Q4 2019 Earnings Call
Good morning, ladies and gentlemen, welcome to the six flags fourth quarter and full year 2019 earnings Conference call. My name is Regina and I'll be your operator for today's call. During the presentation, all lines will be and they listen only mode.
After the speaker's remarks, we will conduct a question answer session. If you had a question at that time simply price star and the number one on your telephone keypad. If he would like to withdraw your question press. The pound Pcie. Thank you I will now turn the call over to Steve <unk> Senior Vice President Investor Relations and Treasurer.
Good morning, and welcome to our fourth quarter call with me are mikes data President and CEO of six flags and money right, our senior Vice President strategic planning on dialysis or newly appointed interim CFO.
I'll begin the call was prepared comments and then open the call to your question.
Our comments will include forward looking statement within the meaning of the federal Securities laws.
These statements are subject to risks and uncertainties that could cause actual results to differ markedly from those described 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 rest and reconciliations of non-GAAP financial measures to GAAP financial measures in the Companys annual report.
Early reports or other forms filed or furnished with the FCC.
At this time I will turn the call over to Mike.
Good morning.
Oh, I am disappointed to be sharing difficult news today I am appreciated the opportunity to be speaking with you as CEO on my first earnings call what six flags.
Today, we announced our adjusted EBITDA for 2019 declined by $27 million relative to 2018.
Clearly an on satisfactory results.
Today, We also announced at Marshall Barber has decided to retire from six flags effective August 31st.
When he Ross will act as interim CFO until we identify successor, we're deeply appreciative to Marshall for is dedicated leadership and service to six flags during his 23 year career.
Since joining six flags in mid November I've been listening and learning from our people visiting all 26 parks examining the financial statements and capital structure and studying our processes I believe it is important to understand the business from the frontline perspective, and I've done this by meeting with team members and witnessing.
Yes, and interactions first half.
This experience is confirmed my initial belief that the fundamentals of this business are sound, we have a strong brand passionate team members, an impressive history and a healthy industry.
However, organic growth has slowed over the last few years and this means we need to reinvigorate our company with new ideas and fresh perspectives that our dress evolving consumer expectations, we need a focus on our base business and deal with two primary issues first.
Although we have grown to tenants from our active pass base organic attendance has declined primarily due to were deduction and single day visitors, we need to grow both our active pass base and our single day visitation and I believe that this is something we can move quickly to address second our operating costs have been in.
<unk> average rate of nearly 2% over the same period faster than our based revenue growth of less than 1%, causing operating de leveraged in margin compression in our base business.
Our park teams have worked hard to offset cost headwinds from minimum and competitive wage increases through other cost savings. However, this has had an adverse effect on the guest experience and create a downward pressure in certain areas of our guest satisfaction scores.
In addition, we've reduced our marketing spend as a percentage of revenue, which offset some of the cost pressures, we face, but negative negatively impacted our ability to reach new consumers.
The net result has been a contraction and modified EBITDA margin and a decline in total modified and adjusted EBITDA due to based costs growing faster than based revenue. This margin erosion is also something I believe we can begin to address quickly and make further progress on over the long term.
In order deliver exceptional long term shareholder returns, we need to reverse these revenue and cost trends driving both attendance and revenue growth, while improving productivity to increased profit margins.
Doing this requires us to adapt our strategy to todays dynamic consumer environment and to evolve our operating model to both kroner, the higher wage environment and deliver a better guest experience.
This is not the first time at navigated through this type of situation. After graduated from the U.S. Naval Academy and spending six years and Marine Corps I spent 26 years of Pepsico during that time, let a number of business transformations and both domestic and international markets.
I have a successful track record of reinvigorating profitable growth.
The results of Weber for Pepsico give me great confidence I can achieve the same success at six flags I'm eager to lead our committed teams to reestablish six flags is a strong.
Salable total shareholder return its success story.
Our stride to be a developer of people as well as a coach and motivator for our teams I bring both a disciplined approach them results orientation and driving change.
I believe that leadership as a privilege that is constantly rerun never to be taken for granted based on position or title.
As a new leader six flags I have four commitments to you.
First I will be deliberate strategic and long term focused in my decision making.
Second.
I won't still a strong sense of urgency amongst our teams to address the issues we are facing.
Third I will communicate our progress along the way in a complete and transparent manner and fourth I won't that team and myself accountable for delivering strong results.
I fully understand the magnitude of these disappointing results to our shareholders and I am committed to reinvigorate sustained healthy and profitable growth that delivers long term shareholder value.
Before share some additional thoughts in the company I will turn the call over 20 to provide details of our 2019 financial results in 2020 hour Lenny.
Thank you, Mike and good morning to everyone on the call.
I've been with six flags for over 30 years working in both our parks and headquarters I.
I started to the frontline employment gains during high school and held many different management positions in our in Park services Division until graduating college.
Then I've had the opportunity to work in many financial roles over the last 20, plus years, including creating the company's internal audit function, serving as the chief accounting officer.
And for filling my current role as the senior Vice President strategic planning an analysis.
