Six Flags Entertainment Corp (SIX) 2022 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Six Flags Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Jason, 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 of Corporate Communications, Investor Relations and Treasurer. Please go ahead.

Good morning, and welcome to our fourth quarter and full year 2022 call. With me is Selim Bassoul, President and CEO of Six Flags; and Gary Mick, 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 and other forms filed or furnished with the SEC. At this time, I will turn the call over to Selim.

Thank you, Steve, and thanks to all of you for joining us today. I want to begin by thanking the entire Six Flags team whose hard work, dedication and agility is helping to unlock the potential of Six Flags. On today's call, I will provide an update on the progress we've made on our transformation. Then Gary will discuss our financial results. Finally, before opening the call to questions, I will return to discuss our long-term strategic priorities.

We are fortunate to participate in an attractive and resilient industry. Regional theme parks deliver uniquely thrilling entertainment. We deliver it in a live outdoor setting that cannot be replicated online, and we deliver a highly compelling value to our guests. In addition to operating in an attractive industry, Six Flags has a strong position within the industry, operating in all of the top 11 markets in the U.S., including some of the fastest growing markets in the country.

Our parks collectively have 145 roller coasters, including some of the most iconic coasters in the world, and a diverse collection of themed experiences, family events and nearly 1,000 rides. In addition, we are the largest operator of water parks in the U.S. and we have many areas for families with young children to enjoy. We have a broad entertainment offering with incredible IP through DC Comics and Looney Tunes, the largest Safari operation outside of Africa and signature events such as Fright Fest and Holiday in the Park. Despite operating with a strong position in a favorable industry our core business began to stall prior to the pandemic.

When I accepted the position as CEO a little over a year ago, it was clear that our strategy and our organization needed to be reset in order to reach our full potential. The past year has been a difficult year of transition, but I'm very proud of our team for working tirelessly to elevate the experience of every guest and to lay the groundwork for sustainable profit growth for the future. After a challenging start to the year, we course corrected in the fall and we are pleased to have delivered a record fourth quarter adjusted EBITDA, which provides evidence that our new strategy is beginning to bear fruit.

It's also the direct result of our efforts to develop an agile culture of excellence, urgency and results, taking risks, challenging outdated ways of thinking and investing in people. Our course correction in the fall was focused largely on 4 key areas that I would like to highlight for you: pricing, events, marketing and cost controls. First, on the pricing front. We simplified our product assortment, and we scaled back our season pass price increases, which resulted in an improvement in our fourth quarter pass sales trends. This also boosted our attendance as many of those guests visited our parks after making their purchase.

Second, we amplified our efforts around seasonal events by creating 3 new events this fall: Kids Boo Fest; Oktoberfest; and Veterans Day. I am so proud of our team for moving so quickly to execute these events in weeks rather than the months it would have taken in the past. In addition, our investments in Fright Fest paid off. We added to and improved our massive shows and concerts. We also introduced a new line of retail items, specifically designed for Fright Fest, and we opened several strategically located pop-up stores within our parks, all of which helped to drive our merchandise sales in the quarter.

Third, after scaling back our marketing earlier in the year, we launched several successful media campaigns to support our fourth quarter events, focused heavily on digital and television. And finally, we continue to stay focused on cost controls and drove significant margin improvement compared to fourth quarter prior year and 2019. What gives me the most optimism about our future was our team's resiliency and ability to quickly course correct during this challenging year. The success of our transformation depends on our people.

And I'm so proud that our team has risen to the challenge. The path towards progress never follows a straight line, but our vision for delivering an exceptional guest experience and sustainable profit growth remains our focus.

Now I'll turn it over to Gary, who will provide more details on our financial performance. Gary?

Thank you, Selim, and good morning, everyone. For the fourth quarter 2022, total attendance was 4 million guests, a 30% decrease from fourth quarter 2021. This decrease includes 279,000 fewer guests this year due to 6 parks that were opened for Holiday in the Park, or HIP, in the prior year, but were not opened this year during that same period. HIP at these northern parks has not historically been accretive to EBITDA. Adjusting for the reduced operating days due to the elimination of certain HIP events in 2022, attendance decreased 26% in the fourth quarter.

While still well below 2021 and 2019, the improvement in our attendance trajectory between the third quarter and the fourth quarter is encouraging. Our traditionally strong Fright Fest was augmented by 3 new events created and implemented by our nimble events teams throughout most of our parks. These events Kids Boo Fest, Oktoberfest and Veterans Day drove an uplift in attendance.

Total revenue for the fourth quarter was $280 million, a decrease of $37 million or 12% compared to the fourth quarter 2021, largely driven by lower attendance, offset by higher per capita spending. Total guest spending per capita of $65, represented an increase of $12 or 23% versus fourth quarter 2021 and was a fourth quarter record. Admission spending per capita increased $7 or 24% and in-park spending per capita increased $6 or 22%.

The increase in admission spending per capita compared to 2021 was driven primarily by higher realized ticket prices and a higher mix of single-day tickets, while the increase in in-park spending per capita compared to 2021 reflected our in-park pricing initiatives and a strong assortment of retail products, food and beverage offerings, rentals and new events.

