Six Flags Entertainment Corp (SIX) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to Six Flags first-quarter 2013 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 the presentation, we will conduct a question-and-answer session.

(Operator Instructions).

I would now like to turn the conference over to Nancy Kresja, Senior Vice President of Investor Relations and Corporate Communications for Six Flags.

Thank you, Marianne.

Good morning and welcome for joining our call.

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

We will begin our 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.

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 Report, Quarterly Reports or other forms filed or furnished with the SEC.

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

Good morning to everyone on the call.

We have kicked off our 2013 season with a superb quarter, executing in all key areas of our strategy and registering on a comparable basis 38% revenue growth and 25% Adjusted EBITDA growth.

Our strong performance even after adjusting for the calendar shifts relating to spring break was driven by guest-focused investments in our parks, relevant marketing initiatives, penetration of Season Pass sales and our continued drive for operational efficiencies.

On the back of another strong quarter our last 12 months cash earnings-per-share now stands at $4.50, an increase of $1.16 from one year ago, and we are keenly focused on achieving our aspirational targets, $500 million of Modified EBITDA, by 2015, which equates to almost $6 of cash earnings-per-share.

During the quarter we were also very active in repurchasing our own stock and as of today have fully utilized the entire $450 million that we raised in December for share repurchases.

We believe both share repurchases and dividend, which currently are in excess of a 5% yield, represent tremendous value for our shareholders.

As it relates to our operations, we are really well-positioned as we head into the heart of our operating season.

We have successfully executed price increases across our parks and are still seeing very strong Season Pass sales growth coming into the season.

To further drive attendance we are currently instituting a number of demographically targeted guest attractions, including some world record breakers.

In Mexico, I personally witnessed the diabolical power of our new Joker Fun House and Coaster.

Guests of all ages love this attraction and the Park is reaping the benefits of what was a modest investment in moving a ride from another park.

This is an excellent example of asset utilization that also is driving guest excellence as we enhance the right experience and doubled rider throughput per hour in the process.

At Six Flags Magic Mountain in Los Angeles, we have Full Throttle, the world's tallest looping coaster, where for the first time ever you can ride up and over the outside of the loop.

We mounted the final section of track a few weeks ago and the coaster looks phenomenal.

The Texas SkyScreamer at Six Flags Over Texas is the world's tallest swing ride at over 400 feet or twice the height of the Statue of Liberty.

When you stand next to it, it really does look like it reaches into the sky and I cannot wait to see the breathtaking views of both the Dallas and Fort Worth skylines from this record-breaking ride.

Iron Rattler at Fiesta, Texas, in San Antonio also looks fabulous.

The ride itself is pure adrenaline but smooth as silk.

It is the second hybrid wooden coaster of its kind, the first being the new Texas Giant, which was introduced at Six Flags Over Texas two years ago.

You may recall that the Giant won the industry's Best New Ride of the Year Award in 2011.

The Iron Rattler uses similar technology and is the first hybrid coaster that takes riders through a barrel roll.

You really have to be ready to show your fangs when you ride this beast.

With the introduction of Wild Adventure Safari, Six Flags Great Adventure has become the largest theme park in the world.

Safari will be a unique and exhilarating experience for our guests as they encounter up to 1,200 animals from six continents while visiting the largest drive-through safari outside of Africa.

In addition to these four world record-breaking attractions and in alignment with our strategy, we are introducing something new at every single park this year.

The new attractions range from water slides to smaller coasters, water rides, nighttime events and a water-based circ show.

Without a doubt, we believe 2013 is the best lineup of new rides and attractions in our Company's history.

Why is this important?

This is important because our guests are just like you and me.

They love news and they love something fun and different to try.

This is what pulls guests back into our parks.

Our innovation strategy is definitely working.

Now on to the real entertainment that we have lined up for you on this call -- John, would you like to share a few more details on our first-quarter financial results?

Sure.

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

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

Attendance was very strong, up 525,000 guests or 41%.

The growth was the result of, one, a shift forward of the Easter holiday and related school spring breaks, which accounted for approximately half of the increase and will negatively impact the second quarter; second, strong Season Pass sales; and, third, impactful marketing programs continue to highlight the outstanding value and offerings of our parks.

