Six Flags Entertainment Corporation (NYSE:SIX) Q4 2023 Earnings Call Transcript

Six Flags Entertainment Corporation (NYSE:SIX) Q4 2023 Earnings Call Transcript February 29, 2024

Six Flags Entertainment Corporation misses on earnings expectations. Reported EPS is $-0.27 EPS, expectations were $0.27. 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' Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Jason, and I will be your operator for today's call. During the presentation, all lines will be in listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Evan Bertrand, Vice President, Investor Relations and Treasurer.

Evan Bertrand: Good morning, and welcome to our fourth quarter and full year 2023 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 with the SEC.

Before we begin, a brief remark on the pending merger with Cedar Fair. As many are already are aware, on January 31, we filed with the SEC our definitive proxy relating to the upcoming shareholder meeting to consider the pending merger and related matters. Our shareholder vote is set for March 12 and we are targeting a closing in the first half of 2024. Our call today will focus on the results of the fourth quarter and the full year 2023. We will not be taking questions about proposed merger between Six Flags and Cedar Fair or any of the associated proxy materials. At this time, I will turn the call over to Selim.

Selim Bassoul: Good morning. Thank you for joining our call. Before we begin, I want to express our excitement about the proposed merger with Cedar Fair. We feel that this compelling combination will deliver value to our guests, our investors and to our employees. As a reminder, our special shareholder meeting to approve the merger will be held March 12 so please cast your vote. As we close the second fiscal year in my role as CEO, I am encouraged by the signs I am seeing that our premiumization strategy is working. I see a growing interest and engagement from families wanting to visit our parks, including multi-generational families, grandparents with grandkids, college students and young couples with babies. Our iconic brand is synonymous with thrills and adventure which excites children and makes adults feel like children again.

My eight-year-old begs me every weekend to take her to the park and she can't wait until she is tall enough to ride the Hero coasters. I see customers willing to spend more time and more money in our parks. By reducing overcrowding and friction at just short points we have become an easier company to do business with, and an easier park to navigate, which creates a better environment for guests and employees. Our guests on average are spending over 40% more per visit than they were before the pandemic. Guests of all ages can enjoy a full day of personalized and immersive experiences, complete with events, meals and attractions, while enjoying more comfort and convenience. We have added VIP lounges, more private cabanas, new kids areas with activities and rides, upgraded sit-down restaurants and expanded our culinary offerings from delicious finger foods and local brews to salads, vegan, premium ice-cream, freshly baked pretzel, Korean corn dogs and Kofta kebabs.

Guests can chill in our sports bar and watch the game on our large TV screens or hang out in our air conditioned state-of-the art eGaming lounges where kids and adult can compete and play. Guests can enjoy new events and clearly themes festival like Oktoberfest, Kids Boo Fest, and Flavors of the World, and our enhanced signature events like Fright Fest with new Haunted Houses built with iconic horror brands such as Saw and The Conjuring. These were a hit with guests this year. I’m also encouraged to see the positive impact that streamlining our organization has had on empowering our employees and creating a culture of expediency, excellence and ownership. I will share a personal experience. I have noticed new food trends such as bubble tea, pop-up in various upscale shopping malls.

My first bubble tea ever was in our park and it was delicious. I watched as our teams skillfully constructed this wonderful, freshly prepared bubble tea using the best ingredients, best mixture of flavors and served with a smile. Employees feel more connected to the guest and I see the pride they have in their work. We're also seeing encouraging signs in our financials. Since 2021, we have grown guest per caps by 17%, reduced full time headcount by over 30% lowered cash expense in the face of historical levels of inflation, leveraged key partnership to expand sponsorship revenues and paid down over $300 million of debt. In 2023, food and beverage revenues grew in both units and average pricing exceeding our attendance growth over the same period.

We also made good progress rebuilding our cost (ph) base using more targeted media, promotional pricing and introducing our new Six Flags Plus subscription style program in June 2023 with a more profitable balance of benefits and price. Our progress continues with 2024 passes, which through January are up double-digit over 2023. That said, we fell short of our financial targets. We faced unforeseen challenges like historical levels of inflation, abnormally challenging weather and supply constraints. We have also made missteps and we have learned that not every element of our strategy is equally successful. But we're able to pivot quickly and we are leveraging our experience to continuously improve and explore new opportunities. For instance, we are optimizing our events calendar to focus on those we have seen the best return, while exploring exclusive events and special access passes to drive monetization.

