Six Flags Entertainment Corp (SIX) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Six Flags second-quarter 2016 earnings conference call. My name is Terese and I will be your conference operator for today's call.

(Operator Instructions)

Thank you. I will now turn the call over to Nancy Krejsa, Senior Vice President of Investor Relations.

Good morning and welcome to our second-quarter call. With me today are John Duffey, President and CEO of Six Flags, and Marshall Barber, our 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. 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 reports, quarterly reports, or other forms filed or furnished with the SEC. At this time I will turn the call over to John.

Well thank you, Nancy. Good morning to everyone on the call. We appreciate you joining us today. Our 2016 season is off to a great start, with June year-to-date revenue up 11% and adjusted EBITDA up 19%.

This record performance was driven by a 7% increase in attendance, higher pricing across all of our ticket types, higher guest spending inside our parks, and excellent growth in our international licensing fees. We are particularly pleased with our growth in both admissions and in-park per caps, given the higher mix of season pass and member visitation which dampens per caps.

The second quarter was another record for the Company despite the shift in business from Q2 into Q1 this year due to the timing of Easter. In fact, we have set new quarterly financial records for 24 of the last 25 quarters.

On an LTM basis, our revenue was up $118 million, or 10%. Modified EBITDA was up $54 million, or 12%, and modified margin was 41.1%, the highest in the theme park industry. We believe our ongoing performance remained strong due to our laser focus on delighting our guests each and every time they visit our parks.

Part of that delight is experiencing something new and different, and we are the undisputed innovation leader in the industry. We are very excited about the new coasters, rides, and experiences we introduced earlier this year.

All of our new capital has been well received by our guests, and will continue to draw people to our parks. In 2016, in addition to our incredible lineup of new rides and attractions, we were very excited to be the first theme park company in North America to integrate virtual reality technology into our roller coasters.

After guests board our VR coasters, they strap on a Samsung Gear VR headset which transports them into one of two incredibly detailed virtual worlds. In one the rider is a fighter pilot battling to save Earth from an alien invasion.

And in the second the rider flies along Superman, soaring through Metropolis to defeat Lex Luthor. I have ridden our VR coasters multiple times, and they are an exhilarating experience.

We have introduced VR coasters in nine of our parks, and guest feedback has been outstanding. We plan to introduce it at Six Flags Great America, our 10th park, later this summer and are evaluating the optimal time to introduce it at our other three theme parks.

We have also initiated plans to introduce new virtual worlds for our two key special events, Fright Fest and Holiday in the Park. So stay tuned in that regard.

We anticipate introducing more exciting content and enhanced VR features over time to ensure Six Flags remains the innovation leader in both traditional theme park rides and also in VR coaster technology. Overall we feel our capital strategy and the related marketing are a key driver of our strong momentum.

On the innovation front, we have been recently testing another new concept for the industry, an all-season Flash Pass. As you may know, the Flash Pass allows guests to pay an additional fee to avoid waiting in line to ride our coasters.

It is a very popular add on and a concept that we've been offering for more than 15 years. Recently our guests have told us that they would like to be able to purchase a Flash Pass to use over the entire season.

We tested the all-season Flash Pass concept at a few parks earlier this year, and it was very well received by our guests. We are rolling it out to all of our parks over the 2016 and 2017 seasons.

As we look to growth opportunities outside the United States, our momentum continues to build. Our Dubai partner recently completed the funding process for the second phase of Dubai parks and resorts, and broke ground for the Six Flags park.

Last week we announced that we and Riverside, our partner in China, plan to build two additional Six Flags branded parks in China; a theme park and a water park that will be co-located in Bishan, a district of Chongqing. With a local population of approximately 120 million people, this park will be among the largest Six Flags parks in the world.

I visited the site and attended the media event last week that was hosted by Riverside to commemorate this new site. The strong local interest in the signing ceremony reflects the growing demand for entertainment options in China, and the strong recognition of the Six Flags brand.

While in China I also visited our site in Haiyan, which is near Shanghai. Both sites are excellent locations that will support us in bringing world-class Six Flags parks to China.

China is a huge market with a population four times that of the United States. Theme parks and other forms of entertainment are relatively new, but growing in demand, and we intend to participate in that growth opportunity in partnership with Riverside.