Appreciate the opportunity to fill the interim CFO role send to participate on todays call.
I'll start with a discussion of our fourth quarter and full year 2019 performance and then address our 2020 financial outlook in first quarter dividend.
Our total revenue in the fourth quarter declined by $9 million for three person to $261 million.
Attendance declined 200 in 2000 or 3% to 6.1 million guest.
Our sixth recently acquired parks, which include the five parks, we began operating in June 2018, and Magic waters, which we began operating in April 2019.
Had a negligible impact on revenue in attendance comparison to the prior year quarter.
Most of our attendance decline was due to softness at our two parks in Mexico and at six flags Magic Mountain in Los Angeles.
The majority of this decline occurred late in the fourth quarter.
Our parks in Mexico experienced two issues. The first is austerity measures put in place by the new President, which significantly reduced government sanction school group visits to our part.
The second there's an unfortunate accident at a nearby theme park, which has negatively affected people's desire to visit anything park in the area.
And Magic Mountain, we experienced poor weather nearby fires in a delay in introducing our major new ride West coast racers.
It should not open until after Christmas.
Collectively these items had a significant impact on our fourth quarter and for your attendance.
Since the opening of Wescos racers, we've seen an improvement in attendance trends.
Guest spending per capita in the quarter decreased slightly admissions per capita decreased 48 cents theater or a reduction in single day paid attendant, which accounted for all of our attendance loss in the quarter.
In Park spending per capita increased 45 cents due to higher spending from members new Colin area retail offerings for holiday in the park and are all season dining program.
On the call side cash operating in this DNA expenses increased by $14 million or 9%, primarily due to $10 million of charges related to our China development agreement.
And certain unrelated litigation matters.
Without these impacts call, we're up about 3%.
Modified and adjusted EBITDA for the quarter, we're both $72 million, but 24 million dollar decline from the prior year quarter.
Moving to full year 2019, performing total revenue for the year increased $24 million were 2% to approximately $1.5 billion.
This was driven by 2% attendance growth, partially offset by a 3 million dollar decrease in sponsorship international agreements accommodations revenues.
Admissions revenue increased $6 million or less than 1% and in park revenue was up $21 million or 4%.
Attendance grew by 788000 to 32.8 million guess an increase of 2%.
Our six acquired parks contributed over 90% of the increase in their attendance for the year totaled 2.8 million yes.
Our legacy parks grew attendance by 65000 or less than one person to 30 million guests.
For the year guest spending per capita decreased 21 cents or less than 1%.
Both our legacy books in our recently acquired parks guest spending per capita was virtually flat.
A higher mix of attendance from the recently acquired parks drove the overall decrease due to the lower per capita spending at.
At the legacy parks early season membership promotion in an elevated level of discounted bring your free tickets from our membership in season pass program negatively impacted per cap growth.
Offsetting the positive impact the price increases and higher price memberships.
Full year cash operating costs, which includes cost of goods full cash operating expenses and cash DNA expenses were up 6% or $50 million in 2019 due to the following items.
Incremental costs of $25 million in or five domestic parks acquired in 2018, primarily in the first five months or the year, including lease expense in cost operate in rebrand the parks.
Incremental cost to lease and operate or six acquired bark magic waters.
Increased cost for mandated minimum wage increases and competitive wage rate adjustments in several labor market.
A $9 million or 7% increase in cost of goods sold due to a higher volume of food sold through our all season dining program.
And the cost related to China, and certain unrelated litigation matters recorded in the fourth quarter that we previously disclosed in the 8-K on January 10.
Excluding expenses associated with the acquired parks in the China in litigation expenses recorded in the fourth quarter or cost for the year were virtually flat.
We were able to offset the cost pressures mentioned above by reducing labor cost primarily through contingency labor saving measures and the reduction of incentive compensation earned due to our financial results.
For your diluted GAAP earnings per share decreased $2, an 11 cents from $3.23 in 2018.
Merely due to higher stock based compensation expenses related to the reversal of the accrual for the unearned project six Underperformance award in the prior year.
Hi, operating expenses previously mentioned and the recording of evaluation allowance related to our foreign tax credits due to the termination of our China contracts.
We generated $527 million of adjusted EBITDA in 2019.
The decrease of $27 million or five per cent compared to 2018.
And our modified EBITDA margin was 38% a decrease of 238 basis points.
As Mike mentioned, our base business growth has been slowing over the past few years.
I will now breakout the performance of our legacy business for 2019, which excludes our six recently acquired parks and international development.
Revenue grew $1 million versus 2018.
Cash operating cost, including cost of goods sold increased $15 million or 2%.
Full year, adjusted EBITDA was $483 million, a decrease of $15 million for 3%.
The modified EBITDA margin at our legacy bonds was 39% a 107 basis point decrease from 2018.
Turning to our six newparks they have outperformed expectations, we had prior to operating them.
In 2019, they generated $2.8 million of attendance and $95 million of revenue with total guest spending per capita $31.58.
In a modified EBITDA margin of 14%.
They generated over $13 million of adjusted EBITDA in 2019 net of $16 million in rent.
