Cedar Fair, L.P. (NYSE:FUN) Q2 2023 Earnings Call Transcript

Cedar Fair, L.P. (NYSE:FUN) Q2 2023 Earnings Call Transcript August 3, 2023

Cedar Fair, L.P. beats earnings expectations. Reported EPS is $1.04, expectations were $1.02.

Operator: Hello, and welcome to the Cedar Fair Entertainment Company 2023 Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Cedar Fair. Please go ahead.

Michael Russell: Thank you, John Loi, and good morning, everyone. My name is Michael Russell, Corporate Director of Investor Relations for Cedar Fair. Welcome to today’s earnings call to review our 2023 second quarter results for the period end June 25. Earlier this morning, we distributed via wire service our earnings press release, a copy of which is available under the News tab of our Investors website at ir.cedarfair.com. On the call with me this morning are Richard Zimmerman, Cedar Fair President and CEO; and Brian Witherow, our Executive Vice President and CFO. Before we begin, I need to remind you that comments made during this call will include forward-looking statements within the meaning of the federal securities laws.

These statements may involve risks and uncertainties that could cause actual results to differ from those described in such statements. For a more detailed discussion of these risks, you may refer to the Company’s filings with the SEC. In compliance with the SEC’s Regulation FD, this webcast is being made available to the media and the general public as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and disseminated, all content on this call will be considered fully disclosed. With that, I’d like to introduce our CEO, Richard Zimmerman. Richard?

Richard Zimmerman: Thanks, Michael. Good morning, everyone, and thanks for joining us today. On this morning’s call, we will provide context for our second quarter results, update revenue trends through this past weekend and provide some perspective on our expectations for the balance of the year, along with some early thoughts on the 2024 season as well. Let me begin by saying that our latest trends, while not fully back to where we would like them are improving. Demand at parks that were impacted by disruptive weather in the second quarter has strengthened as weather conditions have improved and operating conditions normalized. Preliminary July results reflect net revenues down 2% versus the unprecedented performance of July last year, but July’s revenues remained up 11% compared to 2019 pre-pandemic levels.

Our underlying business fundamentals are improving as we head into the second half of the year when we historically generate 2/3 of our annual attendance and revenues and more than 80% of our adjusted EBITDA. In just a moment, Brian will provide additional details on second quarter results and the more recent trends we’ve seen through last weekend. With that said, the first half of 2023 has been a challenge on several levels with exogenous factors constraining demand and negatively impacting operating performance. First, poor weather conditions, including unprecedented rainfall and extreme temperatures plagued our East Coast parks during the second quarter as well as our California parks earlier in the season. The persistent rainfall meaningfully disrupted demand over the first half of the year as well as sales of 2023 passes, which will continue to be a headwind on attendance over the balance of the year.

Second, cooler-than-normal temperatures in the second quarter had a major impact on attendance at our four stand-alone water parks, including Cedar Point Shores, Not Soak City and our two Schlitterbhan Waterparks in Texas where springtime temperatures were unseasonally cool prior to the recent stretch of more typical 100-degree days. Finally, and most unexpectedly, attendance in the quarter, Canada’s Wonderland and several of our U.S. parks was negatively impacted by public health concerns over poor air quality caused by the ongoing Canadian wildfires. While demand challenges have been persistent in certain key markets, most notably in California, our solid performance at parks operating under normal conditions underscores the resilience of our business model, the continued strength of consumer demand for experiences and the benefit of our strategic initiatives over the last two years.

For instance, we are pleased by the solid performances at our six Midwest parks, where combined attendance was up 7% over the first six months of the year compared to last year. Coincidentally, these six parks were least affected to date by poor weather, demonstrating the extent to which difficult operating conditions can have on park performance, especially when weather occurs on days of peak demand. Meanwhile, we are pleased to report improvements in other key areas of performance, including guest spending levels and booking trends within the group channel and at our resort properties. Through the first half of the year, in-park per capita spending is trending up 4% year-over-year, led by improved spending on food and beverage, admissions and merchandise.

The consistent growth of per caps indicate our guest willingness to spend to enhance their experience and their willingness to buy up for higher-quality items. We are confident we can continue to build on this momentum through further investments in our park facilities and guest amenities, including a new consumer-friendly mobile app that is currently under development. The new app is being designed to simplify and streamline the guest experience, expedite and expand payment options and minimize wait time beyond the improvements we have already achieved. This is just the latest example of our ongoing investments in technology to improve the guest experience, build loyalty and drive higher attendance and in-park spending. We will begin rolling out the new mobile app in our parks later this year with full rollout planned for spring of ’24.

Finally, our group sales channel continues to show strong signs of recovery. Through the first two quarters, group attendance is up 11% over last year and in line with our expectations, led by strong early season performance of school and youth events. I’m quite proud of our group sales team’s excellent work to drive improved sales, including their proactive prospecting process that has expanded our pipeline of leads and increase the pace of bookings going into the second half of the year. This is a key period for the group channel as group events shift from school and youth to corporate groups with a deeper share of wallet and higher per cap potential. Before Brian reviews our second quarter results in more detail, let me put in perspective where we stand with five months remaining this season.

While our results demonstrate that our business fundamentals remain strong, we are not satisfied with our financial performance year-to-date. Therefore, with a heightened sense of urgency, we have taken deliberate and decisive action to increase demand, generate incremental guest spend and drive revenues higher. One of the biggest days of the season still ahead of us, we have accelerated our marketing efforts at our largest parks and activated mid-season marketing promotions through our season pass and single-day ticketing channels to generate incremental attendance. We believe any short-term impact these actions may have on admissions per cap will be more than offset by increased attendance and higher levels of in-park guest spending on food and beverage, merchandise and extra-charge attractions.