On the cost side, cash operating and SG&A expenses versus 2021 decreased by $38 million or 19%, driven primarily by full-time salary reductions and fewer variable labor hours. These were partially offset by inflation in the form of higher wages, supplies and utilities. Adjusted EBITDA for the quarter was $99 million compared to $95 million in the fourth quarter of 2021, which represents a fourth quarter record for Six Flags.

Moving to full year results. Since park operations were impacted during the first half of 2021 by pandemic-related closures and capacity limitations in some of our parks, we believe it is more instructive to compare our full year results to 2019. Relative to 2019, revenue for the full year 2022 decreased by $129 million (sic) [$139 million] or 9%. This includes a $46 million reduction in sponsorship , international agreements and accommodations revenue. Adjusting for this lower sponsorship, international agreements and accommodations revenue, revenue for the full year was down $84 million or 6% versus full year 2019.

Attendance declined 12.4 million or 38%, offset by an increase in total guest spending per capita of $22 or 51%. In prior calls, we called out approximately $90 million of inflationary headwinds in 2022 relative to 2019. Despite these pressures, our full year cash operating expenses and SG&A decreased by $49 million or 6% versus 2019, due to our aggressive optimization of seasonal labor based on lower attendance levels, less dollars spent on advertising and a leaner corporate overhead structure.

In addition, we called out an increase in the annual minimum distribution to the noncontrolling interest of our partnership parks. The distribution increases via CPI, and in 2022, it increased by more than 7% to $45 million. Compared to 2019, this represents an increase of $4 million for full year 2022 which negatively impacts our adjusted EBITDA by the same amount. The expected impact of CPI on the annual distribution in full year 2023 is a $3 million increase versus full year 2022.

Adjusted EBITDA decreased by $62 million versus full year 2019, but the periods are not directly comparable because of the reduction in international agreements revenue from our terminated operations in China and Dubai. Adjusting for this impact, adjusted EBITDA for full year 2022 versus the same period in 2019 decreased by $38 million or 8%. Our Active Pass Base as of January 1, 2023, was comprised of 5 million pass holders and legacy members, a 40% decline relative to last year.

You may recall that due to the pandemic-related park closures in March of 2020, we extended visitation privileges on all season passes purchased for the 2020 operating season through the end of 2021. As a result, 2 million passes were carried over from 2020 into 2021. Adjusting for the 2 million pass carryover from 2020 to 2021, our Active Pass Base is down 21% versus 2019, our Active Pass Base is down 35%.

Deferred revenue as of January 1, 2023, was $129 million, down $49 million or 28% compared to fourth quarter 2021. The decrease was primarily due to lower unit sales of season passes and memberships compared to 2021, versus 2019, deferred revenue was down $15 million or 11%. Total capital expenditures for the year, net of insurance recoveries, were $112 million. We expect to increase our capital spending to $150 million in 2023 with an increased emphasis on improving the amenities and infrastructure in our parks, adding new and exciting rides, events and attractions and implementing guest-facing technology.

We plan to further increase capital spending to a range of $150 million to $200 million in 2024 and 2025 as we look to add significant marketable attractions to most of our parks. We expect our CapEx to be between 9% and 10% of revenue in 2026 and thereafter. Our liquidity position as of January 1, 2023, was $309 million. This included $229 million of available revolver capacity, net of $21 million of Letter of Credit and $80 million of cash.

As of January 1, the outstanding balance on our revolver was $100 million. Over the next 12 to 18 months, we plan to use our excess cash to pay down debt as we work towards our target net leverage ratio of 3 to 4x net debt-to-adjusted EBITDA. Our next debt maturity is in 2024, and we will continue to monitor the market for opportunities to refinance this debt. Although it is likely that the interest rate on a portion of our debt will increase, we expect total interest expense to decrease over time as we continue to pay down debt.

Finally, I'd like to briefly comment on our financial goals for 2023. We do not give formal guidance. But based on our fourth quarter performance and the early season trends, our goal is to deliver record adjusted EBITDA for our core North American park operations in 2023, which excludes international licensing revenue. For context, our previous record was approximately $518 million in 2018. We expect this to be driven by higher attendance year-over-year, partially offset by lower per capita guest spending as our season pass mix increases from 2022.

In addition, as our attendance rebounds, we will selectively add back costs that directly and positively impact the guest experience, while continuing to focus on margin improvement over time.

Now I will pass the call over to Selim.

Thank you, Gary. Looking forward, we view 2023 as the next step towards successfully implementing our long-term strategy. Our strategy is focused on enhancing the guest experience and delivering long-term profitable growth and the thrust on the following 4 pillars: First, our park experiences; second, pricing and products; third, organizational culture; and fourth, seasonal events.

