Six Flags Entertainment Corp (SIX) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Six Flags Third Quarter 2017 Earnings Conference Call.

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

(Operator Instructions) Thank you.

I will now turn the call over to Steve Purtell, Senior Vice President, Investor Relations and Treasurer.

Good morning, and welcome to our third quarter call.

With me are Jim Reid-Anderson, Chairman, 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'll turn the call over to Jim.

Thank you, Steve.

Good morning, everybody, and welcome to our call.

I want to apologize in advance as I have strep throat at the moment, and as of last night, have actually lost my voice.

I will do my very best today but, for sure, you may wonder at times if this is in fact a frog attempting to speak.

Our year-to-date revenue and EBITDA are at record levels as the company drives towards its eighth consecutive record year.

I'm very proud of our team for this performance given the unprecedented natural events we experienced in the third quarter and beyond, especially after what had already been a very challenging weather period in the second quarter.

On the second quarter call, we mentioned that weather trends continued to be difficult into July, and I can say that we have never before seen a quarter with 4 hurricanes and 3 earthquakes.

Hurricane Harvey negatively impacted attendance at several parks the weeks before and after Labor Day, with resulting gas shortages across Texas negatively affecting our parks in that state.

And then remnants of the storm impacted our northeast parks over the Labor Day weekend.

Hurricane Irma also negatively impacted attendance at our Atlanta and East Coast parks.

In Mexico, our theme parks sustained minimal damage from the September earthquakes, but many homes, commercial buildings and transportation routes were destroyed in the surrounding area.

Leisure activities, including visiting a theme park, have not been top of mind for many residents, and it is still taking time to recover normal attendance.

Our new water park did sustain damage and likely will not reopen until near the end of 2017.

Most recently, the massive wildfires in Northern California resulted in widespread evacuation and poor air quality that negatively impacted attendance at our 2 parks near San Francisco in October.

As a result of these attendance impacts, partial achievement of our Project 600 goal in 2017 is no longer deemed probable.

However, you can rest assured that the entire team is focused on driving performance, and we are laser-focused and energized to achieve the best possible results this year and next.

We feel confident about our ability to deliver a strong fourth quarter and 2018 financial performance.

At a high level, our confidence is derived from our own historical experience with severe weather events.

If you study our financial performance after extraordinary events, such as Hurricane Irene in 2011 and Hurricane Sandy in 2012, you'll observe that in subsequent quarters, we recouped the lost attendance and resumed our growth trajectory.

Specific weather events have not historically disrupted our fundamental progress, which depends much more on our own specific initiatives to drive growth.

At a more granular level, our confidence stems from several encouraging data points.

First, we had, by far, the most successful Labor Day sale in the company's history, preselling a record-high number of season passes for 2018 season and increasing our Active Pass Base as of September 30 by 13%, an acceleration from being up 12% in the second quarter, even as we increased prices by between $2 and $3.

These passes are good from the date purchased through the end of the calendar year 2018 and will spur additional visits in the fourth quarter this year, especially as we capitalize on pent-up demand caused by the recent extraordinary natural events.

Second, even as this pass base has grown, we have nicely increased the penetration of our All-Season Dining Pass Program.

As a result of the successful sales on both these products, deferred revenue was up $31 million or 21% at the end of the quarter, resulting in our highest Q3 balance ever.

Third, we have successfully grown our revenue and profit in the fourth quarter every year for the last 7 years by investing in Fright Fest and Holiday in the Park.

We're introducing Holiday in the Park at our 11th property this winter, Six Flags New England.

Several other parks are entering their second and third years of this very popular event, and we will benefit as it becomes a time-honored tradition of these newer parks.

Fourth, our membership program has grown consistently and is now spreading our revenue more evenly across the quarters, boosting fourth quarter revenue and increasing the size and stability of our recurring revenue model.

Finally, growth in our international licensing business is very strong.

You may recall that we recognized very little licensing revenue in the fourth quarter last year, so we have an easier year-over-year comparison as we head into the fourth quarter.

Our consistent fundamental progress is encouraging, and we feel very good about our near-term growth prospects.

We are also excited about the longer-term outlook and remain laser-focused on achieving our aspirational goal of $750 million modified EBITDA by 2020.

I will talk more about our long-term growth drivers at the end of the call.

But first, I will ask Marshall to share some details of our third quarter and year-to-date financial results.

Marshall?

Thank you, Jim.

It is true that thus far, Mother Nature has dealt us a challenging year.

However, the sheer size and continued growth of our Active Pass Base and All-Season Dining Program, along with focus on managing our cost base, has helped us keep our business stable and growing.

During normal weather days, park attendance continued to meet or exceed our growth expectations.

And as our membership dining and international licensing programs continue to grow, a larger portion of our revenue base is spread more evenly throughout the calendar year on a recurring basis.

In the third quarter, year-over-year total revenue was up $23 million or 4% as a result of a 3% increase in attendance, a $2 million or 23% growth in international licensing revenue and a $2 million benefit from foreign currency translation.

On a guest spending per capita basis for the quarter, we were up $0.71 or 2% to prior year.

Admissions per capita spending was up $0.91 or 4%, while in-park spending was down $0.20 or 1% to prior year due to the higher mix of season pass and water park attendance.

On a year-to-date basis, revenue was up $22 million or 2%, driven primarily by a 2% increase in attendance and a 31% increase in international licensing revenue.

Guest spending per capita was roughly flat to prior year as a stronger mix of season pass and water park attendance offset ticket price increases.

Year-over-year, cash operating costs were up 8% in the quarter, primarily driven by the following areas: investments and operating costs related to our 2 new water parks; investments to support continued growth in our high-margin international licensing business; higher cost to goods from an increased volume of culinary sales due to our growing and highly profitable All-Season Dining Program; an increase in minimum wages, particularly at our California parks; some timing shifts between quarters versus prior year; and finally, costs related to our workers' compensation program, which we do not anticipate to be recurring.

Importantly, year-to-date cash operating costs were up a modest 3% over 2016 level.