Meanwhile, our park teams are tightly managing variable costs to better align with attendance levels, most notably around seasonal labor. These efforts have already contributed to a 2% reduction in second quarter operating costs and expenses on a per operating day basis. While recent results show progress has been made, there is more work to be done. We are committed to rolling up our sleeves and continuing to advance our strategic initiatives to drive improved performance for the remainder of 2023 and prepared for 2024, with margin expansion being a top priority. To wrap up my opening remarks, I want to emphasize our belief that consumer demand for experiential entertainment remains incredibly strong. The consumer is healthy and guest spending levels remain elevated compared to 2019 and even to post pandemic levels.

I also want to reiterate that we are in the midst of our most profitable 6-month period when we generate more than 80% of our adjusted EBITDA. We believe the actions we are taking better position us to maximize returns over the remainder of 2023. After Brian’s comments, I’ll come back with some thoughts on our strategic approach for 2024 and beyond. Brian?

Brian Witherow: Thanks, Richard, and good morning. I’ll start off by reviewing our second quarter operating results before discussing preliminary results for the 5-week period ended July 30 then wrap up with an update on our balance sheet and capital allocation priorities. During the second quarter, we had 736 operating days compared with 708 days in the second quarter of 2022. The increase primarily reflects operating days added back in the quarter at our mid-tier parks to accommodate the return of school and youth groups this season. As always, we will continue to review and optimize our park operating calendars to maximize free cash flow generation. During the quarter, we entertained 7.4 million guests and generated net revenues of $501 million compared with 7.8 million guests and net revenues of $509 million in the second quarter of 2022.

The decreases in attendance and net revenues are primarily attributable to the disruptive weather patterns that continued from the first quarter along with wildfires in Canada, which impacted demand in our park in Toronto as well as several of our U.S.-based parts during the period. The decline in attendance also reflected a decline in season pass visitation. The result of fewer season passes sold and the impact of carryover pass privileges on second quarter results last year. Overall, we estimate that weather and smoke from the wildfires accounted for the loss of approximately 300,000 visits during the quarter based on average historical attendance on the days and of the parts impacted. Meanwhile, we estimate that carryover pass visits at Knott’s Berry Farm in Canada’s Wonderland accounted for the loss of another 200,000 visits during the period.

Excluding the impact of these factors, we estimate that attendance in the second quarter would have been up roughly 100,000 visits over prior year, due in large part to the incremental operating days in the period. As Richard noted, helping offset some of the pressure on attendance in the quarter was continued strength in other key performance areas, including guest spending levels and booking trends at our resort properties and on group outings in part for capital spending for the quarter totaled $61.46, up almost $2 or 3% compared to the second quarter of 2022. Guest spending levels on admissions and merchandise increased 1% and 3%, respectively, but the biggest lift came from within the F&B channel, where the per cap was up 9% over last year.

While pricing accounted for some of the increase in F&B spending, most of the year-over-year lift is attributable to the growth in both transaction counts per guest and average transaction value. The investments we’ve made over the last few years to improve and expand dining options are yielding outstanding returns. Meanwhile, the strong performance of our resort properties helped contribute to an increase in out-of-park revenues of $3 million or 5% when compared to the second quarter of 2022. On the cost front, operating costs and expenses in the second quarter increased to $352 million, up 1% or $5 million compared to last year. The year-over-year increase reflects higher variable operating costs associated with the 28 incremental operating days in the period anticipated higher land lease and property tax expenses related to the sale leaseback at California’s Great America and planned higher advertising costs to support this year’s capital programs.

Despite inflationary cost pressures, cost of goods sold as a percentage of food, merchandising games revenues decreased 70 basis points compared with last year’s second quarter. As Richard mentioned, we remain laser-focused on reducing operating costs and improving margins, including taking variable costs out of the system when attendance levels are below expectations. During the quarter, these efforts set a 3% decrease in total seasonal labor hours and a 6% decrease in seasonal labor hours per operating day. The reduction in seasonal labor hours, combined with a 1% decrease in our average seasonal labor rate contributed to a 2% reduction in operating costs and expenses for operating day. Today, we are more nimble than ever and consistent with our focus on margin expansion, we will continue to actively manage the business to optimize operating expenses relative to attendance and revenue trends.

Adjusted EBITDA for the quarter, which we believe is a meaningful measure of the Company’s park level operating results, totaled $151 million compared with $171 million for the second quarter last year. The year-over-year decline is the direct result of the attendance revenue shortfalls in the quarter, combined with the anticipated increases in operating costs and expenses. Turning our attention to preliminary results through this past Sunday, July 30. For the 5-week month of July, we delivered net revenues of $414 million a 2% or $7 million decline from net revenues for the same 5-week period a year ago. Our July revenue performance was driven by a 2% increase in per capita spending flat out-of-park revenues and a 4% or 219,000 visit decrease in attendance.

Despite attendance remaining below pre-pandemic levels, preliminary revenues for the month were up $40 million or 11% compared to July of 2019, driven by significantly higher levels of guest spending. Based on our preliminary results for July through the first seven months of 2023, we have now entertained 14.4 million guests and generated preliminary net revenues of $1 billion. This compares to net revenues of $1.03 billion and attendance of 15.4 million guests for the comparable 7-month period last year. As we’ve mentioned, over the balance of the season, we will continue to adjust our variable operating costs, including seasonal labor to best align with attendance trends. Additionally, I’ve highlighted that we will continue to adjust park operating calendars, both adding and reducing days when appropriate.