Our first priority is to improve park experiences for both our guests and our employees. The investments we are making in 2023 prioritize guest comfort by focusing on areas that directly impact the time spent in the parks, including safety, cleanliness, food quality and variety, speed of service, guest amenities and technology. We are updating and modernizing our park infrastructure, including new VIP lounges, water park cabanas and new shaded water park seating, more shade structures and benches throughout our parks and in general park beautification effort with more flowers and greenery.

All of these changes will enable a more seamless and stress-free guest experience. On the technology front, we are in the process of integrating mobile payment technologies such as Apple and Google Pay to make checkout speed significantly quicker and to reduce stress on our frontline team members. And we are excited to launch a new vastly improved mobile app this summer, which will help streamline our guest experiences at our parks. We are also investing heavily in our foodservice operation with new equipment, renovated facilities and staff training.

We've already received great guest feedback, and we are committed to continuing to elevate the guest experience to meet their evolving expectations. Another area that we are seeking to improve is our water parks. Historically, water parks have been viewed as an add-on to our pass products and have been integrated with the greater theme park experience. However, by changing the ticketing architecture and investing in the guest experience at water parks as a stand-alone entity, we see great opportunity to grow in this area.

We are investing in new water coasters, kid play structures, slides and food and beverage upgrades that we expect will help increase attendance and in-park spend. We now have a dedicated team to evolve our strategy here, led by newly created position of Vice President of Water Park operations. And of course, as always, we are adding signature roller coasters and other rides and attractions to our parks.

While our 2023 CapEx program is focused primarily on park infrastructure and beautification, we continue to add new and exciting drives in our parks. This season will debut Aquaman Power Wave at Six Flags Over Texas, a first of its kind water coaster that will be the park's 14th coaster. And we are adding some exciting rides for families, including Rookie Racer, a family coaster at Six Flags over St. Louis, 2 kids racing coasters at Six Flags Over Georgia and at Six Flags Fiesta Texas and then actually go-karts at Magic Mountain to name just a few. We are committed to adding thrilling rides for all ages to our park, and we'll continue to introduce new and exciting concept over the next few years.

Finally, I want to briefly mention an exciting new initiative we've been working on over the past year, e-gaming. We will be launching our first e-gaming venue this spring at Six Flags Fiesta Texas in San Antonio. This has been a passion project of our Vice President of Design and Innovation for the past decade, and we are excited to finally give him the reins to execute on his vision. I won't be divulging too many details today, but you should expect some exciting announcements in the days and weeks to come.

Second strategic priority is pricing and products. Historically, Six Flags pricing programs have been heavily focused on discounts. In 2022, we eliminated many of the historical discounts, including free and ultra-low-priced tickets, and we trialed several iteration of new pricing program. Recently, we've taken our learnings and settled on an approach that balances attendance and revenue. Over time, our goal is to deliver a premium guest experience and to charge prices that are commensurate with the value we deliver to our guests.

We believe we have pricing power, but only if we deliver an exceptional guest experience. In addition, we have restructured and simplified our season pass program, reducing to 3 tiers with logical step-ups between categories. This streamlined product architecture should alleviate stress on our guests and makes it easier for employees to service them in our parks.

Going forward, we expect to maintain a simple lineup of single day and season pass offerings, and we expect to use price as a driver of revenue growth over time. We will offer limited promotions from time to time in order to drive unit sales, but we will no longer be a heavy discounter. The third strategic priority is changing our culture. We are developing an agile culture of autonomy, urgency and excellence. Last year, we significantly streamlined our organization, reducing layers of management and empowering people who are closest to our guests.

To be clear, this is not just about cost cutting. This is about working efficiently and putting ourselves in a position to best serve our guests. In fact, we expect to selectively add resources to our parks in areas that affect the guest experience. Our new and streamlined organization features a mix of internal and external talent. We have promoted and empowered rising stars within our organization, and we have recruited talented people from other industries.

Over the past year, we have appointed new heads of digital, marketing, water parks, finance and legal. We have also appointed many new park presidents, most of whom were internal promotions from within our organization. This powerful combination of internal theme park expertise and externally recruited talent with new skills and fresh perspectives will allow us to learn from our past, while creating a new future. Our team is really starting to jump. And from my experience, there is nothing that brings people together like delivering record results.

Our fourth strategic priority is adding quality seasonal events. We saw great success with our festivals and events in the fourth quarter, even though many were put together quickly and with limited budgets. In 2023, we plan to amplify our focus on festivals and events, starting with our first ever Scream Break at several of our parks this March and April, where traditional Scream Break gets a little bit spooky. This summer, we'll be launching new events such as Flavors of the World, a food festival featuring cuisines from across the globe.

And Viva La Fiesta, a huge party around parks featuring Latin street food and music. Not all events will occur in every park, we'll be testing out additional events as well. In the fall, we plan to invest heavily to ramp up the scale at our signature Fright Fest event, while significantly boosting our investment in Oktoberfest, Kids Boo Fest and Holiday in the Park.

Not only do events and festivals drive urgency to visit our parks but they also provide reasons to visit us multiple times throughout the year. It is an exciting initiative, and we are just getting started. To conclude, our long-term strategy is ultimately focused on one thing, delighting our guests. We want our guests to leave our parks with smiles on their faces and excited to come back again. And if we can do that, then we are confident that we will delight our shareholders as well.