In the first 9 months, we generated $228 million of adjusted free cash flow and paid $168 million in dividends.

During the third quarter, we also paid off the remaining $29 million balance on the 6.72% term loan associated with our hotel and water park in Queensbury, New York.

Net debt as of September 30 was $1.9 billion.

And our net leverage was 3.8x adjusted EBITDA with no borrowings under our revolver.

During the quarter, we repurchased $120 million of our shares, bringing the year-to-date total to $499 million.

This is the second-highest share repurchase year in our company's history.

And so far this year, we reduced our net outstanding share count by more than 7 million shares.

Since emerging as a public company, we have reduced our share count from 110 million to 84 million shares and increased our cash EPS from $0.08 to more than $3.

Given the high recurring nature of our revenue, strong cash flow and significant growth opportunities, we have plenty of room to grow our dividend by high single-digits for the foreseeable future.

Our LTM modified EBITDA margin remains the best in the industry at 40.7%, while our modified EBITDA less CapEx margin of 30% is several hundred basis points higher than any of our competitors.

We're confident that we can continue to improve our modified EBITDA margin over the long term.

As Jim mentioned, partial achievement of our long-term Project 600 goal in 2017 will be challenging.

While we are focused on striving toward partial achievement of the equity award this year, it is no longer deemed probable on a -- from a GAAP viewpoint.

As such, we reduced our accrued stock-based compensation expense by $45 million in the third quarter to reflect 50% of the target payout or 1.3 million shares being awarded in February of 2019.

This is based on the expectation that the company exceeds $601 million of modified EBITDA in 2018.

As we have said in the past, we continuously assess our tax strategy and available options to minimize our tax payments.

Based on our latest estimates, we do not expect to become a full tax payer until 2024.

We now expect to pay minimum federal taxes in both 2018 and 2019, with a ramp-up beginning in 2020.

In summary, although we have faced unprecedented challenges this year, our team remains highly motivated.

We're working hard to deliver another record year in 2017 for our shareholders and are very encouraged by our early indicator for 2018 and beyond.

Now I'll turn the call back over to Jim.

Jim?

Thank you, Marshall.

We are well positioned for growth in 2018.

We have taken prices up 3% to 5% and our Active Pass Base and All-Season Dining Pass penetration are at record highs.

And although I cannot share specific details, there are a number of potential partners that could contribute to both our international licensing and water park strategies.

On top of that, we will have more operating days in 2018, with both our new water parks open for the full season and with Magic Mountain beginning year-round operations, enabling us to grow revenue and EBITDA with no additional capital.

Opening Magic Mountain every day will allow us to more fully access 48 million tourists that visit Southern California every year.

The park has seen significant growth and expanded its calendar over the last 7 years, and this will put its calendar on par with the other theme parks in the region.

An important part of our growth strategy has been to open something new in every park every year.

Next year, we will showcase the most impressive lineup of new rides and attraction in the company's history, including no less than 5 world's firsts and record breakers.

Several of the rides and attractions will be themed after the most famous superheroes and super villains in the world.

At Fiesta Texas, we are introducing WONDER WOMAN Golden Lasso Coaster, the world's first single-rail coaster.

At Great Adventure, CYBORG Cyber Spin is a ride with a unique futuristic triple-box design that is the first of its kind in North America.

At Discovery Kingdom, the new HARLEY QUINN coaster, the first-of-its-kind looping coaster featuring multiple inversions along a vertical figure 8 track.

At Great America, the tallest looping coaster in the world.

And not to be outdone, at Magic Mountain, which is, as you all know, the Thrill Capital of the World, we are introducing CraZanity, the world's tallest pendulum ride.

Looking longer term, the opportunities in front of Six Flags are greater than ever before.

Our Project 750 goal represents a cumulative annual growth rate of more than 10%.

This, in my opinion, is an appropriate, stretch goal for an aggressive organization.

Our long-term financial goals and related projects provide complete alignment between our employees and shareholders and have driven more than $5 billion in shareholder value since 2010.

We believe achieving Project 750 would generate an additional $2.5 billion of shareholder value.

Most companies are happy to have 1 or 2 major growth areas.

We have 5, and this is where I've spent all my energy since returning as CEO.

These 5 key growth areas to help us achieve this goal are all still in early stages and will drive revenue and margin growth for the foreseeable future.

The first area is increasing ticket yields.

I have to tell you, I have never been more confident in our ability to raise prices.

We have been taking pricing up on every ticket type, and we have seen no pushback from our guests.

In fact, our value-for-money ratings have improved every year for the past 7 years and are currently at all-time highs.

In addition, we are seeing our overall guest satisfaction scores increase very nicely over 2016.

The second area of strategic growth is increasing sales of season passes and memberships.

We have grown both our Active Pass Base and our unique visitors over the past year and over the past 7 years since beginning our current strategy.

Our revenue per unique guest is at all-time highs as these Season Pass Holders and members are our most valuable guests.

Yet these guests still only represent about 1/3 of our unique visitation.

Our goal is to convert the remaining 2/3 of our guests as we have ample capacity in our parks to do so.

The third area of growth is in-park sales, especially culinary revenue.

Our All-Season Dining Pass Program has been a huge success and is being copied in the industry.

It is a tremendous value for our guests and a high-margin recurring revenue stream for us.

If you add a Dining Pass, that Pass Holder generates 3 to 4x the revenue of a single-day guest over the course of a season.

We have achieved record penetration and are very pleased with our renewal level, but we still have plenty of room to increase penetration for many years to come.

The fourth key growth driver is international licensing.

This attractive, long-term strategy allows us to monetize our globally known brand and expertise with no capital investment.

We are only beginning to realize its potential.

We have already announced 5 parks, and licensing revenue through September grew 31%.

We have a great deal of -- great pipeline of deals, and they provide a hedge against any single deal.

And our partners are well funded with full backing from their respective governments.

The fifth growth driver is our strategy to acquire parks nearby our existing theme parks.

This strategy allows us to expand our addressable market and grow our Active Pass Base even faster in our feeder markets.

The opportunity is both compelling and large-scale as there can be multiple parks in each market.