And we expect to further improve the parks profitability overtime.
On a comparable period basis. The five parks, we began operating in 2018 had attendance growth of 8% revenue growth of 11% and EBITDA growth of 28%.
Moving back to total company performance the active pass base, which represents the total number of guest enrolled in the company's membership program or that have a season pass it was down 3% compared to prior year end.
Within our active pass base, we increased our active member base by 18% to 2.6 million members, but this was not enough to offset the decline in season pass sales we experienced during the year in holiday sales period.
Attendance from the active pass base remained at 63% in 2019 for the total company.
With our legacy parks, increasing slightly to 64%.
And our newly acquired parks growing from 45% to 55%.
Deferred revenue was $144 million, representing a $2 million or 1% decrease over prior year.
The decrease was due to an increasing proportion of members who have been with us for more than 12 month, who no longer contribute to the deferred revenue balance as well as lower season pass sales in the fall, partially offset by higher average membership in season pass pricing.
Adjusted free cash flow for 2019 was $246 million the decline of $47 million relative to 2018.
The company invested $140 million and capital expenditures and pay $279 million and dividends.
Our ratio of dividend payments to adjusted free cash flow and net income in in 2019 was 114% and 156% respectively.
Our net leverage ratio at year end with 4.0 times at the high end of our target range of three to four times net leverage.
Before turning to our 2020 financial guidance I'd like to provide additional details on the challenges we're facing related to our international development projects.
In China, our partner was unable to meet the financial terms of our contract.
Last month, we issued default notices for a lack of payment.
Since that time, they did not your their defaults and we terminated our agreements with them this month.
Therefore, we are planning with it the assumption that there'll be no revenue in 2020 from our activities in China.
Going forward.
We'll see a future opportunity to leverage our brand with the rapidly growing middle class in emerging markets, but we will be very cautious as we consider potential international projects and progress is likely to be slow.
As we execute our 2020 plan, we have issued 2020 EBITDA guidance of $435 million to $465 million, which incorporates the following assumptions.
The loss of approximately $30 million of EBITDA from our international development agreement.
Increased opex of nearly $20 million due to wage increases, including higher minimum wages competitive labor rates and full time merit salary increases.
Additional opex investments of $20 million for part maintenance projects and operational improvements that are relevant to our guest and team member experiences.
Along with additional marketing investments focused on growing single day attendants programs and improving our share of voice in key markets.
Restoring a bonus of approximately $20 million to support employee retention and recruitment.
Inorganic revenue growth of approximately 1%, which is consistent with the current trend.
Given the significant drop an expected free cash flow versus 2019 are elevated dividend payout ratio and our projected leverage ratio above our target range in 2020.
The board carefully considered what isn't the best long term interest of the company and all of it stakeholders.
As a result, we reduced the first quarter dividend to 25 cents per share, which equates to an annualized dividend of one dollar.
This level will target a payout ratio of approximately 50% to 60% of adjusted free cash flow based on our guidance range and current level of capital spending and therefore maintain a consistent and sustainable dividend income for our shareholders.
This dividend level will also help to effectively manage our balance sheet and leverage ratio and free up available cash to make targeted investments in our business strong returns to enhance the guest experience.
Now I'll turn the call back over to Mike.
Thank you Marty I.
I would like to share some forward looking Fox about three topics our foundation for future success.
Our strategic plan approach and our leadership and governance.
The first topic is our foundation for future success.
Six flags is the industry's leading innovator with a beloved 58 year old brand dedicated employees and well gas.
We operate in highly attractive markets, including the top 10, the amazing the U.S. and our unique assets provide a truly differentiated experienced in themed entertainment.
In addition, regional theme parks are a stable industry that benefit from high barriers to entry.
With limited direct competition the industry has exhibited pricing power and consistent profit growth over a multi decade period, including the last few years. The industry is currently on trend as experiences are the fastest growing category of all consumer expenditures and theme parks offer an affordable form of really in entertainment.
Guests of all ages.
While these foundations are favorable we as a company have underperformed I believe there are significant opportunities to improve our performance.
This brings me to my second topic, our strategic plan approach.
Working very hard with the team to reassess the business and a thoughtful and methodical manner and develop a comprehensive strategic plan that addresses our revenue gross margin.
Margin improvement and capital deployment opportunities for the next three to five years.
To accomplish this where obtaining valuable support from Boston consulting group to ensure an external perspective on our plan.
We expect to share a comprehensive an exciting strategic path board at an Investor day on May 28.
In the very near term, we've already identified several areas that offer opportunities for improvement.
First over the past few years the number of single day visitors has declined particularly or during the heart of our summer season.
While we have partially offset this decline through an increased visitation from our active pass base, we have an opportunity to grow our attendance by recapturing WASC single day gas with focused offers that do not a road or active pass base visitation.
Second we are quickly moving to simplify our membership and season pass offerings and registration process, which will help us attract and retain consumers into our active pass base.
Finally, with it our parks, there's an opportunity to incorporate technology to streamline the and and guest experience improved coronary and improve operating efficiency and productivity.
