Six Flags Entertainment Corp (SIX) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Six Flags fourth-quarter and full-year 2014 earnings conference call.

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

During the presentation all lines will be in a listen-only mode.

After the speakers' remarks, we will conduct a question-and-answer session.

(Operator Instructions) I will now turn the call over to Nancy Krejsa, Senior Vice President, Investor Relations and Corporate Communications for Six Flags.

Good morning and welcome to our 2014 earnings call.

Jim Reid-Anderson, our Chairman, President and CEO; and John Duffey, our Chief Financial Officer, are with us this morning.

We're going to start 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.

The Company undertakes no obligation to update or revise these statements.

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

You can find both the detailed discussion of business risks and reconciliations of our 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.

Thank you very much, Nancy.

Good morning, everyone.

2014 was another fantastic year for the Company as we grew revenue 6% and adjusted EBITDA by 9%, making it our fifth consecutive year of record performance.

We finished the year brilliantly with fourth-quarter revenue growing 19% while both modified and adjusted EBITDA grew by 30%.

Despite a softer than normal start to the season, the strength of our full-year financial performance reinforces the consistency of our earnings growth, validates our business strategy, and reinforces that Six Flags has the best employees in the industry.

I am extremely proud of our team and the fact that we continue to raise the bar on our performance each year through our industry-leading innovation and execution.

Our strong performance in 2014 resulted once again from the high-quality execution of our focused business strategy that has been the backbone of our success over the last five years.

First and foremost, our strategy is focused on delighting our guests and ensuring they have a fun, safe, and thrilling experience when they visit our parks.

We collect and closely monitor detailed feedback from millions of guests each year, and we have received increasingly higher satisfaction ratings from our guests for each of the last five years.

2014 was no exception.

We once again achieved new record-high ratings in all key categories of guest satisfaction such as safety, ride experience, value for the money, and overall satisfaction.

A second imperative of our strategy is innovation.

And Six Flags continues to lead the way in innovation, not only in introducing new rides and attractions but also in areas such as our All-Season Dining Pass, membership plan, online ticketing and pricing capabilities, corporate alliances, mobile applications, and many other areas.

We take great pride in the fact that Six Flags is at the forefront of innovation in our industry, and was the only theme park company listed in InformationWeek's Elite 100 group of innovators in 2014.

A third area of focus for us is operational excellence.

We continuously strive to improve the safety, quality, and efficiency of our operations through sharing best practices across parks, standardizing our operations, and effectively managing our cost base.

Our consistent success in this area has allowed us to earn our industry-high modified EBITDA margin of nearly 41%, and we have further opportunity for margin expansion for years to come as we grow revenue and leverage our infrastructure.

A fourth area is our people, because I believe our employees are our most important asset.

Developing them and building high-performance culture at Six Flags is what gives us a competitive edge.

And so every year, we invest more into our employee benefit and training programs, and ensure every team member knows how they can personally contribute to our guest experience and the overall success of the Company.

We are also one of the few companies in North America where all eligible full-time employees are owners of the Company and consequently are closely aligned with shareholders.

The final key imperative is financial excellence.

And we are keenly focused on generating ever-improving shareholder value.

It starts with our approach to strategic pricing and includes other initiatives such as further penetrating Season Pass and membership sales and effectively managing our costs.

We remain prudent and efficient with our capital investments, where we consistently invest 9% of revenue.

We are the most profitable regional theme park company in the world.

And our 31.6% modified EBITDA less CapEx margin is hundreds of basis points higher than any other company in the regional theme park space.

An important component of financial excellence is our capital allocation policy, which represents a tremendous value for our shareholders.

We will continue to use excess cash flow to reward our shareholders with a stable and increasing cash dividend and use the balance to purchase shares.

I am extremely pleased that our stock generated a 23% return on investment for our shareholders in 2014, the highest return in the industry.

And you have my personal commitment that we will work very hard to do even better in 2015 and beyond.

In summary, it really was an excellent quarter and a great year for both the company and our shareholders.

We are really looking forward to the 2015 season.