The strategy has proven itself in Mexico, where season pass sales are up significantly this year after adding a nearby water park to our season pass offering; and in Concord, California, where our water park has had its 10 biggest days in history since we acquired the park.

Six Flags is the foremost brand in the global regional theme park space, a segment benefiting from a growing trend of consumers favoring experiences over possessions.

We provide family entertainment that is affordable in any economic environment.

And we consistently deliver guest excellence, innovative products and attractions and the highest industry growth rates in attendance, revenue, EBITDA and EBITDA less CapEx.

Our season pass membership, All-Season Dining and other in-park park program, along with our multiyear international licensing and sponsorship deals, provide a significant and growing source of recurring revenue.

Finally, we return all excess cash flow to shareholders through a balanced approach of dividends and share repurchases.

Our dividend yield is double the S&P 500, and we have grown our dividend every year for the last 7 years, making us the ultimate growth and yield stock.

At this time, Phyllis, could you please open the call up for any questions.

(Operator Instructions) Your first question comes from the line of Barton Crockett with FBR Capital.

Congratulations on being able to grow despite kind of biblical natural headwinds.

Thank you, Barton.

I want -- yes, and I was curious about the, first, on the operating expenses.

So you're up 3% kind of year-to-date, I think you quoted on cash OpEx.

There's a lot of noise in there with the water parks, natural events, closing some parks, people eating a lot more kind of All-Season Dining Pass food.

How should we think about the normalized trend in expenses as we go into 2018?

Well, Barton, you are correct.

On a year-to-date basis, we have done a very good job managing costs.

If you exclude the growth associated with the 2 new water parks and the international licensing business, our cost growth is actually less than 2% year-to-date.

I think if you look at the year-to-date and LTM rates of increase, that's probably more in line with what we're going to end with up for the year.

And then we won't comment on 2018, but you can rest assured, we'll continue to manage costs like we have in the past.

Okay.

And then one of things we were also wondering about is insurance proceeds from any of these events, particularly the earthquake in Mexico.

Just update us on what the -- what we're seeing there?

What potential is for something to come in?

So Barton, Steve's going to take this one.

Yes, Barton, as we have commented, the theme park itself was only closed for a short period of time.

So it had no damage.

So there's no insurance proceeds required for that.

We obviously lost a little bit of revenue in that process, but there's no insurance coverage there.

Correct.

The revenue loss is from the general area around the park, not from something that happened to the park.

On the other hand, the water park, like all of our parks, carries an insurance for business interruption and for property damage.

And we'll be reimbursed for all the property damage and for business interruptions during the period until the park is open.

And so we expect to have minimal loss in the long run from the park.

We're not going to disclose how much, because obviously, we're still in the process of working that with the insurance company, Barton.

But in essence, think of it as covering any losses that we have.

Okay.

And then just kind of one final thing here about the environment here in the fourth quarter, which, as you pointed out, historically been a strong growth frame for you guys.

Clearly, a lot of noise with fires in California, Northern California.

You didn't talk about Southern California, but there has been some fires there.

I'm wondering if it's impacting you.

But overall, does the environment feel like one where you feel good about the growth trend of past years having a setup to be able to persist this quarter?

Or is there so much kind of noise that maybe we should be a little more cautious about that at this point?

Barton, we don't generally comment on quarters, but it's very clear that the fires did have an effect early on in the quarter.

I would tell you that aside from that, we feel very confident about the quarter for many of the reasons that I articulated.

And on normal days, we're seeing just incredible performance.

And just this past Saturday, I'll tell you something that I would never normally disclose, but we had the highest attendance and revenue day in the company's history.

And it shows you that in the right environment, you see very strong turnout from guests and spending at a very good level.

So whilst the first 2 weeks were clearly impacted, we feel that we're seeing a very strong response.

Fright Fest is the best Fright Fest offering we have ever had.

And if you haven't gone, Barton, I strongly recommend that you go this season.

Holiday in the Park, we'll have more parks that, with New England coming online, that have the Holiday in the Park offering.

And you will have a lot -- Magic Mountain, as we told you, has new product coming.

We're moving to 365 days.

A lot of positive news laying ahead of us and we feel confident about the quarter.

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

Jim or Marshall, whoever want to take this, Jim, just to preserve your voice or -- any -- on the season passes, that clearly went very well and you're -- and despite of you continuing to be able to raise prices, which is great.

Were there any changes in your early to buy incentives on a year-over-year basis related to those?

Actually, you know what, Tim, we really spent a lot of time.

We have a crack marketing and research team.

And every year, we refine the process to make it as effective as possible.

And I can tell you it's the best process we've ever had.

So I am so happy with the result.

I mean, you've seen the Active Pass Base grow 13% to the highest level in our history.

And we're talking about huge increases in Pass Holders, exactly the strategy that we've been articulating.

All of this while increasing pricing by $2 to $3 and closer to the $3 level.

So it's very hard to be able to do that, as you can guess, increase the number of people buying at a much higher price point.

So we have cut, in essence, cut the level of discounts.

But what we've done is really enhance the way that we communicate with our guests.

So you look at a 70% off price point, which really attracts people, but that price point is $2 to $3 higher than it was a year ago.

Okay, okay.

So I guess maybe potential analogous to what we've seen in the cruise industry the last few years.

As you referred in some of your preamble, it's about yield management.

You may offer somebody some incentive, but net-net, you put it all together at the end of the day, we're continuing to drive those collective ASPs higher.

Fair?

That is exactly right.

And in addition, what we've done is now much more effectively linked in all of the other items that we sell in the park.

As an example, as you're buying a season pass, we immediately prompt you for an All-Season Dining Pass and many other in-park offerings.

And that, we saw huge success with.

Okay.

Great segue into my next question.

Can you comment, given it's been very successful and remains very critical, early-stage part of your further development, can you give us some type of references to, Jim, the penetration of the All-Season Dining or beverage passes?

Or maybe another way to ask it, can you give us a comparison here, the growth rate in those passes year-over-year relative to maybe what we're seeing on the Active Pass Base growth rate?

