Six Flags Entertainment Corp (SIX) 2019 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Six Flags Q1 2019 Earnings Conference Call.

My name is Zatanya, 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.

Good morning, and welcome to our first 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 very much, Steve.

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

The 2019 season is off to a great start with all-time high guest spending per cap and a record-high Active Pass Base.

First quarter revenue nearly reached our prior year record level, even with the later opening of several of our parks due to the late April Easter holiday, placing us solidly on track to achieve our 10th consecutive record year.

I'm especially pleased with the tremendous ongoing success we've achieved in selling our multi-tiered membership program and associated membership dining plan.

We grew active memberships by more than 30% in 2018 and are continuing that strong momentum in 2019.

At the beginning of this year, we implemented dramatic changes in the operations at our front gates to build out membership sales centers and to expedite guest flows to these locations.

As a result, we experienced significant in-park membership growth for those parks that opened in March.

This program continues to be a key driver of our growth strategy, providing a platform of recurring revenue at higher prices and the ability to further grow attendance as we expand our network of parks.

The power of our membership program was highlighted in the first quarter with our solid revenue performance, despite this being our seasonally smallest quarter when most parks are closed.

You are likely aware that, in early March, we announced my decision to retire from Six Flags in the first quarter of 2020.

I am extremely proud that our team has achieved 9 consecutive years of record financial performance.

Six Flags continues to build upon its global leadership position, and it's strongly situated to continue its growth trajectory for years to come.

As I shared with you in 2016, it is my belief that many CEOs stay in their roles too long.

I don't want to remain in this position so long that I potentially block opportunity for great leaders with innovative ideas from helping the company achieve its fullest potential.

I remain one of the company's largest shareholders, and it is because of my strong belief that the company is so well positioned to execute our current strategy and continue its growth trajectory that I feel this is the right time for me to step down from what has been the most fun and rewarding role of my career.

We specifically announced my intention well in advance to ensure transparency to our shareholders and employees and to allow the board to conduct a thorough and deliberative search for a new CEO.

This should ensure that we find the best possible person to lead Six Flags following my retirement and to name a successor for my role as Chairman of the Board.

In the interim, I will continue to deliver 100% of my energy to our company and fully expect us to deliver our tenth consecutive record year in 2019.

I will now turn the call over to Marshall who will share a few more details about our first quarter financial results.

Marshall?

Thank you, Jim, and hello to everyone on the call.

Although Q1 is difficult to compare to prior year due to the Easter holiday arriving later this year, we had a strong start to 2019 and indicators point to a strong season ahead.

Our Active Pass Base was up 5% and guest spending per capita reached a new all-time high due to strong membership unit sales, higher prices of memberships and a higher number of members who have stayed with the membership program beyond their initial 12-month compulsory period.

Our Active Pass Base growth would've been stronger if our operating calendar had not shifted due to the Easter holiday falling 3 weeks later than last year.

Most people purchase their membership or season pass shortly before visiting our parks.

So the later start to our operating calendars delayed many purchases into the second quarter.

Despite the decrease in attendance that resulted from the Easter shift, total revenue in the quarter was down less than $1 million, primarily a result of the higher guest spending per capita and an increase in revenue from international agreements, which included revenue associated with our park in Dubai.

Continuation of the project in Dubai has become unlikely so we've recognized revenue up to the amount of cash received.

Attendance in the quarter was down 8% or 189,000 guests to 2.2 million.

The Easter shift accounted for a loss of approximately 200,000 visits in the quarter, and as of today, the attendance shift has been recovered.

Total guest spending per capita increased $2.40 or 5%, with admissions per capita up $2.34 or 8% from prior year and in-park spending per capita up $0.06.

The increase in admissions per capita resulted from higher post-compulsory revenue from our membership program, a higher mix of memberships in the base and ticket price increases at the smaller number of parks that were open.

Deferred revenue of $178 million as of March 31, 2019, decreased $4 million or 2% from March 31, 2018.

The decrease was primarily due to a higher mix of longer-tenured members versus last year as well as lower pass sales due to the later Easter holiday.

Recall that we recognize revenue equal to the monthly membership fee once a membership goes beyond its initial 12-month compulsory period.

Unlike season passes, where the first year of a membership, these 13-plus memberships no longer contribute to deferred revenue.

Because of the different accounting for revenue and our increasing success in upselling our guests to memberships, the company expects that deferred revenue growth will be muted going forward as a growing number of members pass their initial commitment period.

Moving to costs, cash operating and SG&A expenses increased $12 million or 9%, primarily driven by higher lease and other startup and rebranding costs from the 5 parks we acquired on June 1, 2018.

Excluding these extra costs, our cash operating and SG&A expenses increased less than inflation.

Although we continue to face wage pressures in several markets due to increases in minimum wage -- wages and a tightening labor market.

As you can see from our success in 2018 and in the first quarter of 2019, we are working very hard to offset these increases across our large and diverse cost base.

As a result of our strong revenue growth and focused cost control, we generated an LTM-modified EBITDA margin of nearly 40%.

Because of that, along with our disciplined approach to capital spending, our modified EBITDA-less CapEx margin remains the best in the theme park industry by several hindered basis points.

Net leverage at end of the first quarter was 4.1x adjusted EBITDA, which we expect will soon decline as the company generates higher levels of adjusted EBITDA and cash flow.

