Six Flags Entertainment Corp (SIX) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Six Flags first-quarter 2015 earnings conference call.

My name is Keela, and I'll be your operator for today's call.

(Operator Instructions)

Thank you.

I'll now turn to call over to Nancy Krejsa, Senior Vice President, Investor Relations and Corporate Communications for Six Flags.

Good morning and welcome to our first-quarter 2015 earnings call.

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

We will 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, and the Company undertakes no obligation to update or revise these statements.

In addition, on the call we will discuss non-GAAP financial measures, and investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the Company's annual reports, quarterly reports, or other forms filed or furnished with the SEC.

At this time I'll turn the call over to Jim.

Thanks very much, Nancy.

And good morning, everyone.

Our 2015 season is off to a superb start, with the Company clearly firing on all cylinders.

Guest satisfaction ratings reached a new high in the first quarter.

Employee morale is excellent, and we generated double-digit growth in every key metric we measure, including a 13% growth in adjusted EBITDA and a 28% growth in LTM cash EPS.

We are extremely well positioned as we enter the heart of our season.

Revenue grew 16% in the quarter, driven primarily by our 13% growth in attendance, which came mainly from Season Pass holders and members.

Our team has continued to execute our Season Pass strategy brilliantly, as reflected by the 53% growth in our Active Pass base at the end of March.

Of course I'm proud of our financial accomplishments to date and the records that we continue to set, but I'm even more proud of the feedback we receive from our guests.

Aside from safety, guest satisfaction is the most important metric we track.

As part of our business strategy that we began implementing in late 2010, we shifted our teams' primary focus to delighting our guests, and the results speak for themselves.

We have steadily improved our guests' perception of our parks every single year since then.

We set a new record high in Q1 in guest satisfaction, and our goal is to keep that momentum throughout the entire year.

We have invested significantly in our market research capabilities and now operate the most sophisticated and action-oriented market research in the industry.

The more than 1 million guests we survey each year help us upgrade our services and pricing in a real-time manner and help fuel the innovation in our operations.

Another area where we take great pride is leading the industry in innovation, which takes many forms and permeates all aspects of our operations.

Of course this is a special time of year, as we near the opening of our new rides and attractions.

As we have done for the last four years, we will introduce something new at every single park and spend in aggregate 9% of revenue on capital investments.

In fact, many of our 2015 attractions have already been named among the top 10 most anticipated rides for the year.

Some of the highlights this year include: at Six Flags Magic Mountain, which is the thrill capital of the world and voted by USA Today readers as America's best theme park, we are introducing Twisted Colossus, the world's longest hybrid coaster.

Colossus has thrilled millions of guests in its 36-year reign at the park.

And now it has been transformed into Twisted Colossus, 2015's most highly anticipated coaster.

This world record-breaking, most impressive hybrid coaster provides an unprecedented four-minute journey on nearly 5,000 feet of track and two lift hills.

The unique technology combines an iconic wooden structure with iron track and creates ride experiences never before possible on wooden coasters.

At Six Flags New England, Wicked Cyclone is storming in.

Similar to the technology used on Twisted Colossus and four other coasters we have reintroduced or built over the last four years, this coaster will offer the ultimate in thrills and adrenaline, with more than 3,300 feet of track; and it will be the first hybrid roller coaster to hit the East Coast.

Our guests are sure to get more air time on this coaster than any other coaster in New England while experiencing over 20 ride elements, including the world's first hang time inversion.

Six Flags Fiesta Texas is debuting the most exciting coaster in the park's 22-year history -- Batman: The Ride.

On this first-of-its-kind 4D free-fly coaster, which is not available anywhere else on the planet, riders will flip head over heels at least six times along the weightless tumbling journey, including two beyond vertical freefalls.

I saw the building in progress a few weeks ago, and it is really quite impressive.

At Six Flags Over Texas and Six Flags St.

Louis, we are introducing Justice League: Battle for Metropolis, voted by USA Today as the most anticipated attraction in 2015.