These are just a few immediate examples that we have chosen to highlight and there are many more we will share with you soon.
The third topic I would like to speak about is our leadership and governance. This is something I've always found to be the critical foundation for success.
In order to achieve our full potential we must have the best leadership team in place with the right individual and collective capabilities to meet the high standards of our guests team members and shareholders.
The team needs to be motivated with the right incentive programs that deliver long term shareholder value project 750 is not realistically attainable. So we will move away from project based long term incentives and replace them with restricted stock and performance stock units that more closely aligned with Kurt.
Market practice and shareholder expectations.
Performance criteria will consist of adjusted EBITDA revenue growth and adjusted EBITDA minus Capex.
We will maintain our current short term incentives that's high completely to company financial and operational performance.
Given the challenge state of the business I suggested and the board agreed that I will not participate in the bonus plan for 2020.
Finally, as we rebuild our company deliver strong sustainable earnings growth, we will continue our process of augmenting and evolving the board with skills and experiences that provides a leadership team, which strategic guidance as we meet the needs of our guests.
We welcome H. partners, a large longstanding shareholder back to our board of directors, we evaluates partners as a collaborative and strategic partner of six flags as we move forward.
In addition, we're currently interviewing additional highly qualified and diverse candidates that brings strong operating CL backgrounds with digital culinary and commercial experience.
We expect to announce new directors in the near future.
As I said to be able to call urgency transparency.
And accountability our priorities for me.
Our recent performance has not met our expectations and we will act quickly and decisively with a focus on our base business to improve results.
We will open we communicated both good and bad news to ensure that we provide an accurate depiction of our performance. During this transitional phase and we will hold ourselves accountable for delivering on our commitments.
We look forward to updating you on our progress during the first quarter earnings call and during our Investor day once our full strategy is developed.
Before I open the call the questions I want to emphasize I've been with the company about three months them still formulating our strategy and plans for that reason my comments have been focused on 2019 and 2020.
And I'm not going to any detail about our long term strategy, our future capital allocation plans any strategic alternatives or any period beyond 2020.
Regina at this point could you. Please open the call for any questions.
At this time, if he would like to ask your question. Please press star followed by the number one on your telephone keypad that is star one our first question will come from the line of James Hardiman with Wedbush Securities.
Hi, good morning, Thanks for taking my call. So Mike you seemed like a straight shooter.
[laughter] So you know.
Keep in mind here.
Obviously based on the fourth quarter results.
The news out of China.
And in the 2020 guidance it seems like you're you're now this is now a turnaround story pretty evidently I guess the first question is when you came on board.
Did you realize that that's what you were getting yourself into.
It seems like things really snowballed here over the last couple of months.
In particular with with regard to China, but but certainly the domestic story. It seems like stuff that was maybe building for a while I'm really from our perspective, just just came so maybe talk about the last few months.
And what really stood out to you.
As you collected all the data company.
Hi, James Thanks for your question and let me start with.
My first 90 days of only reinforced we got a very healthy industry. We got a great brand, we've got great people and we got really strong cash flow.
And I'm excited to be here and I was excited to join.
So I'll start there.
Let me break down your other two parts it was our China domestic.
China.
We're very disappointed.
With the termination of our agreements with Riverside group once we knew Riverside group had invested hundreds of millions of dollars into the projects was unable to make payments, we deliver notices of default and notified investors.
As a perspective I've lived there I've led businesses there it say an extremely fluid environment.
China and up as wells with partners.
So as we said we're not play revenue growth.
There and that gives me the second part, which is our focus needs to be on our base business, which you raised.
And here, we have a good business.
As I said I just think there's two fundamental things we got a focus on on our base business. We've as we've done well with active passes we need to ensure we're growing our single day tickets.
She is very important to our total attendance and to our total revenue. In addition, as I said, we've got to really make sure that opex is not growing faster than our revenue line that just doesn't bode well. So as we move forward I think we got to we got a really good foundation.
And we're going to be very focused by the way on the investments that we make in our base business them sure they deliver strong returns.
Your next question will come from the line of Brad Anderson with Keybanc capital markets.
Hey, good morning.
Like I know, it's early but just from a high level. How are you thinking about the capital expenditures in this business going forward I mean the argument.
There for a while back 9% Capex. The present sales may have just been too low over a long period of time. So how do you view the current capital pipeline for the business.
Yes, good morning, Brett how you doing.
Yes, so first on capital allocation. Good question as I said it is my intent to provide.
Detailed feedback on all the capital allocation May 20, Eightth at our Investor day as part of the holistic strategy.
Now, having said that we've got really good cash flow and I like the resiliency, we have versus potential recessions odd given our business.
What we will do and what I've done in the short term what the board agreed to is to focus on long term shareholder interests.
Let me set targeting between three or four net leverage ratio. We're in the high range now so I think it's very important we maintained a healthy balance sheet.
And be thoughtful in that regard. Therefore, we were did we did reduce the dividend in an asset, but I think as part of the we did reduce the dividend to target a payout ratio of approximately 50% to 60% of adjusted free cash flow based on the guidance range.
