Six Flags Entertainment Corporation (NYSE:SIX) Q1 2023 Earnings Call Transcript May 8, 2023

Six Flags Entertainment Corporation beats earnings expectations. Reported EPS is $-0.84, expectations were $-0.85.

Operator: Good morning, ladies and gentlemen. Welcome to the Six Flags First Quarter 2023 Earnings Conference call. My name is Betsy and I will be your operator for today’s call. During the presentation, all lines will be in a 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 and Treasurer. Please go ahead.

Evan Bertrand: Good morning and welcome to our first quarter 2023 call. With me is Selim Bassoul, President and CEO of Six Flags, and Gary Mick, our Chief Financial Officer. We will begin the call with prepared comments and then open the call to your questions. Our comments will include forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements, and the company undertakes no obligation to update or revise these statements. In addition, on the call, we will discuss non-GAAP financial measures. Investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the company’s annual reports, quarterly reports, and other forms filed or furnished with the SEC. At this time, I will turn the call over to Selim.

Selim Bassoul: Good morning. Thank you for joining our call. I want to introduce Evan Bertrand, our VP of Investor Relations and Treasurer. Evan has been our assistant treasurer for the last two years, and he has done a great job for us. We are thrilled to promote him to be our Vice President of Investor Relations and Treasurer. Evan, welcome to on earnings call this morning. Today, we will focus on three areas. First, I will provide an update on the progress we have made on our transformation. Second, Gary will provide details on our financial results and our outlook for the remainder of the year. Finally, I will return to discuss why we are excited about our future over both the short and long-term. Our team continues to work hard to transform the company as we strive to reach our full potential.

Any transformation begins with a vision for what the company can be. For us, our vision is to deliver a truly exceptional experience for our guests and sustainable profit growth over the long term for our shareholders. But the hard work is turning that vision into a reality. The first quarter is seasonally our smallest quarter, but we are pleased with the progress we are seeing. There are five items I would like to highlight that serve as indicators that our transformation is taking hold. First, our guest satisfaction scores are trending upward as guests are responding favorably to the investments we have made in our parks and in our new seasonal events. Second, our season pass sales trends continue to improve. Year-to-date, as of Sunday, April 30, our season pass unit sales are more than double what they were last year over the same period.

Guests continue to respond favorably to our simplified product assortment and the compelling value that our season pass products offer. Third, we are proud to report the highest first quarter revenue in the history of our company, which was driven by record guest spending per capita. That said, we still expect that our per capita spending trends to moderate this year, but we are encouraged that we have gained traction with our pricing programs and that guests continued to spend on our improved in-park offerings. Fourth, our attendance trends continue to improve. While attendance in the quarter was down compared to last year, our results were negatively impacted by adverse weather condition in California and Texas. Excluding the extraordinary weather impacts, we estimate that attendance would have increased by 6% compared to first quarter of 2022.

Finally, I am proud to say that our team continues to stay focused on costs, which enabled us to deliver the second highest first quarter adjusted EBITDA in Six Flags’ history. So looking back on the past year-and-a-half since I was appointed CEO, it’s clear that 2022 was a year of transition. We thought our business model from top to bottom, and we tested numerous initiatives. Many were successful, and some were not. But I’m proud that we were willing to be bold and to challenge the status quo. We learned along the way. And last fall, we course corrected in many ways, areas. The path toward progress never follows a straight plan, but we are encouraged by the progress we have made over the past two quarters. Our focus remains to deliver an exceptional experience for our guests and sustainable profit growth over the long term for our shareholders.

We are still in the early stages of our transformation. But we are excited about the opportunity to take this company to the next level. I will now turn the call over to Gary, who will provide details about the quarter as well as our outlook for the remainder of the year. Gary?

Gary Mick: Thank you, Selim. And good morning, everyone. I will start with attendance, revenue and per capita spending and then transition to expenses and EBITDA for the quarter. I will finish with our active pass base metrics, select balance sheet items and capital allocation. Total attendance for the quarter was 1.6 million guests, a 5% decrease from first quarter 2022. As Selim mentioned, we experienced unusually cold and rainy weather in California and Texas during the quarter, which we estimate accounted for a loss of 180,000 in attendance based on a five year average attendance excluding 2020. Adjusting for the weather, we estimate that attendance would have increased by 6%. Revenue in the quarter was up $4 million or 3% to $142 million, and was a Q1 record for Six Flags.