Given the recent improvement in the debt markets, we decided to opportunistically refinance our bank credit facilities, including increasing the amount of our Term Loan B from $584 million to $800 million and increasing our revolving credit facility from $250 million to $350 million.

We increased the size of our revolver in proportion to the growth of our company as we've added 8 new parks as part of our North American expansion strategy since we last refinanced our bank facilities in 2015.

We used the net proceeds to fully pay down the prior revolver balance and held the rest as cash, which will be available for general corporate purposes, including share repurchases.

We have $232 million remaining under our board authorization for share repurchases, and we'll continue to look for opportunities to repurchase shares using our strong cash flow and balance sheet.

We're in an excellent financial position with modest leverage, high interest coverage and no debt maturities before 2024.

Together with the proven resilience of the regional theme park industry during an economic downturn, we stand by our firm commitment to grow our dividend every year.

I feel great about our growth prospects and that we are very well positioned for yet another record year.

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

Thank you very much, Marshall.

Innovation is in our DNA, and we continue to be recognized as the global leader in theme park ride, attraction and technology innovation.

In addition to record-breaking new rides, we are also adding Wi-Fi in every park, a supercharged new Six Flags app, online dining ordering and many other new and exciting benefits for our loyal guests.

In 2019, we will be introducing the best and most innovative lineup of new rides in the company's history, including several world-record or first-of-their-kind rides: Maxx Force, a triple record-breaking launch coaster at Six Flags Great America with the fastest acceleration of any coaster in North America; Batman: The Ride, a 4D free-spin wing coaster; and new DC Comics-themed area at Six Flags Discovery Kingdom.

The Joker Wild Card, the world's tallest and fastest pendulum ride at Six Flags Fiesta Texas.

And El Diablo, the world's largest loop coaster at Six Flags Over Texas; and of course, I can't forget West Coast Racers, the world's first racing launch coaster at Six Flags Magic Mountain, the undisputed roller coaster capital of the universe.

We are pleased to welcome our 26-park Magic Waters, a beautiful water park located an hour from Six Flags Great America in Rockford, Illinois.

We are already selling memberships and combo passes as we prepare the park to open in May.

We are also rebranding our acquired theme park in Darien Lake to Six Flags and 3 water parks to Hurricane Harbor, our newly acquired water parks in Houston and Phoenix and our outdoor water park at our Great Escape resort in New York as part of the major expansion.

We are on our way to becoming the biggest water park operator in the world, and I can see the day when Hurricane Harbor is as well known as the Six Flags brand.

The drivers of our business in 2019 are a continuation of the strategy we have successfully pursued over the last several years: one, upselling guests to our high-value programs such as memberships, while introducing news in every park and expanding our special events to increase capacity and grow attendance; two, implementing price increases in the mid-single-digits; three, growing in-park spending, especially by increasing penetration of our All-Season Dining passes; four, actively pursuing our North American expansion strategy to grow our addressable market and realize synergies; and five, licensing our brand to partners outside of North America who will develop Six Flags-branded parks.

As I said at the beginning of the call, I am most excited about the incredible growth of a large recurring revenue base through our new tiered membership program and our All-Season Dining Pass membership program, which provides opportunities to increase guest retention rates and spending.

Together with our industry-leading loyalty program and our world-class marketing research capabilities, these programs provide the means for us to build strong relationships with our guests, learn what they value most and tailor our messaging and product offerings to their unique preferences.

We are launching new programming capabilities that allow us to upsell any guest of any ticket type to a membership or any membership to a higher tier.

This will make it easier than ever for every guest to obtain the best possible experience with a membership.

These membership programs, taken together, already represent approximately 20% of our guest-spending revenues, and we believe the upside here is tremendous.

Membership is hot, delivers higher pricing and margin and drives long-term loyalty.

Our strong momentum should ensure that an even more material percentage of our business comes from recurring revenues over the next decade.

We are geographically diverse and no one park represents more than 10% of annual attendance.

The vast majority of our guests live within driving distance of one of our parks, and our North American expansion strategy actively supports building that expanding guest base.

For a very modest sum, guests can come to any of our parks as many times as they like.

Thus our membership and season pass offerings will continue to appeal to consumers in any economic environment.

Our strong Active Pass Base provides both a weather hedge and a powerful means to retain our customers.

Through disciplined pricing and our ability to flexibly manage capital spending and expenses, especially seasonal labor, we can successfully drive shareholder value regardless of the economy.

Our long-term international opportunities remains compelling, and we are positioning ourselves to participate in emerging markets for decades to come.

We have only begun to build out our international function and expertise and realize the potential of this strategy as international licensing still only represents about 3% of our revenue.

In the next 10 years, up to 1 billion people will enter the middle class, and the vast majority of them will be in emerging markets like China and India, where there is still very low penetration of theme parks.

We continue to work with our international partner in China, meeting government officials for each of our 3 park complexes, and we believe conditions in China have slowly begun to improve.

Like virtually every theme park project in these markets, we have experienced some opening delays.

But we should not lose sight of the fact that these short-term delays and lumpy revenue patterns are not material in the context of the long-term opportunity.

Our current stock price in no way reflects the years of growth opportunities we have ahead of us and our strong financial performance over many years.

We have consistently delivered the highest growth rates and margins in the industry, while increasing our dividend every year for the past 8 years and returning all excess cash to shareholders through share buybacks.

Our dividend yield of more than 6% is among the highest in the U.S. market.