So and as we move forward I again, I want to come back to I, just thinking that we need to focus on our base business as we develop our strategy leverages the great brands people drive it and we got a good industry that I think provides some good tailwind and we just need to be very thoughtful and responsible and the way, we allocate that capital and we'll be very.
Transparent as we make those decisions Brett.
Understood and just one last one from me if you could just help me with the incremental operating expense.
How they're going to spend for 2020 it.
Really more labor that you need to invest into improved guest experience I mean, I guess, what did you find and guest satisfaction surveys that made you kind of come to this conclusion.
Yeah got it just again Lenny mentioned, it but you've got about $20 million in wages, Brad minimum wages some competitor pressures.
And then you've got is well.
As we discussed two other things the second is ideally instilling a bonus back for our team our team.
It's going to receive a zero bonus for 2019 results.
So ideally we'd like to deliver because it's important to recruit and retain the right talent to drive the strategy long term assess that potentially another 20 million as you mentioned now specific to the other marketing the Opex, which was the other 2000 believe that Lenny reference.
We're going to be very thoughtful and methodical here and we're going to target them money into what we think are the right parks with the right investments with the right return.
Based on what the guest start telling us on it. So we do look at the guest data. It's done while we also were looking at third party data as well I to see our trending. So we will continue to look at things around clean fast.
Friendly and food as we look at these types of investments.
Thank you.
Your next question comes from the line of Steve within ski with Stifel.
Hey, guys good morning.
Mike So you talked about how core growth has slowed and I know you don't want to go into too many of your kind of ideas in terms of how you can turn that around.
Let me highlight that.
But.
I get bigger question is.
Yeah. It seems your core attendants commentary is somewhat I guess different than some of your peers I understand there is obviously differences between.
Different companies, but it's still somewhat confusing as to why the differences in attendance metrics between you guys.
Like I said your peers do you have any you know like high level thoughts in terms of what some of those differences could be or how you can go about trying to combat those.
I can and thank Steve for the question first is Lenny said, if you look at 29 team we have real.
Pronounced headwinds on attendance, principally driven by Mexico and match Mountain in California that was roughly probably at least half the problem. So we saw some significant acute issues. There is Lenny mentioned.
Second on the positive side, we had some really strong performance that came out of the recently acquired parks that was very positive from a month momentum standpoint.
Now when you look at the rest of the area brings me back to again that we although we grew our active pass base in the past we need to grow our single day visitation.
To me is the key and that will require us to be thoughtful in terms of our consumer value.
And how we grow our single day tickets for folks that have out of pocket absolute spend the limitations cost the value consumers. While we also grow our active pass base. When those are folks that tend to be willing to trade up on what I would call the consumer value incentive curve, where they'll pay a little more and continue.
Pay more for benefits, we're going to need to grow both.
I think we did a really good job growing active pass, especially on the membership, but we have to do both.
Again, as I said, what the right pivot.
Our brands and our people are given the industry and our cash flow I think we hopefully we'll be able to see.
Pretty good momentum as we make these decisions.
Okay, and then again a bigger question bigger picture question I got I don't think you're going to answer this but because you kind of addressed it towards the end of your remarks, but.
Mike do you is basically what I'm trying to get here is anything on the table at this point in what I need by that is whether that could be strategic alternatives that could be selling assets that could be quickie monetizing real state of the company but.
It is basically anything on the table right now.
Yeah. So another good question, Steve first of all its my fiduciary responsibility to shareholders always look at all options right.
Having said that I believe that we have a great ability to grow the business organically focusing on the base business and I also believe that will build the best long term shareholder value.
What I would say maybe the other part your question. If you maybe you're starting to lead and potential M&A or deals like that to me that decision tree has always been very simple one. That's the first is what is strategically relevant second doesn't deliver shareholder value and third is do we have the right to succeed in that direction or some.
Warehouse and I've always been very disciplined on that but bottom line is I think we have a good pace organic business and growing that is going to deliver the best long term shareholder value and that's where we should focus.
Okay. Thanks, Mike appreciate it.
Your next question comes from the line of David Katz with Jefferies.
Hi, good morning, everyone a good morning.
Thank you for your commentary in for taking my question.
Two questions. Please but number one if you could just talk about your degree of confidence around the guidance that we have for 2020.
And obviously, that's connected to where the dividend is set obviously people on our side are always looking to make sure that there isn't you know another shoe.
To drop.
Okay. You want me take the first question first David said, yet so I just want.
Well, yes.
Both and then you can you can do whatever order you'd like my second question is.
With respect to in a given your background is globally oriented.
Do you is it your assessment, thus far that six flags has.
The kinds of assets the brand in the operating.
Model.
That lends itself to developing a global pipeline out of growth for the parks. Those are my two questions. Thank you. Thank you so sorry about that the pause there.
Let me David Let me start with a degree of confidence on guidance.
We made.
We felt it was important to be transparent.
And I know that gets back somebody other questions about not having a comprehensive story that includes capital allocation.
But we felt it was to be we should be transparent and give shareholders. Our best assessment of what the business would deliver for 2020.
