Six Flags Entertainment Corp (SIX) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Six Flags Q2 2018 Earnings Conference Call.

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

(Operator Instructions)

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

Good morning, and welcome to our second 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 will turn the call over to Jim.

Thank you, Steve.

Good morning, everyone, and thank you, for joining our call.

I'm very pleased with our continued strong momentum in the quarter and the progress that we have made against our long-term strategic objectives.

When I returned as CEO 12 months ago, I was committed to retaining the winning strategy that has evolved over the last 8 years, but with even greater urgency and focus, so we could achieve our full potential.

Since that time, we have registered the best fourth quarter in the company's history and the best first quarter in company history.

And now after setting company records for the second quarter with revenue of $445 million and adjusted EBITDA of $170 million, we are tracking toward our ninth consecutive year of record performance in 2018.

As a result of the Easter-related attendance shift between the first and second quarters, it is more meaningful to review June year-to-date performance.

For the first 6 months of the year, revenue was up $52 million or 10%, and adjusted EBITDA grew $20 million or 16%.

Our modified EBITDA for the last 12 months through June was $579 million, positioning us well to achieve our Project 600 goal.

I'm very proud of our relentless focus on world-class execution.

Our new capital has been very well-received, which is reinforced by our highest ever guest satisfaction scores.

Our Active Pass Base, it is at a new record high, up 8% over prior year.

Our ticket prices are up year-over-year, and we continue to increase penetration of our popular All-Season Dining programs.

All of this is reflected in our higher per capita spending and accelerating deferred revenue growth.

In June, we acquired 5 strategically located parks as part of our North American expansion strategy, growing our addressable market by 20 million people to 200 million.

Our 22 U.S.-based parks are located in the top 11 most populous markets in the country, and we are now the largest operator of water parks in North America.

4 of the parks are located in important [feeder] markets for Dallas, San Antonio and Los Angeles, which will help grow our Active Pass Base at both our existing and new parks.

The fifth park, Darien Lake is an excellent park located between Buffalo and Rochester New York, and it's within a day's drive of 4 of our other parks.

It is simply beautiful there.

During the quarter, we also entered into new international licensing agreements to build one Six Flags branded park in Saudi Arabia, and 4 new products in Nanjing, China, bringing the total to 13 parks outside of North America.

Our international licensing program is growing exponentially and providing additional diversification to our portfolio, and the opportunity for future growth remains very compelling.

I am most excited about our new premium-tiered membership strategy, which we introduced at the end of the first quarter.

The program has the potential to be transformative.

Members spend more annually on their subscriptions than the cost of a traditional season pass, and they also have much higher retention rates than season pass holders.

I'm especially pleased with the adoption rate of our highest-priced membership tiers.

Year-to-date, we have signed up almost 50% more members than we did during the same period last year and the average monthly price

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is significantly higher than last year's membership prices.

We now have more than 2 million members, and our membership Active Base is up more than 20% over June 2017.

I'm very pleased with our strong first half performance, and I want you to know that our team remains energized and laser-focused on delivering yet another record year in 2018.

I will now turn the call over to Marshall, who will share a few more details on our second quarter and year-to-date results.

Marshall?

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

Second quarter revenue was up 5%, driven by 3% attendance growth, a 2% increase in guest spending per capita and a 9% increase in sponsorship licensing and accommodations revenue.

The attendance increase was driven primarily by the new parks in the higher Active Pass Base, which more than offset the attendance shift of nearly 200,000 guests into Q1 due to the earlier timing of Easter and the related spring breaks.

Like Jim, I'm going to focus my comments on our year-to-date performance due to the more meaningful year-over-year comparison.

First half attendance was up 7%, primarily driven by the 5 new domestic parks, the 2 water parks we acquired last year, Magic Mountain converting to 365-day operations and the increase in our record high Active Pass Base.

Revenue in the first half of the year was up 10%, driven by the 7% increase in attendance, a 3% increase in guest spending per capita and a 12% increase in sponsorship licensing and accommodations revenue.

Admissions per capita was up 5% for the first half of the year, while in-park per capita spending declined slightly.

As we convert more guests to memberships, it's best to look at total guest spending.

Memberships have significantly higher selling prices and overall guest spending over the season, but they can have a dilutive impact on reported in-park revenue.

Members have parking included with their monthly membership fee and receive discounts on items they buy in the park, which has the effect of increasing admissions revenue, while putting downward pressure on in-park revenue.

During this period, international licensing revenue was up $4.6 million or 24% with a run rate of $14.7 million in the second quarter.