The growth rate on our All-Season Dining Passes is far higher than the Active Pass Base.

We're seeing really strong growth, and yet the penetration is still really low, Tim.

So the way that I would think about it, so you can put it into perspective is -- I'm not going to give you a percentage or say this is the number, but this will help you understand how far along we are in the All-Season Dining Pass.

I would think in terms of second or third innings.

Okay.

Okay.

Well, I'll push here a little bit.

Can we say that we're still maybe below 25% penetration given that second or third inning?

I think that's probably a fair assumption for right now.

Great, great, that helps.

On the international front, it sounds like you're alluding to some additional park developments.

Obviously not over the goal line yet but getting close.

Just anything else you can offer?

Saudi Arabia?

Some rumors of you're maybe close to a third park in China.

And then any update on the situation in Vietnam?

I think -- you asked about Vietnam, China and Saudi.

Saudi is one that has been publicly revealed that we are (inaudible) continue those discussions.

And as soon as we have something that is concrete, with contract signed, we would announce that.

So I'm not in a position to say any more than that, Tim.

Vietnam, we continue to work with other partners, and we're very hopeful that at some point, we can announce something.

But again, it's a matter of getting the right deal with the right partner and the right location, and we'll never compromise our -- what we're looking for in terms of a deal in order to get something announced quickly for the public.

That's just not going to happen.

China, I think, continues to show very strong growth.

And there was a leak of an announcement that took place in China.

But yet again, we only announce things once they're final and formalized.

So just with those 3 things, you can see -- as there's public information leaking out there, there is a lot of work going on, not only there, but in other places.

And once we're at the point where we have contracts that we, as a company, are satisfied for and that do what we need to create shareholder value, then we will announce them, Tim.

But you should rest assured, there's a lot going on, not only on that front, but also with regard to water parks and other opportunities for us with regard to expansion along those lines.

Okay.

And then one housekeeping and one last question.

You said acquire nearby parks in your preamble also.

Could that mean more than water parks?

So I guess that's one.

And then on the housekeeping, Marshall, you said that some workers' comp or some onetime cost.

Can you quantify that?

So in terms of your first question, yes, it could be more than one park in a market.

It could be a water park, a small theme park.

What we're looking to do is we are looking to leverage our season pass base, which is huge in these markets, and be able to take and buy a ride or operate without buying these properties and then leverage it up with our season pass and create tremendous shareholder value for very little investment or no investment.

On the other question, I spent a lot of time bridging out the expenses in the third quarter, and I don't want to quantify any of those.

So I think we'll leave it with what we have in the prepared comments.

I think it's fair to say that Marshall would not have listed those workers' comp as one of the key items if it wasn't material.

It's certainly a material amount, Tim.

But we don't break out these amounts.

The really important fact is one you referred to.

If you look at our year-to-date numbers, we're at around 3%.

And if you exclude the new water parks, which are generating revenue for us, it's more like 2%.

But I think in terms of 3%, in that range.

Your next question comes from the line of Tyler Batory with Janney Capital Markets.

So I was wondering if you can talk a little bit -- wonder if you could talk a little bit more about the incremental operating days at Magic Mountain in the first quarter here.

Are you able to disclose how many extra days you're going to get there?

And then any more details you can share just to help us think about the potential impact to attendance or EBITDA from having that park open full time in the quarter?

We're not going to quantify the incremental EBITDA, but you can rest assured, Tyler, that we wouldn't have moved to a 365-day operation if we didn't believe that it would generate incremental EBITDA.

We won't break down the quarter, but I can tell you that for the full year, it will add about 100 days.

Okay, that's great.

And then question on Holiday in the Park.

I mean, you're adding it to New England.

You have another couple of other parks.

They're in kind of years 2 and 3 with this event.

How do you see the ramp here as some of these parks that have had it only for a couple of years, how much growth do you think you have?

I mean, when does it really get to a point where it's mature?

And is there any chance that Holiday in the Park becomes as significant as Fright Fest at some of your parks?

It's a really, really good question.

And what we found, Tyler, is that year 1 is not the peak year.

It's probably year 3, 4 or 5, probably really 4 or 5 that you start seeing it hitting a point when you're getting full understanding from our guests as to how great this event really is.

And we've learned this by studying the other parks that have been open for longer.

They have consistently ramped up as we've gone forward.

And we have multiple parks that are sitting in their second or third year that are going to get that sort of -- and even fourth year that are going to get that sort of ramp up, we believe.

So we're quite excited about adding New England, and we continue to assess the other parks that are not Holiday in the Park with a view to potentially opening them up as we assess how the new parks, such as New England, do.

Okay, that's great.

And then just last question for me.

There's a lot of talk here about the All-Season Dining Pass and the penetration opportunity there.

But what do you think about the pricing opportunities?

Is there a chance to increase the prices there?

Are you maybe more focused on increasing the penetration before you start getting a little bit more aggressive on pricing in that product?

On All-Season Dining specifically?

Yes.

Right.

So we have taken pricing up on All-Season Dining.

But we've also created 2 layers of All-Season Dining Pass.

So there's one layer at a lower price point with more -- with fewer options, in other words, 1 meal versus 2. And then we have a higher, premium-priced product that, by the way, most of our guests go for, at a higher price point, with more -- 2 meals and a snack.

And no matter which price point you look at, the lower price point or the higher price point, the premium product versus the regular, they are accretive to our margins, substantially accretive.

So not only are we gaining revenue, but obviously, the margin improvement comes with it.

Your next question comes from the line of Steve Wieczynski with Stifel.

Sorry, who was that, Phyllis?

Could you repeat that?

Steve Wieczynski.

So I'm surprised how strong some of your revenue lines were in the quarter, given the magnitude of weather events that you guys did kind of live through.

So I don't know if you'll answer this, you want to answer this, but is there any way you can quantify what you think the weather impacts was either in maybe lost visits or EBITDA?

Steve, obviously we have a very good handle on that internally, but we're not going to disclose what that was.

It was substantial, though.