We strongly believe that this price dislocation, which has happened to almost every U.S. company at some point, is temporary.

We also believe that the answer, from our perspective, is to apply a laser focus on what we can control and that is staying true to our successful strategy and consistently delivering superior operations.

Consequently, as a team, we're working diligently to deliver our 10th consecutive record year and driving the company towards achieving of our aspirational goal of $750 million of modified EBITDA by 2021.

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

(Operator Instructions) Your first question comes from the line of Steve Wieczynski with Stifel.

Jim, can I ask you -- it's going to be somewhat of a personal question.

I know you addressed your retirement in your prepared remarks.

But I guess if I go back and I look at the last time you came out of so-called retirement, I think it was July of 2017, you mentioned your return was going to be a long-term commitment.

And I guess the question is, when it's all said and done, is 2 to 2.5 years, to us, I guess, that doesn't really seem like long term.

So I guess what I'm getting at is why now.

Maybe help us think about that a little bit more.

And then maybe also help us understood -- understand how the search process is going for your replacement.

And maybe some of the -- what are some of the characteristics you guys are looking for in your next CEO?

That would be helpful.

I think that's a fair question, Steve, and I'm happy to address that head on, although there were probably 3 questions in there, I'll tackle them one by one.

First, in terms of my tenure as CEO, I do want to reinforce that they really have been the most rewarding years of my career.

And I still have almost a year left in terms of what I need to do and what the company needs to do to ensure we deliver the 10th record year.

But when I retired in 2016, I talked then, you may remember, about my belief that, after a certain time in the CEO position, it's important to step aside and allow for new leadership, new perspectives, and I do still believe that.

And so your question then -- part two was why is it right now to make this announcement.

And I think the most important thing is to ensure transparency and to provide the board with sufficient time to complete a full, deliberative selection process.

So hence, the end of February 2020, it's very important to me to ensure we do deliver that 10th consecutive year.

And I truly believe that timing is right because momentum at the company is very strong.

And I feel extremely confident about our long-term future.

You'll remember that I am one of the company's largest shareholders.

And because of that, it's very important to me that the company does well.

And we are very well positioned right now to execute our current strategy.

Our company is in a strong position.

We've had an unprecedented growth trajectory for years, and we see a continuation of that growth trajectory into the future.

And I talked earlier, Steve, about the 5 key initiatives.

But those initiatives from ticket yields to membership and season pass penetration, in-park revenue, North American expansion and international, all have legs for many years to come.

I truly believe that, for most of those, we're in the second or third innings of this game.

So I feel very good about where we are, and the ability to make this transition now is appropriate.

And we can get someone excellent, even better than me is the goal, to step up and take over.

So in terms of the search itself, a search firm has been hired.

It's Spencer Stuart.

They're assisting the board in evaluating both internal and external candidates.

And at the same time, the board not only will nominate a CEO but also a new Chairman of the Board.

The target date is March 1, but the exact timing obviously will depend on exactly what happens with regard to that search.

We're very early in the process.

So there's still a long way to go.

And I promise that we'll give updates when there is material news to report.

But most important for me, I love the company.

It's in my blood.

As I said, I'm one of the biggest shareholders.

And all investors, including myself and, by the way, pretty much every full-time employee at the company knows that I'm going to do devote 100% of my time, my energy to the company to deliver the best results that we can get this year and to set the company up for decades of growth.

That's my goal, and we're going to work very hard to get there.

So Steve, I apologize, I know that was probably an overly long answer to 3 sort of individual questions you had, but I wanted to make sure I addressed all of them.

No, that was great.

And I apologize for the long-winded question.

The second question will be a little bit shorter, and it's around capital allocation.

And obviously, you guys just refinanced your debt.

But I guess I wanted to understand why the lack of any share repurchases in the first quarter, given where the share price was.

Was that a function of having to wait until you got the debt refinanced?

Or was it something else?

And then second, maybe give us an update in terms of how you guys view the dividends at this point.

You addressed it a little bit in your prepared remarks.

But I think dividend protection rate now is probably the biggest concern out there with the investors that we're talking to.

Right.

So let me set up and hand over directly to Marshall on the first part of the question.

And I think, big picture, in the first quarter, we moved opportunistically on the refinancing because the market turned in our favor.

And so you're absolutely right in the way you described it as we're in a position where we knew we were going to do this, so we were very cautious about what else we did.

And them Marshall, maybe you take part one.

And shall I take the dividend?

Sure.

Our policy, as you know, is to return all excess cash flow to shareholders in the form of a healthy growing dividend and also share repurchases.

Since we build most of our cash over the summer as the parks open, and we do -- we build most of our rides in the spring, we didn't purchase shares in Q1.

Since emerging as a public company in 2010, we've reduced our share count from 110 million to 84 million shares, returning about $3.5 billion back to investors.

So that's the reason we didn't do anything in Q1.

But we'll continue to look for opportunities to repurchase shares using our strong cash flow and balance sheet as we move forward and start generating cash in 2019.

And then Marshall, you jump in if I miss anything with regard to the dividend.

But Steve, you know, I think, very well that a strong sustainable cash dividend is really an important part of our value proposition to shareholders.

And it is our goal, and that remains unchanged, to grow the dividend every year going forward as we have done successfully for the past 8 years.

You may remember that, last year, we raised the annualized dividend to $3.28, a 17% increase over the same period in 2017.