Moving on to costs, our cash operating expenses in the first half of the year increased 8%, reflecting incremental investments, including lease expense, to acquire, integrate, and operate our 5 new parks, expenses to operate our 2 new water parks in Oaxtepec, Mexico and Concord, California, which were only operated for a portion of the second quarter last year, and increased costs for mandated minimum wage increases in competitive wage rate adjustments in several labor markets.

Year to date, June diluted earnings per share increased $0.20 to $0.14 per share, primarily due to a $37 million charge we took last year to refinance our 2021 bonds and the positive impacts of tax reform, partially offset by an increase in stock-based compensation related to accounting for the company's Project 600 award.

Deferred revenue at June 30, was up $32 million or 6% (sic) [16%] over prior year.

Much of this growth was due to the new North American parks, the increased mix of membership sales with a higher average selling price of our premium memberships and the higher sales of All-Season Dining products.

During the first half of the year, we repurchased $81 million of our stock, and spent $23 million less working capital and other adjustments to purchase the lease rights to our 5 new parks.

At the end of June, the remaining amount authorized for share repurchases was $262 million, which provides us the opportunity to repurchase additional shares, using our excess cash flow over the remainder of the year.

Net leverage at the end of the first quarter was 3.9x adjusted EBITDA, which will come down quickly as we pay off our revolver balance and our earnings grow.

We feel our leverage is very appropriate, given our recurring and growing revenue and cash flow.

On an LTM basis, our revenue was up $93 million or 7%, modified EBITDA was up $35 million or 6%, and our modified EBITDA margin remains the industry high at 41%.

Going forward, there are several considerations to keep in mind.

Our 5 new parks will positively benefit our results in Q3 and negatively affect our results in Q4 and Q1, since most of the parks will be closed and we will incur costs without revenue during those 2 quarters.

Although the new parks have lower per capita revenue and margins, they will be immediately accretive to EBITDA and provide us a very quick payback.

In addition, because our North American expansion strategy was not considered when we set our Project 600 target, we've increased the modified EBITDA target by $4.2 million to $605.3 million, based on the cost of capital related to our investments for those parks.

The parks are in good shape and require minimal additional investment and we expect our future capital spending to stay within 9% of revenue.

Finally, as members go into their 13th month, revenue is recognized monthly.

This spreads revenue evenly throughout the year and moves more revenue to lower attendance quarters.

We're definitely building a strong, recurring revenue stream and making our business less seasonal.

I feel good about our ability to grow in the balance of the year.

Our Active Pass Base and deferred revenue are at record highs, which provide a strong hedge against inclement weather.

And in the back half of the year, we'll be overlapping several natural events last year that negatively affected attendance at many of our parks, including our Mexico water park.

It was closed for a portion of Q4 due to an earthquake.

We should also benefit from incremental investment in special events, such as Fright Fest, Holiday in the Park and most recently, our five-day long July 4th Fest, the biggest July 4 celebration in the United States.

We are reintroducing Fright Fest at our newly acquired Darien Lake property and are also introducing Holiday in the Park at Six Flags Great America and Frontier City.

In addition, we have additional operating days at Magic Mountain, which is open every day this year.

As Jim discussed, we expect growth from the 7 new parks we have acquired over the last year, and our new membership program is gaining strength.

The accelerating growth in this program, with its higher pricing, will drive enhanced performance in 2018 and beyond.

Lastly, revenue from international licensing should accelerate further, as we continue to add new licensing arrangements and over the long term begin opening parks.

As you may have heard from various sources, parks in the U.S. have experienced high rainfall and excessive heat in July, and I feel good about the rest of the season.

We still have half our attendance remaining for the year, and we are setting ourselves up nicely for a successful 2019.

And now I'll return the call back over to Jim.

Thanks very much, Marshall.

Just to be clear about something Marshall said earlier, deferred revenue was up $32 million in the quarter or 16% over prior years, that's very nice growth in deferred revenue.

And I want you to know that our team is really focused on delivering exceptional value to both our guests and shareholders for both the short -- for the short, medium and long term.

We will never stop innovating and developing ways to capitalize on our 5 strategic growth pillars.

First, increasing membership/season pass penetration.

Our premium membership program is the most important iteration of our penetration strategy to date, maximizing revenue over the lifetime of our guests by increasing both average selling prices and retention rates.

The lifetime value of a member is 3x that of a season pass holder and significant benefits will come in 2019 and 2020 as we add new membership layers.

Our new membership program is a transformational change in how we approach admission revenue.

It has the power to be to season passes, what season passes were to single-day tickets, and it will drive significant recurring revenue growth.

Second, improving ticket yield.

We have continuously improved guest satisfaction and our value for the money ratings are the highest in the company's history, providing an opportunity to strategically raise prices, mid-single digits, for years to come.

