for the Company in the future.

In 2012, we also generated record Season Pass sales, the Season Pass attendance, growing significantly over 2011.

Higher Season Pass penetration benefits the Company in three ways.

First, over the course of the season, Season Pass holders generate higher revenue, profit and cash flow than single-day visitors.

Second, Season Passes help lock in a large number of guests for the season, reducing variability in the business.

And third, because of the excellent value they receive, Season Pass holders are more likely to return to our parks in subsequent years, thereby building our recurring revenue base.

I am really pleased to share that we are already off to a great start on our 2013 Season Pass sales with double-digit growth over prior year.

This puts us in a great position as we approach the upcoming season.

Improving ticket yields and penetration of Season Pass sales will continue to be two of our top drivers of revenue, profit and cash flow growth as we work towards achieving our aspirational modified EBITDA target of $500 million dollars by 2015.

Our success in driving revenue largely comes from, one, our improvement in guest service; two, our strategy to introduce news in every park every year; and, three, our relevant and regionally focused marketing initiatives.

Due to the success of these initiatives and focused cost management, we grew adjusted EBITDA to a record high $383 million in 2012 while modified EBITDA margin grew to 39%, a record high for the industry.

We generated $233 million of free cash flow in 2012 or $4.33 per share, which is 23% above 2011.

And we are on track to deliver nearly %6 per share of cash EPS by 2015.

Trust me; this team is laser-focused on generating cash for our shareholders.

Given the strength of our cash flow and balance sheet, we have been very diligent about our approach to capital allocation.

We returned $380 million to our shareholders in 2012 in the form of either dividends or share repurchases, on average more than $1 million a day.

Including dividend payments, Six Flags shareholders earned a 56% return on their investment in 2012 and a 341% return over the 32-month period following our emergence from bankruptcy.

This is our third successive year of shareholder returns exceeding 50%, and our goal is to continue creating shareholder value year after year after year.

Of course, we could not accomplish all of these great achievements without our employees.

I really couldn't be prouder of my team, not only my leadership team, but my entire team of full-time seasonal employees, who are the Company's greatest asset.

This team innovates and implements new ideas throughout the year and delivers world-class experiences for our guests day in and day out.

They are the single biggest factor in our success and will continue to be the key to executing our strategy going forward.

In summary, our strategy is working and it was an outstanding year for all of our stakeholders.

I can assure you that we are very much looking forward to a great 2013.

Now I would like to turn the call over to John, who will provide additional details on our 2012 financial performance.

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

I'm going to start with a discussion of our fourth-quarter performance and then provide details for the full year 2012.

Revenue for the quarter increased $6.4 million or 4.6%.

This increase was driven by a 2.8% growth in attendance and a 1.8% or $0.68 increase in total revenue per capita.

We achieved record attendance despite losing two key weekend operating days in October due to the calendar shift I have mentioned on prior calls.

As Jim indicated, this strong fourth-quarter attendance growth was the result of our investments to expand this year's October Fright Fest and December Holiday in the Park events and to make them the biggest fall and winter events in our Company's history.

We will continue to invest to make these events even bigger and better for our guests in 2013 and beyond.

Despite the higher mix of Season Pass attendance, we were able to increase admissions revenue per capita by $0.72 due to higher yields on all ticket types.

This increase, combined with higher attendance, resulted in total admission revenue increasing $4.6 million or 6.7%.

In-park spending was supported by spending on incremental premium attractions, such as our haunted houses and mazes, and increased $2.6 million or 4.7% in the quarter.

In-park per capita spending grew by $0.28, making the increase in total guest spending per capita exactly $1.

These increases were offset by lower sponsorship revenue, which declined by $1.1 million as a result of the migration away from low-margin deals that we have referenced in prior quarters.

Our ongoing focus on cost reductions allowed us to reduce cost of products sold as a percent of in-park revenue in the quarter from 17.6% in 2011 to 17.2% in 2012.

Cash operating and SG&A expenses of $104 million increased $5 million in the quarter versus prior year.

The increase was primarily due to higher labor costs, timing on operating taxes and increased marketing around Fright Fest and Holiday in the Park.

The strong revenue growth contributed to an adjusted EBITDA of $30 million versus $35 million of adjusted EBITDA in the fourth quarter of 2011.

However, when you adjust the prior year's impact from DCP, which was divested at the end of the third quarter, adjusted EBITDA increased $0.6 million or 2% in the quarter.

You may have noticed the large tax benefit recorded in the quarter, which contributed to the $2.59 diluted GAAP earnings per share.

The tax benefit was the result of a reversal of $237 million of tax loss valuation reserves.

