Q3 2019 Earnings Call
During the presentation all lines will be in listen only mode.
After the speaker's remarks, we will conduct a question and answer session.
Hi, My question at that time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question press the pound key.
Thank you I when I will turn the call over to Steve <unk> Senior Vice President Investor Relations.
Good morning.
With me are generally that are saying chairman president and CEO of six flags and Marshall Barber, our Chief Financial Officer.
We'll begin the call with prepared comments and then open the call to your question.
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 with such statements and the company undertakes no obligation to update or revise these statements.
In addition on the call, we'll 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 and the company's annual reports quarterly reports or other forms filed or furnished with the FCC.
At this time I will turn the call over to Jeff Good morning, everyone and welcome to our third quarter coal.
I'm pleased to report the highest first nine months attendance in revenue and the highest third quarter active pass base in company history.
As we drive towards our 10th consecutive record year financial performance.
We saw solid attendance revenue growth and unique visitation across both our legacy Park.
And the parks, we acquired last year.
For the last several years most of our revenue and profit growth has come in the fourth quarter and we're optimistic that we will again deliver growth this year for several reasons.
First we grew our active pass base as of September 30th by 2% to a new record high even as we increase ticket prices and converted more cash to our higher tiered membership.
Our average selling price of new membership is substantially higher than season passes and our active membership base. It's also higher than prior year.
Second we continue to grow our all season dining program, especially membership dining increasing our penetration to record levels.
Good post compulsory revenue from members that have passed their initial 12 month commitment period, it's higher than ever spreading revenue into the first and fourth quarters.
Fourth despite the downward pressure on deferred revenue from members, who have been where that's more than a year.
Third revenue is up $5 million or 2% to our highest third quarter balance ever.
Finally, we continue to expand our world class Fright Fest and holiday in the park offerings, adding new attractions and event days to accommodate growing demand.
We are making progress on our international development project, which represent about 3% of our annual company revenue. Unfortunately, the Chinese market remains difficult and we are likely to continue to recognize lumping lumpy international agreements revenue until we see progress there from a macroeconomic.
Real estate and trade perspective.
We are developing a sustainable business model that delivers consistent recurring revenue and cash flow enhances customer loyalty and protect against both bad weather and an economic downturn.
Before I turn the call over to Marshall I would like to update you on two other topics.
Regarding the CEO transition process, our board search committee has been proceeding at the anticipated pace and there continues to be great interest in the role with an outstanding group of candidates.
We're on track to make the CEO selection ahead of the February 2020 target date, and our board hopes to announce a final decision in the near future.
The second topic addresses the recent rumor about M&A discussions.
We have the ability to independently grow above the industry average for years to come.
Yet we also believe there are attractive opportunities industry consolidation, whether by acquiring Standalone parks as we have in the last two years or by pursuing scale transaction.
We believe it is always important for any management team and board to remain open to possibilities that could benefit their shareholders.
Our logic is that our differentiated capabilities can enhance the performance of any newly combined entity.
Our policy is not to comment on specific M&A, especially rumors but weve long stated that we are always assessing opportunities for which there was a compelling rationale.
Over the last few years discussions have occurred with most regional players in the industry and those discussions taking place over many months and in many cases years.
We are very disciplined and borrow in our assessments and have strict guidelines concerning return on investment.
We also work hard to understand the needs of the other side. So assessment a structure and associated considerations are a key part of our approach.
We would never proceed without studying the situation and proposing something that works for both parties.
At the end of the day, the only barrier that we have consistently self imposed has been our discipline to not overpay for an asset we will never do that.
So we are always looking at opportunities, but just in case. There is any lack of clarity we are not in the midst of any discussions or negotiations for an acquisition or merger of significant size.
Clearly overtime that could change, but at this time, we have one singular focus driving continued success at six flags beginning with achieving our 10th consecutive record breaking year in 29 team and continuing with initiatives that will help us delivered strong financial performance for many.
He has to come.
I will now turn the call over Tomorrow's filter review, our third quarter and year to date financial results Marshall. Thank you Jim in the third quarter year over year guest spending revenue increased $11 million or 2% as a result of a 3% increase in attendance, partially offset by a 1% decrease in total guest spending.
Per capita.
Total revenue growth.
It was further offset by an expected $9 million were 26% decrease in sponsorship international agreements and accommodations revenue.
Guest spending per capita was down 1% to the prior year quarter with admission per capita down 69 cents or 3%, partially offset by in park spending per capita which was up 11 cents or 1%.
Guest spending per capita was adversely impacted by.
A higher mix of attendance from the active pass base, which puts downward pressure on per caps.
Higher mix of attendance at our Newparks, which has significantly lower guest spending per capita.
Deferral of revenue into 2020 from new membership sold in 2019.
And strategy driven promotions for memberships, such as waving transaction fees for a period of time.
Which served to stimulate interest in memberships and increased sales of all membership products.
So the membership promotions put downward pressure on per caps in the near term. We specifically implemented this strategy because memberships provides significant long term economic upside for the business through increased guest loyalty and lifetime value.
Just as one example, we estimate the lifetime value of a diamond or Diamondx to lead member to be three to four times out of a season pass holder based on the average selling price of their palace higher in park spending and the number of years they spend in the program.
Also prior to the ended the season, our near term active past growth can be adversely affected by the shift to memberships.
Unlike season pass holders, who pay upfront and therefore cannot drop out into the season ends.
Portion of new members do fall out before their initial commitment period is completed.
Our members pay more and have lower turnover than season pass holders. After the season ends which over time should result in higher retention and a larger active pass base.
In the past eight years, we've grown from 13% of our unique visitors being in our active pass base to 40% in 2018.
