Yahoo Finance Six Flags Entertainment Corporation (NYSE:SIX) Q1 2024 Earnings Call Transcript
Six Flags Entertainment Corporation (NYSE:SIX) Q1 2024 Earnings Call Transcript May 9, 2024
Six Flags Entertainment Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Welcome to the Six Flags First Quarter 2024 Earnings Conference Call. My name is Betsy and I will be your operator for today's call. [Operator Instructions] Thank you. I will now turn the call over to Evan Bertrand, Vice President, Investor Relations and Treasurer. Please go ahead.
Evan Bertrand: Good morning and welcome to our first quarter 2024 earnings 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 to the SEC.
While our call today will focus on the results of first quarter 2024, I do want to provide a few updates on the merger process. First, we received overwhelming shareholder approval of the merger on March 12, helping us achieve a key milestone in the process. Second, we have certified compliance with the DOJ's request for additional information and documentary material. And last, we completed certain credit refinancing in preparation for the merger. We expect the merger to close in the first half of 2024. With that said, we will not be taking any questions on the merger on this call. Now, I will turn this call over to Selim.
Selim Bassoul: Good morning. Thank you for joining our call. We are nearly 3 years into our transformation and we are excited to see our results trending upward. Early indications for the season show positive trajectory for this season and that people are spending more money in our parks. We have carved a clear path for profitable growth and attribute this progress to 2 key aspects of our strategy. The first is premiumization. We are transforming our parks. We are creating multigenerational appeal, proving that thrills know no age, thrills know no age. We alleviate [indiscernible] points and amplified value in every aspect of the park experience. We are also alleviating burden on our rides and on our employees which in turn freed up space to better serve our guests, making us easier to do business with.
We are enhancing park infrastructure, in-park offerings, luxury accommodations, comfort seating and beautified our parks which is resonating with our guests, giving them a reason to stay longer and spend more. The second key aspect is that we are reinventing the customer journey from before they enter the park to after they leave. Through our digital transformation, we have introduced new ways to personalize the guest experience and to increase engagement. I will discuss this in more detail later in the call. Today, I will highlight several leading indicators that give us confidence that we are on the right path for profitable growth. First, our pass sales remained strong. Through April, 2024 total pass sales are ahead of last year by double digits, with both units and average pass price showing solid increases over last year.
Add-on sales of all-season dining and all-season flash passes are also ahead of last year and we are selling a higher mix of diamond and platinum passes. Second, group sales are outperforming expectations. Our move last year to place our sales team back in the park has empowered our team, enabling them to work closely with park leadership and to better engage with customers. Based on our current bookings, we are surpassing last year's group sales by over 20% and approaching pre-pandemic levels for the full year. Third, in-park spending continues to grow. We are seeing underlying impact spending per capita increasing 5%, excluding the headwinds from our discontinued legacy memberships. This growth helped us achieve record first quarter in-park revenues and reflects our focus on driving monetization through technology, as well as on elevating the experience which promotes multigenerational family visitation in our parks and encourages guests to stay longer.
On technology, for example, our new speedy parking automated toll plazas are quickly gaining popularity and generating additional revenues with roughly half of our guests now using this service. Another example is our new self-service kiosks at our restaurants which are reducing food wait times and increasing average check sizes. It is all about convenience. I repeat, it is all about convenience. We elevate the experience by striving to engage our guests at a deeper emotional level, whether it is riding one of our record-breaking thrill rides, the nostalgia of eating a funnel cake or smelling freshly made cotton candy, watching your child ride his or her first rollercoaster or providing an opportunity for a group of old friends to reconnect, we validate every day that a memorable experience outshines a clouded experience.
A memorable experience outshines a clouded experience every day. I have personally observed to decide for guests to enjoy the Six Flags experience. On a recent Saturday, I was at Six Flags over Texas. There were 11,000 guests in the park that day. Around 7:00 p.m., there were still over 75% of the guests at the park. And I saw many of them sharing a meal, treating themselves to dessert and shopping for their favorite apparel at our retail location. You could see the excitement in their faces and they did not want to leave. As we work to encourage guests to stay longer, enhance our in-park offerings and cultivate memorable experiences, this will drive continued progress in growing guest spending in our parks. Before I hand it over to Gary, I want to reiterate how transformative the past few years have been for us.