Our dividend yield right now is very attractive, and we remain committed to growing our dividend every year.

And to your point around the ability to cover it, just as we've done every single year and we did last year and we will do this year, we're in a position to generate cash flow that exceeds our dividend payments and to continue that strongly into the future.

Marshall, did I miss anything?

No.

I think maybe speaking a little bit to 2018, we -- our cash flow exceeded our dividend payments.

We were able to fully fund our capital spending at 9% of revenues.

We acquired 5 new parks, and we had money to buy shares as well.

And if you think about it, we are a growing company.

We grew 7% last year, and we've grown every year since 2010, and last year was a difficult year from a weather perspective.

So we firmly believe this year, we're going to grow, and we'll address the amount of dividend growth as we get to the end of the year.

I think the other thing, Marshall, maybe talk to this, is, from a tax perspective in terms of cash taxes, the outlook is fairly positive for us going forward for several years, right?

Yes.

Actually, so this year, we'll spend -- we'll pay about $30 million in cash taxes, which is similar to 2018.

In 2020, it'll probably grow to $45 million to $50 million.

But again -- and then from '21 to '24, we'll have a tax yield of about $32.5 million of our earnings.

So the net of it is that we expect minimal federal taxes not just in -- as we had in 2018 but 2019, 2020 and then it ramps up a little bit in '21.

So it's -- we're in a position where, overall, from a cash perspective, we feel pretty comfortable with what we've got, and the commitment is there for the dividend.

Your next question comes from the line of David Katz with Jefferies.

I just wanted to follow back up on that matter and make sure that I'm receiving the information the right way as it relates to share repurchases and dividends and the capital allocation in a broader perspective.

Obviously, we want to avoid looking at a specific quarter and raising the matter that you didn't buy any.

But in terms of forecasting for the full year, for the full year next year, which we're obligated to do, we should think about, dollar for dollar, available cash being returned in one form or another.

Is that a fair way for us to go about forecasting it?

Yes.

I think that's right.

Obviously, David, you know we don't provide any -- we give the long-term guidance, but we don't provide a quarterly or a single-year guidance.

But I think your commentary is accurate.

That is our goal every year to deliver all excess cash back to shareholders through dividends or share buybacks.

Yes, if we -- there may be a possibility, like last year, where we have a really compelling investment like we did with the Premier Parks last year.

If we do that, we'll use our cash for that.

But I think if you look at our track record, we return all excess cash to shareholders and that'll be what we continue to do.

Right.

And if I can just go back to one other matter that you touched on a bit, and that is really the international opportunity.

And I hear you that we shouldn't really put it in a short-term box.

I think that, from the discussions we've had and our processing of it, there's 2 questions behind it.

Number one, how would you have us think about those opportunities within the context of the target that you have?

In other words, the Project 750, how do we think about those international opportunities which do, admittedly, have an opportunity or a propensity to slide?

How much of the 750 really includes that?

And the second part of the question, Jim, if I may, and I appreciate your perspective on the transition, what would you consider any risk, if there is, of any strategic shifts in this transition that may or may not include some of those international opportunities becoming more or less of a priority through the transition?

Right.

So I think those, again, 2 very good questions, David.

In terms of international revenue and how it plays into 750, we've never broken out specific dollars associated with any of our targets ever.

But the real difference here is that we have grown to a position where we have 5 major initiatives that I've outlined for you that will provide growth opportunities for us for, as I said, probably decades and that we're in the second or third inning.

So your question was really how do -- how should I think about it with regard to the Project 750, and I would say that it is one part of those 5 initiatives.

And if you ask me right now and if you'd asked me 6 months ago, where would it sit in terms of the ranking, it's exactly as we have listed it.

I would have it fifth on the list in terms of initiatives and in terms of what's built in for it.

It represents only 3% of our revenue base right now, so it's relatively immaterial overall.

We are looking to grow it, and a decade from now, we think it'll be -- it will be material, and it will grow.

But it won't be a straight line.

And so I can't say to you, expect it to be exactly this, this year or next year.

It will play a very good part long term but, in the nearer term, probably lesser so.

We'll work very hard to try and make it a bigger part.

But for me, the biggest drivers in the near term will be our pricing initiatives, our membership initiatives, these in-park initiatives, whether they are culinary or retail or game based, and then adding on these water parks.

And then fifth, the international piece will be strong for us longer term.

We've got parks in China and in Saudi Arabia that are proceeding.

Haiyan in China is proceeding very nicely.

Saudi Arabia is proceeding.

We think the Chongqing, in terms of approval, we're hoping for the second half of the year and then Nanjing, in the next 12 months, approval from the governments.

We've met with all of them.

It's one of those things where I do not want to be in the position of overpromising.

We think we'll make progress, but as soon as we have concrete facts to be able to support that, we will let you know.

I would add that we're also working with potential partners across the globe and looking to add other parks.

And the outlook there, I think, it's good, but we will announce those once we have deals to be able to do that.

So going to your second question, David, you asked about what happens with regard to changes or risks associated with the CEO -- the new CEO coming in, strategic shifts, I think, was the word that you used.

And I'd say first of all, the board is exactly the same, this is the board that found me is looking for the new CEO.

The company momentum is very strong, as I said earlier, pretty much stronger than it's ever been at any point in the 9 years that I've been here.

And I am extremely confident about where we are.