As our park calendars currently stand, we project this year’s second half will have 15 additional days compared to the same period in 2022, with three of those added days falling in the third quarter and the balance in the fourth quarter. Now turning to the balance sheet. As of the end of the second quarter, Cedar Fair’s balance sheet was in solid financial condition, with ample liquidity to fund future cash obligations and no near-term debt maturities. As of June 25, we had net debt of $2.4 billion and total liquidity of $172 million including $49 million of cash on hand and $123 million of available borrowings under our revolving credit facility. Our deferred revenue balance at the end of the second quarter totaled $283 million. This compares to $307 million at the end of the second quarter last year, which included approximately $9 million of COVID-related product extensions at Canada’s Wonderland into 2022.

The variance in deferred revenues, in large part reflects the impact that weather had on early season sales of 2023 season passes, particularly at our California parks which endured monsoon light conditions in the first quarter. This resulted in an approximate 9% shortfall in total passes sold through the second quarter of 2023 compared to the record 3.2 million units sold in 2022. Regarding capital expenditures. During the quarter, we spent $70 million on CapEx, bringing our total investment through the first half of 2023 to $124 million. We expect our full year capital spend will be $200 million to $225 million. Lastly, in May, our Board authorized a new $250 million equity buyback program. Through calendar July, we have repurchased approximately 280,000 limited partnership units at a total cost of approximately $11 million under the new buyback program.

Combined with our original buyback program, which was authorized last August and fully exhausted in the second quarter this year, we’ve now repurchased approximately 6.3 million units or more than 10% of Cedar Fair’s outstanding equity. With that, I’d like to turn the call back to Richard to provide some additional commentary on our business outlook.

Richard Zimmerman: Thanks, Brian. While today’s call primarily addresses the current operating season, we are also aggressively working on the strategic initiatives that will lay the foundation for a strong 2024 season including our capital program and most importantly, our season pass program. As we gear up for the imminent launch of our 2024 Season Pass sales program, much work has gone into analyzing last season’s marketing and pricing strategies. As we previously noted, our 2023 season pass program, which effectively wrapped up at the end of July, fell short of our goal of matching the record 3.2 million units sold for the 2022 season, although this year’s program did represent the second largest ever in terms of season pass units sold.

For the 2024 season, our sales strategy will focus on starting out with more attractive pricing in key markets to build demand earlier in the cycle. We then plan to take price after specific volume thresholds have been reached continuing to evolve our dynamic pricing model for season passes. Most of our parks will be announcing the start of the 2024 season pass sales program in the next couple of weeks with compelling early purchase pricing that we are confident will drive strong demand. Over the next few weeks, many of our parks will also be announcing new rides and attractions for the 2024 season. Cedar Point kicked things off earlier this week announcing next season’s planned launch of Top Thrill 2, the world’s tallest and fastest triple launch coaster.

The reimagined version of this iconic world-class roller coaster the first ever to go above 400 feet may be the most anticipated new attraction we have ever introduced, and we can’t wait to see our guest reaction to this one-of-a-kind experience. Those of you who invest in our company or visited our properties know the importance we place on keeping our parks safe, fresh and inviting while offering the finest thrill rides in family entertainment the industry has to offer. We have a few additional surprises in store for next season that should once again delight families and thrill seekers alike. So please stay tuned. With the investments we have made over the past several years and those we have planned for 2024, we are confident in our parks offer a combination of family and thrill entertainment unmatched in our industry.

Given the strength of our underlying business model and the initiatives we have underway, we are confident we can further expand the appeal of our parks, adding more unique experiences that drive repeat visits and enhance the appeal to a broader audience. I’ve challenged our team to develop programs to drive incremental demand and revenues through more premium and customized experiences in addition to the traditional amusement and water park offerings. We believe meaningful upside potential awaits in these areas. We are also committed to driving greater flow-through from the incremental revenue we generate. We have successfully flattened the growth curve around most of our operating costs a stark contrast to the significant inflationary pressures we have faced over the past two to three years.

Most importantly, this has been largely achieved through seasonal labor, our largest single expense where we have been effectively reducing the average hourly rate. We are now focused on further streamlining our park staffing models for both rate and hours while also reducing the size of our overhead cost structure. We believe successful execution of these cost efforts, cost reduction efforts, combined with a return to the pre-pandemic attendance levels of 27 million to 28 million guests, while maintaining current guest spending levels would produce EBITDA margins that are near our most recent pre-pandemic levels. Improving operating margin is a top priority for us and a key metric for us to track our continued progress. Growing free cash flow while improving margins will allow us to fuel our capital allocation priority of returning capital to investors through a combination of cash distributions and equity buybacks.

I’m extremely pleased to say we’ve returned more than $310 million to investors since the implementation of our first equity buyback program last August and the reinstatement of our quarterly cash distribution payments last September. The Cedar Fair management team and our Board of Directors believe that Cedar Fair’s units are significantly undervalued and that repurchasing units is an extremely compelling high-return investment opportunity. We will, however, remain disciplined and opportunistic in deploying unitholders’ capital. Looking ahead, we plan to review details of our new long-term strategic plan, including new targets for key performance metric during our third quarter earnings call in November. With that, we’ll open the call for questions.

Jean-Louis, please open up the call.