We have streamlined our organization, removing unnecessary layers, creating a more nimble and agile team. We have decentralized certain key functions to put ownership back in the park, empowering local teams which has been central to better serving customers and reinvigorating our group sales. Our culture of urgency, excellence and ownership has been central to navigating numerous challenges, adapting quickly and setting a strong foundation for the future. We remain dedicated to creating a premium guest experience as well as staying vigilant in managing our costs so that we can deliver profitable and sustainable growth. With that, I would like to turn the call over to Gary to discuss the financial results for the quarter.
Gary Mick: Thank you, Selim and good morning, everyone. I will start with attendance, revenue and per caps and move to expenses and adjusted EBITDA for the quarter. I will then discuss our Active Pass Base metrics, select balance sheet items and capital allocation. Total attendance was 1.7 million guests, a 6% increase from the prior year, driven primarily by the early Easter holiday which occurred in the first quarter of 2024 compared to the second quarter of 2023. We estimate that the Easter timing shift provided a benefit of 90,000 guests in the first quarter of 2024 and will result in a year-over-year headwind in the second quarter. Unfortunately, the weather was just as challenging in the first quarter of 2024 as it was in the prior year and the number of operating days were essentially flat year-over-year.
Revenue was $133 million, a decrease of $9 million or 6% versus last year. The change was driven primarily by 2 factors. The first was a reduction in international licensing revenue caused by a change in the estimated opening date of Six Flags Qiddiya to mid-2025 which shifted $4 million of revenue previously recognized to future periods. The second was a $12 million reduction in revenue from memberships beyond the initial 12-month commitment period, what we call 13-plus which is recognized evenly each month and is not associated with attendance and includes revenue allocated to admissions and in-park revenues. Admissions revenue was $71 million, a decrease of $6 million or 7% versus last year. In-park revenues were a first quarter record at $54 million, an increase of [indiscernible] versus last year with our in-park initiatives more than offsetting lower 13-plus membership revenue.
Total guest spending per capita decreased $6.53 or 8%. Admissions spending per capita decreased $5.77 or 12%. And in-park spending per capita decreased $0.76 or 2%. Excluding the impact of 13-plus revenue from both periods which we believe better reflects our higher average pricing and in-park monetization efforts, guest spending per capita would be higher than prior year by $1.59 or 3% which includes a slight increase in admission spending per capita of $0.31 or 1% and an increase in in-park spending per capita of $1.28 or 5%. We expect revenue headwinds from 13-plus members to continue into the second quarter with an anticipated reduction in 13-plus revenue of approximately $10 million compared to the second quarter last year. As Selim mentioned, our strong pass sales are an encouraging leading indicator that gives us confidence we can grow attendance again in 2024.
We also expect to grow our per caps for each category of guest and across our in-park revenue channels. However, this growth will be tempered by the following factors. First, 13-plus revenue headwinds that we have previously mentioned. Second, a higher mix of season pass attendance which carries a lower per cap versus a single-day visit. Third, a higher mix of group attendance which typically comes at a lower per cap versus our company average. Based on early trends, coupled with these tempering factors, we expect our total guest spending per capita in 2024 to be up slightly versus prior year. Moving on to costs. In first quarter 2024, we incurred $5 million of merger-related expenses associated with the proposed merger with Cedar Fair. Cash operating costs which includes cash operating and SG&A expense but excludes merger-related costs, decreased $1 million or 1% in the first quarter versus the prior year.
Looking ahead, there are several factors driving our cost expectations for the remainder of the year. First, we are optimizing our events calendar, focusing on our guests' favorite events to deliver the biggest impact which will result in lower event spending in the second half of 2024 compared to the second half of 2023. Second, we expect advertising spend to be flat for the full year 2024 versus prior year. That said, we plan to spend more on advertising in the second quarter to build on our early success and to better align with the timing of our past promotions moving into the peak season. This will make for tougher quarterly comparisons for the second quarter versus last year. Finally, we expect full year average cost inflation to be around 4%.