I mean, literally, if you go park by park, Mexico, you can imagine the impact of people just not showing up.

Mexico has grown to be one of our biggest parks, incredibly popular and very, very profitable.

So for a period of time, we definitely lost momentum, and it's a substantial amount of EBITDA and revenue that was lost.

Okay.

Got you.

I didn't think you would answer it but I thought I'd ask anyway.

Second question, I guess, can you just talk about the general health of your typical customers?

It sounds like, as you've raised prices there, there has been little pushback, which is great.

But I guess, there's this fear out there that the consumer might be getting softer rolling over.

So can you maybe just address that concern?

It's a very valid question, and I spend a lot of my own personal time trying to think through, reading about the consumer, visiting with the consumer, trying to understand how people are feeling.

And I always go with the assumption that things are not good, because I think it's better to be cautious and not assume that our guests have a lot of money to spend.

And so what I would say to you is that while I assume that, and we approach it that way and try to ensure that we're always delivering a value offering, we see no evidence yet of any pushback from consumers, whether it comes to pricing or dining or spending in the park.

When they're in the park, they spend money, and they spend money very nicely.

And you heard me describe, last Saturday at our parks where we had record of all time for the company in terms of revenue.

And that included incredible in-park spending.

So I will commit to you, Steve, that we will continue to be cautious.

We'll assume the worst and plan on that basis.

But the truth is that we've not seen any evidence of pullback.

Okay, great.

That sounds good.

And the last question, simple question.

The Project 600 target for this year, when you say at this point, it's not likely, is that due more to weather events or higher costs or just a flat-out combination of both those items?

So when we say it's not probable, it's really driven by all the things that Jim mentioned in his prepared comments: the weather in the third quarter, the 4 hurricanes, the earthquake impact and then now the fires in October.

It just makes it much more challenging to get there.

And so that's really what it is.

So asking a different way.

If you didn't have the weather events, you would still feel comfortable with that $600 million target.

I think we talked on the last call, Steve, about the fact that we were going for the entry point, which is $576 million, as being much more likely, much more probable.

And since then, the weather effect has taken us below that.

So I would say it slightly differently to the way you said it, which is I would say that those, call it, biblical-like events that we've described definitely caused us to miss that entry point.

In terms of how we look at it.

Now I would tell you that we are still trying very hard.

We will maximize profitability this year.

We'll get the highest possible level.

There is a very small chance we could make it, that's why it's no longer probable.

But we wanted to make sure that our investors understood the impact, and that it was less -- much less likely.

Your next question comes from the line of James Hardiman with Wedbush.

So to Steve's last question there, I just want to make sure I understand the equity comp situation.

The reversal in the second quarter was because the $600 million target was no longer probable.

This reversal is that the $576 million is no longer probable.

Is that how to think about it?

That's correct.

That's correct.

And so the credit this year -- or this quarter assumes now we'll be accruing based on the assumption that we'll exceed $601 million in 2018, which is the late achievement of the award.

Got it.

I was hoping you could help us tease out maybe the organic piece from the nonorganic.

Obviously, you had the benefit of the new water park in Mexico, although that was obviously cut short.

But then you had the water park in Concord.

Any way to think about sort of your business, excluding those 2 sort of noncomparable benefits?

Yes, I think in attendance terms, there's a lot of assumptions out there as to what impacted attendance.

The truth is, we got a benefit from the new water parks, at least, Mexico for a period of time.

But the reality is that we saw both organic growth and growth from the new water park.

It's both.

Okay.

And then secondly, how do I think about pent-up demand?

Obviously, you had a lot of visitors that weren't able to go to your parks during the third quarter, some of these natural disasters.

I would imagine that the answer is somewhat different depending on whether you're a Pass Holder or not a Pass Holder.

But I guess, a, from a visitation perspective, when do you think those visitors tend to return?

Is it still potentially this year or into next year?

And I guess from an accounting perspective, people that have already paid, if you're a Pass Holder, are you going to get an extra amount of revenues that show up in the fourth quarter sort of independent of visitation?

Well, so the attendance really -- on the season pass, one of the benefits of having this large season pass base is that people will get their visits over the course of a year.

So if they don't get it in one quarter, then they will ultimately get their visits by and large.

So we adjust -- from an accounting perspective, we adjust it really every month.

And so there's not a big, huge amount of money that's left over for the fourth quarter, assuming because it is adjusted every quarter.

But yes, there are -- for our Season Pass Holders, they will get their visits.

And I think Jim talked about last Saturday being a record attendance and revenue day for us.

A lot of that is -- are people with pent-up demand as well as our Fright Fest product, which is terrific this year.

So James, some -- another way to think about it, and I did say this in my prepared comments, that we definitely see over a period of a number of quarters, people coming back.

It may not come back immediately in the quarter, but I would say to you that, given that we have such a long runway in this quarter, we're feeling confident about the ability to get most of those people to visit.

Will it make up for all of the loss?

I suspect not.

But we're continuing to see nice growth in attendance.

Okay, that's very helpful.

And then lastly for me.

I was hoping you could expand on the tax commentary that you had in the prepared remarks.

I feel like some of that's new.

I guess, a, sort of a notion of that ramp from, I guess, 2020 to 2024.

And then, b, I think you were talking about 2018 being the last year.

Now it seems like 2019 is the last year.

Maybe I didn't get the most recent update there.

But can you sort of walk us through what's changed on the tax front?

I think it's basically $15 million to $20 million of cash taxes per year.

But then how do you expect that tax rate to ramp, I guess, once we get past 2019?

Okay, so we actually don't anticipate becoming a full taxpayer until 2024.

As I mentioned in the prepared comments, we anticipate a low level of federal income taxes in 2018 and 2019.

In terms of the amounts, it'll be $25 million to $50 million per year.

From '20 to '23, we still have significant NOL, subject to an annual usage limit, which can shield about $30 million in taxable income per year.

So if you look at the cash flow we'll generate from the attainment of Project 750 in 2020, we have plenty of free cash flow to continue to grow our dividend in the high single-digit level.