This was the result of total guest spending per capita increasing $5 or 7% versus first quarter 2022, partially offset by the decline in attendance. Admission spending per capita increased $4 or 10%, and in-park spending per capita increased $1 or 3%. The increase in total guest spending per capita compared to 2022 was driven primarily by higher revenue from memberships beyond the initial 12-month commitment period, what we call, membership 13-plus, which includes a portion of revenue that is allocated to admissions revenue and a portion that is allocated to food, retail and other revenue. Approximately $5 of the admissions spending per capita increase and $1 of the in-park spending per capita increase was due to the higher 13-plus membership revenue recognition.

13-plus revenue is recognized in the month it is received. And it has an outsized impact on the first and fourth quarters as the attendance is lower than in the second and third quarters. Excluding the impact of 13-plus revenue, admissions and in-park spending per capita were essentially flat with the prior year. On the cost side, cash operating and SG&A expenses versus 2022 increased by $5 million or 3%, primarily driven by higher advertising spend. As we have previously mentioned, we decided to meaningfully increase our advertising spend this year with a focus on digital channels to support our season pass products. Adjusted EBITDA for the quarter was a loss of $17 million compared to a loss of $17 million in the first quarter of 2022, with the increase in revenue offset by higher advertising expenses.

Our active pass base as of April 2023 comprised 3.2 million pass holders representing a decline of 11% versus the same time last year. As Selim mentioned earlier, our season pass unit sales are up significantly year-to-date, but our season pass sales last fall were significantly lower than the prior-year period. Thus, we entered 2023 with a lower active base. We are closing the gap. And as of Sunday, April 30, our active pass base is down 4% compared to last year. Deferred revenue as of April 2, 2023 was $152 million, down $33 million or 18% compared to first quarter 2022. The decrease was primarily due to the lower active pass base as of April 2, 2023. Our improvement in season pass sales this year is reflected in the growth of our deferred revenue during the quarter.

Our year-end deferred revenue balance as of January 1, 2023, which was $129 million, grew by $23 million or 18% in the first quarter of 2023. This compares to a $7 million or 4% increase in deferred revenue during the first quarter of 2022. Total capital expenditures for the quarter were $25 million. We expect our full-year 2023 capital spend to be approximately $150 million, with a balanced approach between exciting new rides, continued infrastructure improvements, and an increased emphasis on implementing guest facing technologies and amenities in our parks. Our liquidity position as of April 2 was $224 million. This included $159 million of available revolver capacity, net of $21 million of letters of credit. Last week, we successfully upsized our revolver from $350 million to $500 million and raised $800 million of 8 years, 7.25% unsecured notes, which we used to pay down $893 million of the 2024 unsecured notes in a tender offer.

Over the next 15 months, we plan to use the excess free cash flow to pay down the remaining portion of our 2024 notes in addition to our revolver balance. Before I turn it back over to Selim, I want to highlight a few items to help you think through the remainder of the year. First, in 2022, our year-over-year attendance trends were consistent with our 2021 attendance trends until mid-June, at which point we began to see meaningful declines that continued to accelerate through the end of September before our attendance began to improve sequentially in October through the end of the year. This is important as you think about our year-over-year attendance comps. Second, we expect inflationary cost headwinds of approximately 6% in 2023 relative to 2022.

While we expect to offset much of these cost headwinds through additional cost savings programs, we are selectively adding back costs that directly and positively impact the guest experience. As a result, we expect to see full-year 2023 costs increase by low single digit percentage versus last year. Finally, we continue to expect our full year 2023 adjusted EBITDA to be higher than our previous record of $518 million of adjusted EBITDA achieved by our core North American operations in 2018, which excludes international licensing revenue. As compared to 2022, we expect this result to be driven by higher attendance, partially offset by lower per capita spending. We expect to grow revenue faster than costs, driving margin expansion. Now I will pass the call back over to Selim.

Selim Bassoul: Thank you, Gary. There continues to be a growing consumer demand for local out of home entertainment, and we believe Six Flags sits squarely in the middle of everything a consumer is looking for. We believe the way to capture this demand and optimize profit in a sustainable manner is by continuously improving the guest experience. That will continue to be our intense focus. Our strategy rests on four strategic pillars. First, our park experiences. Second, pricing and products. Third, seasonal events. And fourth, organizational culture. Our first priority is to improve park experiences for both our guests and our employees. The investments we are making focus on the areas that directly impact guest time spent in the parks, including safety, cleanliness, food quality and variety, speed of service, and guest amenities.