Q&A Session

Operator: Your first question comes from the line of Steve Wieczynski of Stifel.

Steven Wieczynski: So Richard, you noted that obviously, you’ve been disappointed in attendance this year. And a lot of that was been weather, which has been well documented. But it sounds like for the last couple of months of the season, it sounds like you guys want to get more aggressive on the marketing and maybe even the discounting side of things in order to drive demand. So I guess my question is, if you start to discount single-day tickets to stimulate demand for the near term. Does that eventually hurt your ability to take price over time? Or am I just totally misunderstanding your kind of philosophy there?

Richard Zimmerman: On the marketing end, we have looked at our digital-heavy approach. And through the month of — the latter half of June and through the month of July, we broadened our reach. So we wanted to make sure that we expanded our ability to connect with our customers. We’ve seen traction in that as we’ve gotten a little broader in our region, in our key markets. On the pricing front, we’re committed to dynamic pricing. Dynamic pricing means you’re testing different price points all the time. I don’t think I would take our approach and say that we are leaning into deep discounting. I think what we’re trying to do is really assess what where dynamic pricing can take us, particularly as we’re in peak periods. I’m really pleased with the per capitas we’re able to drive when weather was good, seeing some of our strongest days of the year.

July was a choppy month weather-wise as well. But on the good weather days, we are pleased with the demand we saw and how we translate that demand into higher percaps.

Steven Wieczynski: So to be crystal clear here, on a normal — absolutely normal weather day attendance is exactly where you guys would think it should be and spend levels are as good, if not better, than what you guys would expect them to be?

Richard Zimmerman: As I look at particularly the month of July, and there were very few Saturdays where I’d say we had really good weather across the system but we put up some of our strongest days. So yes, we were trending in the zone of where we would expect to be on a bright sunny day in the middle of the summer without rain covering half of the East Coast.

Operator: Your next question comes from the line of James Hardiman of Citi.

James Hardiman: I just want to clarify, it sounds like you feel better about the month of July, you talked about July trends picking up. I guess if I think about 2Q revenues were down to — it sounds like July revenues were down — it seems like attendance a little bit better per cap amount of park maybe a little worse on a year-over-year basis. Maybe what is getting better in July? And maybe part of the answer is operating days. I know 2Q had an operating day benefit, maybe that benefit run way in July. So maybe walk us through some of those items.

Richard Zimmerman: Yes. Brian, do you want to take that?

Brian Witherow: Yes, sure, James. So yes, I think you hit on it there towards the end, right, a bit, which is that while the July trends overall, the revenue trends are comparable on a percent basis, some of the Q2 lift, as we said on the call was the benefit of the incremental days in the period. As Richard noted, July hasn’t been perfect, and tying it back a little bit to Steve’s question, I think we’re pleased when you sort through and you break the demand apart, we have certainly saw better demand on single-day tickets, the general demand channel in July as operations began to normalize. There’s still a little bit of a drag. And the answer is always a bit different maybe part by part. But a bit of a drag at certain parts that are well down in their season pass sales, right?

That channel for not in Great America, the two California parks that were most disrupted in terms of season pass sales this year, that will be a drag for them for the balance of the year, as we said on the call. So not everything quite perfect, but certainly seeing improvement in July on a relative basis.

Richard Zimmerman: The other thing that I would — let me chime in here, James, as we look at our operating calendar July, August and October are our three most significant and meaningful months. We do our highest attendance revenues and generate our highest EBITDA and the opportunity to generate margin in those months. That’s what we saw last year in the month of October. So when we look at July, what is different versus second quarter is it’s not only the same number of operating days, but we’re up against much stronger comps because these are our biggest months. And that’s why it’s a more meaningful comparison.

James Hardiman: Got it. That’s helpful. And then maybe, Brian, if you could bridge the margin versus where we were in 2019, I think the comment that you think if we can get back to ’19 levels of attendance that we can effectively get back to ’19 levels of margin, pretty big gap to bridge at this point. I know the acquisitions that you guys made, I think we’re somewhat dilutive to the margin, I can remember if that was the case in Q2. But maybe help us figure out the pieces and ultimately, how you’re going to get back there?

Brian Witherow: Yes. So I think you’re right, James, in terms of some of the acquisitions we did make in ’19 were dilutive. So on a pro forma basis, that 34.2% margin from ’19 might have been somewhere in the mid- to high 33s on a pro forma basis. That said, we do believe and we did believe at the time that there was margin growth opportunity at the Schlitterbhan Parks as an example, as we integrated them into the system. So not going to rest on that being dilutive longer term. As we think about it going forward, and we’ve said this before, and Richard’s comments hit on it. It’s a combination. We know we have to get more efficient on the cost front, and we’re very pleased with what we were able to do in Q2, taking our operating costs and expenses, all in, down 2% per operating day, even with the added lease and property tax expense related to the Great America Park, which wouldn’t have been in last year’s numbers.

But it’s also about getting attendance back, getting back to those that 27-plus million visits because while the gap does seem pretty big, there’s a lot of leverage that’s in the system, right? And Richard hit on it just a minute ago, July, August, October, those are our busiest months and the attendance — recovery of attendance in those months when you’re putting those incremental visits on top of a pretty fixed cost structure is it can move the needle pretty quickly. When we think about the balance of this year, while we haven’t gotten as much out of the cost in the first half as maybe some would have expected, part of the challenge we have there for our — particularly for our seasonal parks, much of the cost structure for the first four or five months of the year is very fixed.