And even if we have much more modest growth, we will still be able to continue to grow our dividend year-in and year-out for the foreseeable future.

And I guess what gave you that incremental shield that I don't feel like you were talking about previously?

And what is the full tax rate?

What -- how should -- assuming that there's no tax reform, what's the ultimate number that we're working our way towards, I guess, in 2024?

Ultimately, for cash taxes, it'll be about 30%.

And we -- as we always have done quarter in and quarter out, we work with our tax advisers to, like all companies, to find ways to shield our tax exposure.

And as you get closer to the years that we're talking about, you get much more visibility and clarity.

So rather than get into a lot of detail, that's basically what it is.

And James, we've always said that.

If you look back on our transcripts going back 7 years, we said we're working closely with tax advisers.

And we continue to do that, and we will continue to do that going forward.

So I think it's good news overall for the company and for our investors, and we'll continue to work hard on this front.

Your next question comes from the line of Ian Zaffino with Oppenheimer.

Question would be on, Jim, I know you mentioned $750 million.

That was an aggressive the target for an aggressive organization.

Has the -- and I guess you point it to the growth rate that you would need to achieve that.

So does that mean, given the performance this past quarter, that the target has become more aggressive?

Or do you view kind of this quarter or last second quarter as kind of onetime events?

And so in your head, the goal of $750 million is just as aggressive or equally as aggressive as it was when you first kind of retook over the role?

I think, Ian, again, that's a really good question.

And there is no doubt that what has happened in the last 2 quarters has made the goal of Project 750 that much tougher, right?

It's -- we were on a track where we're seeing stronger EBITDA growth that has slowed over the last 2 quarters.

So we definitely have more work to do to get to Project 750 by 2020.

But the team is absolutely laser-focused on it.

I think I've described all of the opportunities that we have that we're working on to get there.

We know that this is a really a very unusual year from a weather and natural disaster perspective.

So that goes away, and we'll pick up some benefit from that.

But in addition, a 10% growth rate for the company, while aggressive, I think is a very good thing to have, and it's very good for our investors.

And we're going to work really hard on innovation, on ticket pricing and season pass and membership penetration, in-park revenue and pricing, special events, like Fright Fest, Holiday in the Park, Mardi Gras, international licensing, the water park rollout strategy, all of these things represent big opportunities for a company like ours, an aggressive company that's looking for growth.

And we will have, probably have other things that get in our way over the next 3 years as we work towards that goal, but this team is laser-focused and knows how to get there.

Your next question comes from the line of Michael Swartz with SunTrust.

Michael, you may be on mute.

Sorry about that.

I understand you're not going to give us the granularity of what weather or how weather impacted the quarter from an admissions or EBITDA standpoint.

But could you give us a sense of how many operating days you had in the third quarter this year versus last year on a like-for-like basis?

We're not going to give that, but I can assure you that with the weather and the disasters, we're looking at a much greater effect, especially at weekends, which are the key, really the key times.

Okay.

And then next question.

Just on the admissions per cap was much stronger than I would have anticipated, particularly with what happened with weather.

How much of that is just having the easier comp versus last year?

I think we had -- last year was the heat wave and had a lot more Active Pass in the mix versus pricing or other factors this year.

Or you're saying is that an effect of having a lower season pass membership somehow affecting this.

Is that what you meant?

Well, I just referring back to last year when we had a heavier active mix, which depressed admissions per caps, I'm trying to understand why they were up 4% in the third quarter.

I think the most important factor on per cap has been the pricing that we've been taking, without any doubt, Michael.

We've taken pricing at every opportunity across every category.

There hasn't been a single category of ticket that we haven't taken pricing up on.

And our mix actually is up to prior year.

In other words, there are more Season Pass Holders.

Yes.

So which would have a negative effect theoretically -- it does, on per cap.

Your next question comes from the line of Chris Prykull with Goldman Sachs.

Just one quick follow-up.

I just want to make sure I understand some of the OpEx commentary in terms of what you all consider onetime versus recurring.

So the workers' comp would be onetime.

Are the investments to support the international growth, is that sort of a onetime investment or is that recurring?

And then the -- as All-Season Dining penetration continues to rise, I would expect that the OpEx related to that program would as well.

Am I thinking about those 2 correctly?

Yes.

So the workers' comp would be the onetime costs and nonrecurring in nature.

The other -- the international, we've been investing in international and increasing our investment slowly.

It still has a margin of 80%.

So these investments are really to support the revenue growth that we're getting.

And then from an All-Season Dining, we've built out our locations.

We always continually build them out.

But they really are such a high-margin revenue business that they're accretive as we spend those costs.

But I'd say that really that's more -- those costs are really baked in because they're part of the restaurant and locations that we have.

So that's just normal spending.

But yes, we will do -- as that program continues to grow and we serve more meals, there will be more labor.

Great.

That's helpful.

And then just on -- I understand the minimum wages.

But what are you seeing on the wage environment more broadly, outside of just federal or state minimum wage increases?

We have a couple of parks where we've raised wages slightly.

It's actually been -- the labor pool is pretty good, really.

We -- I don't think we have -- we've had any real staffing shortages to speak of.

There's no doubt, I, think though -- to your question, Chris, it is getting harder, there's no doubt across many parks, to source people.

We have been able to successfully do that, but it is harder.

And minimum wage -- wage pressures definitely exist, and that's part of what we've been seeing.

So I would tell you though that we've been seeing it for the last 4 to 5 years, and we've been managing it and offsetting it.

But there's no doubt, as we grow and as we need more people, that's something that is an added pressure point that we manage.

Great.

And then I just had a couple of quick questions on Magic Mountain.

I guess, first, what drove the decision to expand the operating season now?

Was there something holding you back before?

And then any interest in either partnering or building a hotel in the area?

And then can you give us any sense for what percentage of Magic Mountain visitors are tourists versus local?

And do you have a sense for what percentage of your customers overlap with the other parks in the area?

So it's, again, a great question.

And let me take pieces of that and work it through.

So your question about the -- who the visitors are.

And about 48 million visitors are tourists and about 24 million are Southern Californians.