We now have licensing agreements to develop six Six Flags branded parks; one in Dubai, two in Vietnam, and three in China. These deals are high margin for Six Flags and require no capital investment on our part.

We believe there is strong and growing interest to license and build more Six Flags branded parks around the world. This leg of our strategy is already generating solid revenue for us, and we believe it will prove to be a fantastic long-term growth opportunity for our shareholders.

We're also making very good progress on our new water park in Oaxtepec, Mexico, that we anticipate opening in early 2017. This will be our 19th park, and we've already begun hiring staff.

There is tremendous buzz in the local market about the upcoming opening, and our team at Six Flags Mexico City is excited to leverage the close proximity of the new water park to sell even more season passes. In summary, it is a tremendous start to the year and I believe we have great momentum to deliver another record year in 2016.

I believe this because our new capital is working well for us. Our active pass base is up 11%, guests are spending more money in our parks than they ever have before, and we continue to gain more international partners.

I have never seen our team more excited, and I can assure you that our team is highly focused on delivering another record year in 2016 and making sure we are well positioned for the long term. Currently our sights are set on achieving our aspirational target of $600 million of modified EBITDA by 2017.

So at this time I would like to turn the call over to Marshall who will share a few more details on our second-quarter financial results. Marshall?

Thank you, John, and good morning to everyone on the call. As John mentioned, our 2016 season is off to another record start, with 12% constant currency revenue growth and 21% constant currency adjusted EBITDA growth for the first six months of the year.

We believe it's important to look at the first and second quarters on a combined basis, particularly in a year such as this when there are attendance shifts between quarters due to the timing of the Easter holiday and the related spring break periods. Our revenue growth in the first half of the year was driven by a 7% growth in attendance, 4% growth in guest spending per capita after adjusting for foreign currency translations, and excellent progress in our international licensing business.

We believe our strong attendance growth was driven by the consistent quality of our entertainment offerings and the great value we offer our guests. In addition, we have recently opened what we believe is our best lineup of new rides and attractions ever, and that has helped drive a new record high active pass base of season pass holders and members.

Our active pass base was up a healthy 11% over June 2015. The continued strength in sales of our multi-use passes is a testament to our ability to offer our guests tremendous value when they become a season pass holder or member.

Guest spending per guest for the first six months of the year increased 3%, with admissions per capita up 3% and in-park per capita up 2%. If you exclude the impact of ForEx, the per capita growth rates were 4% in guest spending, 4% admissions, and 3% in-park spending.

The growth in guest spending per caps primarily reflects both effective implementation of our ticket pricing strategy and higher culinary sales. The culinary revenue gains were driven primarily by our all-season dining program, which is growing for several reasons.

First and foremost is that the program is viewed as very high value by our guests. Second is our improved culinary offerings. We are opening new venues, enhancing existing ones, expanding the breadth of our menus, and improving the quality of our food.

The third factor is that our marketing efforts are much more strategic and targeted, helping us to gain a higher conversion rate of our season pass holders and members. And finally, our active pass base continues to grow, which expands the number of guests who might be interested in purchasing the pass.

While the growth in our all-season dining program has been excellent, the penetration level remains low, and we have ample opportunity to generate future revenue with this offering. On the licensing side of our business, the $14 million of revenue in the first six months of the year was generated by our agreements in Dubai, China, and Vietnam.

The addition of two more parks in China will provide additional revenue for us in the near future, once we've completed a few more steps in the process including signing more definitive agreements. Because of the strength in season pass sales and our all-season dining program, our deferred revenue is at an all-time high of $175 million, which is up $26 million, or 17% over Q2 2015.

In the second quarter, revenue was up 5%, driven by 2% attendance growth, 2% growth in guest spending per capita, and $6 million of growth in sponsorship and international licensing. Adjusting for the Easter shift, attendance was up 4% for the quarter.

On the cost side, we experienced increases in the quarter due to three main reasons: first, we incurred higher costs associated with both minimum wage increases and market-driven wage increases at several parks. Second, we added seasonal staff to support the amazing momentum we've seen in our all-season dining program.

And finally, we've invested incrementally to successfully drive our international business plans. On an LTM basis, our modified EBITDA margin remained an industry high at 41.1%.