It is the ultimate superheroes adventure mission and 4D interactive dark ride experience.

In fact, it will be the first 4D interactive dark ride in North America.

Get ready to match your wits against Lex Luthor, the Joker, and his henchmen as you join the Justice League Reserve Team.

You are going to receive your very own stun gun to battle the villains; then it's a swift ride in cutting-edge, multi-degrees of freedom cars through a dazzlingly designed Metropolis cityscape, deep into the shadows of LexCorp.

Lifelike animatronics, full sensory special-effects, 3D video, eye-popping graphics, real-time gaming, and a mind-tingling soundscape make this journey to justice an utterly interactive experience.

This ride really excites me, as you can tell.

As I mentioned earlier, in addition to these amazing attractions, we have something new at all of our other parks, from waterslides to smaller rides and shows to completely renovated sections of our parks.

As you know, I visit every park regularly, and I can tell you that both our guests and our employees are so excited about our product lineup.

We just launched our new SkyScreamer in Mexico, and the park was jammed when I was there.

I know I say this every year, but I do you really believe 2015 is the best lineup of new rides and attractions in our history.

In addition, our total park offering has never, ever been better.

We are truly rocking.

This is important, because our guests are like you and me: they love to experience something new and different, and we know our new attractions pull guests into our parks.

Our innovation strategy is definitely working.

In summary, we are well positioned as we head into the heart of our operating season, and our team is ready for another fantastic year.

John, would you like to share a few more details on our Q1 financial results?

Sure, thank you, Jim.

Hello to everyone on the call.

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

We are extremely pleased with the strong Season Pass and membership sales that we generated through the first quarter, as evidenced by the strong growth in our Active Pass base, which is up 53% versus the same time last year.

I must note that some of the gain is timing, as we initiated marketing programs earlier in the year with the goal of getting people to buy their passes earlier.

In addition, Easter fell earlier in the month of April than it did last year, which means guests were purchasing their passes earlier, too.

Patrons who purchased the Season Pass or membership become our most valuable guests.

They generate nearly double the revenue and cash flow of a single-day visitor and provide an excellent hedge against bad weather.

The membership plan, which continues on a monthly basis after the initial 12-month period commitment, provides further stability for the Company through a steady and ongoing stream of cash flow.

With the increased Pass sales, first-quarter attendance was strong, up 181,000 guests or 13%.

Reported admission per capita spending increased $0.83 over prior year, while in-park spending declined $0.74.

Pricing continues to be a key growth driver for the Company as we optimize our various ticket price points to maximize revenue.

We manage pricing by staying abreast and competitive with the pricing of other local entertainment venues and also conducting live testing with our own tickets in each of our local markets.

We believe there remains significant long-term opportunity to further drive pricing increases.

We normally do not adjust for foreign currency, since the impacts are typically immaterial.

However, as we mentioned in our press release, we did see a 13% weakening of the peso to the US dollar when compared to the first quarter of 2014; and since Mexico is a larger percentage of our financial performance in the first quarter than in other quarters, the weakening of the peso negatively impacted per-capita spending.

If you adjust for the foreign currency impact, admission per capita spending increased $1.37 or 6%, driven by pricing initiatives and post-12-month ongoing membership payments, partially offset by the stronger Season Pass and membership attendance mix in the quarter.

In-park per capita spending declined $0.19 when adjusted for foreign currency.

The decline is solely the result of the strong Season Pass attendance mix.

Total revenue in the quarter increased $11 million or 16%, with ticket revenue up 17%; in-park revenue up 9%; and $3 million of incremental international licensing revenue.

Moving to the cost side, cash operating and SG&A expenses increased $5 million or 4.6%.

We have invested appropriately to ensure we have an excellent year in 2015.

Adjusted EBITDA improved $5.4 million or 13% in the quarter.

Our LTM-adjusted EBITDA grew to $445 million, and modified EBITDA margin grew to an industry-leading 40.7%, both all-time records for the Company.

LTM-modified EBITDA less CapEx margin was 32.2% versus 30.2% at March 31, 2014.