The reversal is required as we are now generating taxable income.

Adjusting for this tax benefit, GAAP diluted loss per share was $1.75 in the quarter versus a loss of $1.85 in 2011.

Now switching to the full-year 2012 performance, total revenue increased $57 million or 5.6% over 2011 as the result of a 6.5% increase in admissions revenue and a 5.7% increase in in-park revenue.

Total guest per capita revenue was a record $39.41, an increase of $0.07, with admissions per cap up $0.11 offset by lower in-park per caps, down $0.04.

Both the admissions per caps and in-park per caps were dampened by the higher Season Pass mix, which increased to [44%] (corrected by company after the call) in 2012 versus 35% in 2011.

We are very pleased with their Season Pass strategy.

While Season Pass customers typically spend less per visit than single-day visitors, as Jim mentioned earlier, they do spend more over the course of a season.

Cost of products sold increased 3.7% on a 5.7% increase in in-park sales and represented 18.3% of in-park revenues versus 18.7% in 2011, a 35-basis-point improvement.

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

Cash operating and SG&A expenses increased $16 million in 2012 but were 53.7% of revenue versus 55.1% in 2011, a 145-basis-point improvement.

We were extremely pleased to achieve adjusted EBITDA of $383 million in 2012, representing an increase of $32 million or 9% over 2011.

Adjusting for DCP, adjusted EBITDA grew $38 million or 11%.

Modified EBITDA margin of 38.9% is an industry high and compares to a margin of 37.4% in 2011, 33.1% in 2010 and 24.4% in 2009.

Full-year diluted GAAP earnings per share was $6.38, adjusting for the nonrecurring tax valuation reversal I mentioned earlier, and the gain on sale of DCP.

2012 diluted GAAP earnings per share was $0.89 compared to a loss of $0.41 in 2011.

Full-year cash earnings per share, which we believe is a better reflection of our earnings versus reported GAAP EPS due to fresh starting impact and our tax loss carry forwards, was $4.33 versus $3.51 in 2011, an increase of 23%.

As of December 31, 2012, we had approximately $950 million of remaining net operating loss carry forwards.

Total capital spending net of property insurance recoveries in 2012 was $98 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 amendment to our credit facility and the $800 million 5.25% senior unsecured notes offerings that we completed in December.

The amendment allowed us to take advantage of very favorable conditions in the debt markets and reduced the interest rate payable on our tranche B term loan by 25 basis points, saving $1.5 million per year.

Of the $800 million in bond proceeds, we used $350 million to pay down our bank term loans, leaving the balance for share repurchases and other corporate purposes.

These transactions have positioned us very well.

In effect, we extended the maturity of a portion of the Company's debt and locked close to 60% of our total debt at historically low fixed rates.

Meanwhile, we maintained an industry low gross leverage ratio of 3.7 times as of December 31, 2012.

Reported net debt as of December 31 was $776 million.

The Company is in a very good position with $629 million of cash on hand at year end, no outstanding borrowings on its revolver and a net leverage ratio at December 31, 2012 of 2.0 times.

Also in December, our Board authorized an incremental $500 million of share repurchases through 2015.

We repurchased $134 million or 2.2 million shares in the fourth quarter using these $70 million of proceeds from our sale of DCP and a portion of the proceeds from our notes offering.

This took our full-year 2012 purchases to $232 million, or 4.2 million shares.

Accordingly, we ended the year with 53.8 million shares outstanding, which included the Project 350 shares that vested at the end of December.

In addition, we have repurchased another 3.2 million shares or $203 million between January 1, 2013 and February 19, 2013.

As of February 19, we had 50.6 million shares outstanding and $350 million remaining unspent under our share repurchase authorization.

As Jim indicated, we are very pleased with the great start on our 2013 Season Pass sales with double-digit growth over prior year.

As a result of our strong early momentum.

deferred revenue grew to $53 million as of December 31, 2012, a $15 million or 38% increase over prior year.

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

For the year, we were able to increase attendance by 1.4 million visits while slightly increasing guest spending per cap even as the proportion of Season Pass attendance increased significantly.

Our ongoing strategy to sell more Season Passes, improve yields and enhance product offerings, all while staying focused on cost management, has resulted in record EBITDA and strong cash flow generation and positions us well as we head into 2013.

Now, as we look to 2013, I would like to remind you of a few things.

First, the Company divested its stake in Dick Clark Productions at the end of Q3 2012, and therefore the related adjusted EBITDA of $5.5 million will not recur in the first nine months of 2013.