Our membership program also improves ticket yield as members move into the higher-priced tiers.

Third, growing our valuable in-park programs.

Our expansive Active Pass Base and special events provide opportunities to sell more products when guests visit our parks.

Our membership and dining programs provide visibility on guest spending behavior, allowing us to target our most profitable guests.

For example, we now know that All-Season Dining Pass holders have higher visitation and more cumulative spending over the season on all products, making the All-Season Dining program an even more important focus for our future.

Fourth, expanding into adjacent markets in North America.

We can double the profitability of acquired parks in adjacent markets by improving margins and leveraging our Active Pass Base.

The 7 parks we've acquired are great investments, even before synergies, providing an excellent platform for growth.

With dozens of potential acquisition targets, the opportunity is both compelling and large scale.

Fifth, building our international licensing franchise.

Our strong global brand allows us to extend into emerging markets where the middle class is growing and entertainment options are limited.

We've also developed 2 new innovative park concepts, Kids World and adventure park in addition to our theme park and water park brands.

This allows us to develop entertainment complexes providing additional value and more quickly expanding our global footprint.

This should super charge revenue growth.

So our modified EBITDA less CapEx margins remain the highest in the industry by several hundred basis points, and our growing franchise revenue and recurring revenue stream from memberships should allow us to rerate to a significantly higher multiple.

We are fully committed to enhancing shareholder value every minute of every day.

We will return all excess cash flow to shareholders in the form of dividends and share buybacks, and our dividend yield of more than 4.5% is among the highest in the U.S. market.

We expect to continue growing dividend each year by high single digits for the foreseeable future.

Our Project 750 goal reflects a 10% annualized EBITDA growth rate from the end of 2017.

Yes, I've said it before, it is an ambitious goal.

But we believe it is achievable, given our significant and unique high-margin growth opportunities.

This makes Six Flags the ultimate growth and yield stock.

At this time, I'm going to ask Mariama to open up the call for any questions.

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

Thank you, for giving us a little bit more information on the membership, which is interesting.

I was wanting to unpack a little bit this comment that the lifetime value of a member is 3x a pass holder.

And I know that the price of these memberships vary.

You've got a gold program that's maybe a 30% increment to an average season pass.

And the Diamond Elite, which might be a double or something like that, varies by park.

But none of that gets me to 3x, so I'm wondering how you can get 3x the value.

Is there some type of churn or retention?

If you could helpful a little bit about how you get there that would be helpful.

So Barton, thank you, for that question.

And if you think about the membership opportunity, you have to think in terms of historically, we've had single-day guests, they come once, they leave.

Then we made a fairly major conversion to driving season pass holders, who will come for a season and the churn rate is very high.

In other words, we've talked before about the fact that sometimes you're as low as 25% season pass holders who renew.

So the key really is to be able to keep people for longer.

And with memberships which we have been -- we've had memberships for a long time, but it's only this year that we've taken it up a notch with the tiered program that we've described.

We've tested a lot of different scenarios and what we found is that because members stay with us for much longer, over the lifetime, basically, you're looking at a minimum of 3x, the value in revenue because you haven't got someone that's only coming for a day, you haven't got someone who only comes for one season or one year and then doesn't bother renewing, you've got people who stick with you.

That's how you get the much higher rate of value to a member.

I'd add to that, that we have 4 tiers, which you've seen.

Those tiers offer increasing value to members.

So we go from Gold Plus to Platinum, Diamond, Diamond Elite.

And as you move up, you get more value, but you get us a much higher price point.

And that, in addition, is what allows you to drive these much higher overall value numbers for membership.

So I'm not going to go into detail or specifics, but just those 2 things on their own are a significant driver of that 3x return.

Okay, that's great.

That's helpful.

And one other thing is, you guys had the acquisitions that we begin to see in June.

I was wondering if you could just clarify for us when did those close in June, because I didn't see a closing date announced.

And what impact did those have on the reported per caps like the admissions revenue per cap and the (technical difficulty) [park] per cap?

So the closing date was June 1, and they did have a slight impact, a downward impact on per caps, because there are 3 water parks and even the theme parks have a lower per cap than the -- our theme parks.

So that's really what it is.

The new parks started in June had a partial impact and had downward pressure.

So Barton, we're not going to break out the -- for everybody who will ask this question, we're not going to break out the impact of the new parks for competitive reasons.

But what we can tell you for sure is that the growth came from all of the new parks, all 7, not just 5, plus Magic Mountain at 365 days.

And we have a 8% growth on the Active Pass Base and that has helped drive our attendance growth.

So we saw nice gains in many areas.

Yes.

But just to follow up on that, would you say that attendance grew excluding the acquisitions of these parks in the quarter?