With that, I will turn it over to the operator to open the line for questions. Operator?

(Operator Instructions) Our first question comes from Steven Wieczynski from Stifel.

So as we think about this year, just wondering if you can give any color around -- I know you're not going to give pure guidance, but your expectations for attendance growth over last year. And Gary made a comment about higher attendance, which will obviously impact per caps. But just wondering maybe how you're thinking about growth this year there. And then, Selim, are you also still kind of targeting that 25 million to 27 million attendance level over time as kind of a normalized run rate?

Let me start, first of all, to say thank you for being on the call with us this morning. And yes, I am still targeting -- we are still targeting the 25 million to 27 million attendance, which is what is our optimal attendance that we are shooting for. And I'll turn it over to Gary to answer the second part of your question.

Yes. Thank you, Selim, and thanks, Steve. Good question. We are definitely targeting double-digit increases in our attendance for '23. And we believe the per caps on the attendance side will decrease slightly as we grow the attendance.

Okay. That's very helpful color. And then second question, Selim, this is probably going to be for you, and I'll try to ask it in a way you might give me some kind of answer. But just want to ask about your -- how you view your -- today your land holdings? And there clearly has been a push out there by certain investors for you guys to look and analyze your real estate holdings. So just wondering if you can give us kind of a high-level update on how you're thinking about real estate over time and what that kind of ultimately means to you?

I would say, first of all, I want to stay in saying that in the fact of dealing with land and building and their proposal, we are open to learn from everyone and anyone. And that's what we do every single day, try to have a learners' mind. And I think in the case of looking at our real estate, we have a valued real estate, no doubt about it that it's a valued real estate.

And we are always looking at opportunities to add value. And my feeling today is the fact that the timing of us, in the middle of the transformation, we believe that there are other opportunities to create value at this moment versus just splitting the real estate into opco and propco. And I can tell you, I want to give a reference to land and building. We are getting to know them over the -- we got to know them over the past few months.

They are good people. They mean well. And definitely, the proposal is valid, and we are willing to listen to everything that adds value. But at this time, I think we have other alternatives that brings value in line with our transformation.

Our next question comes from David Katz from Jefferies.

Gary, in your commentary, you made some reference to historical level of, I believe it was $518 million. And I just want to make sure we're clear about sort of what's in there and what's not in there so that we're clear on what the basis is for contemplating in 2023?

Thank you, David. And the amounts that are not included were deals with our international licensing, which in -- what we're forecasting out to '23 is not significant. So we're talking probably in the range of $4 million.

Sorry. So the $4 million is what you would earn this year or what you're taking out to get to $518 million?

The $518 million is the, you would add $4 million to the $518 million to give you $522 million.

I see. And so that's a reasonable basis for us to think about where you might go in 2023, but your suggestion is higher than that.

That's our goal, David. The -- yes, I'd like to look at it framed up against 2019 Q4, which gives us a good idea of the trends. When you look at attendance, and we talked -- I mentioned HIP, we pulled that out of this year. So take the 279 (sic) [279,000] out of attendance, let's say, from 2019. So we end up being down about 29%, all right, versus -- that's the attendance. But per caps versus '19 are up 46% on the admissions, 84% up on the in-park spending for a total guest spending increase versus '19. I'm talking Q4 of 62%.

So that yields us revenue of $19 million increase. Our costs against that same quarter decreased by $8 million, which yielded us $27 million of additional EBITDA or 38%. So that kind of gives you an idea of the trajectory. But we have to be careful that as we go into 2023, we don't get too far ahead of ourselves. We're seeing really good trends in our pass sales and the attendance for Q1, but it's still pretty small relative to the total year.

Our next question comes from Chris Woronka from Deutsche Bank.

My question, we've covered some ground on kind of the top line. But my question would be, as you begin to bring margin, bring some expenses back with attendance rebounding, is there an expectation for margin this year? Or maybe it's a longer-term target of where you can get to with this new optimal mix of lower attendance versus '19, but much higher per cap? Is there any way to put some boundaries around that?

Yes, it's there, absolutely. Our long-term plan is to get into the 40s for adjusted EBITDA margins and north of that would be fantastic. We think that's going to take a 3-year climb, Chris.

Our next question comes from James Hardiman from Wedbush Securities.

Just to clarify that last point, so it sounds like if we piece this together, double-digit increase in attendance, per cap down slightly, at least on the ticket side, so I don't know, maybe high single-digit revenue growth. The margin comment is sort of the idea that margins will take a step back in 2023. Or do you still -- obviously, there's a sort of 3-year climb. But I'm just making sure I understand the margin commentary. Should we expect margins to be better or worse in '23?

Yes. So we're expecting the margins to be better, James, in 2023. We're still very aggressive on the cost side. And we're gaining efficiencies. The Park Presidents' leadership of the parks, all of our staff are really running the show more efficiently. And we expect margins decline meaningfully in '23 and '24.