Our June year-to-date diluted earnings per share was $0.15, an increase of $0.20 over prior year. During the first six months of the year, we repurchased $44 million of our stock.

We were also pleased to complete the private sale of $300 million of eight-year senior notes at 4 7/8%. We used half the proceeds to pay down our term loan B, and after paying related refinancing fees, plan to use the balance to repurchase shares.

To that end, our Board approved an additional $500 million of our shares for repurchase. Combined with the remaining amount, the total authorized for repurchase was $510 million at the end of June.

Concurrent with the term loan paydown, we were able to successfully lower our borrowing rate to LIBOR plus 250 basis points and eliminate any required amortization payments on the term loan until its maturity in 2022. In summary, we are very pleased with our 2016 performance to date, and continue to make good progress toward our aspirational target of $600 million of modified EBITDA by 2017. Now I'll turn the call back over to John.

Well thank you, Marshall. As you can tell, we're very pleased with our performance through the first half of 2016. This continues to be an exciting time at Six Flags.

Our strategy is simple and clear, and our team is focused on delivering exceptional value to our guests and shareholders. It's worth noting that on a trailing 12-month basis we have achieved 29.3 million guests, touching our all-time high level of attendance for the Company.

We have plenty of capacity in our parks, and our momentum is strong. Our future growth will continue to come from the following four key areas.

First is higher attendance, as we continue to drive season pass and membership penetration as well as expand our Fright Fest and Holiday in the Park events. Secondly, higher pricing also continues to be a significant growth opportunity for us as our ticket prices sit well below our regional and destination competitors leaving us room for growth.

We continue to believe we are in the middle innings of a long-term pricing opportunity, and we feel confident that we can continue raising ticket prices in the low- to mid-single digits each year, while at the same time growing our attendance for many years to come. Third is our all-season dining program, which is in its infancy, and penetration of our active pass base of pass holders will drive long-term very profitable margin growth.

And finally, our international opportunity is massive. We are at six parks already with more to come, all with no capital investment, high margins, and high cash flow.

One of the many benefits of our strategy is that we offer tremendous value to our guests, and our revenue growth opportunities earn very high margins for our shareholders. Additionally, our large and growing membership base provides a highly recurring revenue stream and helps spread revenue and cash flow more evenly throughout the year.

Our focused strategy has been the backbone of our success over the last six years, and it will continue to guide us into the future as we build our brand both in and outside of North America. We expect to continue to be the ultimate growth and yield stock.

We have consistently delivered the highest industry growth rates in attendance, revenue, and EBITDA and have the highest EBITDA and EBITDA less CapEx margins in the industry. We have significant high margin future growth opportunities and a very attractive dividend yield of 4%, which remains among the highest in the US market.

The 2016 season is off to a great start, and we are laser focused on delivering our seventh record year in a row. So at this time I am going to ask Terese, our operator, to open the call for questions. Terese?

(Operator Instructions)

Your first question comes from Ian Zaffino with Oppenheimer.

Thank you very much. The question being you talk about this Project 600 being laser focused on it. When do you have to start accruing for the awards, or remind us your thoughts as the probability of that actually happening? And then I have a follow up, thanks.

Ian, good to hear from you. As it relates to the Project 600, similar to what has occurred in the past the rules state that you begin accruing when it becomes probable that you would attain that target.

So at some point in time in the future obviously when we get to that point we would start accruing for the Project 600 costs. What you end up doing is you take a charge that reflects the period to date at that time and then you accrue it ratably from that date until you actually issue the shares.

Is there a particular litmus test you use for that, or what are the metrics that you look at to determine the probability of it?

Well there is a number of things that we use in terms of looking at the probability. We factor in where we stand in terms of our historical performance and then our ultimate belief in terms of where we would get to in terms of getting to that target level in the future and the timing associated with that. So there is quite a number of factors that gets put in place.

Okay good. And then any updates or updated thoughts on your tax structure, given that I know that you filed that -- for the private letter ruling. What are your updated thoughts there as it relates to tax planning?

Well we continue to look at various tax planning opportunities. As you know, we did file for a private letter ruling on a REIT. We have not heard back from the IRS on that, so we continue to wait a ruling from them.