So it's a really big pool of people that can visit.

And in essence, we've been locked out of being able to really target the 48 million tourists.

Because if you think about it, when they -- when we're dealing with groups, especially international groups, they want to know that they can come on any day they choose.

And we've not been able to offer that to them.

So I think we've been losing out, and that's really what drove the opportunity.

Our team at Magic Mountain has done an incredible job over the last few years growing attendance, revenue and profitability and cash flow at unprecedented rates.

And that's what really drove this decision.

The ability to capitalize on that growth and success in a booming market has led us to say do this now, because we've got the Thrill Capital of the World right there, we've got a record-breaking 19 roller coasters, which no one else can match, and this calendar then puts us on par with all of the other theme parks in Southern California.

So we're really the only company that didn't do it.

We've been planning and looking at it for a while, but this is the year to do it.

Your next question comes from the line of Ryan Sundby with William Blair.

Just a quick follow-up there on Chris's question on Magic Mountain.

Is there an education process required to kind of inform people that this is now open year-round?

So maybe it takes a couple of years to build into that.

I think that's actually true, Brian (sic) [Ryan].

I think it'll take a little while.

It won't be an immediate huge bump, although that would be nice if it happened.

I think it's more likely to be a build, which I think is very exciting for the park.

And the education process will come from how we communicate with our guests.

So we obviously have already begun the process of communicating to our existing guests that the park is open.

But now we've got a fairly major campaign ongoing, both at the grassroots level and also through media, that will build over time to ensure that people know that we are there and there 365 days a year.

And especially when it comes to digital, where we have a tremendous team working on getting our digital messaging through, we think we can go international with that at relatively low cost compared to where traditionally you would've had to spend a lot of money.

So feeling pretty good about the ability to do that.

But you're right, Brian, it will build over time.

Okay, got it.

And then, the water park in California, I think you mentioned, had the 10 largest days in history.

Can you maybe talk about the flip side of that?

And I think last call you talked about season pass in Mexico City was up, how much, 40%.

Are you seeing kind of a season pass benefit there for your theme park in California as well?

We are.

This year, for 2017, we really -- we didn't take over the park until May.

And so a lot of the benefit that we're seeing now as we sell 2018.

So yes we had significant pickup in the theme park and water park in that market.

And it really played out like we expected, in terms of buying -- or getting theme -- water park in the market, leveraging the season pass base, giving additional value and charging more money for the pass.

There's no doubt that it's reinforced.

We -- the benefit of going one park at a time with these is that we can test to make sure that the strategy, in fact, works.

And it does work.

So we are continuing down this path, and we're looking to add other parks over the coming quarters.

Got it.

And then just one last one.

Double-digit season pass growth is certainly impressive, given the challenges in the quarter.

Can you just remind us how weather impacts season pass sales?

Is it kind of similar to attendance, where maybe bad weather pushes off buying a season pass to the back burner?

And then, kind of with that, could you maybe remind us which -- I guess, the cadence around season pass sales, which ones are kind of most important in terms of the season pass volume for the season?

So in terms of when people buy a season pass, traditionally it's the same time.

Works the same way as one-day ticket.

They buy a pass when they're coming out to visit.

So if you look at Labor Day, we did have Hurricane Harvey coming into Texas, and then going up through the northeast during Labor Day.

And that invariably had some impact on the sales.

We were still able to grow double digits.

In terms of cadence...

To that point though, Marshall, before you keep going on, on the other one.

It is fair to say though, right, that while we saw unprecedented level of online sales on days where there's bad weather, you don't get the same in-park sales as season pass that you would, right?

So that -- there's definitely a difference in terms of whether the people are still buying at accelerated levels online, right?

That's right.

That's just one little tweak on your question there.

Yes, and then in terms of cadence, the September sale is becoming more and more important.

And then really, the bulk of our passes are still in the second quarter as parks open up.

I would also say that we have continued -- you asked about importance of passes, and we have premium passes that continue to do very well.

Most of our guests will spend the extra money to get the top pass.

But we're also seeing growth in our membership passes, which we love for many -- we described before why this is such a good thing, because you've got this base of recurring revenue that has been growing for the last several quarters, and we anticipate will continue to grow as we go forward.

So we love our premium pass, season passes and memberships, especially.

Your next question comes from the line of James Hardiman with Wedbush.

Just a couple of follow-ups, clarifications, based on things you said.

On the international front, it kind of sounds like you're moving beyond your initial partner there.

And then on China, it doesn't sound like you're refuting the leak with respect to some of that news coming out.

Care to comment on either of those?

Your first question didn't clarify.

Did you mean Vietnam?

I'm sorry, Vietnam, yes, it seemed like past the (inaudible).

On that front, we have multiple people that we're talking to right now.

And it does include the existing partner.

But we're looking at other parties, too.

And then with regard to China, we're not refuting that.

But we will only announce it officially when we have a contract that we're satisfied.

Okay.

And then earlier there was a conversation about insurance proceeds.

I guess 2 things on that: There's business interruption insurance, but does that only kick in if there's damage to the park?

I mean, obviously, you had some parks that were closed in both Mexico and Texas, but it seems like you only spoke to business interruption insurance at the Mexico water park.

And in terms of insurance proceeds, would that -- you talked about that making the Mexico water park essentially whole.

Would that benefit EBITDA, adjusted EBITDA in future periods?

Or is that something that would be outside of that?

Steve is our insurance king, and he's here.

So he's going to answer to save my voice.

James, yes, the business interruption, as you mentioned, we carry full insurance for all of our parks.

And in the case of business interruption, it's tied to a loss within the park.

So when there's a loss in the general area due to the roads or people are not visiting parks as much, then you really don't have a claim.

And that part of the loss will not be recovered.

But in the water park, in the days it's closed, we do recover our lost business.

And I'd build on what Steve's saying with 2 examples, James, that can help you understand why you don't recover everything for this year.

In the case of Texas, I talked about gas shortages.

And it's quite remarkable to see that in certain cases, for a 3-week period, people were not going out because they were worried about being able to get gas.