This increase has been a major reason for our success growing revenue and profitability and we'll continue to be a significant driver of our success as we go forward.
Turning to international licensing, we continue to suspend revenue recognition for Nanjing, our third location in China, you had discussions with the local government are ongoing and we're striving to obtain all necessary approvals that will allow us to begin recognizing revenue once again.
In addition, the city of Chongqing has made the decision to open one part per year, which moved up the opening of our adventure part by six months and delayed the opening of our kids part by 15 months, resulting in a net production of revenue recognition in the quarter.
In Saudi Arabia, where our park is part of a massive complex requiring significant infrastructure investments. The opening of our park has moved back five months to May 2023.
At this time.
And consistent with the last update so as Jim noted earlier, the Chinese market continues to be very challenging for our partner.
On a year to date basis total revenue was up $32 million or 3% driven primarily by the 4% increase in attendance offset by a slight decrease in guest spending per capita in a 3% decrease in sponsorship international agreements and accommodations revenue.
The attendance gain was driven by growth across all of our parks, including our new parks, which were up significantly.
Year to date guest spending for Cabot it was down less than 1% or 29 says to prior year due to previously mentioned factors.
In the quarter, we maintained a strong focused on controlling costs as year over year cash operating SGN a costs were down 1%. Despite pressure from mandated minimum wage increases in several markets and the incremental costs to operate at least magic waters or new Waterpark in Rockville, Illinois.
Year to date cash operating units DNA costs were up approximately 5% over 2018, primarily as a result of incremental costs at our five new domestic parks in the first five months of the year, including lease expense and cost to operate in rebrand the newparks and to a lesser.
But at the costs associated with Magic waters.
As you as you will recall, we did not begin operating the five parts until June of last year, We began operating magic waters on April 1st this year.
Excluding these incremental costs.
Cash costs on the same store basis, we're up less than inflation.
With a modified EBITDA margin of 40% in a modified EBITDA less capex margin of 30% we are by far the most efficient company in the industry.
We continue to generate robust cash flow.
And we have further strengthen our balance sheet this year.
The first nine months of 2019, we generated $216 billion of adjusted free cash flow and paid $209 billion in dividends.
Given the high recurring nature of our revenue strong cash flow and multiple strategic growth opportunities. We remain very confident in the level of our dividend.
As it's been our longstanding policy all excess cash flow remaining after funding all business investments that amortization and dividend payments will be used to repurchase shares.
At the end of September the remaining amount authorized for share repurchases was $232 million.
Net debt as of September Thirtyth was $2.1 billion.
Our net leverage ratio was 3.7 times adjusted EBITDA with no borrowings under our revolver and $212 million of cash on hand.
Earlier. This month, we took advantage of a favorable loan market and demand for our credit to reduce the borrowing rate on our term loan saving approximately $2 million annually in interest costs.
In August we also availed ourselves to have historically low rates.
Entering into a second interest rate swap for an additional $400 million of our 798 million dollar variable rate term loan.
Together with our fixed rate bonds. This makes 96% of our total debt fixed at an average interest rate of 4.5% for the next five years with no debt maturities until 2024.
Our growth strategy to help us evolve towards long term stability for the business in a positive transformation of our business model.
As our membership dining and international licensing programs continue to grow a larger portion of our revenue base is recurring and spread more evenly throughout the calendar year.
In addition, our expanded operating calendars and investments in our fall and winter events are shifting attendance in revenue patterns, but ultimately these growth strategies will lead to higher growth.
GAAP and ability and cash flow.
This trend will continue and we remain confident in our set up for growth in the fourth quarter full year 2020 and into the future.
Now I'll turn the call back over to Jim Jim. Thanks, Marshall as Marshall said, we are well positioned for long term growth in 2020 and beyond.
We have sat very high aspirationally goals for ourselves through our projects. This has helped us to drive innovation and growth and deliver exceptional value.
Our aspirationally projects Sevenfifty goal has become a high bar for us to clear by 2021, and now requires a CAGR of 11%.
Nevertheless, every employee at six flags is striving hard to achieve the best results possible and position the company for success, no matter, which way the economic winds blow.
And remember most of our eligible employees own stock in the company and for that reason They think act as shareholders.
Our commitment to reinvesting in our parks and enhancing the guest experience continues to be one of our highest priorities and next year. We will feature the best and biggest lineup of new rides Abba.
We are the innovation leader in fencing products and services that have been copied and adopted by others in the industry.
Such as our spectacular expanded fright Fest and holiday in the park events are all season dining programs, our membership program and our loyalty program, we're consistently pushing the envelope for our guests by offering first of a kind world class rides and 2020 will be no different.
A great adventure, we're introducing the Jersey double Kosta the worlds tallest fastest and longest single rail coaster inspired by New Jersey folklore.
At six flags over Texas, Accor manpower wave a first of its kind water coaster in North America, and the parks 15th coaster at Great America tsunami surge the world's tallest will also coaster at discovery Kingdom, we're introducing sidewinder Safari a unique combination family coach.
After an animal exhibit.
We will be rebranding, our new water parks in Oklahoma City, Oklahoma, and Rockford, Illinois to Hurricane harbors and as we do every year, we will be investing sizable sums of money in our park infrastructure to ensure our parks the safe clean and enjoyable for our guests.
Our five strategic growth areas provide a platform that will drive revenue and margin growth for years to come as we build momentum around our focus strategy. Each represents a substantial opportunity, but we're not dependent on any one of them.
The first area is increasing memberships and season passes we will continue pursuing a membership penetration strategy to drive our unique visitor peasant penetration up from 40%.
And we will focus on further increasing retention using technology to personalize data and customize messages for all of our guests.
Especially the more than 1 million and growing number of members who have enrolled in our loyalty system and program already.