As you know it is a very long process, so it is not unusual for that to take this amount of time. And then we continue to look at other tax planning opportunities even beyond that.

As a reminder, we do have $400 million of NOLs, so we will be paying -- that will shelter us through 2018 at least.

Right. And just one other follow up, is there potential to maybe extend the NOL if it would be maybe through maybe this international growth or maybe consolidation in the industry? Are those sort of things that you're thinking about as you look at the expiration of the NOL and maybe your ability to extend it?

Ian, we are looking at several different tax planning ideas. Obviously it is difficult to get into each one of those on a public call, but I can assure you that we are looking at opportunities to not only extend our NOLs, but to the point that we can delay the amount of tax that we would pay going forward.

Okay, great. Perfect. Thank you very much. Good quarter.

Your next question comes from Tim Conder with Wells Fargo Securities.

Thank you. A couple questions here, John and Marshall, as it relates to the new plan that you're testing with the Flash Pass season pass, how are you thinking about balancing a usage on a given day versus capacity? So consumer gets in line saying wait a minute, why did I buy this, this line is just as long or longer if I hadn't have.

How are you working through that? And similarly on VR, the buzz and reception and that has been very good from what we hear, but the throughput seems to be, and I guess that's the negative we're also hearing, the throughput here is maybe a quarter roughly of what a normal coaster without VR would be. How are you addressing this, and then how will the VR and the international mix impact your 9% revenue CapEx outlook going forward?

Thanks, Tim. Great questions. On the Flash Pass, as you know we have Flash Pass today. We don't have an all-season Flash Pass, but we've had that in place for years.

As part of that we obviously monitor how many passes that we are selling, and at certain times on very busy days we may cap that. That whole process will continue, so we will make sure that we are not really offering too many Flash Passes on any given day so that it might impact the ultimate ride line. But we feel very good about what we've seen to date in our tests around this, and we think this could be a nice driver of some incremental in-park growth going forward.

As it relates to the VR throughput, it was a little bit of a learning curve when we launched VR. We knew that would happen. I can tell you that the throughput over time has continued to improve on all of our roller coasters, and our ultimate goal is that we would see no real decrease in throughput once we get everything up and running. We have a little bit of time behind us in terms of being able to run VR on our coasters.

So we're actually at the point now where we are pleased with our throughput and it continues to improve. I would say that we haven't seen any really big issues there.

As it relates to VR and international and the relationship to our CapEx, as we have mentioned before the international doesn't require any CapEx from us. As I think we continue to build the international revenue, I think that would allow us the opportunity to start seeing our overall CapEx spending start to fall below that 9%. VR is still a little bit early in the process in terms of -- to determine how that might impact our capital spending going forward.

We are obviously extremely pleased with what we have seen on VR. Guest reaction has been phenomenal. I believe it has brought people into the park based upon our survey data, and we think that it will continue to be successful in bringing people to the park for the rest of this year.

And as we talked about with VR is we continue to look at ways to enhance that even further, particularly as it relates to having that be part of our special events in the future. But it is still probably a little bit too early to tell how it would impact our overall capital spending. The good news is that it is relatively low cost.

That is what I was going at with the international and the VR, you would think your CapEx as a percent of revenues could come down even potentially faster. One other question here, being based in St. Louis with the Six Flags Park here we saw in May where we went up to buy single day pass for a friend of one of our kids and the person at the booth said we are not selling single day passes.

Well we are, but it's the same price as the season pass. Would you want to buy a season pass? Well sure, it makes no sense to just get a single day. And it was about a $13 premium.

How pervasive was this across the parks, one, and I would think that if that was pervasive that could have depressed Q2 revenues, but it would have improved your season pass, active pass numbers and then maybe benefit visitation frequency over the balance of the year. Any color that you can give around that would be helpful?

As you know, our strategy, Tim, is to migrate as many people as possible from one-day ticket to a season pass and we do that in a number of ways. We begin marketing that really in August of the prior year. We have been very successful at getting people to buy those season passes early.

The other leg is to get people to buy season passes when they do walk up, either when they are buying a ticket online or particularly when they walk up to the gate to buy a one-day ticket. We have seen pretty good success in that as well. I think you are right, I think that obviously as you think about the revenue being recognized when we are able to convert that one-day ticket person to a season pass that day we are going to recognize less revenue on that day.