And James, to just add a little bit more color to what Gary just said, we have done a lot of work on the cost discipline. But at the same time, we are still investing in the guest experience. So we want to make sure that it's a trade-off where we want to make sure that our cost discipline, which was very strong in 2022 and gives us a lot of benefit in 2023 will most probably a little bit balanced towards investing in areas which affects directly the guest experience.

And I'm talking specifically about looking at a couple of items. We want to invest in technology and automation, which will most probably at the beginning be more -- couple of OpEx on us, that will most probably end up in '24, '25 becoming a way of reducing operating expenses. But we'll still be ahead of margins, but we don't want to get ahead of ourselves too much. So I want to reinforce that we believe that we can grow margin by the mid-40s range within the next 3 years.

Got it. That's really helpful. And then hopefully, this question doesn't end up being too complicated, but it seems like there's some complicated factors that impacted your per caps in the fourth quarter, and I'm hoping you can unpack some of that. Obviously, there's some accounting stuff with the way the memberships work in colder seasons, right? Recognized revenues and on fewer visits in the wintertime. Maybe quantify that. I think mix played a big role, right? You got rid of parks that were less margin accretive. I'm assuming they were also lower per caps to maybe tease that out.

And then I think it sounds like the season pass prices came in some -- at some point over the course of the fourth quarter. So I guess at the end of the day, I'm trying to figure out how much of that sort of flows through into 2023? And so any help on sort of a apples-to-apples numbers based on the current season pass sort of setup and a normal mix would be helpful. So any help there would be great.

Thanks, James. It's always interesting to especially in my position to learn the ebbs and flows of our per caps. So -- excuse me, guys. What I'm getting at here is that we have a $3 per cap increase in Q4 that relates to the accounting issues around -- surrounding memberships. We have -- memberships as we -- as they grow into -- after their first 12 months, they become what we call here 13-plus members and the revenue is charged directly as it's received. So it's amplified in Q4 when you have lower attendance. But that's $3 of the increase.

Then the rest of it is actually driven by success through the initiatives that we launched in Q4. We really pick up a lot of per cap with Fright Fest. Our haunted house attractions are very successful. Boo Fest and Oktoberfest, all lifted IPS quite a bit. So all of this plays into that Q4 lift.

But I guess -- and if I may sort of follow-up here. I mean, it sounds like even ex that $3 accounting benefit, right, I mean, per caps are up pretty meaningfully, and you're sort of guiding them to be down somewhat in 2023. So help us bridge those 2 things?

Yes, absolutely. And again, in the fourth quarter the per caps tend to be higher because of the Fright Fest upside. When -- let's take a look at like '23, right? It's -- we pushed pricing a bit too hard in '22. And so in terms of looking ahead to '23, we're going to reel that back a little bit. And again, the goal is to raise attendance by double digits. So what we've done, and I feel really confident about this is we have gotten our pass product correct.

Our 3 tiers that Selim talked about, they are priced really right in the sweet spot, and it is higher than '21 and '19, right? So we're going to have a lift relative to those prior years. So the product is right, the pricing is right, and we've launched media as well in this first quarter, and it's really starting to have a nice impact.

Our next question comes from Michael Swartz from Truist.

I just wanted to dig into the fourth quarter attendance trends a little more in depth. I think you said back in November on the third quarter call that your October attendance was down 15%, if I remember that correctly, versus the same period in '19. And then I'm just doing the math, it looks like November, December may have been down 60-some percent on the same basis, but understanding you took out 6 parks from Holiday -- 6 parks for the Holiday in the Park event. I know there's probably some weather impact. But is there a way to think about maybe what you saw on a per operating day basis in those final 2 months of the year?

Thank you, Michael. The attendance question, we certainly -- we don't frequently talk about weather, but we certainly were hit in the last couple of weeks of December. I can't remember a period of cold weather and snow, I even got stuck at an airport for a couple of days and couldn't get out. And it was a very southern events, which, I think most of us remember Southwest Airlines really struggled because their airports are primarily based in the South, and it came down so far.

So that certainly impacted our attendance. But I think the thing to take away is the trend trajectory change. We were down 43% versus '19 in Q3, but only 29% in Q4. So there's just a really tremendous climb, and we're seeing that trend continue into the first quarter of this year.

Okay. And then I think you had mentioned that the inflation cost headwind that you faced in 2022 is about $90 million versus $19 million. Any way of thinking or quantifying what that looks like as we move into 2023? Are there any incremental inflationary cost headwinds? Are you seeing any kind of deflation in your cost base?

Yes, absolutely. We're estimating inflation is going to run us between 5% and 6% in '23.

Versus 2022.

Correct.

Our next question comes from Ian Zaffino from Oppenheimer.

Selim, and thank you for all the CapEx color. It seems like this is a little bit of a change. I think initially when you came in, you were talking more about shifting CapEx to maybe more IT, other kind of items like coaster to rides. But now it seems like the emphasis is back on the rides, which is sort of what the previous CapEx cadence was, a couple of years ago. Is that a proper characteristic or characterization of what's going on here, just trying to understand how you're thinking about the CapEx here?