Reported guest per capita spending decreased $0.88.

However, as you may recall, we received $3 million of business interruption insurance proceeds in the first quarter of 2012 associated with Hurricane Irene, which, as we reported last year, favorably impacted guest per capita spending.

If you adjust prior year numbers for the business interruption insurance proceeds, total guest spending actually increased $1.41 or 4%, driven by a ticket revenue per capita increase of $1.32 or 6% and an in-park revenue per capita increase of $0.09.

This increase was the direct result of our strategy to increase pricing and attendance and enhance our in-park offerings, partially offset by lower per capita spending normally associated with a stronger Season Pass attendance mix.

We continued to see success in driving Season Pass sales and largely due to that success our deferred revenue at the end of the quarter was $92 million, an increase of $27 million or 41.3% over prior year.

Continued success in Season Pass sales could dampen per capita gains.

However, we remain extremely focused on managing our ticket yields and we expect both strategies to enhance the absolute revenue, profitability and cash flow at Six Flags.

Total revenue in the quarter increased $21 million or 31.9%.

Adjusting prior-year revenue for the BI insurance proceeds, revenue increased 38.1% with ticket and in-park revenue up 49.2% and 41.2%, respectively.

Moving to the cost side, cost of sales increased $2 million as a result of strong in-park revenue.

Our focus on cost-efficiencies in promoting higher margin products reduced cost of sales as a percentage of revenue to 24.1% versus 24.6% in Q1 2012.

Cash operating and SG&A expenses increased $9 million or 8.4%.

This increase was due to operating and marketing costs associated with the earlier spring break as well as merit inflation.

Adjusted EBITDA improved $7.5 million in the quarter but adjusting prior-year numbers for the BIA insurance and the $1.9 million from DCP, which was sold in the third quarter of last year, Adjusted EBITDA improved by $12.4 million or 24.6%.

LTM Adjusted EBITDA grew to $390 million and Modified EBITDA margin grew to an industry-leading 39.1%, both records for the Company.

As it relates to our capital structure, reported net debt as of March 31 was $1.267 billion as compared to $776 million at December 31, 2012, an increase of $491 million.

Our net leverage ratio of 3.2 times remains the lowest in the industry.

Free cash flow in the quarter was negative $87 million, and we always see an outflow of cash from operations in the first quarter as most of our parks are closed and we have spending on new capital projects.

In addition, we paid $45 million in dividends and purchased $375 million of stock in the quarter.

Through April 19 of this year, we have spent $404 million to purchase 6.1 million shares of our stock for an average cost of $66.17 per share.

When you combine this with the $46 million spent in December of last year, we have now fully utilized the $450 million of proceeds from the December bond offering and have further capacity under our credit agreement for additional share repurchases in the balance of the year.

The outstanding share count as of April 19 was 47.8 million shares, down from 53.8 million shares at December 31.

Our LTM cash EPS at the end of the quarter was $4.50 per share.

The Company is in an excellent liquidity position with $137 million of cash on hand and no outstanding balance on our $200 million revolving credit facility.

As of this morning, there have been no partnership Park put obligations exercised although we may receive some prior to the April 30 deadline.

Given our new capital introductions, which will be launched in the second quarter, our focus on and continued strength in Season Pass sales, our park-centric marketing campaign and our relentless focus on managing costs, I think we are very well positioned for the 2013 season.

So now, I will turn the call back over to Jim.

Thanks very much, John.

As I mentioned at the beginning of the call, we are off to a really nice start for the 2013 season.

Our team is energized and laser-focused on executing on our business plan for this year and beyond.

Our focus is on the basics.

We are committed to taking care of our guests in an excellent way so that they want to come back over and over again.

We are similarly committed to taking care of our shareholders by building on our record of consistent earnings growth and returning excess cash to shareholders.

At this point, Marianne, could you please open the call up for any questions?

(Operator Instructions).

Afua Ahwoi with Goldman Sachs.