As a facilitator of all these priorities, we are currently undergoing an extensive digital transformation, aimed at creating a more seamless guest experience, increasing sales through both existing and new revenue streams and making it easier for our frontline team members to serve our guests. We plan to roll out our new mobile app in June, which will deliver features such as a schedule of events to help our guests plan their day in the park. The seamless ability to purchase and access flash passes without visiting guest services. With the click of a button, guests will be able to upgrade from single day tickets to season passes or from low tier season pass categories to higher tier options. Interactive maps, a feature that helps guests navigate our parks.

An improved mobile food ordering system, which we expect will help increase the usage of our mobile dining system. We believe this will help raise our in-park spending because our average mobile food order value is 10% higher than a non-mobile order. In addition to technology, we’re investing more in our infrastructure than we have in any year over the last decade. Our primary focus is on guest amenities, including shaded areas to help guests keep cool during the hot summer months, extra seating options throughout our parks for our guests to sit down and relax, and our new and refurbished restaurants and bars. We’re also focused on park beautification, and have added flowers and greenery throughout our parks, in addition to lots of paintings of rides and buildings to improve our appearance.

We have also introduced new luxurious VIP lounges in several of our parks to allow our most loyal guests to relax in a comfortable environment during the day. We continue to prioritize investments in food service quality and delivery, and recently hired a new operations chief to standardize equipment and processes, including increased automation and to create a culinary training program in the parks. eGaming is an exciting new opportunity that we are launching at Six Flags Fiesta Texas in conjunction with our partner Coca-Cola. Our eGaming facility is state-of-the-art and a first for theme parks and the grand opening is on May 20. We look forward to offering our gamer enthusiasts an outlet in our parks to enjoy alongside our signature rides and other attractions.

In 2023, we are making a concerted effort to improve our water park experience. Not only are we adding significant new water rides and attraction, with the focus on family oriented entertainment, but we’re also adding new food and beverage facilities as well as expanded cabana seating. And we are excited to launch wristband technology that allows our guests to purchase food and drinks without having their credit card with them. Six Flags offers some things for everyone. And our team is particularly focused on adding experiences and amenities that cater to families, in addition to our core thrill seeker guests. As part of our focus on families, we’ll be amplifying the IP in our parks, including our true surprise, to use Looney Tunes and DC comic character in our parks.

In 2023, we plan to further incorporate these beloved characters into our seasonal events and festivals. And of course, we will always be committed to adding thrilling rides and roller coasters to our theme parks for guests of all ages. One final point on the guest experience. The number one complaint from our guests is ride downtime. Rides will always be down from time to time due to scheduled maintenance and other safety precautions. But we do have an opportunity to improve our own performance. A few weeks ago, we announced that we are consolidating our maintenance and engineering departments and restructuring our operation to make us more efficient and provide greater oversight and accountability for our rides. This will take time to improve.

But we know that our guests will appreciate greater ride availability and uptime when they visit our parks. So it’s worth prioritizing our time and energy in this area. The second strategic priority is pricing and products. Our goal is to deliver a premium guest experience and to charge prices that are commensurate with the value we deliver to our guests. For single day ticket, we are piloting a dynamic pricing program in our parks that will enable us to automatically change a specific price point based on demand for that park in that day. If successful, this program will enable us to extend our booking curve, drive yield on our busiest days, and drive volume on our slower dates. We believe we have pricing power, but only if we deliver an exceptional guest experience.

We have learned that price increases should be gradual, and should be accompanied by continuous and meaningful improvements to the guest experience. Our goal is to continue the success we saw last year in improving our guest satisfaction scores across all our parks. And if we can do that, then we can increase prices gradually over time. Our third strategic priority is adding quality seasonal events. Events and festivals drive urgency to visit our parks, and provide our members and passholders reason to visit us multiple times throughout the year. In 2023, we plan to amplify our focus on festivals and events. So far this year, we have introduced several new events, including spring break, Tacos and Beer Fest and Viva La Fiesta!, all of which have received positive guest feedback.

Looking ahead, our summer schedule includes new events, such as Flavors of the World, Six Flags Fireworks Spectacular and parades. And the fall and winter months will feature an enhance Oktoberfest, Fright Fest, Kids Boo Fest and Holiday in the Park, amongst others. In addition to giving guests more reason to visit our parks, we believe our events, in particular those hosted at night, give guests more reason to stay in our parks longer, resulting in more fun and more value to the guests and increased guest spending per visit. The fourth strategic priority is changing our culture. What I’m most proud of is the talented and dedicated team we have built to execute our strategy. We have a powerful combination of internal theme park expertise and extraordinary recruited talent, with new skills and fresh perspectives.