We also continued to improve return-related metrics.

ROIC at March 31 increased to 15.7%.

As it relates to our capital structure, reported net debt as of March 31 was $1.458 billion as compared to $1.322 billion at December 31, 2014, an increase of $136 million.

Net debt typically increases in the first quarter, since we have the lowest number of operating days and we are investing in our new capital additions.

Our net leverage ratio of 3.3 times remains the lowest in the industry.

As you are aware, we have been looking for opportunities to divest or utilize our excess land, which includes 1,100 acres of prime real estate in some of the top 10 -- top DMAs in the US.

That process continues in earnest.

Recently we announced that we would lease approximately 100 acres of the 500 acres of excess land at Six Flags Great Adventure to a third party who will develop a solar field by late 2016 that will make Great Adventure the first theme park powered almost entirely by solar power.

In addition to being environmentally friendly, we expect the solar field -- which will be operational for the 2017 season -- to reduce that park's utility costs.

Given our new capital introductions, which will be launched in the second quarter; our continued strength in Season Pass and membership sales; the post-12-month recurring membership revenue; our park-centric marketing campaigns; and our focus on leveraging our cost structure, I think we are very well positioned for another record year in 2015.

Now I'd like to turn the call back over to Jim.

Thank you, John.

As I mentioned at the beginning of the call, our strategy is intact and our team is energized and laser-focused on executing our business plan for 2015 and our long-term goal of achieving $600 million of modified EBITDA by 2017.

Innovation doesn't just come with new rides; it comes in everything we do every minute of every day.

Consequently we will be introducing Holiday in the Park at Great Adventure for the first time this year, which will be our seventh park to provide this offering.

Holiday in the Park is a magical time for our guests, as we transform these parks into winter wonderlands with millions of lights and other holiday festivities.

We believe this will be a great success at Great Adventure, as it was for Six Flags Magic Mountain and Six Flags Over Georgia when we introduced it at those parks in 2014.

We will continue to expand our Grad Nites for high school seniors, who are locked in our parks for the night with their friends.

This program has been successful at several of our parks and continues to grow.

We have continued opportunity to further penetrate our all-season Dining Pass, which is seen as a great value for our guests and helps us capture their food and beverage spending.

We really only in the first or second innings with this product.

As we continue to develop programs that provide value to our guests, we are pleased to now offer our all-season shopping pass.

This retail value program of perks and rewards is exclusive for our Season Pass holders and members and allows them to receive retail discounts all season long.

We are currently testing guest responsiveness to this new offering and testing another new offering, our all-season picture pass.

On the IT front we are introducing a Six Flags app for our guests this year, since their mobile devices are becoming more and more a part of their pre-, actual, and post-visit experiences.

And we continue to enhance our biometrics park entry system, so that our guests have an amazing and seamless entry experience.

I am 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 create significant value for our shareholders in 2015 and for many years to come.

Guest satisfaction levels are at all-time highs.

Employee morale is the best it has ever been.

EBITDA and free cash flow continue to grow.

Our stock price is up sevenfold, and we've returned nearly $1.6 billion to our shareholders through cash dividends and share repurchases -- all while maintaining a very healthy balance sheet.

At almost 4.5%, 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 is almost triple the S&P 500 over the last five years, putting us in an elite category of companies driving both yield and growth.

Our 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.

I remain extremely confident about our future, and our long-term sites are laser focused on delivering $600 million of modified EBITDA by 2017, which represents almost $3.75 of cash earnings per share.

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

Keela, could you please open up the call for any questions at this time?

(Operator Instructions) Joel Simkins, Credit Suisse.

Good morning.

Great commentary here on the early part of the season.

Jim, could you just talk to us a little bit about -- I know it's very early, but could you just give us some color on maybe perhaps what you saw around Easter, and just how the consumer is responding to lower gas prices?

And then one quick follow-up.

I appreciate the commentary around the solar; I think that's a very unique announcement.

If that goes well, do you think that's something that's also perhaps scalable to some of your other parks throughout the system?