The second to area is increasing get ticket yields we have pricing power in all our markets have taken ticket pricing up an average of 3% to 5% and have just taken strategic price increases on new memberships and dining passes.
Our value for the money ratings continue to be strong.
The third area of growth is in part sales, especially culinary revenue. We have continued to increase dining pass penetration and are introducing mobile dining in our parks.
There has been a step change in our dining pass penetration and volume of Carlin resales.
Some of our highest margin products and we are really still only in about a third innings of the program.
The fourth growth area is our strategy to acquire parks nearby our existing North American theme parks.
We have integrated eight park since the beginning to strategy and we are pleased with the way these parks to performing for level upfront investment, we can leverage our membership base and operational capabilities to double the profitability of the acquired parks over several years.
Finally, the fifth area of growth International licensing.
As the middle class grow by 1 billion people globally over the next 10 years. This strategy creates a high margin diversify source of recurring revenue with no capital investment.
We continue to press forward with a 12 parts on the development and we are having productive conversations in new markets. We look forward to announcing new deals over the upcoming months in years.
Our unique company culture has been the foundation of our success.
And we are the only regional theme Park company to achieve nine consecutive years of record financial performance through 2018.
Our capital allocation policy remains a key component of our value offering to shareholders.
Since 2010, we have returned over $3.7 billion in the form of dividends and share repurchases and we will continue to return all excess cash flow into the future.
Our dividend yield, which at greater than 6% is more than triple the S&P 500 makes our stock a compelling investment for both growth and income investors.
Christine at this point can we please open the call up for any questions.
As a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q and a roster.
You had a question from Ian Zaffino of Oppenheimer.
Morning.
Question would be Jim on your comment about.
Industry growth above industry average growth.
What are you looking at as far as category growth.
Number one what is that number you're kind of benchmarking yourself too.
And how you're thinking about you outgrowing the industry is this on it and attendance side is it on a revenue side, how do we think about that thanks.
So I think again, thank you for that question with regard to performance versus regional competitors. If you. If you simply as as I described earlier look at the last nine years no. One comes close to whilst we are the only company that has grown our our performance consistently through the nine years and especially when you look at over the last five years.
So are we outperform everybody. So it's not that that means that the industry is not a good industry. It's a fantastic industry and I've consistently said that this is an excellent in industry to invest in when you look at performance I think that people are looking at a 3% to 4% type growth.
We obviously want to be able to grow at a at a rate faster than that and do that consistently our focus is not so much on attendance on its own it's nice to be able to get attendance growth, but we've also maintained the what we really try to do is to be able to deliver.
Profitability growth and very importantly, cash flow growth in order to drive our share price. So if you look if you go back to when I. Originally started the company and look at the Cagar.
On the performance of the company, you're looking at 12% growth roughly on our goal would be to continue to be able to get that sort of growth over the long term.
Okay.
It sounds like it seems to be like an overall like revenue growth numbers that you're sort of skiing in future would that also assume.
Deals remember that this is kind of been organic number and I guess, what I'm really trying to get at year is what's your underlying organic growth for the business. Just because you look at this past quarter. It was a pretty clean quarter from a perspective of organic growth year over year and.
You also have had very easy weather comps and I'm, just trying to gauge what the actual growth.
How do you see that growth, yes, I think I think thats a good question I think when you look at whether and then I'll put that behind us because we really as you know don't don't even like talking about weather, but every now and then we have to was definitely a better weather quarter. Although as you know the year itself through June that was the worst 12 months in North American history.
In terms of weather, so whilst the quarter was better.
We did have specific issues in the quarter that affected us and flooding in Houston meant that part was taken out Texas had some issues and we ended up closing some parks, but at the end of the date was a positive trying to actually breakout how much that was is difficult, but what I would tell you is we grew attendance by for her.
Hundred 40000, or 3% to 14 million guess pretty amazing number if an all time high and what what I really loved about the court or is that attendance revenue and EBITDA grew at the legacy part for the quarter and the first nine months.
So that was very strong and then when you look year to date, we basically the salt so exactly the same performance those parks, whether legacy or new parks, all grew and we improved the margins at the newer parks, although those margins are still below our historic margins. So Ian.
We never give guidance you know that so I'm not going to give you a number and say here is the number but we are striving very hard to outperform to continue to be successful.
And we'll do whatever we can to do that we don't look at acquisitions in order to drive that growth, but they do help and they're one of the for one of the five key initiatives that I talked about.
Okay, and then just talking Doug switching to M&A since you mentioned that.
How do you think about your your balance sheet here.
Dividend policy, because it sounds like you kind of want to get a little bit bigger on the M&A side or little deeper on the M&A side.
So is there something along the lines of maybe elaborate a little bit you could create some balance sheet capacity.
Or something along those lines or maybe moved a little bit more flexible capital return policy, where maybe be more buybacks as opposed to dividends, especially given where the shares are trading at this time. Thanks, yes. So I will comment on M&A and you heard my comments earlier and historically, we've said nothing but given the rumors.
We're out there at all the different stories that were published by by folks I wanted to make sure. We cleared the era. So it was it was absolutely crystal clear that we do not have any acquisition bid out there for anyone.
We are always looking on an ongoing basis it at small medium and large sized parks and families. The parks to acquire so that that will never stop with regard to our capital allocation policy strong sustainable dividend has always been apart a really important part of the value proposition for our shareholders we remain absolutely.
Committed to it and we'll continue to meet with our board as we do on a quarterly basis to talk about the balance between dividends and share buybacks and there's no reason why we would not continue to do that we feel very confident about the ability to to do that.
Okay. Thank you very much also well thanks again.
And your next question is from Michael Swartz with Suntrust.
Hi, good morning, guys.