But ultimately they're going to come back to the park three or four times, and we will recognize that higher revenue over the season. And every time they come to the park they're going to spend money.

So ultimately it's a win-win. We've talked before about the fact that typically we see season pass holders spending more than twice the amount of -- over the season twice the amount of revenue. And we do offer discounts from time to time to get people to buy season passes, but again at the end of the day it's a nice incremental revenue driver for us.

I guess the other part then, John, of that how given the customer, the rational customer that's not a choice even, they were up sold because it doesn't make sense to get the same thing. How much is that in driving your pricing increase I guess, and how pervasive was that across all the parks?

Is that in terms of the season pass upgrades?

Yes. Again, if you walk up and the person at the booth says hey, well your season pass is X which is the same price as your single day pass on this day, the rational consumer is going to pick the season pass. So I would think you are effectively increasing your tickets on your single day, but you're ideally getting them in with the season pass, I get that logic. How much is that of driving your pricing increase and then how pervasive was that across all the parks?

Tim, it's not a big number in terms of people that we're converting from a one-day ticket to a season pass when they actually come to the park. We do see some nice pick up on that, but I wouldn't say it's a huge amount.

Typically what we will see is when people are buying online and we're marketing the season passes to them for incremental X amount of money you could buy a season pass. Typically that is where we see the bigger migration.

Okay, great, thank you.

And really there is a very low percentage of people who come to the gate to buy a main gate ticket to begin with. Most people are buying -- the overwhelming majority of people are buying online and using promotional discounts. So we are upgrading those to a season pass.

Thank you. Your next question comes from Barton Crockett with FBR Capital Markets.

Thanks for taking the question. I was interested in the trend in active pass. Year over year you reported an 11% growth in the active pass base, and that had been in the 24% range in the first quarter and the mid-20%s and higher for basically every quarter in 2015. I was wondering why there was that slowdown in the year-over-year growth trend.

Well there is a natural -- as the base gets bigger the growth over prior year, you can have the same number and the percentage gets less. We have sold more season passes than prior year, so the base is going up and as the base gets bigger, it's bigger this year than it was last year than it was in 2014. You can still have the same number growth and have a lower percentage.

Okay. But it was interesting because to what degree does the number of active passes inflect in the second quarter from the first quarter? I'm sure there is some natural seasonality, but how much bigger is the active pass base in the second quarter than it is in the first quarter?

We sell the majority of our passes as the parks are opening, so March through June it's significantly bigger. And really at the end of the second quarter it is as big as it gets in terms of numbers. It does grow a little bit in the third quarter, but the overwhelming growth comes in Q2.

Okay. Now one of the things that I think many of us are curious about is to what extent are you seeing any fallout from all of the terrible news globally, which is just such a new part of this environment? Is that having any impact on people's interest in going to theme parks that you can detect?

No, we have not seen any impact whatsoever on attendance to our parks associated with that. As you know, safety is our number one priority. I think that people believe that we have a very safe environment.

As a matter of fact, as you know we do many surveys every year, and the survey data that we have gotten back to date on all of our attendance has shown that our scores for safety in terms of the perception that they feel safe when they are in the park has actually increased. So we do not believe that that has any impact at all.

Okay, all right. And then a final thing is I know you don't like to dive into too much detail about weather, but I was wondering if you could have at least some level of color since last year there was this historic level of rain in Texas, and this year there seemed to be rain but maybe not historic flooding.

This summer since July 4 has gotten excruciatingly hot in parts of the middle of the country. How would you describe the weather environment versus norms and year over year?

We track weather all the time, and as we have looked both in the quarter and year to date, the weather has been -- there has been some shifts within the quarter, but I think overall our data shows that the weather is fairly consistent with what we saw last year.

Okay. I will leave it there, thank you.

Your next question comes from Ben Chaiken with Credit Suisse.

I was wondering if we could take a closer look at the cost side. You mentioned three buckets; were those in rank order in terms of incremental cost? And then also any more color on the all-season dining and international cost increase that you referenced, and what goes into that inflation would be helpful.

Good morning, Ben. The cost increases primarily came from salaries and wages driven really by a few items; minimum wage, rate was a growth driver, market wage rate increases also was a growth driver. In a couple of markets we were not seeing the quality of applicants that we wanted to see, so we increased the rates a bit.