It’s off-season fixed cost associated with maintaining or preparing the parks to open. So we run pretty skinny on the cost structure of those properties during the downtime or the prep time before those parks open in the spring. There’s a lot more opportunity over the second half of the year. And we would fully expect that our operating costs and expenses, including SG&A and cost of goods over the second half of 2023 are going to be inside of the roughly $760 million that we incurred last year in the second half ’22. We have a lot more leverage to take costs out of the system. We’ve activated as Richard noted, a lot of initiatives and efforts to already begin taking costs out. We’re not done. There’s more to go. But I think the ultimate answer to your question is it’s both reducing the cost structure and driving volume.

Operator: Your next question comes from the line of Thomas Yeh of Morgan Stanley.

Thomas Yeh: Just following up on Chris’ question on running the discounts for admissions. It seems like there is strong spending when someone’s in the park, but admissions pricing has potentially been a bit more of a barrier. Just curious what you think the drivers of that are from a consumer health perspective, what’s limiting that initial point of sale.

Brian Witherow: Yes. Thomas, this is Brian. I think at the top of that list is certainly those macro factors, right? What we’ve seen over the years and this isn’t new to 2023, it’s been developing change in consumer behavior is just a shortening of the booking cycle. It’s one of the reasons why we try and push as many people to the multi-day ticket products like season pass get them to commit a lot earlier. But when weather is so unpredictable and people are buying much later, I think that’s what disrupts that purchase, that initial purchase, certainly what we saw play out this year. Attendance isn’t just driven by the weather in the moment, but the weather during the point in time you were going to make a purchase. So what we saw play out this year was the impact of weather on sales in the first quarter and the early part of the second quarter, particularly around season passes is a headwind for us for the balance of the year.

Our efforts, as Richard noted, to increase some of our marketing in some of our key markets. to be a little strategic with some very limited duration promotions is about trying to stimulate that urgency and get it in front of a few more folks to get them to activate. It always plays out that it gets a little bit easier as you get deeper into the year because there’s a natural sense of urgency that summer is winding down, kids are going back to school. That has always worked well for us. We would anticipate that working well for us again this year.

Thomas Yeh: Okay. Great. That’s helpful. And it was super helpful on sizing the weather impact for 2Q. And it sounds like July include some weather-related headwinds maybe now on the East Coast versus the West. Is that right? I guess the interpretation I was getting from just the comment you made on catching up from season pass sales picking back up again heading into August for 2024 passes. Is the expectation there that August, September looks better than July?

Brian Witherow: Yes, I would say that weather was still certainly a factor. Now we’re dealing with extreme heat across the country, right? That certainly has helped us a bit in South Texas, where the Schlitterbhan Water parks benefit from 100-degree days. The rain and the heat hasn’t helped us in the Southeast where Carowinds and Kings Dominion, Dorney Park working up the East Coast that they’ve dealt with a lot more rainfall than maybe some of the other parts. That has shifted from what was a West Coast scenario earlier in the year. I think the drag that will — that has continued in July, as I just mentioned on the West Coast parks is a little bit more tied to the fact they just don’t have as many season pass sales outstanding.

Now what we’ve seen play out in the past and maybe this is an answer to the latter part of your question is that this year’s pain becomes next year’s gain. And by that, I mean the fact that some of our traditional season pass buyers at Knott’s Berry Farm California’s Great America missed out or elected to skip the 23 pass purchase they — what we’ve seen play out in the past is they often ramp up and become earlier buyers of the 2024 pass. We saw this play out in 2018 and ’19. ’18 was a tough year weather-wise, heard our season pass sales, had a record sales of season passes for the ’19 season at that point in time. So we really expect some strong demand for season pass sales at a number of our parks, particularly the West Coast parks now that we’re going on sale with those here in early August.

Operator: Your next question comes from the line of Michael Swartz of Truist Securities.

Michael Swartz: Just maybe a question following up on James’ question earlier, kind of bridging how we get to back to kind of the pre-pandemic margin levels, call it, 33%, 34%. And understanding that a big part of that is just leverage on attendees coming back to 27 million or so. Is there a way of looking — if we get back to 27 million in attendance what kind of cost reduction would be needed to generate the 33%, 34% in EBITDA margin, if that makes sense.

Brian Witherow: Here in terms of what we’re targeting. We have a number that we are aiming at. Ultimately, the answer, I think, to your question, comes down to a few other factors that are all interplay with one another. It’s not only the attendance number. it is where are we at, what are we able to drive and continued guest spending levels, both inside the park and at our out-of-park locations but there is no doubt that taking some of the overhead costs out of the system and streamlining, as Richard noted, the operations, the variable operating costs and the part operating structures are critical to getting back to that faster. I might characterize it as the speed to it to getting back to 33%, 34% is made a lot quicker if we can get those costs out faster in a — the more we get out, the faster we get back to the 33%, 34%.

Michael Swartz: Okay. Great. And then just maybe adding on to that question. I mean a lot of the improvement we saw in cost in the second quarter was reducing some of the seasonal labor costs. I mean I guess, how do you balance taking those hours and costs out of the system versus not impairing the guest experience? What do you put in place to ensure that, that doesn’t happen.

Richard Zimmerman: Mike, it’s a good question. It’s the right question. We have always prided ourselves on the quality of guest experience, the engagement with the customer. And when I look at our NPS scores and our OSAT scores right now, they are near records at most of our parks. So we’ve got a tremendously valuable guest experience. We’re trying to be very mindful as we take cost out, what the guests value and what they don’t, but we let them tell us that. So we continue to do extensive research on our guests not just sampling post visit, but also doing in market focus groups, things like that. So we’ll expand our research efforts to make sure we understand what the guests value. And then lastly, as you saw this week in terms of driving demand and really fueling the attendance number we strongly believe in putting in marketable attractions like Top Thrill 2 to get everybody’s juices flowing and get people to come out.