Hi, Michael.
Hey, just.
Trying to get more color on maybe the.
The quarter played out I think back when we talk to you in late July you had kind of signaled that.
You know July had started softer than you ended the quarter with 3% attendance growth. So I guess that would necessarily mean that August and September were much better. So maybe you can give us a little more color on just how you saw that play out.
Marshall would you like say that's true.
The we did have rainfall elevated rainfall in early July as you mentioned.
September we also had some weather we had flooding in Houston associated with the tropical storm, Imelda, which impacted Texas and actually horses to close the Houston Park earlier than it was scheduled.
Year to date, the weather's been mixed slightly better than last year.
But that's generally thats pretty much out played out from a weather perspective, but I think you're right Michael at the end of the day it started.
Refer and then improved and we ended up up 3%, which was I think nice nice boost.
Okay, Great and I think.
Jim in your in your prepared remarks, you had mentioned that you have begun to see I guess unique visitors.
Well at some of the year recently acquired parks can you can you maybe flesh that out a little bit first as well.
I think the simplest way to do it as people do ask US are you growing unique visitors and I think what we've really seen both in the quarter and year to date and I won't give specific numbers, but is very nice growth. Both in other words were not seeing the newparks.
Grow stronger than the than the legacy Park, both are growing and they are growing attendance, they're growing revenue and they're growing EBITDA.
Okay. That's the challenge is that I think Marshall told to this in his in his remarks, but at a higher level. When you look at the performance the organic performance of the business. It was extremely good.
The reason, it's maybe a little bit must is that we had five months of expenses those newparks that we're not in our piano last year, that's significant and also as noted by many of your colleagues.
International numbers, we're obviously not as expected by the street, but those two items pulled down the overall results. When you strip those out and you look at the success of the organic business growth in the business, it's very strong.
Thank you.
Thanks, Michael Thank you Michael.
Your next question is from Stephens Ensco at Stifel.
Hi, Steve Steve Hey, Good morning, guys how are you.
Good you. So first first question would be around the targeted promotional spending you guys or Marshall talked a good bit about in order to drive membership penetration.
That's what I'm getting at here is if we would look out over the next couple of quarters.
Is it fair to assume the admission the admission per caps will continue to whether that's run negative or be flattish given these promotions and some of the other headwinds you guys called out in your your prepared remarks.
No I don't know Thats, we won't give guidance on what's going to happen. The next few quarters, but a lot of these memberships and really just the reason we did these membership promotions as you know promotions are an important feature of the theme Park business, we do know that memberships.
The highest margins the best lifetime value for our guests and so aggressive penetration does make sense.
We did we tested a variety of promotions and we really did it during the sales windows for season passes and memberships and single day tickets win because memberships are more expensive they tend to be less attractive.
An example, waiving fees signup fees offering various credits.
We provided giveaways, so just drink bottles.
Many of these impacted the quarter, but don't have a long term effect.
I think about the the fees the side of fees, we booked that revenue in the quarter. So we get the higher revenue going forward, but we did take a per cap hit this quarter.
Our results were exceptionally positive with with.
With these promotions and we continue to grow the membership program as we as we desired.
And going forward, we'll use promotions the promotions that had the biggest impact of the lowest cost of acquisition, but I don't think I would say that what we did in the quarter is indicative of what we're going to be doing.
In Q4 and beyond.
So so what you're saying is that should start to slow down moving forward.
That's right that should that those promotions.
Were mostly an impact of the quarter.
Okay Gotcha.
Second question Jim.
I know you've talked about in your prepared remarks to 750 million Aspirationally goal by 2021, I know you guys still say that's aspirationally, but.
I guess, what I'm getting on here is why still have that target out there I mean, if we look at the last 567 years and I don't know if I can see a year, where you grew kind of double digits and that modified EBITDA. So.
I guess the question is should we just almost ignore that target or are we missing something and you still think that is a a real aspirationally goal.
So I think it is an aspirational goal for the team at the company and where measured on achieving that goal and there are people who will be rewarded on achievement of that goal. So we will never give up on its whilst it is as you point out a stretch to get there. It is still something that we look at and consider and look at ways.
What we can get there, but it will be very hard to get their definitively Steve as no doubt about that.
Whilst you commented on on the performance you look at our CAGR. If you look at what we've done it's 12% growth since since 2010. So the reality is the company has done very very well it will require a lot of work to get there.
But we've got several things going in our favor I talked about the five key initiatives.
The membership program that we're ramping up and we should see accelerated growth in 2000, 2020, and 21, but 11% CAGR is a big number.
Okay got you guys. Appreciate it thanks. Thank you.
Your next question is from James Hardiman of Wedbush Securities.
Morning, James.
Good morning, guys. Thanks for taking my call. So.
Wanted to continue along the same line to the there.
And in hopes of maybe unpacking that this per cap issue I think that was at least organically probably the biggest disappointment for the street and seems like based on comments you guys had made previously.
You know the hope was that membership 2.0 would would.
I would add to the per cap for this year and they're down sharply. So maybe if you talked about four different items that hurt per caps.
We are those sort of in order of magnitude you talked about the higher mix of active pass higher mix of of Newpark.
Third revenues in the strategy driven prone to promote maybe talk about sort of the relative size of those and which if any were sort of not contemplated.
Earlier in the year, we're not we're not part of your plan previously.
Yes, so the answer to that is yes, they were in order of importance.
The promotions that we did were.
They did have an impact but they were not the most important impact the the biggest impact really where the to the active pass base mix, which was higher in the quarter.
And year to date and as well as the.
As the.
The mix of new parks that do have significantly lower per caps that we did increase those per caps.
For the newer parks, but it's still still significantly lower than the average.
The legacy parks.
