Six Flags Entertainment Corporation (NYSE:SIX) This autumn 2023 Earnings Call Transcript February 29, 2024

Six Flags Entertainment Corporation misses on earnings expectations. Reported EPS is $-0.27 EPS, expectations had been $0.27. Six Flags Entertainment Corporation isn’t one of many 30 hottest shares amongst hedge funds on the finish of the third quarter (see the details here).

Operator: Good morning, girls and gents. Welcome to the Six Flags’ Fourth Quarter and Full Year 2023 Earnings Conference Call. My title is Jason, and I shall be your operator for at this time’s name. During the presentation, all strains shall be in listen-only mode. After the audio system’ remarks, we’ll conduct a question-and-answer session. [Operator Instructions] Thank you. I’ll now flip the decision over to Evan Bertrand, Vice President, Investor Relations and Treasurer.

Evan Bertrand: Good morning, and welcome to our fourth quarter and full 12 months 2023 earnings name. With me is Selim Bassoul, President and CEO of Six Flags and Gary Mick our Chief Financial Officer. We will start the decision with ready feedback after which open the decision to your questions. Our feedback will embody forward-looking statements throughout the that means of the federal securities legal guidelines. These statements are topic to dangers and uncertainties that would trigger precise outcomes to vary materially from these described in such statements and the corporate undertakes no obligation to replace or revise these statements. In addition, on the decision we’ll talk about non-GAAP monetary measures. Investors can discover each an in depth dialogue of enterprise dangers and reconciliations of non-GAAP monetary measures to GAAP monetary measures within the firm’s annual reviews, quarterly reviews and different types filed or furnished with the SEC.

Before we start, a quick comment on the pending merger with Cedar Fair. As many are already are conscious, on January 31, we filed with the SEC our definitive proxy regarding the upcoming shareholder assembly to think about the pending merger and associated issues. Our shareholder vote is about for March 12 and we’re concentrating on a closing within the first half of 2024. Our name at this time will give attention to the outcomes of the fourth quarter and the total 12 months 2023. We won’t be taking questions on proposed merger between Six Flags and Cedar Fair or any of the related proxy supplies. At this time, I’ll flip the decision over to Selim.

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Selim Bassoul: Good morning. Thank you for becoming a member of our name. Before we start, I wish to categorical our pleasure concerning the proposed merger with Cedar Fair. We really feel that this compelling mixture will ship worth to our visitors, our traders and to our staff. As a reminder, our particular shareholder assembly to approve the merger shall be held March 12 so please solid your vote. As we shut the second fiscal 12 months in my position as CEO, I’m inspired by the indicators I’m seeing that our premiumization technique is working. I see a rising curiosity and engagement from households wanting to go to our parks, together with multi-generational households, grandparents with grandkids, faculty college students and younger {couples} with infants. Our iconic model is synonymous with thrills and journey which excites youngsters and makes adults really feel like youngsters once more.

My eight-year-old begs me each weekend to take her to the park and she will be able to’t wait till she is tall sufficient to experience the Hero coasters. I see clients prepared to spend extra time and more cash in our parks. By lowering overcrowding and friction at simply quick factors we now have turn out to be a better firm to do enterprise with, and a better park to navigate, which creates a greater atmosphere for visitors and staff. Our visitors on common are spending over 40% extra per go to than they had been earlier than the pandemic. Guests of all ages can take pleasure in a full day of personalised and immersive experiences, full with occasions, meals and points of interest, whereas having fun with extra consolation and comfort. We have added VIP lounges, extra personal cabanas, new children areas with actions and rides, upgraded sit-down eating places and expanded our culinary choices from scrumptious finger meals and native brews to salads, vegan, premium ice-cream, freshly baked pretzel, Korean corn canine and Kofta kebabs.

Guests can chill in our sports activities bar and watch the sport on our giant TV screens or hand around in our air conditioned state-of-the artwork eGaming lounges the place children and grownup can compete and play. Guests can take pleasure in new occasions and clearly themes pageant like Oktoberfest, Kids Boo Fest, and Flavors of the World, and our enhanced signature occasions like Fright Fest with new Haunted Houses constructed with iconic horror manufacturers akin to Saw and The Conjuring. These had been a success with visitors this 12 months. I’m additionally inspired to see the optimistic impression that streamlining our group has had on empowering our staff and making a tradition of expediency, excellence and possession. I’ll share a private expertise. I’ve seen new meals traits akin to bubble tea, pop-up in numerous upscale purchasing malls.