Now, I'm going to ask John Duffey to provide more details in our financial results.

John?

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

We are very pleased with how we finished the year as we drove solid attendance gains, revenue growth, and record profitability in the fourth quarter.

I'll start with a discussion of our fourth-quarter performance and then provide details for the full-year 2014.

The fourth quarter of each year is a special time at Six Flags when we delight our guests in unique ways with two of our signature offerings, Fright Fest and Holiday in the Park.

During Fright Fest we transform our parks into Halloween-themed scare zones, and for Holiday in the Park we transform our parks into winter wonderlands with millions of sparkling lights, seasonal food and shows, and holiday decorations.

These unique events extend our operating season, allowing us to utilize our available capacity, leverage our fixed costs, and provide a diversified product offering to our guests.

Both events have grown to become significant brands for us and an opportunity to sell more Season Passes and memberships.

Revenue for the quarter of $184 million was the highest fourth-quarter revenue in the history of the Company, increasing $29 million or 19.1% over prior-year.

This increase was driven by a 546,000 or 14.7% gain in attendance and a $1.61 or 3.9% increase in total revenue per capita.

The solid attendance gain was the result of a number of contributing factors.

First, as I mentioned earlier, we continued to make investments in both our Fright Fest and Holiday in the Park events to make these great brands even bigger and better.

In addition, we added Holiday in the Park at Six Flags Magic Mountain in Los Angeles and Six Flags Over Georgia in Atlanta.

Second, as we have shared previously, our strategy is to increase the penetration of both Season Passes and memberships.

We experienced very good sales of our 2015 Season Passes, which we began selling at the end of August.

Guests who purchased a 2015 Season Pass could also visit during our fourth quarter Fright Fest and Holiday in the Park events.

A third driver of our attendance growth was the timing of Halloween, which fell on a Friday this year and provided us with an extra weekend for Fright Fest.

Admissions revenue per capita grew by $1.20 or 5.6% despite a higher Season Pass and membership attendance mix.

This increase, combined with the higher attendance, resulted in total admission revenue increasing $16.7 million or 21.1%.

We are also especially pleased with the growth we saw in in-park revenue in the quarter, which increased $8 million or 13.1% despite the downward pressure on per capita spending from the higher Season Pass mix.

In addition, we are very pleased with our progress on the international front.

We recognized $4 million of revenue in the quarter associated with our international initiatives in the Middle East and China.

These international partnerships offer a stable and growing source of revenue for our Company with no capital investment.

Six Flags' globally recognized brand and industry-leading operations have attracted interest from several potential partners, and we are actively engaged in discussions in many international markets.

We believe our two existing partnerships are just beginning of a large international expansion opportunity for Six Flags over the next decade.

Cash operating and SG&A expenses increased $17 million in the quarter versus prior year, primarily due to the increased labor and marketing cost related to Fright Fest and Holiday in the Park, as well as Internet national development-related cost.

The strong revenue growth resulted in adjusted EBITDA of $46.2 million versus $35.6 million in the fourth quarter of 2013, a 29.8% increase.

Modified EBITDA margin grew by 206 basis points.

Moving to the full-year 2014 performance, total revenue for the year increased $66 million or 5.9% over 2013 as the result of a 6.5% increase in admission revenue and a 2.6% increase in in-park revenue.

Total guest spending per capita was a record $42.97, an increase of $2.79 or 6.9% with admissions per cap up $1.99 and in-park per caps up $0.80.

Although the admissions per caps and in-park per caps were dampened by the higher Season Pass and membership mix, which increased to 50% in 2014 versus 48% in 2013, our strong offerings and innovation continue to provide us with the opportunity to increase pricing across all of our ticket types, which was evidenced by the 8.7% growth in admissions per capita revenue.

We were extremely pleased to achieve adjusted EBITDA of $439 million in 2014, representing an increase of $35 million or 8.7% over 2013.

You may recall that the 2013 modified EBITDA margin was an industry high of 40%.