In terms of breaking out I would say.
I'm not going to get into a lot of detail, but the first two are the biggest too.
I think the growth that we saw in the quarter as it relates to.
Shifting money into 2020.
We had we had a fairly aggressive conversion from season pass into memberships and that in the third quarter has has an impact.
I think I think that may be the one thing in the quarter, but ultimately.
What we've done.
Is going to raise the per cap going so let me add to that change by just giving some specifics and you know we don't give guidance, we won't say here's the per cap. This is it but our goal has been and we'll continue to be to further increase per comps as we grow the membership base and the dining pass penetration.
And we have the ability to continue to apply proven revenue synergies to new part thats to come so some of the initiatives that being implemented or have already been implemented as a strategic price cut price increases on new memberships, which will help grow admissions per cap, we've done something similar with regard to dining programs.
And then with promotions, we learnt a lot about which promotions work and don't.
Which which are more expensive than others and the ones that are more expensive are not going to be used again very in very simple terms. So it really is specific to the quarter.
The other area that we're working on very actively is membership has default just like it does than any other.
System and so we're working on lowering that.
And then overall ticket price, we're looking at 3% to 5% increases so all of those will help but when youre growing as we are and youre growing the membership in season pass base, you will see a movement in.
PUC cap.
Pressure on that per cap downwards, as we have through our history as a company and yet we still registered record revenue record profitability. So whilst one quarter may be down overall, we're looking to drive higher revenue higher profit higher cash flow.
So the membership program itself is very good for long term revenue and profitability, but there may be near term volatility, okay, sorry, James I cut you off there.
That's okay, but bottom line is for May mean membership 2.0, I think the thesis among a lot of people that owned your stock at least 24 hours ago was that that would be but that would drive per caps nicely higher. This year do you think that was fundamentally.
Incorrect assumption.
Do you think that 2020, you will see a bigger impact from membership 2.0 actually falling through to the bottom line or at least the per cap line.
Where do you think the disconnect was there.
Well, let me be crystal clear once again, James to say that our goal is to drive revenue and profitability and therefore cash flow.
So that's always been the goal even if it meant less lower attendance or perhaps being slightly lower that is something that can happen as long as we are driving the overall business to higher cash generation. So what do I think will happen again, I'm not going to predict specific numbers, but I believe with the membership strategy with the high.
Higher tiers that we have the higher pricing and our success in penetrating at the diamond or Diamondx ALLETE level, we will ultimately see per caps increase I do believe that and I think it'll come and 2020 and 2021, but more importantly, I believe we'll see bottom line.
Profit and cash flow improve.
We're in a big.
James we're in a big transition period here.
Much like when we were transitioning into season passes and so we're growing these memberships pretty dramatically year over year.
And we know we're charging more and we know the people are staying longer and those two metrics haven't changed since we started membership to point to so ultimately these will drive the per caps up it's just as long as we're transitioning and growing the active member base by 25%, It's it's a big try.
Additionally, we will have an impact in the short term.
Okay. That's helpful. And then just maybe one clarification you talked about launching.
The tape the changing of timing of when those parts are going to open and how that impacted revenue can you just.
I guess, maybe talk about how that impacted the quarter and then sort of how to think about that on a on a go forward basis versus where we work three months ago.
So, yes, so we will I'm not going to break.
Individual revenue per per park or per market.
The biggest impact.
Obviously for the quarter.
Was the fact that we don't have Dubai, which we had last year and we also don't have Nanjing, which we recorded last year. There was an impact for both Chongqing, which was fairly minor and Saudi Arabia, which was also fairly minor and together they were a small part of the difference.
Okay got it thanks guys okay.
Thank you.
Your next question is from Tyler between area of Janney Capital markets, Hi, Tyler Monotype had good morning. Thanks for taking my questions. The first one for me you mentioned portion of new members falling out of the base can you talk a little bit more belt and discuss the churn.
And the membership program.
Sure I think you you look at other businesses any businesses has many members has defaults. It's just the way. It is so when you talk about it Marshall I'm sure.
We're not we haven't given out the default rate, but as we look across other industries. It is it fits within the industry norms.
The revenue impact is actually less than the default rate because most people make it partway are most most through the year.
Members, who are in default are not included in the active pass base. So initially more.
Act more the active pass base can fall out slow the growth of the active pass base within the year.
However, the churn rate after the season ends is far lower than that of the season passes even after the default.
I will say the default rate is it has been improving since the introduction of the new membership program, we have more affordable membership dining.
As well as we're now selling.
Monthly payments are in.
Membership payments to people, who don't need a payment plan, so they're more able to pay.
But ultimately this should lead to active higher active base.
Again, we're going through a.
Transformational period here and.
Within the year, there is going to be people members can drop out and so.
Yes, but instead in simple terms Tyler you think about the season pass program basically all of that revenue gets recognized in one year, a membership American thought halfway through the year three quarters through the year and you're really only recognizing fat partially through the year. So there is a period of time in the year when you acquire.
Yeah, our members in essence, when some of that revenue would end up in another year. The following year that is part of the challenge here. It shifts revenue from one year to that to the other but there is no doubt that we are gaining members and in that process. Some of them. We're converting a season pass holders who would have paid in it.
2019 at all the revenue would have been recognized and instead, we're having some of that revenue recognized this year and some will be recognized next year, we will move to a point, where we're going to get them past 12 months and we're going to be recognizing monthly and you'll really see a smoothing of the revenue the cash flow and the cash generation for the company.
Okay that makes sense.
This is a follow up more of a high level question just on the competitive environment can you talk a little bit more about what exactly you consider to be your competition.
Do you think that Theres, maybe new entertainment options out there that's potentially some of your guests are looking at.