We had growth in all-season dining, as you mentioned. We're selling a lot more meals so we're opening up new venues and expanding the ones we have, and the margin there is still very good, but we do have growth in costs. And then the normal merits that we give to full-time employees, that also is a cost increase year over year.

In addition to that, we had some insurance costs increases over prior year for about $3 million relating to some prior-year claims and some unfavorable litigation outcomes. And then finally the growth in the international business.

We're very excited about how the business has grown and the fact that we've got four new parks joining us this year. But there are costs associated with that, and so that is another driver of the cost increase.

But as you think of the level of the cost, that would be the ranking in terms of the size of that impact.

Right.

With the quality of the applicants, can you identify market-specific issues or is that representative of something that is going on across the country that could flow into other locations?

Those were market-specific issues in the state of Texas. We had -- it's a very tight labor market, and so that was one. And then we also had some targeted increases in New Jersey as well.

Got it, that is helpful. And then the increase in all-season dining expenses there, is this something that you've seen coming, or was there some kind of inflection this quarter? Just curious on what the ramp looked like.

It is something we expected as we began to have this tremendous growth in the sales. When you look at it as a percent of labor -- or I'm sorry, as a percent of the all-season dining revenue and the food revenue, it's in line with our expectations. It has been a very successful program.

And remember that business is extremely high margin business. So even with having to add a little bit infrastructure around that it's still very high margin.

Not to belabor the point, but could you dive into that a little more? I guess is it people are just eating more food so you need more employees and need more locations? Or is it the timing of when they're eating? Or what -- I guess I don't necessarily --

It's basically volume, an increase in volume. We've talked before about our strategy on the all-season dining, and really it's targeted around our season pass holders and our members.

So basically keep them in the park to spend more money, and it is a great deal for them because it provides two meals while they are in the park, in some cases two meals and a snack. It's a very nice price point for us, and because it's high margin there is a pretty huge flow through to the bottom line.

So we've been successful in terms of getting more and more of our pass holders to buy the all-season dining pass. We've had tremendous -- last year was really our first full year of this after some testing, and we saw really, really good growth year over year in people buying this pass.

Now as Marshall said earlier, it's still relatively low penetration, so I think the opportunity going forward is pretty significant for us. But when they -- these are people that generally have not -- season pass holders generally have not spent money in the park.

Maybe over their three or four visits they might buy a couple meals. Well now all of a sudden they are buying through the all-season dining pass a couple of meals every time they visit.

So that increased the overall volume of our meals that we've had to produce. So with that obviously we've had to add additional labor around that.

Got it, that is helpful. Switching gears to international, do these inquiries tend to be inbound? And then any color on what you're vetting process looks like with regard to either the city or the partner or whatever color you can provide would be really helpful? Thank you.

Ben, they typically do -- they typically are inbound calls, and I will tell you that we get multiple calls, multiple calls a month from people. What we do is we have a very detailed process where we start by looking at the market and whether we believe that the market would be a good market to -- and it's got the features that we are looking for, the existing population base, growing population, growing middle class, growing disposable incomes.

We do a lot of analysis and vetting up front to see if that is even a target market that would be attractive for us. And then we go through the process of making sure that we in those markets do have the right partner. So it is a fairly lengthy process, even before you start getting to the point where you start negotiating letters of intent with these parties.

Got it. And then one more if I may, the last one. When you think about the different markets that you could go into, would you rather it be a market that already has an existing theme park dynamic there and so you have some educated -- you have an educated customer, or would you rather it be a new penetration market where you could have 100% share? How do you think about that internally?

Actually it can be both. There are markets that we look at where there are very, very few entertainment options. So in that case obviously it's a great opportunity for us.

But there may be other markets where there are some existing theme parks. The way we look at it, Ben, is let's say if you take China for example where we think this opportunity is huge for multiple Six Flags parks. But there are other parks that are being built in China.

But the population base is so huge, when you think about the fact that it is four times the United States; and there are hundreds of theme parks in the United States. And so we think this is a market that actually has ample room for a lot of players to come in and build theme parks.