So the combination of a really strong capital program, along with disciplined monitoring of what our guests are telling us. We think there’s a way to thin out costs in the systems while continuing to provide the high-quality experience that we’re known for.

Operator: Your next question comes from the line of Lizzie Dove of Goldman Sachs.

Lizzie Dove: Two, if I may, start on capital allocation. You guys had a pretty significant buyback in the second half of last year. In this year, I think no matter where we think EBITDA may for probably going to generate more free cash flow in the second half versus the first half. Leverage is kind of back to where you want to curious how you’re prioritizing getting that distribution back closer to historical levels versus maybe leaning more into buybacks at this level in the second half?

Richard Zimmerman: It’s Richard. Let me take this and then Brian can weigh in. We want to understand, and as I said in my remarks, we think the units are significantly undervalued by the market. We want to look at our capital allocation priorities and go to where we think we can get the most benefit and create the most value. We’re mindful along with how we return cash to the unitholders, we will keep looking at our capital structure. We’ve got a $1 billion senior secured note comes due in ’25. We’re watching the markets and making sure that we seize that opportunity when the timing is right. But we’re trying to balance all of those things to maintain a strong and healthy capital structure while continuing to prioritize debt return of capital to unitholders. Brian?

Brian Witherow: Yes. Just really quick, to add to that. The last year, the buyback program that we put in place in August of ’22. Our ability to be a little bit more aggressive with that program was aided by the cash from the sale of the land at Great America. As we said when we put this program in place, this is now going to be funded out of operating cash flow. And you’re exactly right. We really start building cash as we roll into the core summer, which tends to start — summer season, which tends to start around Memorial Day, second half of the year, much more cash generation. And so we’re — as Richard just noted, we’re going to continue to prioritize what we think the best returns are but understanding that there is a core part of our investor base that sees a lot of value in the distribution. So it does remain sort of front and center of those conversations. But we want to also make sure, as Richard noted, we’re getting value for the distribution.

Lizzie Dove: That’s helpful. And maybe just one more on Season Pass. It sounds like you’re pulling back a little bit on the kind of mid- to high single-digit price increase that you had this year. Also curious if you have an update on your relatively new prestige path that you were testing at three of your properties earlier in the year. Is that going to be something that you lean into this year and maybe even expand as well?

Brian Witherow: Yes. So on the prestige pass, Lizzie, yes, we do intend to lean into that a bit and expand into more properties. We’ve been very pleased with the early reaction we got at the three parks we tested the product at. It’s never — we don’t believe it ever becomes the core of what we sell. We know where that slots in that is more the Gold Pass. But there is certainly a segment of our guest base that saw value in that product, and we need to continue to evolve that product. Part of the reason for testing it was also to get feedback from the consumer to make sure that the components and the benefits of that path of the prestige pass are exactly hitting the market. And so we’ll make some adjustments at the three parts that we did test the product at, and we will expand it.

In terms of season pass, pricing more broadly. We’re going to continue to try and use the dynamic pricing techniques that we’ve used in the past to still chase mid-single-digit returns. Our approach around the season pass program, I won’t say it’s a complete deviation from where we’ve been in the past. We’ve always used a program that sort of emphasizes going and getting volume a little bit earlier and then building to certain predetermined thresholds or targets and then starting to take pricing more aggressively. And so if anything, in hindsight, we believe in looking back, we may be got a little bit out over our skis or went a little bit too early in a couple of markets. And so we may be pulling them back a little bit. But the goal is to still continue to take price in season pass.

There’s a lot of value for that product. And we believe that much of the disruption this year, as Richard said, still the second best year ever in terms of pass sales but the little bit of disruption, we believe, was more weather driven, but we want to go with that volume play first and then get a little bit more focused on price.

Operator: Your next question comes from the line of Eric Wold of B. Riley Securities.

Eric Wold: So kind of going back to a couple of previous questions. You mentioned comfort getting back to prepandemic margins at that 27 million, 28 million guest level. Can you talk about how you view that 27 million, 28 million guest level versus kind of where you ultimately think the parks can go, maybe not max capacity, but where you feel comfortable pushing attendance about straining the system. So kind of the opposite of the earlier question where how much cost you want to take out without impacting the experience.

Richard Zimmerman: Yes, Eric, it’s Richard. Thanks for the question. As we think about what’s optimal for each park and that changes as you sort of go through the life cycle of a park, different opportunities in different regions, a lot of macro factors that go into how we evaluate each park. But we do look at each park on the basis of what we think we can generate. We then look at the operating days. You’ve seen us aggressively expand our calendar first with Winterfest in November, December, then even this year, some parks trial year round, we’re going to go back and take a look at whether or not we got as much value as we wanted out of those days. They certainly were impactful and gave us an opportunity. But as we think about sizing up the optimal attendance.

As we think through coming back to everybody on this call and coming out with a much more clear and precise view of our long-term targets in our strategic plan, we’ll factor all those things in, and we’ll address that. But I would tell you right now, other than peak attendance days, which we’ve always said we run 20%, 25% of any parks operating calendar. And those are the bigger days in July, August and October that we’ve always referenced is our biggest months. We think there’s opportunity to continue to bring in more guests still service them at a high level. So we’ve got plenty of capacity at all our parks, Monday through Friday during the summer.