Our focused strategy to drive revenue through strategic pricing, enhanced product offerings, and our international initiatives while at the same time leveraging our cost structure increased our [2004] modified EBITDA margin another 57 basis points to 40.6% as we continue to lead the industry.

We firmly believe this focused strategy will deliver further margin improvement in the years to come.

Full-year diluted GAAP earnings per share was $0.77 versus $1.18 in 2013.

As we mentioned on the third-quarter call, we begin taking a non-cash compensation charge related to Project 500 as the achievement of the $500 million 2015 modified EBITDA target became probable.

An additional charge of $46 million was recorded in the fourth quarter relating to Project 500, bringing the total 2014 charge to $119 million.

Excluding the non-cash compensation charge associated with Project 500, 2014 full-year diluted earnings per share was $1.53, an increase of $0.35 or 30%.

I also want to mention that since our 2014 modified EBITDA of $477 million exceeded the $475 million early achievement target, a portion of the Project 500 shares or approximately 1.7 million shares will be granted in the first quarter of 2015.

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 impacts and our tax loss carryforwards, was $2.63.

As of December 31, 2014, we had $0.6 billion of net operating loss carryforwards remaining.

Due to the NOL and other tax attributes we anticipate our annual cash taxes to be minimal through at least 2018.

And we continue to assess longer-term options.

Total capital spending in 2014 was $108 million, in line with our targeted rate of 9% of revenue.

We continued to increase our return on invested capital, which was 15.4% in 2014, up from 13.8% in 2013.

Reported net debt as of December 31 was $1.32 billion.

The Company is in a very good position with significant cash on hand at year-end, no outstanding borrowings on its revolver, and a net leverage ratio at December 31, 2014 of 3.0 times.

Our 11% dividend increase in the fourth quarter brings our annual cash dividend to $2.08, and we are committed to growing our dividend annually.

In addition, we repurchased $77 million or 2.1 million shares in the fourth quarter, which took our full year 2014 purchases to $195 million or 5.2 million shares.

And our ended the year outstanding share count down to 92.9 million shares.

We have $299 million remaining on our current share repurchase authorization, and we continue to believe that repurchasing our shares represents a tremendous value for shareholders.

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

We were able to partially offset the weather-related attendance softness we saw in the first half of the year by increasing attendance in the second half of the year by 4% with strong marketable capital, excellent marketing, and a successful Season Pass and membership strategy.

We also increased guest spending per capita even with a higher proportion of Season Pass and membership attendance.

And we effectively leveraged our cost infrastructure, resulting in record EBITDA, a record modified EBITDA margin, and excellent cash flow generation.

Our significant attendance gains in the second half of 2014 reinforces our belief that we are in the middle innings of our long-term plan to grow earnings by improving ticket prices while at same time increasing attendance.

And we are confident that we can continue to execute on this plan.

We feel very good heading into the 2015 operating season.

Our active base of Season Pass holders and members is up 25% as of December 31.

We are confident in our Season Pass strategy and, in particular, the membership component, which continues to grow and is a key driver of guest retention.

Our membership program, which automatically renews members after one year, has created a highly reliable and recurring cash flow stream for the Company.

I am confident that 2015 will be another record year for the Company.

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

Thank you very much, John.

As we look forward, we are now focused on delivering an exciting and fun-filled 2015 season for our guests.

The majority of our planning is complete and execution is well underway.

As always, we have several world record-breaking rides that are generating excellent buzz in the media.

These along with several other initiatives such as further penetrating sales of our Season Pass, membership plan, and All-Season Dining Pass, will continue to build momentum for us.

As John noted, we are also extremely encouraged by the fact that are active base of passholders is the highest it has ever been at this time of year.

I'm really confident that our strategic pricing, yield, and Season Pass initiatives along with our continued focus on in-park revenue and growth in international licensing will continue to create value for our shareholders for many years to come.

Our Company has come a long way in the last five years.

Guest satisfaction levels are at all-time highs.

Employee morale is the best it has ever been.

EBITDA and free cash flow have more than doubled.

Our stock price is up sixfold.