My first bubble tea ever was in our park and it was scrumptious. I watched as our groups skillfully constructed this glorious, freshly ready bubble tea utilizing the perfect elements, finest combination of flavors and served with a smile. Employees really feel extra linked to the visitor and I see the delight they’ve of their work. We’re additionally seeing encouraging indicators in our financials. Since 2021, we now have grown visitor per caps by 17%, decreased full time headcount by over 30% lowered money expense within the face of historic ranges of inflation, leveraged key partnership to broaden sponsorship revenues and paid down over $300 million of debt. In 2023, meals and beverage revenues grew in each items and common pricing exceeding our attendance development over the identical interval.

We additionally made good progress rebuilding our price (ph) base utilizing extra focused media, promotional pricing and introducing our new Six Flags Plus subscription fashion program in June 2023 with a extra worthwhile stability of advantages and worth. Our progress continues with 2024 passes, which by means of January are up double-digit over 2023. That stated, we fell in need of our monetary targets. We confronted unexpected challenges like historic ranges of inflation, abnormally difficult climate and provide constraints. We have additionally made missteps and we now have discovered that not each aspect of our technique is equally profitable. But we’re capable of pivot shortly and we’re leveraging our expertise to constantly enhance and discover new alternatives. For occasion, we’re optimizing our occasions calendar to give attention to these we now have seen the perfect return, whereas exploring unique occasions and particular entry passes to drive monetization.

And we now have examined the place and when clients are prepared to pay for a comfort and we now have invested to reinforce visitor dealing with know-how and create new income streams. This contains including cell wallets, and faucet and pay, which now comprise 40% of all in-park transactions. Our new cell app, which makes it simpler for visitors to order meals on cell gadgets, new handheld point-of-sale gadgets, offering better flexibility to accommodate visitors and improve throughput. Dynamic pricing, which has proven traction, extending the reserving curve and capturing extra admissions income. And SixPay wristbands for water visitors, who do not wish to carry their pockets or cellphone. I’ll talk about extra thrilling technological initiative afterward this name.

We are guided by our mission to ship an distinctive visitor expertise and we consider it will ship distinctive returns to our shareholders over time. With that, I want to flip the decision over to Gary to debate the monetary outcomes for the quarter and the total 12 months.

Gary Mick: Thank you, Selim and good morning, everybody. I’ll begin with attendance, income and per caps after which transfer to bills and EBITDA for the quarter and the total 12 months. I’ll then talk about our energetic go base metrics, choose stability sheet gadgets, and capital allocation. Starting with the fourth quarter. Total attendance was 4.3 million visitors, a 6% enhance from 2022 pushed by larger season go and single day attendance throughout Fright Fest. Revenue elevated $13 million or 5% to $293 million, pushed by larger attendance partially offset by a lower in whole visitor spending per capita of $0.96 or 1%. Admissions spending per capita decreased $1.44 or 4%, offset by an in-park spending per capita enhance of $0.48 or 2%.

Guest spending per capita decreased primarily as a result of decrease income from memberships past the preliminary 12 month dedication interval, what we name 13 plus, which is acknowledged evenly every month. 13 plus income was $12 million decrease in This autumn 2023 versus This autumn 2022 as a result of attrition of our legacy members. Excluding the impression of 13 plus income from each durations, which we consider is a greater reflection of our common larger pricing within the fourth quarter and our in-park monetization efforts. Guest spending per capita would have been larger than prior 12 months by $2.35 or 4%, which incorporates a rise in admission spending per capita of $1.04 or 4% and a rise in-park spending per capita of $1.31 or 5%. As a reminder, we made a strategic determination to discontinue the sale of latest memberships in April 2022 as a result of inclusion of wealthy advantages, problem to manage within the park and the drag on per-caps in margins related to this product.

We launched the brand new Six Flags Plus in June 2023 and plan to renew development within the 13 plus base beginning within the second half of 2024. However, we anticipate to face 13 plus income headwinds in Q1 2024 that we estimate to be round $14 million. Moving on to prices. In fourth quarter 2023, we incurred $15 million of merger associated prices related to the proposed merger with Cedar Fair. Cash working prices, which incorporates money working and SG&A expense, however excludes merger associated prices, elevated $12 million or 8% within the fourth quarter versus the prior 12 months. This enhance was as a result of following components. First, larger attendance drove larger seasonal labor price of gross sales and different variable prices. Second, we incurred incremental prices related to new points of interest and leisure for our expanded fall occasions schedule.

Third, we accelerated investments in visitor dealing with know-how to make sure readiness for 2024. Lastly, larger inflation elevated wages and different working prices. Adjusted EBITDA for the quarter was $98 million, primarily flat in comparison with fourth quarter 2022, which as you recall was a file with larger prices offsetting larger income. Moving on to 2023 full 12 months outcomes. Attendance elevated by 1.8 million visitors or 9% to $22.2 million. We estimate that adversarial climate decreased full 12 months attendance by over 1 million visitors. This contains rain and snow in California throughout spring break, adopted by a file summer season warmth wave in Texas and eight consecutive weekends of rain or menace of rain within the Mid-Atlantic and Northeast after Labor Day. Total income elevated by $68 million or 5%, pushed by larger attendance and better sponsorship income partially offset by decrease per capita spending.