Thanks.

Okay.

Joel, thank you for those questions; they are all good.

With regard to Easter, obviously we don't comment on the current quarter, but I could give you a general perspective which I think may help you.

I think that overall, we have seen in the first quarter just a very positive response to our offering.

And I think that combined with lower gas prices certainly has not hurt us.

And so I am very, very optimistic about the second quarter; I'm optimistic about this year -- hence my commentary earlier about my belief that we are on track to be able to achieve another record year for the Company.

Obviously, things can go wrong, but at this present time we feel very good about what we're seeing.

And that, combined with the amazing value offerings we have for our guests, puts us in a great place.

John, do you want to take solar?

Sure.

Joel, as it relates to the solar field, we mentioned that we are leasing 100 acres in New Jersey.

There are only a handful of our parks that have that type of excess land.

We've talked about 1,100 acres in the past, and that's really isolated to three locations: New Jersey, our park in Maryland, and our St.

Louis Park.

So since a solar field requires so much land, we don't anticipate doing that in any of our other parks at this time.

That's very helpful.

Just one final follow-up question here.

You mentioned some commentary about the international Park opportunities.

Obviously you had a couple of announcements over the last few years.

How should we be thinking about the cadence of deals?

I did read something in the media regarding Malaysia recently, so just -- if you could give us some additional thoughts there?

Thanks, Joel.

Another good question.

The reality is that international deals are not dissimilar to M&A-type deals in that they are very difficult to predict timing-wise.

And I'm not going to speculate or guess, but what I can tell you is that we are working to build partnerships in many, many markets, including Malaysia.

So rumors tend to get out.

And some of them are accurate, and some are not, and I can't speculate.

But it's a very attractive strategy for us.

We are linking up with potentially great partners.

And as we announce deals, those will provide a very high return for investors and are long-term in nature.

So you'll see recurring revenue for multiple years into the future.

So we're very excited about it, but I'm not going to speculate as to when our next deal will be announced.

Thank you very much.

Take care.

I would also add, Joel, just one key point, which ties back to your initial question about how we're feeling this year.

Whilst international is good, and it's obviously adding incremental revenue and profitability for us, and I think will grow over time, the thing that excites me the most right now is just the success that we've seen in the base business.

And when you look at an Active Pass base growth of 53%, that is phenomenal.

I mean, it's the highest level in this Company's history.

And while John points out correctly that some of it is timing, with when Easter falls and some of the offers we had, it just puts us in such a strong position for this year.

We're very excited about that.

Thank you.

John (sic - Josh) Borstein, Longbow Research.

Hi, Jim, John, and Nancy.

Thanks for taking my call here.

Congrats on a nice quarter.

Just wondering if you can help us better understand the per-cap figure and to what extent the increase in membership passes might be influencing that?

I think this may be the first 1Q where membership passes might be having a material impact.

Yes.

You know, we talked before about how we are very pleased with the penetration of our membership program, as well as we are very pleased with the retention rates that we've seen to date.

And that was one of the things that, clearly, as more and more of these members came off their 12-month commitment, we were watching very closely.

So we were very pleased with that.

We don't disclose the level of membership income.

But like I said, we're very pleased.

It's a very nice source of recurring revenue stream.

And Josh, we anticipate that this revenue stream will continue to grow.

As we've described before, the whole Season Pass and membership area is definitely our most profitable guests, and we're penetrating memberships at a very fast rate -- which provides us with stability in quarters that historically may not have had that stability.

Great.

Thank you for that.

And just a question on in-park spend.

That was the one metric where maybe my modeling was a little off.

How do you think about or anticipate in-park spend this year?

Do you think it will be flattish, or do you anticipate an increase?

No, Josh, we would anticipate an increase in the in-park spend.

I think what we mentioned was with the high Season Pass and membership mix, that put some downward pressure on our in-park per-caps.

But as Jim talked about a lot of the things that we're doing -- we are still in the early stages on the all-season dining; we are seeing very good penetration there; we've launched a couple other new programs; as well as we are constantly upgrading a lot of our offerings in the park, both from a food and a retail standpoint.