And we have tested where and when customers are willing to pay for a convenience and we have invested to enhance guest facing technology and create new revenue streams. This includes adding mobile wallets, and tap and pay, which now comprise 40% of all in-park transactions. Our new mobile app, which makes it easier for guests to order food on mobile devices, new handheld point-of-sale devices, providing greater flexibility to accommodate guests and enhance throughput. Dynamic pricing, which has shown traction, extending the booking curve and capturing additional admissions revenue. And SixPay wristbands for water guests, who don't want to carry their wallet or cellphone. I will discuss more exciting technological initiative later on this call.

We are guided by our mission to deliver an exceptional guest experience and we believe this will deliver exceptional returns to our shareholders over time. With that, I would like to turn the call over to Gary to discuss the financial results for the quarter and the full year.

Gary Mick: Thank you, Selim and good morning, everyone. I will start with attendance, revenue and per caps and then move to expenses and EBITDA for the quarter and the full year. I will then discuss our active pass base metrics, select balance sheet items, and capital allocation. Starting with the fourth quarter. Total attendance was 4.3 million guests, a 6% increase from 2022 driven by higher season pass and single day attendance during Fright Fest. Revenue increased $13 million or 5% to $293 million, driven by higher attendance partially offset by a decrease in total guest 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 increase of $0.48 or 2%.

Guest spending per capita decreased primarily due to the lower revenue from memberships beyond the initial 12 month commitment period, what we call 13 plus, which is recognized evenly each month. 13 plus revenue was $12 million lower in Q4 2023 versus Q4 2022 due to the attrition of our legacy members. Excluding the impact of 13 plus revenue from both periods, which we believe is a better reflection of our average higher pricing in the fourth quarter and our in-park monetization efforts. Guest spending per capita would have been higher than prior year by $2.35 or 4%, which includes an increase in admission spending per capita of $1.04 or 4% and an increase in-park spending per capita of $1.31 or 5%. As a reminder, we made a strategic decision to discontinue the sale of new memberships in April 2022 due to the inclusion of rich benefits, difficulty to administer in the park and the drag on per-caps in margins associated with this product.

We launched the new Six Flags Plus in June 2023 and plan to resume growth in the 13 plus base starting in the second half of 2024. However, we expect to face 13 plus revenue headwinds in Q1 2024 that we estimate to be around $14 million. Moving on to costs. In fourth quarter 2023, we incurred $15 million of merger related costs associated with the proposed merger with Cedar Fair. Cash operating costs, which includes cash operating and SG&A expense, but excludes merger related costs, increased $12 million or 8% in the fourth quarter versus the prior year. This increase was due to the following factors. First, higher attendance drove higher seasonal labor cost of sales and other variable costs. Second, we incurred incremental costs associated with new attractions and entertainment for our expanded fall events schedule.

Third, we accelerated investments in guest facing technology to ensure readiness for 2024. Lastly, higher inflation increased wages and other operating costs. Adjusted EBITDA for the quarter was $98 million, essentially flat compared to fourth quarter 2022, which as you recall was a record with higher costs offsetting higher revenue. Moving on to 2023 full year results. Attendance increased by 1.8 million guests or 9% to $22.2 million. We estimate that adverse weather reduced full year attendance by over 1 million guests. This includes rain and snow in California during spring break, followed by a record summer heat wave in Texas and eight consecutive weekends of rain or threat of rain in the Mid-Atlantic and Northeast after Labor Day. Total revenue increased by $68 million or 5%, driven by higher attendance and higher sponsorship revenue partially offset by lower per capita spending.

A bird's eye view of an amusement park with rides and attractions.