Eric Wold: Got it. And then just last question. Obviously, you’re focused on managing labor in the hourly wage employment kind of coming out of postpandemic. Maybe talk about how you handle that around the difficult weather days now versus maybe would have been the system or procedure pre-pandemic? How did you get better at it? Maybe what would handle better? Maybe kind of what do you think was kind of the — you kind of put a number on the benefit but just how much better you think things were now versus before as you kind of think about the impact going forward?

Richard Zimmerman: Eric, as we went through the pandemic, it’s a great question. We built out what we call business intelligence was it two primary functions: first, really ramping up our revenue management function and you’ve seen the our ability to translate pricing into per capita, but we also built out workforce management and a set of resources that was really looking at making sure we had the right amount of labor at the right time, on the right day to make sure we’re optimizing that guest experience. So part of it is aggressively managing the bad weather days that’s — and we’ve always done that, but I think we’re really far more aggressive on that now. But part of it is also getting far more disciplined in using data and analytics to drive our decision-making around workforce levels and the scheduling of the labor.

So I think we’re getting a lot more — while there’s art and science to it, we’re getting a lot more scientific about using the data and the analysis we have. So hats off to the team and everybody in the field, but also within workforce management for that level of focus. It’s something we talk about every week.

Operator: Your next question comes from the line of Robert Aurand of KeyBanc Capital Markets.

Robert Aurand: I wanted to ask again on the margin front. A lot of color versus kind of the pre-pandemic margins, but I wanted to look kind of more recently to 2022 when you guys did kind of just below 27 million of attendance and put up a 30.4% EBITDA margin. I guess assuming good weather next year, if we could get back to that 27 million attendance. Can you talk about kind of the puts and takes relative to that 30.4% margin for next year kind of the timing of the cost savings? And would there be enough by that point to get back to those levels?

Brian Witherow: Yes, Robert, it’s Brian. So I think as we look at where we were coming right out of the pandemic. We opened up or reopened parks with a keen focus on delivering the best possible experience we could in getting as much attendance back as quickly as we could. And in hindsight, we may have over swung the pendulum around an area like seasonal labor. We talk about it so much because labor is the biggest single cost item for us. And so when we look back and versus where we’re at now, we’re managing a lot more hours out of the system than where we were. We’re managing more hours out of the system, quite frankly, than where we were even prepandemic because that’s what we have to do at these elevated average hourly rates for that seasonal staff base.

We’ve also been very successful. As we noted again on the call of continuing to push the seasonal wage rate down and we’ve done that as an outcome of how we built it when we took that step function from maybe, call it, around $11 an hour to closer to $17, $18 an hour. It wasn’t just a flat rate. It was a base rate plus a premium or bonus, however you want to look at it. And so as we’ve dialed that bonus back as we’ve dialed hours out of the system, and we’re not done by any means. As Richard noted, there’s more work to be done on that front. But that’s where the biggest chunk of it comes out. Now we also have to get more efficient as we said, in some of our fixed overhead costs. So that’s everything from reviewing staffing levels and looking for more efficiencies to also eliminating third-party consulting fees and things of that nature.

So it’s a multipronged effort to get there, but a lot of it lies in labor because that’s 60% of our overall cost structure.

Robert Aurand: Understood. I wanted to ask on group, you had previously called out kind of the 1.4 million visit gap there versus pre-pandemic levels. I know you’re saying group has been stronger here. Kind of any update in terms of where we stand relative to that 1.4 million and kind of how quickly you think that can still come back?

Brian Witherow: Yes. As Richard said on the call, we’re really pleased with the pace that we’ve seen in the recovery. It hasn’t been perfect. It’s a side of the business that gets disrupted by macro factors as well. We’ve lost as an example, this is a small bit, but we lost a couple of days, maybe close to 10,000 school visits at some of our parks on the East Coast because of the warnings of air quality related to the Canadian wildfires. And the timing of those hitting in mid- to late June, once we lost that group, the schools were done for the season, so we won’t get them back until next year. So it hasn’t come back completely but what we’ve seen school and youth up probably 20-plus percent to where it was a year ago. So big step function for that.

Corporate is coming back and will continue. We will continue to book corporate events and buyouts for the balance of the year. The team has done an excellent job at the park level of bringing that back. We’re not going to get all the way back to the 1.3 million to 1.4 million this year. As we said at the beginning, that could take two or three years, but we are certainly moving quickly in the right direction when it comes to the group side of things.

Operator: [Operator Instructions] Your next question comes from the line of Paul Golding of Macquarie Capital.

Paul Golding: I just wanted to ask a couple of technology questions. You noted an F&B perspective that additional dining options contributed to the per cap growth there. I was wondering how much of the transaction count you can attribute to the mobile ordering or mobile app penetration across the footprint? And then as a follow-on, whether we should continue to expect some uplift from this, as you mentioned on the call that you’re rolling out a revised or updated consumer-facing app across the footprint spring of next year, I believe.

Richard Zimmerman: Right now, mobile. Food mobile ordering is still a small percentage of the transactions we do, but we’re testing it at every park, and it’s working really well, and we’re testing a variety of formats. So we’re really trying to see what works best depending on facility. In terms of the mobile app that we’re writing, and Brian and I just got a briefing last week, we’re making great progress. The ease and the integration of everything into the mobile app will make it so much easier as we roll this thing out, to really be able to then leverage food mobile order. And we think there’s a lot of opportunity. We think we can do a lot more transactions and drive that transaction count. And it’s a key plank of that engagement with our consumer next year.