So we anticipate that we would see growth in our in-park revenue over the year.

And I think we would argue and feel very good about the per-cap performance in the first quarter.

We know that substantially higher Season Pass and membership attendance puts pressure on both ticket pricing, but on per-caps within the park.

And we've seen that people have spent, and spent very nicely in the park -- hence the very strong growth in total revenue.

Correct.

And last one for me -- last quarter you said school calendars were shaping up to be similar in 2015 as 2014, but that was before some severe winter weather hit.

Does the school calendar still look similar year over year?

Were there any school days added, based on what you know right now?

We're not at a point yet where we can say definitively that there are days added, but we do know that in Texas and we know that in New England there was severe weather which could have an impact.

But at this present time we would say that the calendar will look better this year than it did last year.

Although schools can change that in their own time, right now it's looking better, with a couple of exception markets.

Okay.

great.

I appreciate it.

Thanks on the balance of the year.

Afua Ahwoi, Goldman Sachs.

Hi, thanks.

Just one or two from me.

First, on the international revenue and EBITDA, I think we've been surprised a little bit how consistent it's been.

And I think we would have thought it would be more choppy, given the parks aren't yet open, and that revenue is maybe based on achievements and milestones.

So, maybe, can you talk to us a little bit about why it's been so stable, and what we can expect for the balance of the year?

And basically, frankly, through the parks open?

I think as John has said -- both of us have said before that you cannot predict definitively this is what the international revenue is going to look like.

But I can confidently say that you will see revenue and EBITDA every quarter.

It is tied to deliverables, so it will likely be lumpy by quarter.

So some quarters will be higher and some lower.

And then once the parks are open, fees will be tied primarily to revenue.

But before that, we are getting fees based upon how we do in terms of delivering progress on those parks.

And right now I'd say that whole process is looking pretty good.

Okay.

Then just a -- yes, John?

That was Jim, Afua, but go ahead with your next question.

I was going to ask -- and then on the -- on price, can you talk to us a little bit about how is looking across your different product types?

So whether it's Season Pass, group price, and at the gate -- how have you been able to take that up this year versus last year?

And what has the customer reception been to those increases?

Well, first and foremost, I would say that our focus is on growing revenue, profit, and cash flow.

And we have a tremendous opportunity to continue to raise both prices and, we think, grow attendance.

And our goal has been -- we've said this, and we'll continue to say it: our goal is to raise prices in 2015.

For, as you know, we have not shared a specific percentage, but price increases for the full year are likely to be in the low to mid-single digits.

And in terms of just response, our value perception under our guest satisfaction surveys in the first quarter reached an all-time high.

So we are continuing to see a very positive response to our offering, even while taking prices up.

Got it.

Thank you.

Barton Crockett, FBR.

Thanks for taking the question.

I was interested in probing a little bit more the 13% attendance hike, which is quite eye-popping.

Where there factors in this quarter that moved that to a growth rate that maybe aren't sustainable?

In other words, was the weather a benefit?

Was the timing of Season Pass marketing programs around Easter kind of a benefit?

Are there things that would argue for maybe a normalization of that growth rate into the heart of the season, or is it really just nothing unusual, and every reason to think that this type of growth can persist?

Barton, I'll start by saying I think this quarter was a pretty usual quarter as you look at prior history.

We did see a little bit of a benefit and strength in the first week of January where we had a couple of our additional Holiday in the Park, in -- particularly in Magic Mountain and Georgia.

We did pick up a little bit of attendance there.

And there was a shift of Easter earlier by one week.

So there was a couple days at the end of the quarter where we picked up some attendance versus last year.

But I would say, for the most part, it was a pretty normal quarter.

And let me build on what John is saying, Barton.

Again, what I said to Afua: we don't guide on attendance.

But realistically, we know that the first half of last year was pretty rough.

And we talked to why that happened.