Two questions -- first, on the buyback, giving you have run through the authorization you have outstanding, how should we think about on the go forward, should we expect a formal announcement or are you just going to continue to buy back, given your credit facilities give you that ability?

And then second, on pricing, should we actually think about the difference with the split between reduction of discounts and actually raising ticket prices, whether it's on the Season Pass side or even on the at-the-gate prices?

Two questions -- John, do you want to take the buyback?

Yes.

In terms of on the buyback we have approximately, as of today, $114 million remaining of our Board authorization for a buyback.

And we can do an incremental amount in addition to that through the credit agreement.

So we are not going to disclose exactly what our plans are in terms of the remainder of the year.

To your question, once we are at the point where we have utilized all $114 million that remains under the Board authorization, we would then come back and make some sort of announcement.

But right now we would buy at our own pace.

With regard to pricing, we don't give guidance as to exactly what has led to increases in price.

Rather, all we will do is say that it has come in both areas, and so we did take our main gate pricing up and we also have reduced our discounts.

So, both will be contributing -- not only have contributed but will continue to contribute going forward.

Ian Zaffino of Oppenheimer & Co.

As far as looking at your project 500 goal, how do you get -- and maybe I was just -- plenty of times before, but give me an idea of as you look between the admissions per cap and then also in-park spend, which is going to be the bigger driver?

Is it going to be the pricing side?

Is it going to be the in-park spend?

Where do you think you have more room to go?

I think it's a really good question.

And much like Afua's question, I can't give you this is the breakdown, here it is.

But I can give you a general view as to what we believe.

I think we have opportunities across many fronts and I really do believe that we are going to see growth driven by our Season Pass strategy.

We are already seeing that and we anticipate continuing to see that improvement in attendance.

I think concurrently we will see increases because of pure pricing and reductions of discounts, and that will be a major contributor for us.

And then I think that incrementally, because we will have more people in the park, whilst we might face a little bit of pressure on the in-park spending per capita, total revenue will grow.

And so I see all three of those areas as being huge opportunities for us going forward.

I'll give you an example of why I think that in-park spending is a growth opportunity as well.

Not only will we see more people in the park through our Season Pass strategy, but in addition, as we have said, we have introduced an all-season dining pass which we think is a great value in a tough economy and we think that's going to help to drive our revenue forward.

So I would say there are numerous opportunities but those three would be the biggest from a pure financial perspective and, of course, there are others that we are targeting maybe at a slightly lower level.

As you look at all your in-park spend initiatives, is it really this dining pass that's going to be the biggest driver?

Or are there other opportunities?

How do you rank, if you could, your initiatives?

Where would let's just say dining be on that list?

Where would some of the other initiatives that you have in the hopper rank on that list?

I think that there really are multiple initiatives that are ongoing.

Our team across the Company, across parks are coming up with innovative new ideas.

But I think you have to remember that food represents about 50% of our in-park revenue.

And this program is, in a place where people who may not traditionally spend, we are targeting those to be able to spend in our park.

So I would say to you that are single biggest opportunity right now is in-park, is this all season dining.

But I would add that there are others including our Flash Park program that we think will give us incremental revenue as well.

Thank you very much, good quarter.

James Hardiman of Longbow Research.

Congrats on a great start to the year.

A couple quick questions here -- I just want to make sure I understand the puts and takes of the calendar shift here.

I realize you don't give much in the way of guidance but any guide points that you could give us with respect to the second quarter of the rest of the year would be great.

I think you mentioned that half of the attendance gain, half of that $525,000 was a function of the calendar.

Do you expect that to be a zero-sum shift?

In other words, should I just take half of that $525,000 and back that out of my second-quarter number and basically use that as a baseline?

Are there any other calendar shifts that we should be aware of over the course of the rest of the year?

Yes.

In terms of the remainder of the year there really are no significant calendar shifts for the remainder of the year.

I would say the significant impact was in the first quarter.

And approximately, we said, half of that increase that we saw was due to opening our parks earlier because of the shift in spring break.

So yes, you should assume that that would be a negative impact in the second quarter.

Great.