Total guest spending per capita decreased by $2.90 or 5%, driven by a decrease in admissions per capita of $2.56 or 7% and a decrease in-park capita of $0.34 or 1%. The decrease in admissions per cap was the anticipated result of lower pass pricing in the first three quarters of 2023 relative to 2022 when prices were significantly elevated. In-park per caps decreased due to the higher mix of season pass attendance, partially offset by an increase in Food and Beverage sales in '23 versus 2022, which is driven by mobile food ordering new culinary offerings and our expanded events calendar. For the full year, 13 plus membership revenue impact, on the year-over-year per cap comparison was negligible. Regarding full year costs, we incurred $38 million related to an upward revision of our self-insurance reserves in the second quarter of 2023 in addition to the $15 million of merger related costs in the fourth quarter of 2023.

Cash operating costs excluding merger related transaction costs and self-insurance reserve adjustments increased by $61 million or 8%. The majority of expense growth occurred in the second half of 2023, and was caused by several factors, many of which we expect to normalize in 2024. First, we increased advertising by $18 million in 2023 in an effort to help rebuild our Active Pass Base. We expect advertising spending in 2024 to be in line with 2023. Second, we incurred incremental expense associated with the expanded events calendar. We plan to optimize events in 2024, which will help mitigate these cost increases. Third, we accelerated technological initiatives, many of which we expect will help mitigate labor costs in 2024. And lastly, significant inflationary pressure estimated to have cost us $50 million, partially offset by full-time headcount reductions and procurement savings.

Adjusted EBITDA for full year 2023 was $462 million, essentially flat with 2022. Our Active Pass Base, as of December 31, 2023, comprised 5 million pass holders flat with last year. As you will recall, our Active Pass Base at the end of third quarter 2023 was 23% higher than the prior year third quarter. The sequential drop in prior year comparison from third quarter to fourth quarter is primarily due to two factors. First is the timing of our past promotion, which was focused in the third quarter 2023 around Labor Day versus being focused in the fourth quarter in 2022 during our November Cypress sale. Second, there was a difference in the expiration date of our gold season pass between 2022 and 2023. In 2022, Gold Passes were valid through the entire year, expiring in early January of the following year.

2023 Gold Pass has expired in early October ahead of Fright Fest and are not included in the 2023 year end passed balance. Deferred revenue, as of December 31, 2023, was $128 million, down $1 million or 1% compared to the prior year. On our last earnings call, deferred revenue at the end of third quarter 2023 was up 17% over the prior year third quarter. The sequential drop in the prior year comparison in the third to fourth quarter, largely due to the two factors I just discussed, coupled with the transition of membership deferred balances to 13 plus revenue due to discontinued legacy membership passes. We have made many changes to our past strategy over the past two years in an effort to find the right product mix and balance of pricing and benefits.

Despite our active pass base and deferred revenue balance being essentially flat versus the prior year, we feel the progress we have made on new season pass sales in this encouraging data point as we assess our outlook for 2024. As Selim mentioned, since the start of selling in late August, through the end of January 2024, pass sales are up double-digits over prior year, driven by an increase in both units and pricing. CapEx spend, net of insurance recoveries was $61 million in the fourth quarter, an increase of $23 million compared to the fourth quarter 2022. Full year 2023 CapEx was $171 million, an increase of $59 million, driven by investments in our park infrastructure, events, rides and guest-facing technology. Total liquidity, as of December 31 was $377 million, which includes $299 million of available revolver capacity, net of $21 million of letters of credit, plus $78 million of cash.

We feel we have sufficient capacity to pay down the remaining $57 million of unsecured notes due July 2024 using a combination of free cash flow and revolver capacity. In May of 2023, we increased our total revolver capacity from $350 million to $500 million, providing greater flexibility to pay down debt. Since 2021, we have used $311 million of free cash flow to pay down debt, inclusive of $38 million financing fees, OID and redemption premiums. We expect to continue using free cash flow to pay down debt until we achieve our target net leverage ratio of 3 times to 4 times adjusted EBITDA. Now I will turn it back over to Selim.