Barton, we're not going to answer that question, for competitive reasons, we're not doing it and we can -- but what I can tell you is the 3 things that I just mentioned drove our growth.

Your next question comes from Ian Zaffino with Oppenheimer.

Just trying to parse your numbers a little bit more.

What was maybe, call it, the headwind that you had from, call it, prepayments of parking, et cetera, and also of the membership accounting?

So there was some headwind from the memberships in terms of in-park per cap.

In terms of the membership accounting, because we record those like we do season passes, it's for the first year, it is basically the same kind of headwind that we have when we increase season passes.

So there really isn't an impact in the quarter for that other than we are shifting people out of one-day tickets and that would create a headwind for memberships.

Okay.

And maybe I could ask the last question a little bit differently is, maybe give us an idea what your acquired guests were this quarter?

We're not sure we understand that question Ian.

What do you mean by acquired guests?

So if I look at your attendance that you reported for the second quarter, how many of those were attributable to your -- the parks you had last year versus...

Right.

You're looking for a same store-type analysis.

And as I said to Barton, we're not going to break that out.

Your next question comes from Steve Wieczynski with Stifel.

So if we go back to the membership program, can you help us -- and you gave us pretty good color on that, but can you help us understand how your customers are adopting (sic) [adapting] to the tiered membership program?

And I guess what I'm getting at here is, you obviously have 4 different structures or tiers, are you seeing more folks kind of gravitate towards the gold membership?

Or are they gravitating more towards Diamond level?

Or has it been pretty even across all tiers?

And then on top of that -- yes, and then on top of that what did trends look like as far as unique park visitors?

Right.

So with regard to the tiers that you asked about, we obviously had a model when we developed the membership program with the tiers, and that model had certain estimates in, what we expected, where people would sit in the 4 tiers.

And I'll be upfront with you in saying that we have seen much higher movement to the higher tiers than we anticipated.

So people are signing up more for the Diamond and Diamond Elite than we anticipated.

But if you look at a range of where the highest number are, obviously, they will go up pricewise in those terms.

So the Gold Plus will be the highest percentage and the Diamond Elite will be the lowest percentage.

But the higher premium price points are more popular than we had anticipated.

And in almost every case, the price points that we're looking at, all 4 tiers are higher than prior year.

Okay, and then what about unique park visitors, how is -- how has that visitor trended?

Unique park visitors have been trending up.

It's -- really the best way to look at that is over a full year and on an LTM basis, those are up.

Okay, got you.

And then, can -- Jim, you always kind of give us some pretty good insight in terms of your core customer base and kind of the health of your -- the core consumer.

Can you kind of give us your updated thoughts there?

And then also help us think about wage inflation?

And has that been pretty much as you would have expected since your last call?

Or is that intensified at all?

So I'll take the first part and then Marshall will take the second, Steve.

I would say that in terms of the core consumer, the overall economy seems to be fairly healthy, and we have been as I described earlier pleasantly surprised by the way that people are signing up for our memberships, that is going very well and even at the higher tiers.

When in -- when people are in park, they're spending nicely.

So you've seen that the per cap is up very nicely in the quarter and year-to-date.

And whilst Marshall referenced a little bit of softness on in-park spending, that has more to do with the membership structure itself, shifting some of the revenue into the ticket side versus the in-park side, but in-park, people are spending more and the offers that we have for our members, especially that -- the higher tiered members is leading people to spend on things they might not traditionally have spent on.

In terms of labor, our labor for the minimum wage increases is right in line with what we've talked about before, $5 million to $7 million over the course of the year and we have had some market wage increases, although they've been targeted in specific parks, in specific departments.

So in total, those are pretty minimal in -- a couple of million dollars for the year.

Just maybe a little bit more on expenses.

If you take out all of our revenue producing growth that we have and expenses, we're running at about a 3% to 4% inflationary growth in OpEx, on the base business.

Okay, got you.

And then can I ask one more if possible?

And I don't know if you'll answer this or you won't.

But I know you guys don't like to talk about weather too much, especially in the current quarter that you're in.

But as we've kind of worked our way through July, you've obviously been in kind of the -- front of the excessive heat in Texas and California.

Now the entire East Coast has essentially been in a flood watch for the last week, and it doesn't seem like that's going let up.

And I guess, maybe just the question is, how should we be thinking about these impacts so far in the quarter?

So Steve, you know we -- I do hate to talk about weather, you know that and -- because it ends up sounding like an excuse, and that's not our intent.

Our intent is always to see out a full year, and generally in a year weather tends to even out.

But in fairness Marshall did reference July and I think you just adequately described the effect of weather in July.