And then the second quarter last year appeared to be the biggest beneficiary certainly on the attendance side from the new rides and attractions in 2012.

It sounds like you guys are really bullish on the CapEx program this year.

Do you expect a similar program, just given that the people that are most excited to participate in these new rides are most likely to come in the second quarter?

Do we expect a similar pattern to play out this year versus last?

I think you know we don't provide guidance on what is going to happen in any one quarter.

And we referenced on numerous calls that we try to track how we are doing on an LTM basis because that gives you the best sense of how the business is doing.

So I won't predict what will happen in the second quarter.

What I will say is that we continue to see very nice momentum, LTM on attendance, on revenue, on profitability.

And the capital lineup that we have -- and I really believe that 2012 was the best lineup, but I am being told now and I do also believe now that 2013 is going to be even better.

And I have to believe that our guests who are now getting more and more aware of what we are doing will see that is a big positive.

So I won't predict for you what will happen but I will tell you that I feel pretty good about the direction we are headed.

Got it.

And then last question, I don't know how much of this you can give us.

Obviously you are not going to quantify the price increases, Season Passes versus front gate.

I think you have commented in the past about how in 2012 sort of that breakeven point, right, the point at which the rational customer would go toward Season Passes versus the Daily Passes, was skewed a little bit towards Season Passes last year, from a relative pricing perspective.

How should I think about that?

If you could give us any color for 2013 -- if I know I am coming to the park a certain number of times in 2013, is it going to be more or less attractive to buy Season's Passes or is it pretty comparable to what was in 2012?

We continue to believe that it's highly attractive to buy a Season Pass.

I think, given the numbers that John threw out earlier about what we are seeing on the Season Pass front, it would suggest that our guests believe that as well.

So I think it's always a better value to be able to utilize the Season Pass.

I think that the percentage of guests who visit who are Season Pass holders will increase.

I hope that answers your question.

Ian Corydon of B. Riley & Co.

A lot of questions have been answered but I just wanted to drill down on sponsorship licensing.

You saw that tick up year over year for the first time in quite a while.

I'm just wondering if we can expect that to grow and maybe if we can get an update on your initiatives to try to build on that.

It's an excellent question.

We are very pleased to see the trends on the corporate sponsorship side improving.

And I really believe that the last couple of years have all been about eliminating sponsorship deals that might have given us revenue but very little in the way of profit or cash flow.

We are now through that process so we do anticipate some modest increases with regard to this line item.

And our team -- we have an excellent team that is laser-focused on this.

[Kevin Coyne] of Goldman Sachs.

I just had one on season ticket sales.

I was just wondering, is the strength broad-based like across most of the parks?

Or, I guess, related to some of the disruption in New Jersey related to Hurricane Sandy, are you seeing perhaps more strength in your season ticket sales there because of some other amusement options being off-line?

It's a great question, actually, Kevin.

And you are right; there was some impact on some amusement options.

But those really were not major competitors for us.

I think the really good news that I would tell you is that we are seeing growth in every single park.

There is nowhere that we have not seen tremendous improvement.

So it is broad-based, across the board.

Tim Conder, Wells Fargo.

Thank you.

I apologize, joined the call late, we were on another overlapping call.

A couple of questions, everyone.

You talked about the in-park spend opportunities.

Can you update us on where you are as that relates to the Water Parks themselves?

Any new initiatives there this year, Jim?

And then also just give us a little bit of an update as to your ability now, taking the data from your CRM and the point of sale, where you stand with that in being able to really mind that for additional in-park spending opportunities.

That's a very good set of questions there.

I think the Water Parks themselves, I believe, are in very good shape.

You may remember that partway through the year last year we rolled out the low Q options, our Flash Pass, in the Water Parks.

This will be the first year where we have a full year in the Water Parks.

And I think that is going to be very powerful for us.

I would also add that in pretty much every Water Park not only have we got brand-new attractions to pull people in, so we've got new water slides, new attractions in every single Water Park, but we've also changed several of the retailing and food options.

So we've got new dining menus and we also have several new restaurants.

So we are targeting several opportunities in our Water Parks and I think my belief is that, given that plus pricing increases we've taken, we should be in pretty good shape for this year.