As we move through the year, we will absolutely update everyone communicate where we're going how we're doing.
And what I know shareholders will melt.
And that's what I would tell you we spent a lot of time on this and we feel is appropriate to make the right investments in the base business and also to over long term shareholder value.
To your second question first actually majority my time I didn't spend seven years internationally in my career as a civilian so to speak.
But the rest of that was running domestic business is predominately by the way on the bottling side very asset heavy very people heavy tight margins odds you know grind it out blocking and tackling executional game. So I do that is my kind of a muscle memory so to speak.
Now I would say that it feels.
Experts goes right to leading six flags, specifically to global international right to succeed I typically look at three things David when I think about international businesses based on my experience living and working there. The first is what's what's our right to succeed.
That can get into the country foreign direct investment is are developing emerging middle class just is a place loves western brands. Okay. That's what are the second thing is it's about capability somebody is going to run our parks. The system capability has got to be great to uphold the six flags brand and quality standards and.
In the third as a partner you have to have a good viable partner if any of those three break down.
You struggling in the middle of that is your business model. So we'll be cautious will be very disciplined on international programs. We are excited about our could be a park that will open up in 2023, and Saudi but at this point will be very thoughtful methodical as we focus on our base business.
That's perfect. Thank you very much.
Sure.
Your next question comes from the line of Michael Swartz with Suntrust Robinson Humphrey.
Hey, good morning.
Mike maybe more of a philosophical question now that you've had some time to look under the under the Hood and talked at various park Hopper.
Various members have your parks I mean, I guess, how do you think or what is what do you think is the right long Tommy growth profile for up.
It's called a healthy well run park operator.
Yes, Thanks, Michael Good morning.
Your first as wed say your point.
The best part the job. It has so far is getting out to our parks I mean, the stories are phenomenal we have great people out there that they've given their lives to this business are incredibly committed passionate and it's a phone business. It really is a need business.
What I would say is the first thing is as I look at the industry, Michael It's the industry broadly whether I look at location based entertainment tourism theme parks, Idaho Im spending.
Good.
In a really good way, meaning you got decent sustained steady growth as far as our long term growth range.
That would be something that we will be much more complete and I would have.
Much better feel we're giving you at the Investor Day May 20, Eightth as we work through that but what I would say is I do believe the industry is good I like our brand I like our people I like our business I do think we will deliver sustained long term shareholder earnings growth.
Okay, and then just with your I guess your focus on rebuilding the single day visitation base.
Is there anything as you look at the business today, and maybe benchmarking, where do you want to get on that front you know what there is always a balance between season pass and more barred the active pass base in in single day visitors in how much of growing that is really being more active or aggressive on the pricing.
Pricing front, there's always been this strategy of low to mid single digit pricing. So it is that going to change as part of that strategy.
Yeah, I don't I don't think it's a change.
I think it's more evolution, meaning the way I look at it is theres consumer demand spaces in every industry.
And we need to be thoughtful in our base business offers that meet that cohorts need whether they just want to come to our park for a single day I'd like I said that could be a value consumer that has a very fixed out of pocket spend and they're going to make that day trip for that day ideally.
When we recruit them like that I want them to become recurring and bring them into the active pass base, but not all may do that I also have other cohorts that they just love our parks and they want a high frequency of use and they're willing to up spend for more benefits and they have more.
Last this the in their personal income to do that that is ideal for the active pass base, we want both and the revenue management finance is having the right consumer value between price and benefits that recruits and retains both and that is an art and science I and by the way I.
It's got to be very focused very local to our local consumers around our parks and we've got to be very database and assessing that because you've got to make sure that the the rate or inflationary and the mix impacts of these move bode well in terms of total margin dollars total revenue and how would translate.
Listen to the per capita lines of the piano.
But again I think look our base business I think we can do both.
Thank you.
Thank you.
Your next question comes from the line of Tyler between with Janney capital markets.
Hi, good morning, Thanks for taking my questions. So I just wanted to follow up on the attendance topic here Ive a few questions on the active pass base specifically.
Can you just talk generally high level, what you think about the membership program and what you think about membership tears and then the active pass base I think was down 3% and it sounds like you're growing membership at the passes down. So can you just talk a little bit more about what's going on with the season pass being down and kind of.
Just last question here I mean, do you have a preference I mean, I know you want to grow the overall active pass base, but I mean would you rather grow membership or would you rather grow or focus on growing the season pass specifically side effects.
Well good morning, Tyler how are you so I'll take a crack at this and see if anybody wants to jump in I again, I think that.
We want to grow both and I'm, specifically breaking apart active in season pass because again, if I split that season pass again is a different cohort demand space that is different than potentially a member who wants a full year program with us again, ideally want them keep moving them up so.
Going to your point I think our membership program is very good as I said the team we're looking at it we need to simplify it based on park feedback.
And make things cleaner on the website and a little cleaner and the sales centers.
I believe the answer is yes to that question, specifically I think we need to simplify it.
But the we need to be looking at both.
In terms of growing both and again being very thoughtful on offering that we have.