So if I look at risks, of course, a CEO -- a new CEO could have a new view with regard to capital allocation.

I think those were the words that you used.

But remember the capital-allocation policy is formulated by the board, including me as CEO, and company management.

Many of those same board members are leading that search.

They will be on the board post the new CEO coming in.

While there can be no guarantees that it will be exactly the same, there is a very strong view on the board that that's the approach we would take.

So no one can promise you that the world isn't going to change, David, but I feel fairly confident that the strategy that we have, given that it's working, will remain unchanged going forward.

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

So I think you mentioned that the Easter shift, as of today, it's been recovered.

I was just wondering what exactly that meant.

Are you saying that we're back to sort of flatter or positive attendance or revenues as we sit here today?

Yes.

So basically what I meant was -- it was that, that we recovered the Easter shift.

We still do have some days ahead of us as part of the shift as the parks in the Northeast are on spring break right now, and they would have already been on spring break last year.

So that's really what I meant is that Easter shift has been recovered, and we do have a little bit more spring break left.

Yes, James, so you know that we're not going to be specific in saying we're up, down or whatever.

What we wanted to make sure is everybody understood that we have more than offset that, basically, and we're in a good position, given that we still have more days left, that's what Marshall is saying.

Right.

Okay.

Understood.

And then help us understand the Dubai situation a little bit better.

Well, I guess, first, let's take a step back.

Can you give us the international revenue and EBITDA numbers, I guess, would be first.

And then, which parks, exactly, are contributing to that?

I think it sounds like just the one Chinese park.

And then what was the -- it sounds like there was maybe a catch-up payment or that's -- I'm sure that's the wrong term, but you recognized all of the revenues for Dubai in the first quarter.

I guess, how much was that?

And should we then assume that we're no longer getting any cash from Dubai going forward?

Yes.

So I'll start with -- and just kind of go in the order that you asked the questions.

The first quarter revenue was $11.4 million of international.

EBITDA was little over $9 million of EBITDA for international.

In terms of the parks that did -- that were in the revenue, there was, Jim mentioned, Saudi and Haiyan as well as the Dubai.

And what we did with Dubai is we had a deferred revenue position that we took to income because of the reasons I said in the prepared comments.

We're not going to break out individual agreements for obvious reasons, they're contracts.

In terms of going forward, we're unlikely to recognize more revenue from Dubai until we find a resolution.

But my assumption is that whether we're -- if we're going to build a theme park in Dubai, it's unlikely at this point.

Jim, would you add?

No, I think that's right.

And I think that we feel very good about Q1 with international.

We'll be measured in our approach.

We're cautiously optimistic, but the situation in China is improving.

And as I said earlier, our partner Riverside remains very committed to developing Six Flags parks.

There's ongoing building going on.

But it's just going to take a little while longer to open those parks, and we're working very closely with local governments to ensure that happens.

We'll update you probably on the second quarter on any developments there.

Got it.

And then just one clarification.

It's still your perspective that your Dubai partner actually owes you money for pulling out of that contract, but we shouldn't expect to see any resolution in terms of revenues that would be -- that would show up as some sort of settlement.

Is that how to think about it?

Yes.

Obviously, James, we would avoid making any sort of comments with regard to what happens next.

But in terms of your broad commentary, that does make sense.

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

Just -- because membership is a growing part of the business, and I think, Jim, you called about 20% of your park revenue now comes from membership holders, maybe give us a little context as to where that stood last year, maybe where members are as a percentage of actives today, maybe where you think that can go.

So I think -- maybe I'll take your last question first.

We think the demand for memberships, we know, is accelerating.

We're growing it week in, week out.

We're upgrading people out of season passes and out of 1-day tickets into memberships, so we think that'll continue to grow.

In terms of where it was last year, it was significantly less.

We've grown that in the mid-double digits in terms of just that particular stat.

I'd say it was really tiny comparatively because we -- you may remember we relaunched, Michael, this program in the first quarter of last year.

And while there was a membership group, it was fairly small, but since then it's been very successful and has exploded.

So I would tell you -- you asked where it's going, I'm not going to try and predict a number, but it's 20% right now of the spending of the revenue.

And so there is a lot of opportunity left in terms of the ability to grow it.

So $2.2 million members at the end of the year.

We will continue to grow that.

We talked to you at end of the year of having an Active Pass Base of 8 million.

So you could theoretically say we would try to convert all 8 million to membership.

And the price points are between 50% higher and almost 3x higher than a season pass, depending on the tier that we're in.

So not only is there a big opportunity with regard to converting members, but they spend a lot more, not just on the tickets but also in the parks.

So a lot of room still to go there.

Yes.

The only thing that I'd add to that is that really the growth came after the first quarter because we had just started selling the next level, the membership 2.0 as we call it, but we had just started selling that at the 1st of March.

So all of that growth really came in April through March of this year.

Okay.

Great.

That's helpful.

And then maybe, Marshal, just talk about, I know with some of the additional parks you have coming online that you'll be operating this year that maybe you weren't last year, whether that's this quarter or the third quarter.

Maybe just help us understand the operating day benefit or differential from some of those new parks year-over-year.

Great.

So in terms of incremental operating days in the first quarter, just a little more broadly, Fiesta Texas was open year-round in the first quarter, which was new.

Phoenix -- the Phoenix water park was open some additional days.

I will tell you that in terms of attendance driven by the new parks in Q1, it was de minimis.