Selim Bassoul: Thank you, Gary. Now I would like to discuss why we are excited about the 2024 season. First, 2024 season pass sales are off to a strong start. We are selling a higher mix of platinum and diamond passes as well as more add-on products like the all-season dining and all-season flash pass. Second, we are leveraging technology and automation to improve operational efficiency and safety. For example, our new AI integrated aquatic vigilance system, which will provide real-time monitoring and improved response times to help drive down labor costs and improve safety in our water parks. Our upcoming chat AI guest services web feature will be able to answer a large portion of guest questions and resolve the request reducing the need to transfer to a live agent, and live ride wait times to better manage the flow of guests with better accuracy and visibility.

Third, we are bolstering our revenue streams through technological innovation and operational enhancements. In Food and Beverage, we are expanding mobile app food ordering to more restaurant locations and are introducing new web-based QR code ordering. We are placing QR codes in high-visibility dining areas, so guests can use mobile ordering without needing to download the app. While introducing self-serve kiosks, these sleek modern and easy-to-use kiosk have a proven track record in the restaurant industry for increasing throughput, reducing customer wait times and driving higher average spending by enticing customers to do more customization and add-ons. In retail, we launched a new automated photo capture technology which provide guests with a personalized media library of ride photos, making them simple and easy to purchase, which will provide an additional revenue stream and help create a more memorable experience.

We are also planning to revamp our merchandise strategy with new higher quality and more desirable apparel thanks to new partnership with premium vendors. In Parking, our new speed -- speedy automated toll plazas, which will help expedite the entry process, cut down on seasonal labor at the gate and provide additional revenue. In group sales, we restructured our sales team late in 2023 by moving them out of corporate and back to the parks, enabling a more focus and localized operation. We are seeing positive signs with early bookings pointing to solid growth in 2024. And our final reason to be excited about 2024 is the lineup of exciting immersive experiences. This includes our new Savannah Sunset Resort and Spa luxury glamping experience at Six Flags great adventure, where guests will enjoy sweeping views of our 350 acre Safari and participate in up-close animal encounters.

We are also planning the most exciting year yet for Fright Fest, who are ramping up the thrills with new hunted houses, scare zones and other new hair-raising attraction to take the fear factor to a new level. This will include more IP-branded houses, which were a big hit this past year, and of course, new rides and attractions. The anchor of a great amusement park is its ride, and we have always been known for having the most and best in the industry. We previously announced we are kicking up capital through 2026 to bring a wide spectrum of new attractions, targeting every member of the family, and we are following a different strategy that had -- what had been done in the past with a focus on putting the right ride in the right place at the right part.

For 2024, we will have a new Dino off-road adventure at Six Flags over Texas which bring you face-to-face with life size and animatronic dinosaurs. New steam town teaming at Six Flags America where the past meets the future and will include the all-new steamroller ride, an exciting family ride with four rotating arms. A new DC kits universe at Fiesta Texas. This young family-friendly environment will bring adventures to our youngest thrill seekers. A new ride, like the fan favorite Giga Discovery in both Six Flags, Great America and in St. Louis, a team favorite ride that creates unique thrill experiences. This ride has been very successful in our other parks. The surfer at Six Flags over Georgia, an intense ride of 144 feet high, 60 miles per hour and almost 600 feet of track complete with this splash zone.

And the super boomerang at Six Flags great adventure. It triple tower launch coaster with 10 at moments, which we expect to open in time for its 50th anniversary celebration. We operate in a highly competitive market where customers have the choice of many diverse entertainment options. To compete for our share of the discretionary leisure wallet requires continued smart investments in our guest innovations, immersive experiences, and premium park offerings. This keeps us on our toes, and we don't take anything for granted. I want to finish with two big surprises for me this past year. First is being awarded the best and brightest company to work for in 2023 in Dallas and Indonesia. Given all the challenges executing the strategy, I truly did not expect it.

When you think of all the great companies in Dallas and in the U.S., it's an honor and it's quite humbling. It is a testament to the great leadership we have at our parks. I am grateful for our employees who are fully dedicated and willing to work hard to create a great experience. This is a very competitive environment, and we have to continue to be the best each and every day. Second is being part of the largest digital alliance in our industry. This is a credit to our Chief Digital Officer and his team. We are proud to partner with great innovators such as Google, Dell, Pure Imagination, Fuel, Snow Flake and HCL Tech to bring the latest technology to our parks, transforming the amusement park experience to be more personalized, immersive and memorable.

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

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