So there is no insurance claim on that.

In the case of Mexico, people have lost their homes.

Schools are shut down.

Roads have big holes in them.

People can't get anywhere, so they are not coming to movie theaters or parks.

And so that is something that you cannot claim on, because you're open, but you've got a lower level of attendance than you would've had in the prior year and you can't claim it.

But what I would tell you is that in all cases, both in the case of Texas and in the case of Mexico, we always recover from that.

We already have in Texas for sure.

And in the case of Mexico, we're very close to being fully recovered there in terms of the folks returning to the park.

And we feel that, that's going to be behind us shortly.

Really helpful.

And then, I guess lastly for me.

Was hoping you could comment on a couple theories that are out there in terms of what might be impacting the amusement park space.

I guess, first, I think we all think about the incremental events that you guys put on, particularly in the fourth quarter, as incremental to the overall business.

Are you seeing any evidence that maybe, as people see those as really attractive events, that they may be -- they might forgo a visit during the peak season?

And so net-net, you're still flat to up, but maybe it's not as incremental as you once thought?

And then, I guess secondly, there've been some other consumer-focused companies pointing out some weakness in the Latin American consumer under a Trump presidency, less so that the Mexican consumers, but more so those Latin Americans within the United States.

Are you seeing any evidence of that particular consumer, or any other consumer for that matter, slowing down in terms of spending and overall demand?

I think with question 2, James, we've not seen any slowdown in terms of spending, either in Mexico, aside from the earthquake, or in the U.S. with the Latino visitors.

It has not been something that has affected us or that we've seen any evidence of.

With regard to incremental event, do you want to take this, Marshall?

Sure.

Yes.

The reason we put in these incremental events and the reason we continue to invest is because it does sell season passes.

And as you know, season passes and membership penetration is a core tenet of our growth strategy.

So as we invest in Fright Fest and as we invest in Holiday in the Park, it really creates news much like a roller coaster.

And so we are getting additional sales.

It increases -- for parks that used to be closed from October to April, we've now increased the operating calendar.

So it increases our -- for memberships, it increases the return rates and so -- and our attrition is less.

So really, I'd say these investments have paid off and continue to pay off.

And there you go.

And we see no noticeable -- we definitely have not seen a change in visitation at all, where somehow they go away and then come back at the end of the year.

They definitely come to these events, and they're coming at other times during the year.

And they are much more committed to us.

And our guest satisfaction scores are improving, not -- again this year, with one of the biggest increases is in value, the value perception.

They love the fact that they can come throughout the year, and it drives season pass sales, which is our greatest driver of growth over the last few years.

And of course, I talked earlier about membership, and I don't want to not reinforce that.

I think there's a bit of a story that's missing with regard to Six Flags that we're going to build on over time, James, and that is the one related to recurring revenue and stability.

And I think you've seen it this quarter.

Look at the effects that we had and still generated really strong growth in attendance, really strong growth in revenue and in profitability.

It's a record quarter for the company.

And I look at that, and I say that's stable, recurring revenue model.

And as we build the membership story even further, international licensing, you're going to see that continue to build.

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

The follow-up would be sort of the continuation of that.

As it relates to -- you commented earlier that you're continuing to grow your unique visitors in, it sounds like, every bucket, the traditional season pass, the membership, the day visitor.

Can you talk about any of the churn?

So are your retention rates continuing to come higher?

It sounded like that may be the case, but just wanted to confirm that.

And then secondly, Jim, similar to the way I asked the earlier question on the dining penetration, any color, context you can give us on the membership mix or penetration relative to the overall Active Pass Base?

So with retention rates, they have been very similar.

We are increasing them, as we have over time.

And we'll give an update perhaps at year-end on full year retention.

But we -- as you know, we have been very solid on retention.

With regard to membership, I'm really happy because the percentage of the Active Base with regard to membership has been increasing, and that's what we've been trying to do.

And they pay a higher price point for membership.

And remember that's -- once they've signed up, then they're with us a minimum of 12 months, and then they extend automatically beyond that, hence the recurring revenue.

So that percent -- I'm not going to give you the percentage, but I can tell you that it has been increasing.

And we're looking to increase it further.

And there's plenty of room for growth there, Tim.

Back to your baseball analogy, given the World Series time frame here, what inning, Jim?

Or would you say of the mix, are we still less than 25% there?

Just to use that benchmark the way you referenced earlier.

I would say -- I'd say we're in the third inning on membership.

And the sort of the broad percentage bucket, less than, greater than 25%.

Oh my goodness, you are tough.

You really are.

I'm not going to give that number.

But it's not far off your 25%.

Now I'd now like to turn it back to Jim for closing remarks.

Phyllis, thank you very much.

And thank you all for joining the call today.

We do hope that you can find the time to visit one of our parks soon, so you can experience one of our amazing seasonal events.

Fright Fest, I think, you probably gathered from my comments, is my absolute favorite time of the year.

And Six Flags has brewed up the biggest and scariest Halloween event on the planet with more ghouls, hunted mazes and scares than ever before.

I was at Great Adventure on Sunday and just had the most fantastic experience.

And if you go there, which you must do, go see the show Unleashed!

It is incredible.

Now 3 of our parks made the top 10 of USA TODAY's 10 Best readers poll to best theme park Halloween event in 2017, including Magic Mountain, which finished in the top spot for the second year in a row.

And their Halloween event is truly remarkable.

Our feel-good Holiday in the Park event kicks off in mid-November and runs through the first week of January at 11 of our properties, including Six Flags New England for the first time ever.

Set against a backdrop of millions of twinkling lights, our parks will ring in the holidays with sights and sounds of the season, along with yummy treats and all of the rides and attractions our guests love.

Understand that our team is deeply committed to our long-term strategy of building lasting memories for our guests and value for our shareholders.

With our Amazon-proof business; strong recurring revenue; high-margin, solid growth opportunities and attractive growing dividend, I know of no better place to invest.

Take care, everyone.

Phyllis, that completes the call.

This does conclude today's conference call.

You may now disconnect.