Yes, that's a great question. I'm going to take that one based on what Selim has approved for 2023. He is -- are you or it's just jazz, aren't you boss, about..?

I am very excited about what we are doing.

Yes. I'd like to think of it as -- I take the CapEx and I break it down into marketable, as things that the guest feels and sees. And so if we're going to spend $150 million, let's say, in 2023, a chunk of that goes to maintenance, but most, 70% is something the guest sees, feels, touches and improves the guest experience. And I would argue, the maintenance, because when we renovate a ride, it performs to the top of its ability, and we're always finding ways to reduce downtime, which is something that is one of Selim's primary initiatives.

So assume out of that $150 million, 70% is going to marketable, it's going to excitement, it's going to events, attractions, rides, guest-facing technology.

E-gaming.

E-gaming, beautification, absolutely. And then when we lift it to possibly $200 million, the percentage grows to 80% of that is going to marketable capital. And we have a slate of rides that -- and attractions and more e-gaming that is coming in '24 and '25. We're actually -- in many of our parks, we're looking for the long-term 10-year plan where -- it takes a long time to, let's say, if you have -- you want to change your pathways in the park. And that's disruptive because your parks open and people are walking around. So that takes a long time to do.

But we're very excited about the ride capital, the attractions, the events and what we're investing in over the next 3 years.

So let me add a few more color on this. So we have started in 2022 when our CapEx program was mostly focused on park infrastructure and beautification. Now we're back to adding new and exciting rides in our parks. So I'm very excited about Aquaman at Six Flags Over Texas, and it's really a first of its kind water coaster that will be our park's 14th coaster at Six Flags Over Texas. Then we are very excited about the rides for families. And we talked about that, that we're trying to be very -- actually inclusive company and want to attract anyone who's excited and interested in our unique thrills and to deliver fun for people of all ages.

And from that, we are adding exciting rides for families, Rookie coaster, a family coaster at St. Louis, 2 kids racing coasters at Six Flags Over Georgia and Fiesta Texas. We are going to -- tremendous electric go-karts at Magic Mountain. That's in 2023. In addition -- so in addition to adding through new rides for all ages, we are also adding new exciting concepts that will attract -- young people like fantastic Scream Break that's happening at Spring Break. It's a first of its event for teenagers and college graduates to have a great fun, an amazing fun.

It's a disruptive event that we're putting together in our parks in the next few weeks. Then I will talk about the other type of CapEx we're doing, making it easier for our guests to come to our park. And that's where a lot of CapEx is going in, which is guest-facing technology. Mobile app, we're improving our app tremendously, and it will be kicking off at the beginning of the summer season. We'll have a completely new app, that's interactive maps, very exciting of how you can order.

With the mobile app, we want to improve our mobile ordering in dining and make it much easier to do that. I want to be able to look at our mobile ordering system to look like the kiosk at the McDonald. I love going there and I'd be able to customize my food, my burger and do it right at the click of my phone. Second, we have implemented mobile payment technology. I talked about it in the past. We did not even have Apple Pay, and now we are going into Apple Pay for our parks, and it's been a tremendous ease to do business and Google Pay and digital pay. Let's put it this way.

We have continued to improve our contactless screening -- security screening. So we're reducing our wait lines and the bag search to enter our parks. So now you walk seamlessly through our contactless security system. We're going through website redesign, a much better redesign that's taking place, in the next few weeks it'll be -- we've turned to QR code FLASH Pass that has been a tremendous ease of skipping the line, including [one shop], we have basically down to one shop .

In addition, we have a lot of interesting ways to improve guest-facing technology. I can't really, there are almost another 20 items right there on our list, but it's exciting. It's exciting. So we've come from a 2022, which was a total strategy change and a cultural change, to today truly being there to start propelling the growth of our business in a complete new way.

Okay. Great. That's great color. And just as a follow-up, I guess you guys know you can't dangle anything in front of us without or tease in front of us without asking you a follow-up. On the [iGaming] side, how are we supposed to be thinking about this? Is this going to be a profit center? Is it going to be more like a ride as far as engagement wise? How do we think about this?

And I know it's early. I know it's going to take probably several years to roll out. But how do we actually get our head around this and think about maybe the direction where you're going to take it?

Thanks, Ian. We're very excited about our E6 gaming initiative. We issued a press release yesterday, and that's the limit that we're going to communicate at this stage. It's a 5,000 square feet state-of-the-art arena and a campus with 50 custom-built gaming PC stations, et cetera. It is going to be revenue accretive. We're very excited about how it can improve our overall performance of our business. But at this stage, it's very early, and we're also being relatively close to the vest on how we're doing it.

Our next question comes from Paul Golding from Macquarie.

And I wanted to touch on the higher mix of single day. Could you give us some background on how you're effectuating that? Is that just coming from the monthly membership being gone? And how are you thinking about this going forward and balancing it with pass visits?

And then secondly, on the op days removed intentionally in Q4. I was wondering if there's more opportunity for that, that you're looking at now as we lap the year and are still in a winter Q1 season and how we should think about that as we look at '23?