And -- but most of those days -- those additional days were offset by lost days due to the Easter shift and nearly 10 days that we had to close in California due to weather.

And maybe it might make sense to just take a minute to outline our approach to op days because all op days aren't created equal.

Obviously, this quarter we shifted, we added some days in San Antonio, and obviously, in Phoenix.

We removed days because of Easter that were big days, big spring break days.

So when we look at opportunities for whether or not to open, we just want to make sure we -- if we open, we're confident that we can be profitable because we know, if we're open, we can sell more memberships and season passes.

So for example, in San Antonio, we opened those days, we were profitable without the additional passes that we sold.

But we know, with those additional passes that we sold, we're going to make money, we were going to basically have future revenues for that.

So hopefully, that sort of gives you an idea of the first quarter and operating days.

Yes, no, that's helpful.

And just looking out to the second and third quarters, that was more my question is just more of a modeling question, how many additional days will some of those new parks add?

So we'll -- year-over-year, we'll have a little bit over 100 days -- additional operating days.

Some of those, like I said, were in the first quarter.

The majority of those -- the overwhelming majority of those are going to be in the second quarter.

Fiesta Texas I talked about in Q1.

Mexico is going to -- we're adding days there.

I think, ultimately, we'll go 365 days there.

But we've added some days mostly in Q2 and Q3 in Mexico.

And -- but if you look at overall, we're really talking about a small percentage, about 5% of our operating days, we're growing year-over-year.

And remember, these are operating days that we know we can be profitable, but you can't really look at them as an average operating day because we know they're marginal, we know they're incremental, but they're days when school -- kids might be in school or are holidays that are not a holiday that everybody is out.

Does that help?

Yes, that was helpful.

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

So I wanted to circle back to the Active Pass Base growth all-time high, 5% growth there.

Can you talk a little bit more about how that was impacted by Easter?

I know it was a bit of a drag.

But is there a way to think about that number maybe on an apples-to-apples basis versus last year?

And then I know I've asked this question in the past, but do you have any updated thoughts on where that growth rate might trend over the next few quarters?

Marshall, do you want to take this?

Sure.

So obviously, 5% growth is another record.

We've had actually a record high Active Pass Base every quarter since we started tracking it in 2014.

The Easter shift caused both season passes and memberships to move into the second quarter.

If you think about -- it's about 200,000 in attendance, and most of those were selling season passes and memberships, too.

So I guess what I'd say is that, that shift now has -- we've already recovered those lost pass sales.

And what was the second part of the question?

What was the second part of the question, Tyler?

Just how that number might trend over the next few quarters?

I mean you're 5% now, I think you were 8% in the fourth quarter of '18.

You were in the double-digits a couple years ago.

Obviously, there's the law of large numbers impacting that, but at the same time, you guys have made a lot of progress as far as selling memberships.

So I'm just wondering how we should think about that number -- the growth for that number going forward?

I think, Tyler, as we said before, we won't give guidance with regard to what the growth is going to be.

We feel pretty good about what we're seeing right now, I would tell you that, and are encouraged.

We've mentioned the success of membership.

But in terms of specifics, we're not going to point that out to you.

And obviously, we'll publish that as soon as we have the data with Q2.

Okay.

Great.

And then probably a question here for Marshall.

Just as we're looking at the second quarter, specifically on the cost side of things, again, I'm not sure how much detail you can give.

But obviously, you're going to have the incremental lease expense from some of the parks that you've bought.

I'm not sure if there's other incremental startup costs.

But any color you can give in terms of how to think about modeling costs for the second quarter or maybe first half of the year specifically?

Yes.

So in the second quarter, we picked up the new parks on June 1. We will have lease expense and operating expenses in the second quarter for the first 2 months.

Those will be new.

A lot of the rebranding costs that I mentioned in the prepared comments have taken place.

We'll have a little bit more as these parks open up.

Beyond that, I'd say, in terms of other expense growth, it'll really be a couple of extra days in Mexico.

And then I think, beyond that, we'll be less than inflation, just like we have been over the last several years.

Your next question comes from the line of Eric Wold with B. Riley.

So a couple questions, just following up on the membership kind of strategy.

I guess, you talked about a lot of the strategies in the parks to continue to get people to migrate up from single-day and season pass up to membership.

But have you seen -- now that we've kind of had this for a year, have you seen any trends of members migrating up within the membership program to higher tiers once they're in there?

And then, in general, when members kind of choose the plan, have you seen any noticeable shifting in demand between one tier or another over the past year, either better tiers or lowers tiers, depending on where they go?

That's a really good question.

And I would say that with regard to the approach we've taken, in my prepared comments, I talked about the fact that we have developed these memberships centers both at the front gate but also within the parks, Tyler (sic) [Eric], to be able to address exactly this.

So when a guest comes up to the gate, no matter what ticket they were looking to get, whether it was a single-day pass or a season pass, we will first sell them or attempt to sell them memberships.

And the membership tiers range from Gold Plus through to Diamond Elite, and the price points on those vary from $94 for the basic Gold Plus through to $220 and over for the Diamond Elite.

And that excludes dining.

If you include dining, obviously the price is even higher.

We work very hard to sell them, and the conversion rates are very high.

We've been very successful in being able to do that.

So 2 things happen.

One, we get pretty much everybody at the front gate and work very hard to drive conversion to membership.