Yeah on membership specifically the goal would still be to continue to really drive people through the membership program.
They do stay with us longer they visit more frequently they spend more when they're in the parks and they are memberships are sold at a higher average price. So long term, it's still the right strategy to continue to focus on membership and we'll continue to find ways to make people.
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Upgrade to that program.
But again as Mike said, all all facets of the business are critical for growth long term.
Okay, Great and then my second question I, just wanted to ask a little bit more about.
The guest experience and Mike I know you spent a lot of time and the parks for the past couple of months I know six Fox does a lot of guest surveys and whatnot. So just can you talk a little bit about guest satisfaction and what sorts of things are customers, telling you that they want to see improved in the parks.
Very good question in and tell our maybe I'll elevate this level what I'm seeing is in our business, we're going to have to be really thoughtful both with the consumer in the gas and I would actually separate them.
For both there is a share of mind, a challenge as well as a share of wallet share wallet I find tends to be more what is going on in the park, which you're trying to get out of the guests pocket and the share of mine is how you get their attention and what were specifically hearing in terms of the guest to that.
Point is.
As we deal with that they want differentiate experiences they want digital expression, they want authenticity and brands and they're very aspirational.
And what they want is very they want more bang for the Buck per minute per hour in the parks, which pushes us to deal with the evolving experienced a wide and really think end to end gas, which I think becomes very important for us to be sharp on that in terms of how we are very.
The sharp on what they want from when they are on the website when they drive out of the parking lot now specifically the two areas I've seen really create both opportunity. It challenges is time and technology, what we're seeing with our guests and consumers. They are much more time stressed so as I said they want more bang.
For the Buck when they're in the park and technology, It's a great enabler to created great memorable guest experience, but it also causes fragmentation and so again as we think about our base business.
Invest with our people invest in the brand we've got to evolve with consumer and invest in the end to end guest experience.
Okay, Great. That's all from me. Thank you for the detail the Sir.
Your next question comes from the line of Tim Conder with Wells Fargo Securities.
Thank you then Mike welcome aboard and.
And the and jumping in the deepen here from from the get go and for the color. So far so we appreciate that.
Just wanted to revisit maybe just a couple of housekeeping items first the active pass per center of attendance total all in.
Is that the 60, 364% just wanted to confirm that and then any comment on how the unique guest.
Trended in 19 versus versus 18 as suspect it's down given sort of the color commentary you've given so far but just any color on that if you could.
Yes, good morning, Tim How're you.
The yes, the active pass to answer that question is at approximately 63%.
As a house.
Keeping note and yes the unique.
As there were down in 2019 versus 2018 on the base business and that's why said I our problems solved is focusing on that base business.
The investing back in the brands and the right parks and write experience to get that backup.
Okay, and one of the there I guess just metric.
Kind of on an annualized basis I know you guys get.
Can provide that I think the visitation frequency from your active pass base.
How did that go on it on a year over year basis, and just the absolute point.
As to where that is.
Yes, Tim Good question. It was slightly up in terms of frequency of visitation. It did increase slightly.
Okay. Okay.
And then and then two to the single day focus with the value consumer.
Yeah, It seems like others in the in the industry over the last year or so its said hey, we don't want to leave that consumer behind and maybe target some of the shoulder periods with specifically as you mentioned part targeted database targeted.
Approach.
Well, while still preserving the active pass base Oh.
Well if you if that's built quite a bit I guess, how do you balance the value that that consumers getting.
Versus the active pass base, who.
Demands a higher value more experiences.
And is willing to pay for it how do you balance that trade off I guess as far as is what you're looking to do in the parks with the the experiences and other things and then or again still evolving in more details to come on that.
It's a really good question Tim in a lot of this also I think we'll get deeper in the strategy, but to me it really.
Ultimately you've got to look at the park are you seeing improvement in the margin dollars the margin per caps.
Visitation frequencies attends et cetera, those metrics are pretty clear now specifically what we're doing is we're we're being very focused and testing.
Single day ticket offers and what we're doing is we're testing what is the incrementality of them what is the right consumer value what it takes to deliver that right value for that more value based consumer so we're being very very thoughtful and focus and.
A disciplined in how we're doing that but to me I think we're going to ultimately be looking at the revenue lines of per capita lines in the attendance lines by park to see how that's playing out for us as we invest back into the mix.
Okay, and then lastly, Sir if I may.
On the on the Opex you gave the sort of the three buckets going on there how should we again I know it's early it's preliminary a lots of offerings here.
So maybe a hard question, but how should we maybe think about that spend here over the next two three years, maybe as a percentage should we kind of expected to kind of stay at this elevated level for a few years and then see where we go from there is that sort of the best way to think about that here on their own a very early basis.
Yeah, Tim you I mean labors roughly half the cost base and I think thats a reality, we're going to have to deal with as we move forward.
And obviously, we will have these headwinds we've seen these minimum wage increases come in about seven states. So far we do so we do have some more headwind there that we know is coming on as far as a specific rate of Opex that is one I guess I'm going to want to come back at the Investor Day May 28, where we have a real.