But through the first half of the year, weather really was very similar to what we saw last year.

So that there wasn't any material impact, positive or negative through the first half results.

Your next question comes from Michael Swartz with SunTrust.

Jim, just to follow up on the questions around the membership program, and maybe looking at it another way, I mean understanding that the churn seems to be less, retention higher.

I mean does this give you another leverage point on marketing, advertising and just customer retention costs overall?

Yes.

I think, Michael, I think it will over time as we continue to build the program.

Because if you think about the costs that are involved in sourcing new season pass holders every season, it's a huge cost, right?

Because you're spending all that time trying to bring back the 75% -- 70% to 75% of people who are not renewing.

And so if you've got them as members and they're committed to being a member, then they'll stay with you for a long time and you don't have to go through that process of sourcing them every time.

The goal here is really to drive recurring revenue and be at the point where we not only lock in the guests, that we're able to as you point out, reduce costs.

But in addition, the goal is to rerate to a higher multiple, because we are driving recurring revenue.

And we've already taken the steps, as you know, to eliminate the loss-making fourth quarter and make that very profitable for us.

And our goal, ultimately, is to make the fourth quarter profitable as well.

So we see a smoothing -- a first quarter profitable as well so that we see a smoothing of revenue and profitability over the season.

Okay, great.

And then just one additional -- just touching on Magic Mountain going to the 365-day schedule.

Is there anything as you kind of look how that's been trending for the first half of the year that tells you that maybe you saw some visits being pulled forward into the first quarter when it -- historically, when they've been operating?

Or do you think what you're seeing is incremental visits versus maybe the year-ago period?

So I am extremely positive about Magic Mountain and the success that we've had there.

It's been a pleasant surprise to see how well it has done.

And I think I've mentioned before that we are looking at a couple of other parks to see if we will execute that change there.

When we get to the point that we make a decision, if we do, we will obviously announce that.

But we are seeing people come regularly, spend nicely.

It's really helped with regard to our membership program as well to have the park open 365 days.

So overall, I would say, Marshall, it's been a huge positive, would you add to that?

No.

I think you said it pretty well.

I think you talked about pulling people forward.

When we looked at whether or not it was profitable, we really looked at the single-day guests.

But in -- on top of that, we actually sold a lot more season passes during that period, because we were open and people buy season passes when they're coming out to the park.

So we've been very pleased.

We think in the fourth quarter we're going to see similar results and as Jim mentioned, we're looking at other parks now.

I would add one thing to that, that I think people haven't fully understood yet and will come in time.

We have never really actively participated in the tourism market in the way that others in LA have.

And if you think about the approach from a sales perspective, it takes you a while to get fully up and running.

So we've seen great success in year 1 of this, and I believe that as we continue to build our sales skill around tourism, both domestic and international, we will continue to see growth at Magic Mountain.

And just to remind everybody, Magic is the thrill capital of the universe, and so it's a great place to go.

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

So on the Active Pass Base up 8%, were you guys surprised that, that metric slowed sequentially?

And then do you think it's possible that maybe the poor weather last year or maybe some of the changes you've made to the membership program or marketing, potentially could've been disruptive to that number?

Tyler, I have to stop you.

I know you said slowed sequentially.

But our Active Pass Base is at a record high.

And you have to remember that the growth is often -- it's an ever-increasing base of pass holders.

You're talking about millions versus hundreds of thousands not so long ago.

So you will see a deceleration as we go forward, because you're talking about masses, millions of people, I only quoted you the membership number, a 2 million -- crossing that 2 million, there are millions of others.

And so the composition of our Active Pass Base has changed due to our focus on memberships which have higher prices.

And we have 2 million members, and we're growing them.

So when you take all of that and you add into the -- add into that the fact that deferred revenues are up 16% as of June 30, I feel pretty good about the Active Pass Base, that growth.

And the fact that members stay with us longer, which [will] help us drive that pass base up in 2019, 2020, going forward.

So overall, I feel very good.

Marshall, did I miss anything there that you'd add?

No.

I think that was good.

I think -- the pricing on the memberships are higher and that's one of the reasons you see deferred revenue being up 16% when the Active Pass Base is up 8%.

Okay, that's very helpful.

And then if you back out the membership impact here?

I mean, where are you guys on ticket price increases?

And have you seen any pushback or maybe indication that higher ticket prices could be influencing some of your attendance?

We have not.

We have increased in the mid-single digits across the board.

I've never been more confident in our ability to increase prices.

We've talked about the value that we present to our guests and the fact that as we survey our guests, those numbers continue to go up, our value ratings are higher than they've ever been.

So yes, I think our -- the pricing will remain something we can do both this year and multiyear going forward.