And we have returned more than $1.5 billion to our shareholders through cash dividends and share repurchases, all while maintaining a very healthy balance sheet.

At almost 5%, our dividend yield is more than double the S&P 500 and one of the most attractive yields in the market.

In addition, our cash EPS CAGR has almost trebled the S&P 500 over the last five years, putting us in an elite category of companies driving both yield and growth.

I realize I've said this before, but I have never been more confident in our future than I am today.

It's really exciting to realize that are consistent execution and success over the last five years has built a broader and more stable foundation for the Company and the Six Flags brand than ever before.

And that stronger foundation opens up new opportunities for further growth.

So while our short-term focus is on delivering a safe, fun, and thrilling experience for each and every guest, our long-term sights are now set on delivering $600 million of modified EBITDA by 2017, which represents almost $3.75 of cash earnings per share.

And I truly cannot imagine a better team to accomplish those goals than my colleagues right here at Six Flags.

At this point, I'm going to open the call's up for any questions.

Tasha?

(Operator Instructions) Afua Ahwoi.

Just a couple of questions for me, just two questions.

First of all, do you have any sense of how the calendar, the school calendar is shaping up in 2015 compared to last year?

Understandably the weather has been tougher this year, but maybe it's a little better versus last year.

But how does it look like versus history?

And then is there any sense you can give us of how much the Holiday in the Park at the two new parks helped 4Q revenues question as it was much, much better than we thought.

Sure.

First on the calendars, the calendars look very similar year over year prior to any storms.

We remain hopeful that we don't see the school -- the negative effect that we saw last year.

But to be honest with you, we're not through the winter yet.

It's too early to know whether schools will make any decisions that would negatively impact our parks, as we have limited visibility today.

But I'm certainly very hopeful that that could work in our favor.

With regard to the second question, Holiday in the Park, we are not going to disclose how much that generated incrementally.

But as you've seen, from a 19% revenue growth and 30% EBITDA growth, they had an effect.

And it was extremely positive and very, very well received by our guests.

In addition, when we look at the guest satisfaction scores for those events, they were very high.

So, we look on this as a growing area for us, very excited and very pleased with the results.

And just to add in terms of the Holiday in the Park, we had talked about adding that in LA and in Atlanta.

LA was actually open last year but did not have Holiday in the Park.

So that was an incremental offering for them.

Joel Simkins.

Jim, I'm ready to ride these rides.

Let's get them open sooner than expected.

But in all seriousness, can you just help us bridge the gap here a little bit through Project 600, getting a lot of questions from investors in terms of the cadence of attendance growth in that target versus pricing.

How do you see that unfolding over the next couple years?

I'll be ready to ride the rides anytime you want with you.

Just let me know and we'll make sure we do that together.

I'm very excited about them.

With regard to Project 600, as you know, we don't disclose the specific elements of the growth.

But it's fairly big growth and it comes in a number of areas.

And I would break them down into three major categories.

The single biggest category would be pricing, but the other two categories are also material.

And that would be further attendance and Season Pass penetration and our international growth revenue.

I think those three elements will drive success with Project 600.

We're not assuming that we are acquiring anything.

It's all organic growth.

And two quick follow-up questions.

John's prepared remarks, he talked about continued large expansion opportunities in the international market.

So you got the two deals that have been announced.

How should we thinking about the pace or velocity of more deals in 2015?

And then just another follow-up as well -- obviously you guys have come a long way in the last few years.

The balance sheet is in great shape.

You've demonstrated ability to drive margins.

With that in mind, how are you still thinking about M&A, and whether that is something you guys would feel comfortable about?

I'll let John take the international piece and I'll take the M&A.

In terms of international, we have announced two deals, the Dubai and China.

And I mentioned in my earlier comments that we believe that there are other opportunities even outside those two markets.

And so, we continue to pursue those opportunities.

There are a number of places throughout the world in other Asia markets, Latin America, where we think that with the growing populations, growing middle-class, that they represent great opportunities for us.

I can't get into any real specifics in terms of where we are looking and who we are talking to.

But rest assured we continue to have discussions.