Keep in mind, many of the parks in jurisdictions with the largest minimum wage increases were either closed or did not have significant operations in the first quarter but will be ramping up operations in the second quarter. Adjusted EBITDA loss for the quarter was $26 million versus a $17 million adjusted EBITDA loss in the prior year first quarter, driven primarily by the shift and international licensing revenue to 2025 and lower membership 13-plus revenue, partially offset by higher attendance and higher underlying per capita growth, particularly on in-park revenues. Our Active Pass Base as of March 31, 2024 comprised 2.9 million passholders, a 10% decrease versus the prior year first quarter. As you will recall, our Active Pass Base at the end of fourth quarter 2023 was flat with the prior year.
The sequential drop in the prior year comparison from fourth quarter to first quarter is due to the inclusion of our discontinued annual pass product in the prior year's active pass space. These annual passes which were sold in 2022 but not in 2023, were valid for 12 months and did not expire in January like traditional passes. Excluding these annual passes which we feel better reflects our past sales, our Active Pass Base at the end of first quarter would have been higher than the prior year first quarter by high single digits. Deferred revenue as of March 31, 2024, was $165 million, an increase of $13 million or 9% versus the prior year. CapEx spend was $37 million in the first quarter, an increase of $12 million compared to first quarter 2023, as we continue our work on enhancing guest-facing technology and rolling out new rides and attractions.
Total liquidity as of March 31 was $310 million which includes $249 million of available revolver capacity, net of $21 million letters of credit plus $61 million of cash. On May 2, we raised $850 million of [indiscernible] senior secured notes due 2032. In anticipation of closing the merger, we have fully repaid the term loan and the outstanding revolver balance. Additionally, we will pay down $165 million of our 2025 secured notes in July when the call premium steps down to par, leaving $200 million outstanding on our 7% notes due July 2025. This refinancing was part of a series of financing transactions that were completed in anticipation of the merger closing, including the refinancing this month of Cedar Fair's $1 billion term loan B and $300 million revolving credit facility which is expected to be upsized to $850 million upon the closing of the merger and that will be assumed by the combined company.
These steps help put Six Flags and the combined company in a position with sufficient cash flows and revolver capacity to address the near-term debt maturities and the anticipated fees and obligations associated with closing the merger. We intend to use excess cash flows to pay down debt until we reach our target leverage ratio of 3x net debt to adjusted EBITDA. With that, I will turn it over to Selim.
Selim Bassoul: Thank you, Gary. It is exciting to see the premiumization strategy taking hold on our results as evidenced by our positive leading indicators, including our strong season pass sales, improving group sales and consistent growth in our in-park sales channels. As we move into the next phase of our strategy, we are focused on transforming guest engagement from before they enter the park to after they leave. Through our digital initiatives, we are reinventing the customer journey and we are excited to update you on new developments that will propel us in this endeavor. Starting with the previsit experience. First, we are launching a brand-new website with stunning visual displays and it will incorporate an intuitive design and mobile-friendly navigation to help drive website conversions and repeat visits to our site.
The site will utilize our new Gen AI chat feature which will be able to answer most of our guests question instantaneously, reducing the need for a live agent. Second, our new Gen AI concierge named Missi Six will be launched on our app and website. This feature will help guests plan their entire day, tailored specifically to their ride and food preference. Both of these developments are expected sometime in the second quarter. Now, let's move on to the experience in the park. We are expanding our self-serve kiosks to many of our retail locations later this season. Based on the popularity and success we see at our F&B locations, this will help streamline operations and increased average ticket sizes in our retail facilities, helping guests buy their favorite parks merchandise without needing to wait in line.