Second, in Q1 2012, we recorded approximately $3 million of business interruption insurance in revenue related to the Q3 2011 claim from hurricane Irene.

Third, Easter Sunday is March 31, a week earlier than last year.

Many school districts schedule their spring breaks around this holiday and we open many of our parks during the spring break week.

Therefore, we anticipate some attendance will shift from Q2 into Q1.

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

Thank you very much, John.

I'm very proud of our excellent performance in 2012.

As it relates to 2013, we are excited about our thrilling lineup of new rides, attractions and shows.

We will continue to introduce news in every park every year while listening to feedback from our guests and delivering relevant and ever-improving services across all of our offerings.

For example, in conjunction with our Season Pass strategy we recently introduced an all-season dining pass in all of our parks for 2013.

We successfully piloted the program in two of our parks in 2012 and it has been very well-received by our guests.

This program allows guests to enjoy both lunch and dinner at our parks throughout the season and underscores our commitment to provide exceptional value to our guests.

This is just one example of several initiatives we are rolling out in 2013, all with the goal of improving guest satisfaction and driving profitable recurring revenue growth.

There is no change to our corporate strategy.

We are laser-focused on the regional theme park industry and have the opportunity to grow and drive strong operating and financial performance for many years to come.

We're improving ticket yields, building attendance, growing in-park and other forms of revenue, all while carefully managing our operating costs.

With a highly recurring stream of revenue, EBITDA margins approaching 40% and a policy to spend 9% of revenue annually on new capital projects, our business generates a significant amount of free cash flow.

We are committed to providing a consistent and growing return of cash to our shareholders through dividends and share repurchases.

Since emergence from bankruptcy in 2010, Six Flags has returned approximately $650 million to shareholders.

Our capital allocation record speaks to the confidence that both our directors and management team have in the future of Six Flags, and to our alignment with shareholders.

We intend to leverage the opportunities before us and continue creating shareholder value in the near and long-term.

Marianne, at this point please open the call for any questions.

(Operator instructions) Ian Zaffino, Oppenheimer.

As far as the Season Passes, can you just give us an idea of the Season Passes you sold now that are in your deferred revenues?

How much of that is -- are you seeing a year-over-year price increase in the Season Passes that are sold in 2012 for the 2013 season versus the previous year?

Ian, we obviously won't break down the detail of Season Pass.

You have got the deferred revenue increase which is substantial at year end.

But what I can say and reinforce is that in every single category, we have taken pricing in 2013, including Season Passes.

Okay.

And then compared to -- are you giving -- I don't want to use the bad word of discounts -- but are you giving a greater discount, let's just say, if you purchase it in September or October for the following year, compared to if you are buying it in April or May of the current year?

So are you incentivizing people to buy earlier or the year before?

Absolutely, Ian.

That has always been the case that the earlier you buy a Season Pass, the better pricing to get.

But that has not changed from this year versus last year.

Right.

Concurrently, in terms of offers that are out there in the market that are true discounts, we have been reducing those every single year, including in 2013.

Okay.

So as you look at that strategy, though, are you, per se, over-incentivizing people that would have bought this ticket anyway in April or May by having them buy in earlier the previous fall?

No, we don't believe so.

If you look at our total attendance and our overall improvement not only in Season Pass holders but in total attendance, we have seen very nice increases.

If you look at our margins, we now have the leading margins in the industry at 38.9%.

So the vast majority of Season Pass sales still take place in the second quarter, which is where they have always been highest.

And we will continue to see that very high percentage there.

But it is clearly in our interest to lock in Season Pass holders early and convert single-day holders over to Season Passes because we generate more revenue, profit and cash.

Okay, that's very helpful.

And then, as far as the attendance shift into the first quarter of 2013 from the second quarter because of Easter, how many guests is that?

We don't provide guidance, so we can share that.

What I would tell you is that, clearly, we anticipate that there will be some shift because of the spring break being expanded into that last week of March.

Okay, alright, thank you very much.

Tim Conder, Wells Fargo.

First of all, congratulations on another good year, everyone.

A couple of things here, Jim and John -- I guess first of all, if you can give us any color.

If you want to give us the absolute percentages that would be great, but any color you can give us on the Season Passes year-over-year.

What percent of those are you selling on an installment basis versus straight out 100% cash payers?

Tim, we don't break that down, for obvious reasons, in terms of external information.

But we have seen very nice growth across all categories, including multi-pay options or easy-pay options and in terms of cash purchases.

Okay, so growth in all categories year-over-year?

All categories, yes.

Okay.

And any additional color?

Are we talking 10, 15, north of 20, just directionally in your year-over-year Season Pass growth at this point?