The second question was around CRM.

And I know this has come upon other calls that we've listened to.

And I have to tell you that we are in really incredible shape and have been for a while.

I think I mentioned that one of the beauties of Six Flags was the abundance of data that existed.

We are right up to date in terms of IT, so we know exactly what we are selling pretty much in every park, at every retail outlet or dining operation, on an ongoing basis.

So we are already mining that and will continue to do so going forward.

John, do you want to add to that?

No.

I would just echo Jim's comments that I think we are in great shape as it relates to our systems and particularly around CRM.

We are investing dollars every year to enhance our CRM.

The good news is that we don't have any significant investments that need to be made.

We have made big investments over the last few years.

I think the other piece that comes up a lot and I want to reference is dynamic pricing.

Again, on that front we are in a very good place.

We've actually utilized dynamic pricing at various points and we continue to.

A really good example of that would be at Fright Fest last year, we were able to utilize that on certain days that are more popular than others, to be able to spread attendance.

So overall, from an IT CRM perspective, I feel like we're in good shape but we will always keep an eye out to see if there's anything else that we can do to make us stronger.

John, I apologize.

Again, I joined the call late.

Can you just give me a quote on your Season Passes at this point year over year?

In terms of the Season Passes we don't disclose the actual dollar amount of the sales or the attendance mix.

But I always refer back to the deferred revenue, which was up 41%.

It's in the press release.

It shows the -- so, it's an increase of $27 million or $0.41 compared to March of 2012.

Okay, and then last year on the Season Passes roughly 44% of your attendance was Season Pass.

Correct?

That's correct.

Yes.

For the entire year.

And you obviously expect that to go up this year?

We do.

(Operator Instructions).

Joel Simkins of Credit Suisse.

A couple of quick questions here.

The first one is, you did recently announced this weather guarantee for the New England park.

I would like to get some more color on that.

Obviously, you guys were pretty pleased with the Pass.

This progress on Season Pass sales year to date.

Can you give us a sense of what your advertising mix has been this year versus last year and how you plan to shift that, perhaps, as we head into the heart of the season?

Yes.

With regard to the weather guarantee, we have been testing this option in New England.

And I think that really the real benefit here is guest perception.

And what we have found is that people really appreciate the fact that you would offer to allow them to come back on another day if the weather is bad for a couple of hours or more.

And so we are testing it in New England.

Obviously, the park has not been opened that long but the initial reaction is very positive.

And as I said, it has very little negative financial impact but huge guest perception upside.

And I'd rather give you more of a flavor for this towards the end of the year, once we have had a full-year test.

But my view would be that this is something that would probably roll out across all our parks.

Okay, and again the question following up on your advertising?

Advertising mix -- can I just clarify the question?

Is it the timing of the spend or the type of spend?

Really more of the type of spend.

Yes, the type of spend it mimics very closely what we did last year so successfully.

So you may remember that, historically, the Company would have spent a bulk of its money on TV advertising and that would be national TV advertising.

And the spend shift that has taken place in the last year and a half, two years has really been to ensure that we not only have TV advertising but that that TV advertising is more local in nature, the local channels.

But then we have also radically increased our spending online.

We have gone back to utilizing billboards.

We've really pushed up our spend on radio.

And then finally, with our relationship with one of our partners, Coca-Cola, we have cinema advertising.

And the combination of all of those really has resulted in a much higher impact spend than we had previously.

I think that's part of the reason that we are seeing such success with regard to our new capital story, because historically people may not have been aware of what we were doing.

Now they know, because we are telling local people within 300 miles of our parks what is going on at their local park.

At this time there are no other questions.

Thanks, Marianne.

Well, we really appreciate all of you joining our call today.

I want to say that I hope you can take the time to visit at least one of our beautiful parks this season in order to experience all that we have to offer.

Meanwhile, I do want to make sure that you know that you can rest assured that our team is focused on delighting our guests and driving incremental shareholder value in the coming quarters and years ahead.

Take care and I hope to see you soon.

This does conclude today's conference call.

You may disconnect your phones at this time.