How do you think your pricing stacks up to some of those other possible entertainment options that are out there for folks.
Yeah, I think it's funny, because we talked about this before tolerate there are lots of options for entertainment.
And it's not that our other regional.
Companies, our competitors for us there really aren't except in a couple of markets. There they're part of the same industry, but we don't compete generally so it's not theme parks per se that our competition, it's more around other alternatives for the way people spend time, so it'll it could be as simple as going to the movies going to.
Hi, Gulf somewhere and other activities that we all read about an all hear about when we look at our business in our goal is to make people happy we want to make sure we're relevant and that we provide an experience. This really different from what anyone else can do and we are finding more and more that people want that special experience with their friends with their families.
Okay.
In our park and hence the growing attendance success that we've had a clearly shows that people are coming to the parks.
And in Big numbers. So we do look at all sorts of different alternatives, we make sure that our pricing is.
It is right and I think as I described earlier, we have intense research that looks that every aspect of every single one of our parks and one of the measures there is value perception and value perception has been very strong even with the price increases that we've taken Tyler. So we're looking externally internally we look.
Also at our regional competitors for pricing, we make sure that were not.
Too high or or too low.
And every now and then we might get it wrong, but we'll of course, correct and make sure that we get on track, but I feel very good about pricing, where we sit and I feel very good about the potential to continue to increase price.
Okay. That's all for me. Thank you Thanks, Tyler seller.
And your next question is from Alex Moroccan Darren Baird.
Hey, good morning, guys. Thanks for taking my questions.
So the first one is on holiday in the park I'm trying to think about the next few months performance and I'm wondering what's going to be new this year for that program and then how much do you expect Great America and frontier city to benefit from their second year of holiday in the park.
So in terms of what's different we've invested.
Both in Fright Fest and in holiday in the park skin this year.
I think as we've said Oh, it really is a building.
Overall year over year over year. So the first three years, there is significant growth, but as we continue to invest in holiday in the part we continue to grow Texas is that all in the park since the eighties and.
Last year, they had a great year and we expect we expect them to have a great year this year as well.
It really becomes a tradition for people and that tradition year end and year out.
Families want to do something over the holidays, when theyre together and there's really no better place to go or thing to do than to go enjoy the park and make some small orders and ride. Some rise. So we have 15 park doing Fright Fest 13 doing holiday in the park.
People are very excited about it we have added some days targeted days over prior year that we want open in certain parts just to make sure that we capture all of the revenue that we can we've updated many maids is pretty much in every park, whether it's in fright Fest in the same to some of the attractions and shows at holiday in the park and our teams are very excited.
By this honestly Alex this for many people is the best time of the year because guests love the experience, especially the holiday in the park experience and they want to be there with a families and as Arsenal said, it's growing so as differentiated offerings. Both in terms of the attractions, but also I must say in terms of the food the calorie side.
Beverages, even alcoholic beverages unit doing quite a lot with blood bags believe it or not you know about our coffin challenge for us for Fright Fest. So every event, we have we try to target to the local market and we make it special and they tend to be.
Quite successful so we're excited about the season certainly something we're looking forward to and we think we think it's going to be very strong.
Okay that makes sense and then just one more follow your segment on CNBC last night, Jim and you were talking about a tough EPS comp due to a state tax benefit in Q3 18 can you just explain the impact that benefit us I don't believe it was discussed last year.
Yes, I think maybe Marshall will take that is one of the that's one of the major changes there. So Marshall you want to handle that one sure yet we have excess tax benefits and they go in and out every quarter.
Had nothing to do with cash taxes, but really just the tax expense.
And as basically there was a tax change in New Jersey, we added credit last year, we don't have the credit this year going forward.
Our tax rate will be in the low to mid Twentys.
In terms of tax expense.
Okay. Thanks, Thank you.
Great.
Thanks, Alex.
Your next question comes from Tim Conder of Wells Fargo.
Hi, Tim Good morning, Tim.
Good morning, gentlemen.
Couple of things here.
On the memberships given given that you did some promotions there.
What's been your own a year to date basis here whats your year to date membership growth or are you seeing Marshall and.
I thought you may have alluded to maybe 25% earlier in the color maybe I missed Miss heard something there, but just wanted to check that number.
Yes, it's been in line with what it has been this year it was up about 25%.
The active member base.
It membership grew 25% year over year or its 25% of your active base no no. The membership base grew 25% year over year.
Okay. Okay. Okay.
And then again sorry to keep on this but I know as it's a lot of discussion among investors and already been talked about a little bit here, but especially the Q3 admissions here, we understand that the memberships are smoothing things overtime and.
This year appeared as already has been talked about to be the year that you would start to see that especially after Q2.
But but.
Given the weather in general was better given the Houston, you only have a small water park.
You've taken pricing.
You sold very anemic admissions growth here in Q3, and then we're not that far into the into the new tiered membership program and yet we're seeing some pretty aggressive things to do to try to continue to drive that and we get the long term value, but it just seems like the is some of the things it.
It's hard to bring into that revenue line just outfitters any additional commentary that you have an already given that you can can talk about that.
Just given the dynamics here that kind of all set into the end of the into Q3 on the admission side.
Yes, and so I think first of all that we didn't do aggressive discounting we did some testing of promotions.
And I think the other thing to consider is if you look at over the last.
Five years seven years, we used to have we stick at 75% of our attendance from the summer months, that's now less than 50%. So there. The membership program first the season pass and now the membership program, even more has pushed attendance while growing attendance is pushed attendance into the shoulder.
For periods.
As we invest in price as Jim mentioned, how great Fright Fest is an outbreak.
How did the park had been doing you look at our growth in the fourth quarter people enjoy those times, they're going to come three to four times and so as we expanded calendars.