Thanks, Paul. I'll take the first part of your question. The single-day ticket has a fair amount to do with our water parks. We have not, in our opinion, done a good enough job monetizing our water parks. And the -- we're going to be implementing a very effective ticket pricing at the water park level, which will drive our single-day tickets up as a mix. But it is also one of the drags, as I mentioned earlier, on attendance as to -- I'm sorry, not attendance, the average pricing -- average admission pricing for 2023. Can you repeat your second question?

Sure, Gary. Yes, sure. The op days that were removed in Q4 that were not accretive from earnings perspective as we lap the start of another year and we're still in this winter season in Q1. How should we think about the opportunity for you to take out more potentially dilutive op days as we think about '23 as a whole?

So Paul, I think what you're asking is what would the operating calendar look like in 2023 compared to 2022?

Essentially, right. And if the -- if we might expect to see more of these opportunistic reductions in nonaccretive op days.

Yes, Paul. Absolutely. We're definitely looking at that. And you'll notice our Magic Mountain in California is not open during midweek as an example. And so yes, we're analyzing at a great level, what is EBITDA accretive and what is not on a daily basis. And if it doesn't make sense to run our park, we definitely would not do that. So the number of days that's out should be down.

Now we are increasing our hours. So it's something that's very important, again, on the same -- on the in-park spending side is the number of hours we operate our parks every day. So we're going to increase our op hours but reduce our op days.

Our next question comes from Ryan Sundby from William Blair.

Can you drill in on the double-digit increase in attendance next year? Is that mostly a function of the pricing structure change? Or is that coming from the -- some of the new rides and -- that you've planned? And then as we think about rebuilding attendance next year, how much of that is dependent on bringing new guests into the park versus maybe recapturing some of the guests that didn't come through?

Ryan, that's a harder question to answer as we look at the future '23. I will say that pricing has certainly something to do with it. Our products pricing and offering that we have right now on our website is proving to be very effective and really matches the product offering that we currently have and has been very much appreciated by our guests.

So then definitely, the rides and the events Selim talked about, he's bringing on Flavors of the World, he's bringing on...

Viva La Fiesta.

Viva La Fiesta. We have Rock the Block, which is coming. And it's just -- so these events are definitely an appeal. And as we launch them and announce them on our website, the guests get more excited and start purchasing their season pass.

I would add, Ryan a couple more color on this. First of all, we have -- we are building on 3 things. I think we build on the fact that our attendance was most probably the lowest we've seen in '20. We're coming from a base that it came where we've had an attendance that's pretty low and we're starting from a lower attendance and rebuilding that company.

So you're asking about, are we seeing people that we've lost come back? Yes, we've seen -- it's a mix of a lot of new guests coming in. And some of them who -- when we froze the membership are starting to start coming back because they wonder if we're going to reopen the membership or not, and now they are starting to become a regular season pass holder as well.

I will also say that many of the single day tickets, that were single-day tickets last year are starting to come back as season pass holder. We've seen a little bit of this coming through. But the most important is the fact that, finally, the online posting of our guests and our guest satisfaction scores have trended upward. And now people realize that all the efforts we've put in, in beautification, in creating those -- even those 3 events that were put in, in a very quick time, limited budget, Oktoberfest, Boo Fest, Veterans Day celebration, brought a lot of great people in the fourth quarter and saw the way, how we improved our Fright Fest.

And I give full credit to our new culture and our new -- our team that stepped up and got it done. So I think now we published also all those seasonal events. And the park experience has been a lot better. I get notes and notes about people telling me how we have become a lot easier to do business with, friendlier to work with, cleaner park, shades. Foodservice has gotten much, much better in terms of flows. I think a lot of it is bringing a lot of momentum. We're feeling very good about going forward for 2023.

Our next question comes from Eric Wold from B. Riley Securities.

Just kind of a follow-up question on a bunch of the parts from prior questions. If you think about the outlook of getting into the 40%-plus margin level in the next 3 years, along with kind of the goal of getting to that still at 25 million to 27 million optimal attendance, can you talk about kind of the pricing strategy with both season passes and single-day tickets kind of embedded within that outlook given kind of what you've learned last year when you first took them up and took them back down? How should we think about how you think about pricing each of those 2 cohorts over that 3-year period?

Good question, Eric. I -- as I look forward to '23, the pricing structure, as we mentioned earlier, comes down a bit because of our aggressive -- we arguably pushed too hard in '22. And so relative to '22, the pricing comes back a bit, but we are no longer going to be a discounter. And when -- even when we do a promotion, we will consider offering, let's say, 1 pass, like if it's gold, we might offer the platinum at the gold price level.

We always want the customer to be able to level up, right? And so that's the approach that we're taking. We also reduced our pricing on the highest level Diamond pass. As -- or some of you remember, we got up to, I think, north of $300, in '22 and that's at $150. And it's also proven to be a very effective price point when you can attend all of our parks and all of the perks that we're offering with that pass. So these elements really, really feed into -- we're feeling pretty good about the pricing structure in 2023.