I mean it's a key component to our growth strategy going forward.

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

Couple of questions here.

And first of all congratulations, gentlemen on the execution and the deferred -- but I want to focus on the deferred a little bit.

The 16% versus the 8% percent unit growth, so to speak, how much of that is the pricing on the membership tiers versus adding dining and so forth to the additional penetration?

Just any color on that.

And Jim I've asked this before and thank you, for the additional color you've given on the memberships.

But I did want to ask the traditional season pass mix versus your memberships of your overall Active Base?

So let me start on that Tim, and then Marshall can come back on the deferred piece.

With regard to the breakdown, we're not going to break that down right now between deferred and traditional.

What I can say is that we're really growing membership overall very nicely.

And the traditional, we're still focused on and we'll continue to grow that as aggressively as we can.

So we're not taking the eye off the ball.

Any season pass holders that we can convert to membership, we will.

But if someone really just wants a season pass, we're going to continue to sell that actively as we will continue to sell single-day tickets.

The feeling we have in the company with regard to membership is very positive.

I will let you know that, Tim.

And finally, before I hand over to Marshall, I want to thank you for the congratulations, really appreciate it.

Yes.

Thank you.

Yes, the season passes are up slightly.

We have been working to get people out of the 1-day ticket into the memberships and also out of season pass into memberships.

So it's possible that as we become more and more successful that, that season pass number will stay flat or go down.

But ultimately our goal is to drive more people into membership and into our Active Pass Base.

But it has gone up year-to-date.

And then with regards to the deferred revenue?

What was the -- I thought...

So, what -- I think what Tim was getting at was, what is it that drove that gain.

And I think really Tim, the very simple answer to that is we're not going to break down exactly what elements drove the 16% growth.

But all the items you listed were part of it.

So there were several things -- in reality, there wasn't one thing that drove it all.

It was everything we've been executing is having an effect on that deferred revenue in a positive way.

Okay.

And if I could, Jim or Marshall again, whoever wants to take this.

If we looked at the blended tier of all the 4 tiers, your new tiers of the membership pricing, and you said definitely your -- that's mixing a little richer than you thought and overall you're getting nice pricing versus the single tier.

If you were getting 3% to 5% pricing overall, let's say, on a single tier for the benchmark?

And then, your -- and your -- what would it be now with the tiers?

I mean, what's I guess that increment that you're getting?

Is there any color around that?

Tim, I would prefer not to give you that number until we have a solid year under our belt because it's -- we want to see how it goes over a season versus over just a few months, which is -- we've only got few months right now to judge.

But I can tell you that in every single area, we've got higher pricing.

So it should be a very nice increment.

But until we see out a full year and see what happens with retention of members, under the newer program, I'd feel better about telling you then.

But at this point, it looks very good.

And certainly better than we've seen with regard to the traditional season passes.

Versus let's say rewind two quarters ago, you're expecting X in pricing for the whole company blended together, whatever type of admission it was or whatever.

Is that number still true?

Or has that increased a little bit over the last -- the first half of the year here as you look at '18 now in totality?

So Tim, you would like me to give you some guidance on pricing and I'm not going to do that.

But likely -- you can tell from my tone that I'm happy with where we are on membership and pricing.

That's fair.

That's fair.

Okay.

Last question, Marshall.

International revenue and EBITDA contribution in Q2 versus the comp last year, please?

So international revenue, I mentioned that we had $14.7 million of revenue in the second quarter and the EBITDA margin is in the 80% range as well, as it has been.

Your next question comes from Chris Prykull with Goldman Sachs.

So I just had a follow-up to something that you had mentioned in the scripted portion of your call.

I believe you referenced potentially doubling the profitability of acquired parks in North America, just curious how long do you think that typically takes for that to occur?

And does that mean you can expect about $15 million of EBITDA over time from the 5 parks acquired this year?

And I basically got to that number by extrapolating out a 3-year payback period, ex growth, that was referenced on prior calls.

Very good, Chris, that's another very good attempt to get us to give you guidance.

But I would tell you that your analysis is not bad at all, and that -- I think we think, Marshall, to get full impact, probably 3 to 4 years is that reasonable?

Yes, yes.

Obviously, we'd move as fast as we could but...

We'll start to get impact -- we're already starting to get some impact, but we'll really start to get impact in Q4 and then next year really as we sell passes for next year and introduce our membership program.

But yes, it's probably a few years before we get to the full doubling.

Okay, that's helpful.

And then on the OpEx growth of 12.5% year-over-year in the quarter, and I know there's some noise in there given the Easter shift and the new parks.

Just curious -- when I think about 2Q but then also 3Q, how much were sort of the startup costs related to the new parks and the incremental rent expense versus wage growth and other items?