I think we can say, John, it's fair to say that our primary focus would be Asia, elements of Asia, India, obviously China.

We've got very good position already.

But we'd also look at other areas including Latin America, where we have a very strong presence already and think we could expand there.

So there are very specific places, specific partners that we are dealing with right now, Joel, and we are excited about this.

But obviously it would be highly speculative of us to say here's what we're going to do before we have anything formally signed.

With regard to your second question, it's an excellent question.

We are always assessing M&A opportunities.

We are unlikely to pursue any deals that don't have a very short payback.

And we would look at almost anything within the regional theme park space, whether it's individual parks or groups of parks.

But the price would need to be right to generate great and attractive returns for our shareholders.

And I would just finish up by saying that there are no active deals that interest us it at present.

That's very helpful.

I appreciate it.

Thank you.

Barton Crockett.

This is Howard Ma in for Barton.

To follow up on international licensing opportunities, to what extent -- to the extent that you can disclose, are there any notable differences in the types of revenue profit share agreements that you are discussing with potential license partners?

And if they are all equally high-margin flow-through?

And just to size it up, how much do you see this piece of the business growing over the long term?

Thank you.

Yes, let me talk first about the financial aspects of these deals.

And again, I'm not going to be able to get into any specifics.

We have confidentiality agreements with our partners.

Plus, obviously we don't want a lot of the details out there while we continue to negotiate with other potential partners.

But these deals are very lucrative.

We've talked about this being one of the areas that will continue to drive our margins going forward.

And if you look at the revenue this year, we had approximately $3 million of costs associated with that, so roughly 80% margin, incremental margin flow-through.

So we think that going forward these deals will continue to be very high margin and any deals that we do, and the new deals that we do in the future, would be high-margin as well.

Great, thanks.

Josh Borstein.

This is Shane Rourke sitting in for Josh this morning.

Thanks for taking my call.

Curious if you have any kind of early look into 2015 consumer behavior and particularly how lower gas prices might play into that.

Sure.

We obviously don't comment at all on the current quarter, Shane.

But what I would say to you is that we are not at the point yet of having all of our parks open.

We only have a few parks open.

And so the real impact would really come through in the summer.

And we obviously don't know where gas prices will be in the summer.

You may remember that I have commented on these calls in the past and said that we never actually ever saw any negative impact to attendance when prices were low -- when prices were up at $4 or $5 a gallon.

And therefore, my thesis is always been that we should assume that we won't see a big bump in attendance if prices stay low.

In theory, however, people who have more money in their pocket, we think, probably will come to our parks and will spend money.

It's good for us, for our industry.

And so, I'm hopeful that we do see some sort of upside.

But we are not counting on it.

Okay, that's fair.

And then just a quick follow-up.

Do you have any color on operating days in 2015 versus 2014 or any of the sorts of cadence over the quarters there?

The operating days in 2015 are very similar to 2014.

And there really are no big shifts from one quarter to another.

Okay, thank you very much.

(Operator Instructions) Tim Conder.

Thank you and congrats to the whole team, Jim, on another great year.

A couple, sir, if I may -- on China, did you -- have you disclosed when that park will open and location?

We have not.

And we will do so at the appropriate time.

But we are not in the position to do that yet, Tim.

Okay.

And in relation to that, John, any color on the international income -- and I apologize if I missed that -- in the quarter and then on a year-over-year basis, in the quarter and for the year?

As I mentioned, there was roughly about $14 million of revenue associated with international for the year.

We had about $3 million of incremental cost so there would have been approximately $11 million of EBITDA associated with international for the year.

It basically was about an 80% margin.

And then in the quarter the international revenue was roughly $4 million and we had approximately $1 million of cost associated with that, incremental cost.

It's really working in our favor, though, Tim, when you look at it.

We have always said that early on especially it's likely to be bumpy in terms of revenue and income.

But it's turning out to be very steady, very attractive, and high return for investors.

So as we grow this we think it will be very positive.

Okay.

And in relation to that and as part of what you said before relating to memberships, first of all, remind us the premium that you are seeing now, the memberships versus Season Passes.