And then when you go on beyond '23 and '24 and '25, this year is, I think, the reset year, so to speak, on pricing. And again, it's minimal, and it's only on the admission side. And it grows from here on out. All these investments that Selim just mentioned, they go into the park, $150 million, $180 million, $200 million, whatever we end up spending in our CapEx to drive the growth at all of our parks, this will enable us to consistently increase our admission value.

I also would like to add more color to this. I think what we've learned -- the lesson we've learned in 2022 is that we came in and we raised prices aggressively. And we took all those perks. We put in block out dates. We most probably also took away the meal dining plan -- dining meal plan and all of that. I think we've learned and we had to course correct in September to realize that literally we needed to most probably create the experience before charging the aggressiveness we've done.

And I think people need to see the value of our pricing. And I'm comfortable right now that we have created a fantastic balance between the value we're delivering on the pricing front. On the other hand, I want to continue reminding everybody that our pricing today is still higher than 2021 and 2019. Our single-day tickets remains much higher, too. We have not raised and we're seeing the trends to work so far, even though it's a very still low season for us, we are very encouraged by what we're seeing in the past 8 weeks.

But still, I don't -- we don't want to do celebratory laps here. We still have a lot of work to do in 2023 to be positioned. So we're not out of the woods yet.

Our next question is a follow-up from Ben Chaiken from Credit Suisse.

Just 2 quick ones for me. And I may have missed it, so I apologize. But I think, Selim, you mentioned there was other opportunities outside of opco/propco. Are you suggesting just kind of traditional blocking and tackling, driving organic growth? Or are you suggesting other strategic alternatives? And then just 1 quick follow-up.

I think there are other -- first of all, I'm going to tell you what I'm looking at it right now. When I think about our business long term, Ben, I think there are opportunity in hospitality. Let's put it this way. I think we should be in the hotel business at one point down the road. I'm not talking in 2023, but down the road, I see that opportunity of us. Our guests ask us that all day long.

They say, I wish you had a property. It's easier for us if you have a property on -- in the park. And we have that space to do that. So we look at opportunity in what I call hospitality. We have very little -- a few hotels that we manage, and they do well, they do well. And they are not in the best part of the country, and they still do well.

And what I'm not saying, best part is, they're not in the fast-growing area of the country. I don't want to say -- they are amazing, beautiful places. I don't want to -- beautiful places, but they don't have the support of the population. Do you imagine if we did something in New Jersey, in Magic Mountain, here in Dallas, Texas, in Fiesta, in San Antonio, where you have this population that support those hotels?

I think #2, I would say the second thing is we always will look at M&A down the road. I think there is opportunities, M&A down the road. And that would be a huge opportunity. As you see our background into this is we -- I have come from M&A at Middleby, and I think M&A has been a big propeller of value for us for 20-plus years. And I think there is a way to increase. We have opportunity of investing in the e-gaming.

I believe e-gaming is a game changer for us down the road. It's too early for us to tell where it's going to go. But if you look at the prospect of e-gaming and if we do it right, this should be a big opportunity for us going forward.

Understood. And then 1 quick follow-up. On the margin commentary when you're talking about greater than 40% and then mid-40s in a few years. Just to be totally clear, that's adjusted EBITDA, not modified EBITDA.

Yes, absolutely. And I would characterize it in the 42% range at '25.

I think it might be modified to be in the mid-40s.

Modified? Okay. Just pause up for a second. So is it just -- is it greater than 40% for adjusted?

Yes. If you look at what's happening over the next few years, we'll be -- we have our partnership units are coming, they have a call option in '27 and '28. And likely, we'll be owning those parks in those years. So we'll be coming into a period where there is no difference between modified and adjusted EBITDA .

Our next question is a follow-up from David Katz from Jefferies.

Just wanted to touch quickly. I think you have a maturity out there. Gary, can you just give us a quick thought on how you might be sort of dealing with balance sheet the next year or so?

I'm sorry, David, one more time.

I think you may have a maturity out there for '24. I was asking how you're thinking about approaching that strategy and timing and any other sort of balance sheet initiatives you might be focused on?

Yes. Thanks, David. I'm going to turn that over to Steve.

So the '24 maturity, they go current in July. We -- certainly we'll be looking at the market and be opportunistic about refinancing those when the time is right. We also have a revolver to renew coming up. So both of those items we're looking at over the next few months and will...

When does your revolver mature?

It goes current in April.

It goes current in April.

Yes. And guys, I want to just clarify the difference between modified and adjusted EBITDA. That's in the partnership park share, which is roughly $50 million. And when I'm talking, it's low 40s, that's what I've been indicating on this call. And if you go back to modified EBITDA, it's mid-40s. So we're both correct. I just want to make sure that we both understand it in terms of those 2 differences.

Does that answer that question? Any other questions?

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Selim Bassoul for any closing remarks.

I want to thank everybody for their continued support. We are very excited to enter a new season and look forward to seeing you in one of our parks. Take care and have a great day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.