We also incent our folks to ensure that they get a benefit from selling memberships, so there's a double benefit there.

And then what we do is, within that process of selling membership, we'll work very hard to try and convert people from a Gold Plus up to a Diamond, Diamond Elite to get the highest price point.

So we have had great success doing that on the initial sale.

But furthermore, within the parks, where someone comes up and either they have an existing season pass or a lower-level membership, we will actively try to shift them up from one level to the other.

We do that in-park and we also do it online in terms of directly targeting guests who may have passes already.

And the success has been really, honestly, much better than we anticipated.

It's not just in terms of the conversions, but it's also the split of people who are buying the higher-priced, higher-tiered memberships is much more than we originally anticipated.

We really thought there'd be a much larger group that would buy the Gold Plus and Platinum and a relatively small Diamond, Diamond Elite, and the mix is -- has really shifted in a way that's very positive for us and very positive for our per caps long term.

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

On the international, if I may return to that, any quantification that you can give us of the $11 million, Marshall, how much of that was Dubai?

And then gentlemen, just maybe a little more clarification on China given cadence here.

Were you receiving revenue for all 3 parks or was it just 2 parks and now is it just 1?

So I guess that's the first part of the China question.

And then if you hit some other milestones with some government clearances, is there a potential for an acceleration or recapture, and we saw the bad side of it in Q4, but maybe a positive recapture later on this year related to China?

Okay, Tim.

So I think your first question was with regard to Dubai.

And I think you know we've already gone through this question earlier and we -- I think we gave the answer there.

We've never disclosed individual parks, Tim, so we're not going to do that now.

I can tell you that -- it wasn't that one park had a dominant percentage of the overall revenue, it came across multiple parks.

And Dubai, in itself, was not a material amount.

We got a benefit, but it's not a massive amount.

So I hope that helps you in terms of that.

With regard to China, you really had a couple of pieces.

It's like which parks do we recognize revenue on.

And maybe, Marshall, you take that.

And then I'll take part two, which is with regard to the ability to accelerate if something changes.

Okay.

Yes, so in terms of what parks contributed to Q1, it was -- and we sort of mentioned a little bit, it's the high-end parks because they're progressing nicely.

Saudi Arabia, which is also progressing, and Dubai, which we talked about contributed in Q1.

In terms of going forward, I think those -- the 2 parks, Haiyan and Saudi Arabia, will be contributing as they'll be progressing nicely in the future.

And then, Jim, do you want to talk about acceleration -- maybe from an accounting...

Yes, talk about the accounting first and then...

So Chongqing and Nanjing, as those parks -- when they do ultimately get approved then there will be -- depending on when the opening date is and we built in this 6 to 12 months in the opening days that we talked about in the fourth quarter, we will be basically taking that cash, doing a catch up in the quarter that those get turned back on, assuming that they have them within -- and the opening date stays where it was when we talked about it in the fourth quarter.

Yes.

And Tim, just with regard to where we are with those parks, I had got at this a little bit earlier when we were talking, but I want to go over it again.

First and most important, the issues that we're facing aren't specific to us, they're being faced by basically all companies, especially private companies in China.

I mentioned that Riverside very successfully navigating the political and regulatory environment, and we're optimistic that they'll continue to do so.

The dates that we had described on the last call and still hold now really reflect awaiting government approval, and that's something we can't define.

I'd love to be able to say this is exactly going to be the date, but at least we do know there have been several meetings with the local governments, including with -- our own people there, not just our partner.

And it does feel like conditions are improving, but we'll know as time goes on.

And obviously, as I said earlier, Tim, we'll advise you guys and our shareholders as we know.

Okay.

No, that's helpful, gentleman.

Marshall, when -- it sounds like you're still accounting for the parks that you had last year under the lease perspective.

Will that have any impact or change due to the new lease accounting rules and how the expense is recognized in 2019?

Or would that be adopted in for 2020?

No.

So I think what you were talking about is whether any of that expense will go down to interest expense.

That's really just for financing leases.

We don't have any of those.

Basically, what is in our operating expense and what was in it last year will be in it this year from an accounting perspective.

We will have the additional lease costs that we talked about from January through May.

But the -- in terms of the accounting didn't really impact our op expenses at all and won't going forward.

Okay.

Great.

And then the last question, gentlemen.

Any way you can quantify the Q1 benefit as we're starting to see now the benefit of the membership anniversarying that 13 month and smoothing your revenues into the shoulder periods, so to speak?

And then related to that, how are the retention rates now within Active Pass or membership, however way you want to comment on it, versus maybe a year or 2 ago?

Let me answer part two and then Marshall will take part one.

Our retention rates have improved over the last year, so they're actually better.

So I feel very good about that, and the success of membership continues to reinforce that we want to really focus in on this area to make sure that we continue to improve retention because it's key, obviously, for the long-term success of the program.

Marshall, do you want to talk about part one?

Yes.

I'm glad you asked that question, Tim, because I noticed on the report -- there was -- in your report, there was analysis that said if we had increased attendance by the 189,000 that we were down and been flat to prior -- it's been flat on revenue, and our per cap would have been under prior year.

If we would've had the 180,000 people, we would've had significantly more revenue.

This quarter, actually, is a perfect example of what we've been saying with respect to members who go past their 12-month compulsory period.

In quarters with lower attendance, we're able to generate revenues regardless of that attendance.