Total visitor spending per capita decreased by $2.90 or 5%, pushed by a lower in admissions per capita of $2.56 or 7% and a lower in-park capita of $0.34 or 1%. The lower in admissions per cap was the anticipated results of decrease go pricing within the first three quarters of 2023 relative to 2022 when costs had been considerably elevated. In-park per caps decreased as a result of larger mixture of season go attendance, partially offset by a rise in Food and Beverage gross sales in ’23 versus 2022, which is pushed by cell meals ordering new culinary choices and our expanded occasions calendar. For the total 12 months, 13 plus membership income impression, on the year-over-year per cap comparability was negligible. Regarding full 12 months prices, we incurred $38 million associated to an upward revision of our self-insurance reserves within the second quarter of 2023 along with the $15 million of merger associated prices within the fourth quarter of 2023.

Cash working prices excluding merger associated transaction prices and self-insurance reserve changes elevated by $61 million or 8%. The majority of expense development occurred within the second half of 2023, and was brought on by a number of components, lots of which we anticipate to normalize in 2024. First, we elevated promoting by $18 million in 2023 in an effort to assist rebuild our Active Pass Base. We anticipate promoting spending in 2024 to be in keeping with 2023. Second, we incurred incremental expense related to the expanded occasions calendar. We plan to optimize occasions in 2024, which is able to assist mitigate these price will increase. Third, we accelerated technological initiatives, lots of which we anticipate will assist mitigate labor prices in 2024. And lastly, vital inflationary stress estimated to have price us $50 million, partially offset by full-time headcount reductions and procurement financial savings.

Adjusted EBITDA for full 12 months 2023 was $462 million, primarily flat with 2022. Our Active Pass Base, as of December 31, 2023, comprised 5 million go holders flat with final 12 months. As you’ll recall, our Active Pass Base on the finish of third quarter 2023 was 23% larger than the prior 12 months third quarter. The sequential drop in prior 12 months comparability from third quarter to fourth quarter is primarily attributable to two components. First is the timing of our previous promotion, which was targeted within the third quarter 2023 round Labor Day versus being targeted within the fourth quarter in 2022 throughout our November Cypress sale. Second, there was a distinction within the expiration date of our gold season go between 2022 and 2023. In 2022, Gold Passes had been legitimate by means of your entire 12 months, expiring in early January of the next 12 months.

2023 Gold Pass has expired in early October forward of Fright Fest and should not included within the 2023 12 months finish handed stability. Deferred income, as of December 31, 2023, was $128 million, down $1 million or 1% in comparison with the prior 12 months. On our final earnings name, deferred income on the finish of third quarter 2023 was up 17% over the prior 12 months third quarter. The sequential drop within the prior 12 months comparability within the third to fourth quarter, largely as a result of two components I simply mentioned, coupled with the transition of membership deferred balances to 13 plus income attributable to discontinued legacy membership passes. We have made many adjustments to our previous technique over the previous two years in an effort to search out the best product combine and stability of pricing and advantages.

Despite our energetic go base and deferred income stability being primarily flat versus the prior 12 months, we really feel the progress we now have made on new season go gross sales on this encouraging information level as we assess our outlook for 2024. As Selim talked about, because the begin of promoting in late August, by means of the top of January 2024, go gross sales are up double-digits over prior 12 months, pushed by a rise in each items and pricing. CapEx spend, internet of insurance coverage recoveries was $61 million within the fourth quarter, a rise of $23 million in comparison with the fourth quarter 2022. Full 12 months 2023 CapEx was $171 million, a rise of $59 million, pushed by investments in our park infrastructure, occasions, rides and guest-facing know-how. Total liquidity, as of December 31 was $377 million, which incorporates $299 million of obtainable revolver capability, internet of $21 million of letters of credit score, plus $78 million of money.

We really feel we now have ample capability to pay down the remaining $57 million of unsecured notes due July 2024 utilizing a mix of free money movement and revolver capability. In May of 2023, we elevated our whole revolver capability from $350 million to $500 million, offering better flexibility to pay down debt. Since 2021, we now have used $311 million of free money movement to pay down debt, inclusive of $38 million financing charges, OID and redemption premiums. We anticipate to proceed utilizing free money movement to pay down debt till we obtain our goal internet leverage ratio of three occasions to 4 occasions adjusted EBITDA. Now I’ll flip it again over to Selim.