People, just enjoying the park a little differently than they have in the past.
So I hope that helps a little bit on.
The third quarter, so Tim we feel very strongly that that the third quarter was impacted by these items.
Many of which were onetime in nature, and we will we will see an offset to that going forward.
But we're not as I said earlier, we're not going to give guidance on what it will be.
But we look at membership over a period of time as being a very positive boost for our overall pricing, which will translate through to higher revenue and higher cash flow growth that is our primary focus not on the average per cap, we want that to go up but it may well be we'll.
And that it doesn't or it's flat as long as we're driving revenue profitability and cash flow up then that is our measure for success.
The totally agree and then as part of that as you've already talked about unique visitors. So totally agree those are the key metrics okay.
Moving on to the international side.
It just Marshall can you give us the third quarter International revenue what was rushing nice in in that sponsorship and international line.
And then if you want expectations for 2018.
And as it relates to that other than the comments it should made on the park in Chongqing and that sort of the.
Acceleration of one delay the other.
Has there been any material change in the timeline of China over the last 90 days.
So I'll start with the housekeeping the Q3 revenue was $8.3 million.
In terms of 2020.
I heard you Chuck but when you said they were not going to give you guidance other than to say the parks that we're currently recording revenue on now we expect to continue our hope is that we get the Nanjing approvals that we need and we can start recording that revenue as well.
And then what was the other part of the question.
I guess other than the comments that you made about the kids park delays in the one one other small part being accelerated had there been any changes in the China timeline.
I know, you're just being a little cautious Jim I think you you talked about.
Overall horse macro.
Environment, and so forth, but has the timeline change in any material way other than than the term chain commentary no I think Marshall talked about chunking. He talked about also Saudi Arabia, and I think the way to think about this Tim honestly is too.
Understand that these developments on not just building a theme park in the case of China. They are building cities basically with a theme park in the city.
And the same is true of Saudi Arabia, when you think of kidney.
They are building a massive entertainment complex that has a theme park in it but has a formula one track its got all sorts of other.
Activities that are going on around it so it's actually hard to be able to say this is the exact date, we use our best estimates at any point in time as to when parks open, but if a local government, let's say in Riyadh or in Chongqing or wherever else says that we need a next three.
Year to be able to put the infrastructure in to support this whole area that affects our ability to open a park. So I think thats really the most important thing for people to understand part of it is our partner part of it is the economy part of it is the local government thing here is when we can have everything ready for you in order to be able to open a park.
So I would say right now there's a very high likelihood going forward that we will see changes in the timing of park openings I. Just think it's unrealistic to think it's going to be exactly as we've outlined only because we know that these are part of much bigger developments and are likely to shift, but what we've described to you right now.
As as Marshall went through those specific those that's what we know as of today, if anything changes on any of our quarterly calls we will update you.
Okay, and then lastly, Jim.
Mortgage on a personal question here.
Is your as yours as you said the searches going on for CEO .
What can you.
In personal personal the nature here what are your plans for your ownership stake in six flags post your retirement or will you be exiting share ownership all the positions upon retirement and then in relation to that has you talked about the rumors that we're out in the market regarding the large.
M&A acquisition to the flip side of that has has the company been approached can you can you make any commentary from that perspective. Thank you gentlemen.
Tim it's sort of spending to actually hear you even asked that question.
To my knowledge the company has not been approached.
Even if even if it had been approach why would we talk about it on a analyst call. It just doesn't make sense to do that so the answer is no but in general we will not talk about M&A. Obviously, if at some point someone was interested in talking to us we see it as our fiduciary duty to be able to told to people if thats the case.
But we're not in that position right now with regard to to my situation I feel extremely confident about our future I believe the best is yet to come you know and I think this is why you've asked the question that I remain one of the company's largest shareholders and it's only because of my strong belief of the company so well position to.
Execute on our strategy that I feel that it is the right time by fabry of of 2020 to step down and we have all these great initiatives membership will show the growth potential you will see it coming it's a function of time and we'll end up with a CEO whose ex excellent.
Right. So our board the same people. The selected me are the people who are leading the process to select the new CEO . So I feel very confident about that and obviously as soon as we know I will make sure that we communicate that to to everybody. So to the public final question that you had was about my situation I am one of the bigger.
Shareholders and I will continue to be one of the biggest shareholders.
Obviously, we're talking about a change that hasn't happened yet, but my belief in the company is very strong in the future of the company.
Okay, then you have any other questions.
No John Thank you Sir.
All right. Thank you thanks, Tim.
And your next question is from David Katz of Jefferies.
Good morning, David Hi, David.
Hi, good morning, everyone.
Covered quite a bit of ground I just wanted to go back to somebody earlier commentary about.
Prospective gross deals or a pipeline of deals that are out there that may be coming.
Sooner or later and I wanted to know are those opportunities that.
You would consider to be.
Potentially impacting your ability to reach the long term target that you put out there or are there things out there that we don't know about that could factor in.
Two you getting there.
Im not sure I understand the question, David I'm, sorry Marshall.
Maybe you could maybe just ask at one more time I apologize.
The notional EBITDA target of 750 million alright that should we be contemplating or are you contemplating any unannounced.
Growth opportunities in that number that we don't know about Oh, no. Let me be clear about that the the 750 data assume that we would be able to execute on all five of our key imperatives. The five growth areas one of those growth areas is.
In this process that we had of purchasing smaller waterpark.
And so or theme park, but if there was a material change some sort of major deal or bigger deal.
Then we would obviously adjust a target to reflect that we've been very careful about making sure that we always take our goals up if there's some sort of material change when we made the acquisition Premier parks. The net price on that I think was just over $20 million was relatively small.
And we we had included that as one of our one of our key imperatives, but if it's a major moves that would be significant.