And does that premium -- and when the first-year anniversary hits, does that roll off?

We are seeing roughly 18% to 20% payment on memberships versus Season Pass.

And that does not roll off once they hit the 13-plus month.

Okay, okay.

And Jim, again, you called out that this is a very critical part going forward here.

What are you seeing, first of all, the mix in 2014 of that Season Pass and membership?

How do you see that in 2015?

And then just in general, on both, what are you seeing on pricing at this point?

We don't disclose the split between membership and Season Pass.

But what I can tell you is that membership grew really nicely for us in 2014 and we anticipate it will continue to grow in 2015.

And overall, we have also stated that with regard to pricing our goal is to continue to take pricing up.

And so that's the approach that we are going to take going forward.

Okay.

Could you comment whether, within the 25% total active pass growth, were both memberships and Season Passes up in unit terms?

They absolutely were, yes.

Okay.

And then one last related to that and then a separate question and then -- the end of my laundry list year.

As we look at currency, are you seeing any impact to demand or any impact there -- if it is, obviously you've overcome it -- as relates to your Montreal Park with the Canadian dollar?

No.

We really have not seen any impact associated with that.

Obviously, we are not in the position to disclose Q1 numbers yet.

But I would say to you that our international parks, both Canada and Mexico, have been very nice contributors to that active base growth that I described.

So they are doing just fine.

And in the last one, back to the memberships, if your base is up 25% or your active base is up 25%, your deferred revenue was up about 19%, can you help us bridge that gap there?

Yes.

Well, remember probably the biggest difference is that when a member rolls to a 13-plus month, so they finish that first year, we basically don't recognize any deferred revenue on that membership because we would just recognize the revenue each month as they pay it.

Okay.

Seems like an acceptable trade-off for --

Yes, so in other words, so the more shift you see out from a first-year member to a 13-plus member, there's no deferred revenue associated with that.

Good trade-off for smoothing of the overall annual revenues.

Okay.

Thank you, John.

You may remember, Tim, early conversations about this Company and actually the industry in general is just the fact that there are such huge seasonal swings because the parks aren't open at certain times of the year and Q4, Q1 may not be where people had wanted them to be, let's say, five years ago.

This has begun the process of eliminating those swings and smoothing out revenue and, more importantly, cash generation.

Great, thank you.

Thank you very much.

(Operator Instructions) Scott Hamann.

Just a couple questions on the membership.

First, can you give us a sense of what you're seeing in terms of attrition as you cycle through your first real winter with the membership program?

Second, just a clarification on Tim's question on when the membership reaches its first full year and the pricing premium doesn't come off, can you give us some color on what you mean by that?

Are you effectively continuing to take a price increase in the second year?

Thanks.

Maybe take the first part, John.

I'll take the second.

But with regard to that premium, Scott, it stays in place.

The price that our guests are paying on membership stays there.

And yes, we do have the ability to price up further.

That's part of that agreement.

We can take pricing on membership as well.

So it's a great deal for the guest because it's a value offering for people who needed.

And it's high margin for us and it delivers consistent monthly revenue.

As it relates to the retention, we are very pleased with what we've seen to date.

I'm not going to share exactly what those retention numbers look like.

But if you recall, it was last February that the first member rolled off that 12-month into a month-to-month basis.

Throughout all of last year we saw very good retention even when -- as the parks closed down.

We were able to retain a lot of those members, which again really talks to the overall strategy behind memberships, the retention aspect of it, and, as Jim referenced earlier, the nice recurring revenue stream that is associated with it.

(Operator Instructions) Ladies and gentlemen, there are no further questions.

Do you have any closing remarks?

I do.

I'd like to thank you all again for your time this morning and for your ongoing support of our Company and management team.

I do really hope that you take the time to visit one or more of our parks this year so that you can experience first-hand all we have to offer and fully understand why we have such a significant opportunity to further enhance shareholder value.

Take care.

Thank you, ladies and gentlemen.

This concludes today's conference call.

You may now disconnect.