I think John described in his narrative there the buildup that we have seen in the deferred balance, and that is at sitting at 38% --

Correct.

-- John, the growth?

So that is very, very nice growth.

But I would be loath to describe the exact increase in Season Pass in there.

I will tell you that Season Pass is the single biggest part of that.

Okay, that helps, thank you, Jim.

And then, overall, you talked about your ticket prices in 2012, whether it was the day customer, the corporate group customer, the Season Pass customer -- all of those prices were up and you anticipate that, it sounds like, occurring for 2013 also.

Can you talk about any directional expectations in the in-park spending component?

Should we see that, with the growing base, see that accelerate here in 2013 and with your ability to manage that better?

I think that that's a really good question, Tim.

What I would say to you is that we were really very impressed with the way that the in-park spending grew not only in total dollar terms, but also the very nice performance from a per-cap perspective in 2012, given the increase in the number of Season Pass attendees that we had.

So, again, I cannot give you guidance to say this is what is going to happen for in-park in 2013, but I think the trends are very encouraging.

And when you think about some of the innovative new programs that we have in place, including the all-season dining programs and the expansion of our Flash Pass to all water parks and other programs that we have, we feel pretty good about the ability to continue to grow our revenue in the in-park side nicely over the next year.

Okay, and last question -- with investments that are being made by large destination parks and then other regional competitors in IT, do you feel comfortable at this point with your CRM, point-of-sale, all of the different IT-related systems for your business?

Absolutely.

We feel really comfortable.

We have investments pretty much every year over the last few years and continue to do that.

We have no requirement to spend above our $0.09 of revenue on the capital front, so there are no incremental investments required.

We are in a very good place, not only from an IT perspective, from a point-of-sale perspective, but also from a customer relationship management perspective.

And, Tim, we have been investing in that area over the last several years.

As Jim said, we are in very good shape, probably ahead of some of our competitors in that area.

We have increased and expanded our point-of-sale.

We now have moved to hand-held scanners at our ticket booths.

So I think that we're in good shape.

Great, thank you, gentlemen.

Tim, I want to add one thing, which I think you were going down the path of talking about investments by competitors on the destination side as well.

As you know, we really don't overlap with any of the destination players, apart from a couple of markets.

And even with investments that were made in 2012 by some of those players in the same markets, we had tremendous growth in those markets with our parks.

So I feel really good about the ability to continue with this news in every park strategy that we have put in place.

We've got several record-breaking new rides and shows that are coming out in 2013, and I am really looking forward to that year to show, again, just how strong Six Flags is.

Thank you for the additional color.

I appreciate that.

(Operator instructions) Ian Corydon, B. Riley & Co.

Perhaps it's self-evident in the numbers, but I was just curious how the fall and holiday promotion fared at the Mexico Park and if those will be continued.

They absolutely will be continued, Ian.

They were extremely successful and the park had several record days.

Very excited by the reception both to Christmas in the park, but also Fright Fest.

And I have to tell you, that park is on a roll for many reasons.

As you know, we have tremendous leadership there.

But in addition, these new initiatives combined with a brand-new roller coaster called The Joker that is coming in the next few weeks, I think, will set us up for another great year in Mexico.

That's great.

And then, I appreciate all the details you have provided, just a further question on the Season Passes.

How do you think about the trade-off between trying to drive higher yields there and just trying to drive a higher number of tickets sold?

Is there some sort of threshold that you expect to reach in terms of Season Pass mix?

There is, Ian.

We have a really smart team that focuses singularly on pricing.

And we talked about the fact that the initial approach that we would take in the first couple of years was really to bring ourselves back from an attendance perspective whilst growing the revenue, the pricing and the overall margins of the Company.

So now we are at these industry-leading margins, we see no reason to stop there.

We think we can continue to grow attendance and grow price at the same time.

Obviously, we keep a very close eye on this because, with a tough economy, you never want to go so far that your guests feel like they are being gouged.

But we do feel right now we have the ability to do both, and as result we have taken pricing in every category, and we should be able to see some is returns from that in the coming year.

Great, thank you.

I will now turn it back to Jim for closing remarks.

Thank you, Marianne.

So we are very, very -- if you can't tell from my voice, but also from John's, the joy in John's voice as he spoke there -- we are extremely excited about the future at Six Flags and proud of the results that we have achieved.

We hope that you will visit one or more of our parks this year and experience firsthand what we have to offer.

We are sure you will leave with fond memories that will last a lifetime.

I will also like to thank you for your ongoing support of Six Flags and our entire team.

Take care.

This does conclude today's conference call.

You may disconnect your phones at this time.