And we actually believe that the more people that can come in build theme parks, obviously theme parks are a very safe environment, can raise the entire profile of the industry and be helpful in generating even more interest and attendance. But that is a huge market. So we actually look at both.

Got it, thank you.

Thank you your next question comes from James Hardiman with Wedbush Securities.

Thanks for taking my call. I wanted to dig a little bit more on the cost side, because I think that is generally where the Street was mismodeling the quarter. And I really appreciate all the color you have given thus far.

But just so we're clear, as we tease out the various reasons why cost increased year over year, is it safe to say that pretty much all of this wage stuff, the wage increases are an ongoing increase that we're going to see over the course of the next year, but that the insurance cost increase, which I think you said was about $3 million, that that was more of a one-time item? Is that generally how to think about this?

Good morning, James. Yes, that is correct, that is how to think about it. We talked about the minimum wage being $5 million to $7 million over the course of the year. With the market-driven wages as well, we are thinking more about $8 million to $10 million right now.

And the insurance increase, that was just a one-quarter item that we don't have to worry about for the upcoming quarters?

Generally that is the case. We always have -- we have a lot of litigation going on every year, but generally yes, that is the case.

And that was presumably an OpEx line item?

That is correct.

Just generally I guess what I am getting at here revenues were up 5% and margins were down, adjusted EBITDA margins were down about 50 basis points. I guess I'm trying to figure out is that going to remain upside down until we lap some of the wage increases? Or does that look a little bit better as we work our way through the year?

Well, we are not going to provide guidance on that. What I will say is that we are still over 41% on an LTM basis, and we do believe we can continue to improve that margin over the course of the year.

Okay. Fair enough.

And the right way to look at it is because there are shifts from quarter to quarter as it relates to cost. And so I think the right way to look at it is either on a year-to-date or an LTM basis. And if you look at it on a year-to-date basis, our revenue growth is higher than our operating cost growth. And that is the same on an LTM basis as well.

That is a great point. At the end of the day it sounds like the best way to look at this is year to date, but it sounds like you may be saying that even beyond the Easter shift that there were some other shifting items. Is there anything worth calling out there?

Well no, I was referring to shifting items just from quarter to quarter. Obviously Easter was one of those, but you always see shifts from quarter to quarter. We may spread our maintenance a little bit differently throughout the year, and that is why I think it's important to look at it more on a year to date or clearly in this case an LTM basis.

Very helpful. And then I guess just lastly for me, and maybe the answer is the same, but on the top line you have talked about the new rides and attractions being among the best if not the best you've ever had for a given year, particularly on the VR front. And yet the attendance growth in the second quarter at least was lower than we have seen for six or seven quarters here.

Again, the first half growth is really impressive, the second half growth in attendance maybe less so. Help me think about why that would be the case and how I should think about this going forward?

It's hard to look at one quarter on its own as it relates to attendance, because there are visitation shifts from quarter to quarter even beyond things like Easter shift. Our attendance is up 7% on a year-to-date basis, our active pass base is up 11%.

So we know that the season pass holders and the members will visit our parks, and so our strategy is to grow revenue year over year. And as you know, season passes and memberships are a big component of that overall strategy. So we also want our guests to buy passes early.

We've had a lot of nice marketing programs and particularly talking about the capital earlier in the year. So we have been successful in making that happen, and I think you saw that as you look at the pass base growth not only at the end of 2015, but at the end of the first quarter, and it showed that we were successful in that.

Now we may have seen some of these pass holders visiting because they had the pass earlier visiting earlier in the year than we did last year. But again, we know that throughout the year that they're going to visit three or four times and will generate a really nice stable revenue stream going forward.

Very helpful, thanks.

Your next question comes from Joe Edelstein with Stephens, Inc.

Hi, good morning, everyone. Just to follow up here a little bit on the attendance growth. I was hoping you could help us better understand how the growth in that deferred revenue line is really going to tie into your attendance gains.

We saw some big ramp in deferred revs in that first quarter, frankly thought we'd see a little more attendance coming in off of those membership and season pass sales, and as you mentioned the deferred rev is up 17%, active pass is up 11%. Why were we wrong to have assumed and translated that into a double-digit increase in visits in the quarter? Or perhaps you are suggesting that we could still see some of those visits coming more so in the second half of this year?