And so as that base of 13-plus members grows, our steady revenue from these members will continue to grow as well.

And it's really the reason that the top 5 per cap quarters in our history have been the first quarter of the last 5 years as we've grown the membership program.

It's really one of the great benefits of the program.

But since you asked -- since you had ask the question and mentioned it on the analysis, we did run -- we just assumed, if you adjust for the lost attendance using the current attendance mix that we had in Q1, our first quarter would still be a record -- an all-time record per cap.

So we love the 13-plus members.

There's going to be a lot of them rolling into the 13th month in April, May, June, July, August this year that really shows some growth.

And again, it's one of the really great benefits of the program.

And I think, Tim, building on that further, if you think about the company and where it is, we're at such a good position.

And the industry overall is a great industry, and it has -- not only has high barriers to entry but also is very resilient in a downturn.

And with our membership program and with that recurring revenue, we are simply strengthening ourselves even further for the long term in the event that there is any impact recession-wise or otherwise.

Okay.

I think the point we were trying to make is just -- if you just, for example, take the attendance, if it was flat, that your admissions only dropped -- would have dropped a little bit and without factoring in that -- related to the [190], but just playing the math with the denominator, that the admissions would -- barely would have been essentially flat while the in-park spend would have been down quite a bit more.

And then just making the point that your -- there's clearly, it appears to be, some shift from the anniversarying of the 13th month that is now smoothing the seasonality of that admissions revenue, which is a good thing from a cash flow perspective.

Yes.

I think, overall, it's a very good thing from a cash flow perspective.

We've always talked about the fact that -- you may remember if you went back 9 years, Tim, the company lost money in 2 quarters.

We've now turned the fourth quarter into a massive moneymaker.

And our goal is to take the first quarter and turn that into a massive moneymaker.

And membership is helping us do that.

It's a very good thing.

Under any scenario, whatever we adjust it, we would have still had a record per cap and a record quarter.

So we feel pretty good about it.

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

This is Mark on for Ian.

So most of our questions have been answered, but I just wanted to quickly check, since like the majority of the, I guess, like key parks in China that's on track for approval, but is there any, I guess, like new incremental delays to any of the parks that we should be aware of or you foresee coming in the sort of near term?

No, Mark.

There are no delays that we're aware of on any of the parks.

The same timing as we outlined on the fourth quarter call.

And I would also add that we are working hard -- our team is working very hard to identify other potential new parks, and we have discussions ongoing with various people, but obviously, the timing of those will depend on when we can reach agreements.

And your final question comes from the line of Brennan Matthews with Berenberg.

I just wanted to ask, I think you mentioned something about kind of launching or relaunching a new app this year, maybe even this quarter.

Kind of any detail on what some of those new features may be?

And are you thinking maybe about -- could you ever have kind of maybe member-specific features?

Or think about using an app as a way to kind of engage your members at all?

You have just -- you've hit a very hot button for me.

I love what you just asked, and it's exactly the approach that we're taking.

Our members are our most valuable, most important guests.

Everything we do in and out of the park is designed to make sure that the members feel special, that they are taken care of.

And so what we're doing overall is making sure that, from a technology perspective, we've got a lot going on.

So the new app will allow multiple things, including mobile food ordering.

We're also deploying point of sale in various parts of the park and allowing access that way so that we can get directly to, not just members but all guests.

And then we've got new mobile front-gate systems to ensure that we reduce wait time, and we've dedicated some parts at the front gate just for members so that they can get in even faster, and we've also worked on a new website that is optimized for phones, first, in ADA and other areas.

The app itself, to your question, Mark, it's redesigned really to make it even easier to use, and it has improved home-screen messaging.

We've updated interactive park map technology, which allows for a quick map updates and styling changes.

As I said, we've got the mobile food ordering so that people can conveniently order ahead.

We can upsell directly.

We reduced the wait time for food as a result of that.

We've also built in -- and this was the question that came earlier, the ability to purchase memberships and season passes on the app.

And we're the only company, I think, that has this membership loyalty program.

And so that loyalty program is directly on the app and allows you to easily track point balances, check information, rides, shows, et cetera.

It also gives ride wait time accurate -- very accurate ride wait times.

So overall, it's very positive, both from a user perspective as guests enjoy using something that is easier for them, but it also allows us to target upsell opportunities, both in terms of our passes but also dining and FLASH Pass.

So there's a lot different in the app and really targeted, one, to please the guests, but two, to ensure we can sell them more while they're in the park and even outside of the park.

Yes.

And I'd say, going forward, I think what we've done and the reason you see all these improvements is we've brought the design of the app and the programming of the app in-house.

And so you'll see, going forward, continuous improvement.

Month in, month out, you'll see updates to the app that'll add new features.

So yes, we're very excited about the app and where it is today and where it's headed.

Okay.

I think that's our last question.

So in closing, I would like to say thank you for joining the call, and thank you for all of your ongoing support of the company.

I'm very optimistic about the future of our company as our growth strategies continue to build momentum for the short, medium and long term.

I truly believe we have the best employees in the industry, and it's the hard work and dedication of these talented team members who've delivered time and time again that give me so much confidence in the future.

Please come out and visit one of our parks soon to see our amazing lineup of new rides and attractions.

Better yet, join our membership program to experience the incredible package of benefits that these programs offer.

Take care.

Thank you very much, everyone.

Thank you for your participation in today's conference call.

You may now disconnect.