Paul Golding: For the app overall, are we seeing any pilot results that you may be able to share around maybe admission sell-through or ability to retarget any quantitative metrics that you could share?

Brian Witherow: Yes. At this point, no, Paul, the pilot of the app will be later this year. So what we’re getting out of mobile right now is off of the existing platform that’s been in place. So I think what you’re — the lift that we’re seeing in areas like F&B, the higher transaction counts at this point, Richard, to the comment Richard just made, probably not much attributable to mobile. It’s still a small piece of our business. More of the lift we’re seeing there is the investments we’ve made to enhance, expand the dining options, higher throughput engines, certainly going cashless has sped up transactions. And then just more efficiency, simplification of the checkout process and the offerings, right, streamlining offerings, different offerings at different locations but keeping it narrow, so the consumer doesn’t stand around and have to make a lot of decisions.

It’s pretty — it’s a more simplified and efficient experience. And so going forward, I do think, as Richard just noted, mobile is going to be an area where we think there’s significant opportunity, but we’re going to see that more play out in ’24 and beyond than anything here in ’23.

Operator: Your next question comes from the line of Barton Crockett of Rosenblatt.

Barton Crockett: A couple of questions. One is, was there any impact on the attendance from the publicity around the issue with the roller coaster. I think the Fury Coaster and Carowind got a lot of press play. Did that have an impact in the quarter?

Richard Zimmerman: Barton, it’s Richard. Close your referencing [SER-325]. And from our look, the weather has had far more significant impact on Carowinds ill-time rain, a lot of rain, a significant portion of the last six months on weekends. So that’s really been the significant factor.

Barton Crockett: Okay. And then on the topic of weather, I mean, I know you talked about this historical situation where season pass sales can be weak one year and then maybe demand is stronger in the next year. As kind of a catch-up and certainly people love the pass and everything. But I’m just wondering, to the extent that we’re seeing more kind of media discussion about the weather issues as climate change, something that will be sticky, persistent leaving aside the debate of how accurate that is. Certainly, I’m curious from your perspective, if you’re seeing your consumers perceive that as truth. And if that might have any negative headwind on their desire to put their money and you weather dependent kind of pre-spending experiences like season passes for a theme park?

Richard Zimmerman: Barton, great question. I would say, first, let me go back to our firm belief that over time, weather will average itself out. So you do revert to the means. I understand that we’re in a period where there’s been disruptive impact. But more broadly, if I take a step back, I think a couple of things have fueled the back half of the year for us, one of which is the weather significantly improved over the course of the last decade or so. In the months of September through December. So you’ve got the appeal, you got — what Brian referenced before the back-to-school urgency once you get into July and August, you’ve got the appeal of the Halloween event and then you got the appeal of all of our events around the holiday.

So the back half of the year is where we’ve actually benefited from the weather driving the demand. So that’s sort of a shift over the last decade or two that we’ve seen, which is where the opportunity. So it has created opportunities, little more challenging in the springtime when the weather has been a little more disruptive. So we’re evaluating that impact. But I think the appeal of the back half of the year and the events we have in the back half of the year, combined with slightly better weather is one of the reasons we continue to both do well, but generate so much of our attendance revenue and EBITDA in the back half of the year.

Operator: And our final question comes from the line of Chris Rowenka of Deutsche Bank.

Unidentified Analyst: Just one question for you. I guess, Richard, maybe you can give us a little bit of a view of the landscape overall for the industry in terms of whether you think there’s going to be any M&A opportunities or just M&A that happens because we’ve got a higher for longer interest rate environment. We’ve got some private owners that might be coming up with some debt maturities or other things. So just curious as to your view of the landscape.

Richard Zimmerman: Listen, this company has been built through M&A. We’ve talked at length on these calls that we’ll look at anything that’s available that’s out there. I do think if you go back to pre-pandemic, everybody was healthy. We posted a record year in 2019 as most others. The strength of the recovery, I think, has helped both the public companies, but the private companies, we’ve all improved our capital structures. The private operators we talk to have benefited from the recovery as much as the public. So I think the industry is healthy. So I think M&A, if it happens, probably is more linked to opportunity than significant weakness. But everybody is healthy and they’re doing well. So that’s actually good for the industry.

The industry being healthy is good for all of us. And I think that to continue to appeal the strength and the rapidness of the recovery, where we all saw ’22 be so strong and now continuing although, again, not in line with where we’d like to see it, despite the disruption, we’re starting to see that improvement you’d want to see in the second half of the year. So I think what we’re seeing is what most of the others are seeing.

Operator: There are no further questions at this time. I will now turn the call back to Richard Zimmerman for closing remarks.

Richard Zimmerman: Thanks, everybody, for joining us, and thanks for your continued interest in Cedar Fair. As the summer winds down and kids return to school, we will be transforming our parks for the always popular Halloween events in October, which historically have produced our biggest attendance days of the year. Please look at our upcoming announcement regarding Cedar Fair’s 2024 capital program, highlighting our planned investments in new rides, slides and major attractions for next season at our portfolio of irreplaceable entertainment landmarks. We look forward to keeping you apprised of our progress on these and other initiatives. Michael?

Michael Russell: Thanks again, everybody. Please feel free to call our Investor Relations department at (419) 627-2233 our next call will be in November after the release of our 2023 Third quarter results. Jean-Louis, that concludes our call today. Thank you very much.

Operator: You may all now disconnect.