Selim Bassoul: Thank you, Gary. Now I want to talk about why we’re excited concerning the 2024 season. First, 2024 season go gross sales are off to a robust begin. We are promoting a better mixture of platinum and diamond passes in addition to extra add-on merchandise just like the all-season eating and all-season flash go. Second, we’re leveraging know-how and automation to enhance operational effectivity and security. For instance, our new AI built-in aquatic vigilance system, which is able to present real-time monitoring and improved response occasions to assist drive down labor prices and enhance security in our water parks. Our upcoming chat AI visitor companies internet characteristic will be capable to reply a big portion of visitor questions and resolve the request lowering the necessity to switch to a dwell agent, and dwell experience wait occasions to higher handle the movement of visitors with higher accuracy and visibility.

Third, we’re bolstering our income streams by means of technological innovation and operational enhancements. In Food and Beverage, we’re increasing cell app meals ordering to extra restaurant areas and are introducing new web-based QR code ordering. We are putting QR codes in high-visibility eating areas, so visitors can use cell ordering while not having to obtain the app. While introducing self-serve kiosks, these modern fashionable and easy-to-use kiosk have a confirmed monitor file within the restaurant trade for growing throughput, lowering buyer wait occasions and driving larger common spending by engaging clients to do extra customization and add-ons. In retail, we launched a brand new automated picture seize know-how which offer visitors with a personalised media library of experience photographs, making them easy and simple to buy, which is able to present an extra income stream and assist create a extra memorable expertise.

We are additionally planning to revamp our merchandise technique with new larger high quality and extra fascinating attire due to new partnership with premium distributors. In Parking, our new pace — speedy automated toll plazas, which is able to assist expedite the entry course of, minimize down on seasonal labor on the gate and supply extra income. In group gross sales, we restructured our gross sales workforce late in 2023 by transferring them out of company and again to the parks, enabling a extra focus and localized operation. We are seeing optimistic indicators with early bookings pointing to strong development in 2024. And our closing cause to be enthusiastic about 2024 is the lineup of thrilling immersive experiences. This contains our new Savannah Sunset Resort and Spa luxurious glamping expertise at Six Flags nice journey, the place visitors will take pleasure in sweeping views of our 350 acre Safari and take part in up-close animal encounters.

We are additionally planning probably the most thrilling 12 months but for Fright Fest, who’re ramping up the thrills with new hunted homes, scare zones and different new hair-raising attraction to take the worry issue to a brand new degree. This will embody extra IP-branded homes, which had been a giant hit this previous 12 months, and naturally, new rides and points of interest. The anchor of a fantastic amusement park is its experience, and we now have all the time been identified for having probably the most and finest within the trade. We beforehand introduced we’re kicking up capital by means of 2026 to deliver a large spectrum of latest points of interest, concentrating on each member of the household, and we’re following a distinct technique that had — what had been completed previously with a give attention to placing the best experience in the best place on the proper half.

For 2024, we may have a brand new Dino off-road journey at Six Flags over Texas which deliver you face-to-face with life measurement and animatronic dinosaurs. New steam city teaming at Six Flags America the place the previous meets the longer term and can embody the all-new steamroller experience, an thrilling household experience with 4 rotating arms. A brand new DC kits universe at Fiesta Texas. This younger family-friendly atmosphere will deliver adventures to our youngest thrill seekers. A brand new experience, just like the fan favourite Giga Discovery in each Six Flags, Great America and in St. Louis, a workforce favourite experience that creates distinctive thrill experiences. This experience has been very profitable in our different parks. The surfer at Six Flags over Georgia, an intense experience of 144 ft excessive, 60 miles per hour and nearly 600 ft of monitor full with this splash zone.

And the tremendous boomerang at Six Flags nice journey. It triple tower launch coaster with 10 at moments, which we anticipate to open in time for its fiftieth anniversary celebration. We function in a extremely aggressive market the place clients have the selection of many numerous leisure choices. To compete for our share of the discretionary leisure pockets requires continued sensible investments in our visitor improvements, immersive experiences, and premium park choices. This retains us on our toes, and we do not take something with no consideration. I wish to end with two huge surprises for me this previous 12 months. First is being awarded the perfect and brightest firm to work for in 2023 in Dallas and Indonesia. Given all of the challenges executing the technique, I really didn’t anticipate it.

When you consider all the good firms in Dallas and within the U.S., it is an honor and it is fairly humbling. It is a testomony to the good management we now have at our parks. I’m grateful for our staff who’re absolutely devoted and prepared to work laborious to create a fantastic expertise. This is a really aggressive atmosphere, and we now have to proceed to be the perfect each day. Second is being a part of the most important digital alliance in our trade. This is a credit score to our Chief Digital Officer and his workforce. We are proud to companion with nice innovators akin to Google, Dell, Pure Imagination, Fuel, Snow Flake and HCL Tech to deliver the newest know-how to our parks, remodeling the amusement park expertise to be extra personalised, immersive and memorable.

With that, operator, would you please open the decision for any questions.

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