I think you mentioned sort of 3% to 4% is the right way to think about cost inflation?

But then is everything else incremental to that related to the new parks?

So.

Yes, the 3% to 4%, I guess not everything is incremental to that.

The 3% to 4% will include all of the costs that we'll have on our base business.

So you talked about labor, the labor increases.

The new parks will be on top of that.

Magic Mountain going to 365 days, will also be on top of that.

And then the lease expense associated with the new parks will be on top of that as well.

Got it.

And then just the last question from me.

Just trying to get a better sense for what you're seeing from your core consumer ex some of the noise from what you're doing with membership and the acquisitions that you've made.

Is there any resistance to price increases or higher gas prices?

Have you seen better spending given nice wage growth in the economy?

And then is low single digit attendance growth sort of the right way to think about the core business in the current macro backdrop?

Or do you think you can do better?

So with regard to pricing, I think that we've seen no resistance to any pricing increases that we've taken.

It's been consistent.

And as Marshall mentioned earlier, he talked about the value for the money ratings that we get through our surveys of millions of guests and those have consistently increased as we've driven both the season pass and the membership program and a lot of these value programs that we have.

The guests seem healthy.

And there's nothing in the economy right now that would leads us to say there's anything different as we've gone through the half year, anything different that would lead us to conclude that pricing is too high or that we need to scale back.

We intend to continue to price up.

That's going to be our goal.

In terms of gas prices, as we've looked back over really decades of data, we just never seen gas prices whether they've gone up significantly or down significantly impact any attendance at our parks.

It's been minimal, right?

It's been minimal.

If you think about the fact that 80% of them come -- of our guests come from within a 150 miles.

It's just, it's people -- gas, I guess gas is a small price to pay in terms of their visit.

And with a season pass, the membership program, they have a ticket in their pocket, and they continue to come out.

Great, that's helpful.

When you -- maybe a quick follow-up to that, when you look back, historically, at your business in sort of a similar macro backdrop where you have, low unemployment, nice wage growth.

Do you ever see a trading up effect?

And what I mean by that is, do you see folks making the trip to a Disney World or Universal as opposed to going to the regional parks?

I think you do see people going on bigger trips when the economy is doing well.

But that's for a week out of the summer.

I think with our season pass and membership program, we're there day in and day out at Magic Mountain, really every day, they could come out to the park, every weekend.

So I think as the economy improves, we actually get more people from the lower tiers to -- that can -- feel like they can afford to have a season pass.

So ultimately, I think it's very good in a good economy.

Yes.

I can't -- I can honestly say that -- to that question, Chris, that we've seen no effect at all going through time of people switching from, let's say, us to let's say, a Disney, a Destination.

It's 2 distinct markets, quite separate.

And I think what Marshall said that's very important, that brings me back to the recurring revenue commentary that I made earlier, as we continue to build membership especially, and season passes, that drives recurring revenue.

And we don't just do it with tickets, we also do it with food and with other items where people can have a pass that applies to a whole season or a membership that applies to a whole season in all those areas.

And that gives you that basis that ensures that even if the economy pops suddenly, up, down, we will only see continued growth because we're building our membership base.

It brings stability.

Your next question comes from James Hardiman with Wedbush.

This is Sean Wagner on for James.

Wondering, was there any benefit from the Chinese park announced in late June to the international piece.

And I guess is there any update on the opening timetable of the initial Chinese parks?

I think it was 3 parks in late 2019 and another 4 in early 2020, if I'm right?

That's right.

So we actually announced the park in China -- or the parks in China, in April, I believe.

But yes, in terms of the run rate, it's about $15 million in Q3.

That will go up as we now have those 4 parks in China plus Saudi Arabia, we'll be in for a full quarter.

And then, that'll pretty much be the run rate until they open or until we announce new parks.

And I would tell you, because I think there were a couple of questions about this that have come up.

The revenue that we generated in Q2 for international is the highest in our history, and it's growing really nicely.

So again, it's the same sort of logic that as you get bigger numbers, your percentage growth may look lower.

But we're registering records and we believe we will continue to do that.

The timing of the parks remains exactly the same as previously disclosed, there's no change on any of those.

And so if you need more details off-line, we're happy to take you through that timing by park.

Okay?

Okay.

Yes, yes sounds good.

And as far as the acquired parks go, I know you original -- when you originally kind of rolled out your water park strategy, you kind of talked about how the synergy benefits could be as big as the direct benefits.

I know some of these parks may be located kind of a little farther away from the -- from some of your existing parks, does that change how you think about the synergies?

Or are there still I guess -- as a group, how the premier park synergies, how you're thinking about that?