I think again what I had just mentioned in terms of you see visitation shifts amongst the quarters. That is why our focus is to look more on a year-to-date basis up 7%.

We probably -- because of the fact that we may have some people that had bought their season passes earlier, and that is part of our overall strategy, is we may have seen some of those people shift in terms of having more of the season pass visits in the first quarter. But again, we know that they are going to come three to four times over the year. So we know that we still have some good attendance from those season pass holders in the balance of the year.

Okay. And then also to the international side, how much are those international deals contributing to the gains in that deferred revenue line? And maybe as a mix just of that total $175 million figure that you called out?

It's very, very minimal. We're generally tracking the cash and recording revenue as we receive cash generally.

More so for those pass sales, you're saying?

You are asking about international as a piece of it? The overwhelming majority is season pass sales and all-season dining.

And the revenue will be recognized over the course of the season, or at least a large, large percentage of it will be recognized in 2016. Does that answer your question?

Yes, that is helpful. And just to stay on the international piece then, how many different international theme park development projects are going on globally today? Do you feel like the landscape could get more competitive here? I don't think you have, but would you even be willing to provide any rough guidelines around the number of licensing deals that you're trying to target annually as we look forward?

Well I'm not going to give you a precise number in terms of the number of further deals that we're out there having discussions on. What I can tell you is that there are multiple additional deals, we're very pleased with what we have not only seen to date in terms of what we have signed up, but the number of deals that we have in the pipeline.

And all of those deals are in very good markets with potentially very good partners. So we're excited about that.

And just competitively internationally?

I think competitively as I mentioned before, some of these markets are so big like China that there is ample room for many players to come in. However, I think as you look at it one of the things that makes Six Flags so attractive is not only the expertise that we have in being able to design, build, and ultimately assist in the running of the parks, but it's our brand.

People love our brand, our brand is actually well recognized outside the United States. So I think that gives us a competitive advantage over some other players that may not have that typical type of brand, number one.

And we are a regional theme park player. So we don't necessarily compete against here in the United States nor outside the United States with the destination players, because we have a different offering. And what we have found is as we look in our discussions with the partners and what kind of parks we're looking at, that not only is there great demographics in terms of population and growing disposable income, but it's a population that is anxious for thrills. And that is what we offer.

It's all about we'll have many rides in these parks, it's all about thrills and record-breaking roller coasters. So it's little a different offering to some of these other destination players. So we believe that we have a very good competitive advantage in a lot of these markets.

And in China specifically our partner there is aggressive, and he really wants to get into these markets. So we're moving quicker than others in China at the moment. We are very pleased with that particular partner.

And the water park too we talked about in Vietnam.

That is very helpful. I appreciate the time for the call.

Thank you. And your final question comes from Tim Conder with Wells Fargo Securities.

We asked the question ourselves and we hear from clients all the time, if you can we would appreciate any breakout of the components of the space between season members as it stands now or any historical context. And then on the international part, you said in your preamble that there was some additional milestones to be bid on a few items.

How should we think about that as we model off the balance of the year over year of that incremental revenue flowing in? And before you given some guidance about park opening, and after it's open this range for the park but the more difficult component is that prior to park opening are currently in. So those milestones had we think about especially in the back half of the year? Thank you.

So I think for the full year you can use what we talked about, the $10 million per park per year. So they do the full-year math, you can get the back half in the first half.

As far as the active pass base, for competitive reasons we won't breakout. That makes we will say that additional season pass holders are still the majority, and they are both growing because the membership is a smaller base the percentage of growth.

So Tim, on the international, to follow up on what Marshall said, the four deals that we have prior to this recent China deal I think we're in a position where we're generating that spike up to [Maine] dollars of EBITDA each year. On the recently announced China deal, we have an NOL sign we're working on a definitive agreement for really will not be any revenue that will be recognized until we get to the point where we have those agreements, but we will absolutely you will be able to know when that happens.

Okay, thank you.

Thank you. And that was your final question.

Great, thank you for your time today and your ongoing support of me and our team at Six Flags. We're proud of our accomplishments and excited about our future.

Our 2016 season is off to a great start, and we look forward to delivering another record year as we continue to build long-term shareholder value. So take care and I hope you can come and visit one of our parks soon. Goodbye.