We are a much leaner and more nimble organization. We move fast, we challenge the status quo and we innovate. We empower our frontline team members to make decisions that will delight our guests, and we hold each other accountable for performance. Above all, our team has created a customer-obsessed culture. And this is what gives me the confidence to say we can take our performance to the next level and unlock the potential of Six Flags. I look forward to updating you on our progress as we strive to continue to improve the guest experience and increase our profitability. Operator, at this point, could you please open the call for any questions?

Q&A Session

Operator: [Operator Instructions]. The first question comes from Jamie Hardiman with Citi.

Operator: The next question comes from Steve Wieczynski with Stifel.

Operator: The next question comes from Ben Chaiken with Credit Suisse.

Operator: The next question comes from Thomas Yeh with Morgan Stanley.

Operator: Next question comes from Chris Woronka with Deutsche Bank.

Operator: The next question comes from David Katz with Jefferies.

Operator: The next question comes from Eric Wold with B. Riley Securities.

Operator: The next question comes from Barton Crockett with Rosenblatt Securities.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Selim Bassoul for any closing remark.

Selim Bassoul: Yes. First of all, I want to thank you all for your continued support. We have one of the most iconic brand in the US, as witnessed during this weekend, as I was waiting in line and everybody approached me to tell me how much they love Six Flags. However, we have not kept pace with brand building in the past few years. Our innovation was lacking. Our guest experience was average at best. Our parks were under invested in terms of infrastructure, technology and guest amenities. Today, we are pushing more events and more interactive family initiatives to getting our guests to spend longer time in our parks and to increase season passholders visitations per year. As the world’s largest thrill and regional theme park company, we are back adding more exciting rides to our water parks and motor parks.

We have increased the annual CapEx budget for the company to a record number in 2023, 2024 and 2025. We are investing in our park to become more kids and family friendly. We are boosting our R&D on technology. We are increasing our marketing and media spend in 2023 to promote all those initiatives. And let me remind you what they are. We are basically rolling out several festivals, such as Viva La Fiesta!, Flavor of the World, Summer Night Celebrations, Oktoberfest, Boo Fest in addition to Fright Fest and Holiday in the Park. We are launching family coasters. We are putting kids slide and play area in our waterparks. We are building kids indoor play area. We are launching for the first time an all day dining. And that all day dining is different than our seasonal pass dining, which has higher cap than our regular food service, and it’s something that our customer and single day ticket holder have asked.

We’re adding parades and dazzling fireworks with lights and music, synchronized music in the evenings. We are launching trendy food items, such as Korean corndogs and mocktails and more and more, 20 more items coming. We’re adding interactive family entertainment shows such as [indiscernible], pie eating contest, family bingo, scavenger hunt, among others. We are revamping our merchandising offering. We are leaning more heavily in ride-specific merchandise, something our guests have been asking for. We are also introducing a host of new merchandise with posters, toys, train models, and apparel with higher quality fabric and more trendy designs. We are launching our new mobile app this June. We are so excited about that. It will make it easier for our guests to navigate our parks, less friction.

We are putting in QSR, touchscreen order stand to take out wait line, to reduce waistline for our guests, similar to what you see at the fast food chains, such as McDonald’s and Taco Bell. We are rolling out roller coaster coffee stores across the chain ,offering hot drinks, cold brew, as well as baked goods, including theme baked goods which guests can relax into. It creates impulse buying opportunity for our guests. We are launching, and we’ve opened, several of our VIP lounges with all the bells and whistles that guests will love. Then, I could not talk about this without talking about those initiatives, without starting with our employees. They are the foundation of our culture. And as a leader, I tried to build on that. We take care of our people, so they can take care of our customers and the rest take care of itself.

Our people show up every day, and they are working hard to improve the guest experience to make our parks cleaner, friendlier and more beautiful. We all work hard to reduce friction and to make us easier to do business with, smoother to navigate our parks. We are not all there yet, but we have made steady progress in our front gate, in our restaurant, in our parking. The beauty of what happened this past year is the great work in collaboration amongst our team. This has never been like this at Six Flags. It was always heavily tilted toward corporate decision-making. Now it is more balanced, with our parks being able to make more local decisions. It is beautiful to see. I am proud to say that most of our employees today are acting like owners.

Thank you. I hope you can come and experience all the new infrastructure changes, the technology improvement firsthand, and hopefully the summer. You come and celebrate with us, our Summer Celebration, our Flavors of the World. We welcome you. Thank you.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.