Next, live ride wait times will be rolled out to multiple parks this season, providing guests with more accurate wait times, helping guests to maximize every minute in the park. Finally, our new digital wallet is set to be rolled out later in the second quarter. This development will simplify the payment process for guests, consolidating all payment activity for the entire family and can be integrated with your credit card, cellphone or smart watch. This will give parents more control to monitor payment activity and will provide us with valuable customer insight to help personalize our promotions and enhance guest outreach. We are also driving guest engagement after they leave the park to keep them wanting to come back for more. Six Flags is stepping into the metaverse, launching a virtual interactive gaming platform later in the second quarter.
Guests will be able to play online games to earn virtual coins that can be redeemed for real-world benefits at the park. Plus we are developing a new digital loyalty program that we plan to unveil later this year. This will help us to encourage repeat visits, promote in-park offerings and improve overall guest engagement and also reward our most loyal guests. We will provide more detail on this program at a later date. Our digital innovations have shown early success in helping to drive monetization. We feel there is plenty of headroom to expand on this front and unlock even bigger returns in the future. Now, I want to talk about why I'm so excited about the 2024 season. First, our exciting lineup of new rides and multigenerational attraction is already generating buzz and sure to excite our guests.
At Six Flags over Georgia, we are launching the Georgia Surfer Coaster, a first of its kind surf coster, featuring the ultimate combination of a rollercoaster with unique water attraction features, reaching a maximum speed of 60 miles per hour and a height of 144 feet. At Six Flags St. Louis and Six Flags Great America, we are opening 2 new 17-story pendulum rides, a proven fan favorite that takes guests over 170 feet into the air at speeds up to 75 miles per hour. Six Flags Great Escape will be celebrating its 70th [ph] year’s anniversary with the new Bobcat wooden family coasters which will take guests 55 feet in the air and reach speeds of nearly 40 miles per hour. Six Flags Chester Texas will be unveiling our revamped DC Universe area with new theming and rights, including the Cyborg Cyber Revolution, SHAZAM, Tower of Eternity and the Metropolis Transit Authority which will create a truly immersive experience for all members of the family.
And last but certainly not least, we are celebrating our 50th anniversary of Six Flags Great Adventure and we are doing it big. The Flash Vertical Velocity, the first of its kind super boomerang coaster will zip you 100 feet off the ground, feature a 180-degree twisted drop followed by the Zero-G roll [ph] and will reach speed of up to 59 miles an hour. At Hurricane Harbor, New Jersey, we are installing the new Splash Island Kids Play House structure, complete with 50 play features: slides, waterfalls and a gigantic water bucket to splash [ph] seekers. And in June, we will be opening our new Savannah Sunset Resort and Spa, an overnight oasis offering panoramic view within our 350 acres safari and behind the scenes encounters. Spots are filling up quickly, so be sure to book this luxury experience as soon as possible.
Next, this year's Fright Fest is really going to raise the bar for our signature event. We are ramping up the thrill with new scare zones, upgraded mazes and other new hair raising attraction to take the fear factor to a whole new level. We are also adding new movie theme haunted houses at even more of our parks this year. That's all I will say for now. So stay tuned for more details. Before opening the call for your questions, I want to highlight an initiative that we are particularly proud of. This summer, we expect to complete our third major solar installation at Six Flags Magic Mountain which is expected to save over $100 million over the next 30 years and it will provide a convenient shaded parking option for our guests. That is another convenience for our guests.
Combined with our solar installation at Six Flags Great Adventures and Six Flags Discovery Kingdom, we will be the largest producer of car port solar power in North America. Also, we have finalized plans to launch our fourth solar installation project at Six Flags Great America. These initiatives are a win-win for everyone we serve. They serve our guests by improving our parking lots, they serve our communities by using renewable energy to power our parks and they serve our shareholders by reducing our operating costs. I will conclude by saying that our transformation from premiumization to the largest investment in rides ever to reinventing the customer journey is about putting the guest at the heart of the experience where every family member, from toddlers to teenagers, to grandparents, find moments of joy and thrills.
Every minute at Six Flags is a minute well-spent. Every minute at Six Flags is a minute well-spent. With that, operator, would you please open the call for any questions.
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