And whilst we've had a couple of markets where the weather has been pretty bad, in general 2015 first half should be easier -- although we also know that schools, as I described earlier, could mess us up if calendars change there.

But we feel very good about first quarter.

There's nothing in there that was unusual or unsustainable.

But we've always said that it's probably best to look at this business over a 12-month period rather than any one single quarter.

And if you look, we are seeing very nice trends.

And we believe these trends sustainable into the long-term.

Okay.

And if I could just follow up: last year the Easter shift was, of course, incredibly pronounced in the first and the second quarter.

This year you talked about a little bit of a shift.

When we're looking at the first versus the second quarter, is it reasonable to assume that we should just not worry about attendance being pulled forward into the first out of the second?

Or is there some factor that maybe would encourage us to think about putting in as a weight on the second relative to the first?

We've not seen any -- there is no reason that you would see any pull-forward from one quarter to the next.

Easter is comparable this year to last year.

And that would have been the biggest shift.

So, no, there is nothing.

Okay.

That's great to hear.

Thank you very much.

Tim Conder, Wells Fargo.

Hi, good morning.

This is Karen calling in for Tim.

Just two quick questions from us.

I wanted to go back on the Active Pass base commentary.

I wanted to see if you could give us a little more color around just the split between membership and Season Pass holders, and maybe how much of that 53% growth is driven by one versus the other?

And second, we wanted to see if you could give us perhaps an outlook on your leverage ratio for the balance of the year and your thoughts on, perhaps, the opportunities to releverage your debt and use that cash for additional repurchases?

Thank you.

As it relates to the per-cap benefits, we've talked before about how we are very pleased with where we're at on membership and what we're seeing in terms of ongoing revenue.

And that clearly did help out on the admission per caps, but we don't exclude disclose exactly how much of our growth on admission per caps is relative to the membership.

As it relates to the leverage, I think we continue to look at that.

Obviously the debt markets are extremely favorable.

We'll continue to look at that and evaluate it.

And as we've done in the past -- you know, we're not opposed to taking on additional leverage, if we feel that make sense, to use for things like share repurchases.

And let me just build on what John was talking about earlier, Karen.

Your question -- you talked about whether there was some sort of shift in that growth in Active Pass base of 53%, whether there was some shift with membership versus Season Pass?

We don't describe the split between the two, but there was very nice growth in both.

So I hope that helps you.

No, that's helpful.

Thanks so much.

Ian Zaffino, Oppenheimer.

John, can you give us an update on the NOL -- how long you anticipate that to last?

And then any plans that you have been thinking of to address an eventual date?

And then a follow-up.

Thanks.

Ian, it really has not changed from what we've discussed before, which is we believe that our NOL will continue to shelter our taxable income to the point that we would pay very little tax, at least through 2018.

So that hasn't changed.

As it relates to things that we're looking at, we continue to look at a number of areas that would either lengthen our NOLs or shelter some of our taxable income once the NOLs are expired.

I can't get into any specific details on that, but rest assured we continue to look at that area.

Okay.

And then on the international business, how are you paid?

Are you paid in local currencies?

I guess if there's renminbi, which is relatively pegged -- but the other currencies -- how are you paid?

And how do we think about FX outside of this Mexico and Canadian Parks?

We are actually paid, Ian, in US dollars.

However, once the park would be open, what you would basically do is converting that foreign currency into US dollars at that time.

So up until the time the park is open, it's all US dollar-based.

But once the park is open, there's a translation of the foreign currency into US dollar.

So we'll see more of an impact associated with FX at that time.

Okay.

Perfect.

Thank you so much.

Thank you.

This concludes the Q&A session.

I'll now turn to call back over to Jim.

Great, Keela.

As always, thank you all for joining our call today.

And I do hope that you can take the time to visit our beautiful parks this season to experience the incredible lineup of products and services.

You can rest assured that your Six Flags team is 100% focused on delighting our guests and creating incremental shareholder value in the years ahead.

Take care.

Keela, that will conclude our call.

Thank you for your participation.

You may now disconnect.