We feel very good about those synergies.

The distances are really good in terms of being able to leverage the parks that we have, and to sell more season passes at all parks.

So the synergy comes not just from our ability to operate the parks more effectively than pretty much anyone else, but it comes from the impact that it has at the park and also at our other family of parks and the benefit that comes through a higher membership, higher season passes, more culinary sales.

Okay.

And just real quick.

Trying to ask this a different way.

In your press release, I know you've kind of highlighted the 7 new parks, the impact of the 365-day calendar.

In the press release it says the increase in attendance was primarily driven by those things.

So without -- I know you're not giving a same-store sales metric here.

But saying driven primarily by those, exclusive of those would attendance have been up in the quarter and first 6 months?

So again.

We're not going to break out what effect different pieces had.

But the press release says it really clearly, it's those items that we listed that drove the growth.

Okay.

All right.

And I know you kind of combined the sponsorship licensing with the accommodations.

What would the accommodation revenue have been in this quarter?

So the reason we combined those revenues is just -- it's a very minor piece of our business.

As we've grown revenues in other areas and it's been flat, it's just become less and less of a piece of our business, it's not a strategic focus of ours.

And so we've decided to roll it into sponsorship licensing and accommodation.

It's relatively flat if you look at it year-to-date, and my guess is going forward, it'll be relatively flat as well.

Your next question comes from Ryan Sundby with William Blair.

Just wanted to follow up on Sean's question there.

Because I guess I'm a little confused.

On the international contribution of I think you said $14.7 million I think that compares to $12.6 million last year.

Can you remind us just kind of how that ramps over time?

Because -- and I think you've talked about it being lumpy.

But it seems like that wasn't that big of a step given kind of the number of parks you've added internationally in the last 9 months or so.

Yes.

Thanks, Ryan.

Yes, I think it has been lumpy historically.

And what makes it lumpy is opening dates and book.

But I think would -- if you look at the $14.7 million, you add in a little bit for a full quarter for the 4 parks in China plus the one park in Saudi Arabia, I think you'll get to a pretty good run rate going forward until we start opening parks or until we sign more deals.

Okay.

And then I guess is there a restriction, I guess, just on team size on your ability to open more international parks?

Is there -- or can you kind of roll these out as fast as you want?

There's no restriction on our ability to add parks.

The only restriction is our process that we go through to make sure that we've got the right sites and the right partners.

And as I've mentioned before, Ryan, no we won't add parks or announce parks until we feel comfortable that we're adding in the right places and with the right people.

But our team is ready in the event we add more and when we add more.

Okay.

Great to hear.

And then you mentioned the -- developing the kids and the adventure concepts, internationally.

Is that a concept you could bring here and maybe annex to your kind of current park footprint?

You could bring them here, certainly something we would consider, Ryan.

We're unlikely to for a while, I think you know my philosophy and the philosophy of the team is absolute focus.

And so we want to make sure that once we get those parks open that they do what we anticipate that they will do in China.

And then we would look at adding them elsewhere.

Okay, great.

And then I guess last one for me.

You guys have clearly done a great job returning cash to shareholders for quite some time now.

As you kind of I guess, add this domestic rollout strategy, is there a need to maybe pull back on returning some of that capital to investors?

And I guess kind of follow-up question there, when it comes to these deals, would you rather own the parks outright, or do asset-light deals like the ones you've kind of done here recently?

Do those give you kind of the same returns as you would maybe owning them completely?

So, yes.

Our policy is to return all cash, excess cash flow to shareholders.

As we see these deals come up, like the one we saw here with the 5 parks from Premier.

If it's a very good deal and it'll have a quick payback to our investors, we're going to make those deals.

And that will come out of excess cash flow.

In terms of whether we like lease deals versus acquisitions, I think we're just looking to get the best deal, and based on the structure of the ownership and where it is, who owns it, we will -- we're happy to do either.

We're just going to get the best deal we can for the investors and at the end of the day, we're going to return all the cash -- excess cash beyond that back to shareholders.

I would agree with that.

There's no change in our approach at all, Ryan, regarding returning excess cash.

And these deals that we've got the -- what you described as the asset-light deals are working really well.

So if we can do that without tying up investor capital, why not.

Yes.

I mean the return on invested capital is great when you're not investing much or anything.

There are no further questions at this time.

I will now turn the call back over to the presenters.

So thank you very much, Mariama.

Our, 2018 season is off to a good start, and we are really looking forward to delivering another record year as we continue to build long-term shareholder value.

Thank you for your continued support of Six Flags.

We hope to see very soon in one of our beautiful parks.

Take care.

This concludes today's conference call.

You may now disconnect.