Then that would be something we'd adjust out and take the target.
Does that help David.
Very helpful. Thank you and one last quick one if I may just be this one last time at some point. The per capita does have to inflect.
Right or and or accelerate.
Yes.
It does sound as though you're expecting that to occur at some point in the futures that said.
We do we do believe that although I do want to come back to what I said earlier not too.
Confuse matters too much but we have seen that with our members there and remember we're still at a relatively small percentage of the overall total of our active pass base, but members seem to like to visit even more so that in itself will put pressure on per cap over a period of time.
But the price points, a significantly higher so that will help per cap. So our view is that per cap will improve but again the thing that I'm focused on is driving revenue profit and cash flow and whatever put a cap will be it will be.
Understood. Thank you for taking my questions. Thanks, very much. Thank you David.
And our next question is from Chris Frankel of Goldman Sachs, Hi, Chris Chris Good morning, guys. Thanks, So much for squeezing me then I'll try to be quick.
Just a follow up questions.
To an earlier one on competition, but maybe a little bit more specific it looks like this American Dream project is potentially going to open this friday or at least phase one Hello, how are you thinking about any potential impact to great adventure. If any have you looked into that at all.
We have looked into it Chris you probably were not involved that time about two years ago. There were questions. Along these lines around American Dream and Marshall is just chomping at the bit to answer. This question Marshall you want to take it sure. So Chris the Theres over 20 amusement parks and New Jersey many of.
Many of them have a scale much bigger I hope these guys do well this American Dream project.
We're talking about a eight and have acre indoor amusement park.
Great Ventures, 1400 acres with the Safari.
Yes.
Hope for the best for these guys. It's not it's not really something that we worry about from a competition standpoint.
Okay. That's good to hear and then I just wanted to go back to the per caps again, I apologize, but did the attendance at the Premier parks, the five new parks materially outpaced the rest of the portfolio. This quarter and is that why there was pressure from those on the per cap.
Only ask because.
Those parts have been in there for over a year now without similar type of pressure on the park I.
I think the right way and Marshall can jump in with the right way to think about it is we've been obviously.
Taking the six flags approach and applying it to these parks and so the performance was very good we saw an improvement in in attendance. We also saw an improvement in their per cap in their their performance. So yes. It was the material move which will affect the per cap. So that will push per cap down on its own correct Marshall that's right.
I think actually the reason we're we have this growth initiative is because it opens us up to markets that are surrounding our core markets like Houston in Oklahoma City. So we can increase our unique visitation.
And also we know we can run these smaller parks better than they are being run and this year proves it and so we did get we did have very good growth and all of our new properties the premier acquisitions as well as.
The ones, we had just prior to that so so yes, so you're you're supposition is right if they did grow faster than the legacy parks.
Got it and then your cost of products sold line item I think it's up about 7% year to date year over year. It grew 10% last year. It seems like it's just consistently outpacing revenue growth. What's what are the primary driver. There is that all season dining happening, having an impact and should that continue.
So yes, so actually what it is it's it's if you look within the impart revenue line the growth is coming from food and beverage from the all season dining if you look at the.
Cost of goods sold on just food and beverage, it's been relatively consistent with prior year, but because.
We're getting sales there that that are higher than the parking revenues, which have no cost of sales or attractions, which had no club sales are very little cost sales, that's driving the cost of goods up but really if you look at it on a specific department is relatively consistent with prior year.
Okay. Helpful. Then just one last one if I could squeeze it then but just wanted to talk about the your expectation for the dividend from here.
And maybe how how are you thinking about it from a from a growth perspective, you know if I look at free cash flow year to date on your numbers of about 216, I think last year in the fourth quarter you generated about 53, so that gets you to to 70.
Versus a dividend requirements of almost 280 sounds like you plan to make that gap in the fourth quarter.
Yes is that accurate and then B how are you thinking about next year.
So.
In terms of our dividend strategy, Jim mentioned, we do return all cash flow to shareholders through sustainable dividends and share repurchases.
Last year, we grew the dividend by 17%.
So in the near term, we're focusing most of our excess cash flow and dividends.
The EBITDA.
Grows out of it.
We're also finding some working capital needed for the growth of our membership programs because I do.
Working capital investment.
So as we look we've got the board meetings coming up and we make all of our key decisions with respect to capital allocations at those meetings.
In terms of your math I mean that your math is correct certainly correct, yes, but where we're in that position, where we're funding all cash needs organically. We're funding investment in the business at the 9% level on top of everything else that but we invest in.
I think we're in a very good place from a balance sheet perspective, sitting on a fair amount of cash.
A multiple of 3.7.
That up to EBITDA and feeling very good about the ability to continue to both support the dividend and to be able to invest in buying back shares over a period of time.
Great. Thanks, so much guys and good luck the rest of this year.
Thanks, Chris.
I think that maybe the end of our questions and our operator may have gone off for a minute. So let me make my closing remarks.
The regional theme park sector remains very compelling to investors sitting in the sweet spot of a broader consumer trend that favors unique experiences the industry has high barriers to entry and demonstrated resiliency in a downturn six flags is the best company operating in this industry, we have the strongest brand and the biggest portfolio of attraction.
And with park, serving the top 10 deemphasize. We also have the best employees in the industry in many of them. Our shareholders. We have an excellent track record of consistent earnings growth operating with the highest margins in the industry and high degree of recurring revenue secured by contracts, which is building with our membership program our opportunities.
Our greater than ever before and we remain laser focused on our feet five key.
Growth areas. Thank you very much for joining us today and I hope you have the opportunity to visit one of our parks in the near future take care Christie that concludes our cold.
And thank you all again for joining US today. This concludes today's conference you may now disconnect.