Good feel of how we can drive technology to leverage productivity, because I think fundamentally what's going to happen here. Tim is the technology should be an enabler for the end to end guest experience, but should also be an enabler to drive productivity and that is the work we're going to have to take on and once we do that we're going to a better sense of how.
Are we deal with the headwinds and create some tailwinds.
Okay. Thank you Sir I appreciate it thank you Sir.
Your next question will come from the line of Alex Nokia with bearing Burke.
Hey, good morning, guys and welcome Mike and Lenny. Thanks for taking my question. So can you first just give us the revenue recognized from international licensing and 19.
Sure.
Thank you for the welcome.
Revenue for the year was $41.2 million.
EBITDA contribution for the year was $30 million.
Got it okay. So based off of that it looks like revenues for the sponsorship part of that line item are starting to become a growth driver a bit.
I think I got 30.3% growth in there.
Viewing this opportunity and can you discuss the margin profile.
Sure.
Very lucky to have our sponsorship group, we do over $37 million revenue annually.
Also embedded in that category is our accommodation line item and if you recall last year, we acquired Darien Lake and they have a big accommodation.
Business, because they haven't campground as well as the hotel. So the majority of that growth outside of international came in the accommodations line item.
Gotcha Okay.
That's helpful and then holding long term debt study and considering your adjusted EBITDA guidance for the year it looks like you.
On track to finish 2020 around four and a half times leverage can you discuss this year as debt priorities.
Yes, Alex Hi, it's Mike, Yes, that's you're about right.
The the net leverage ratio.
That's why said we've got good cash flow very strong cash flow. The look we want to make sure we stay.
Ratings are important to us we're very focused on keeping a very healthy balance sheet I think thats in the best interest of our shareholders, especially our long term shareholders. So that will be the top priority with.
Any extra cash that comes our way, we think thats right thing to do to get back between three and four.
Okay. That's helpful. Thanks, guys.
Your next question comes from the line of Brian Sunbeam with William Blair.
Yes, hi, Thanks for taking my question and welcome.
Mike I guess I just wanted to follow up on your comments on improving them Park experience you touched on time and tack and the role that needs to play.
I'm just wondering if you could maybe then also talk about Warner and the DC Comics IP, you have and the role that can play and the again I. Appreciate it still very early days here for you, but any thoughts on them as a partner or is it creating the right kind of immersive experience each one keenly into a harder any any any thoughts on that would be great. Thanks.
Yes, Thanks, Ryan I appreciate it up as you know we have a partnership with Warner Brothers and.
It's been something we've had historically and we'll continue to have Anda. Yeah. I do think we can leverage that we've also found that we have great leverage in our base brands, our own brands and our people.
And I would say is central to our park experience or with the gas or their consumers coming for I think it's more of a complement to what we offer and I would like to work with them to see if we get more out of that relationship that's beneficial to our guests and the six wax.
Okay, Great and then just a quick follow up there on Alex's question.
I think the indirect remarks, you said.
International would be $30 million and that even a decrease which is what it contributor this year.
Is there still EBITDA can be coming from the Saudi Park and 2020 or are you kind of excluding that now from from your guidance.
No you're exactly right.
Based on where we are today in our international development group.
The margins are going to be significantly lower in 2020. So we will have the EBITDA that generates from the Saudis agreement.
But we are going to have some extra costs associated with China and until we develop determine what's ultimately going to happen with the development of those parks.
As well as you know the cost of our international development group, which were looking to kind of reallocate those resources into other areas of the business that will actually help.
Spur based business growth thing long term.
Got it thank you for the insight guys.
Thank you.
Your next question comes from the line of Brad Anderson with Keybanc capital markets.
Hi, Thanks for letting me back down here and I'm, sorry, if I missed this but you guide capital expenditures for 2020.
Thank you gave us some moving pieces around free cash, but could you give a a capex number.
Yes, there is hey, Brad how you doing its Mike again.
It's consistent with what we've done previously there's no change at this point, we did not called out specifically, but you should assume at this point, there's no change and again as I said is we developed the capital allocation.
Portion of our strategy, we'll we'll share all that on May 28.
Thank you for the clarification.
Sir.
Our next question will come from the line of James Hardiman with Wedbush Securities.
Thanks. Thanks, a couple quick follow ups here I guess first.
You talked a couple of times about.
Sort of being an open book here the guidance into disclosure we are great Love. The fact that you guys actually gave US a 2020 guide and in particular sort of break out the organic versus inorganic for 2019, I think that lack of both with the source of a lot of frustration for investors over the last couple of years can we expect these types of metrics.
Going forward I guess is the question I think certainly if you continue to acquire parks, it's sort of a different animal what your organic parks are doing particularly if you're talking about the strategy going forward versus what you acquired or are you going to continue to provide these types of metrics.
James Hi, it's Mike again.
My intent will always be to be as transparent as possible unless it creates a competitive disadvantage.
If I think there's information that I'm sharing that.
Puts us in harm's way from disclose information that is not proper for the long term interest to shareholders.
Or from a competitive standpoint, then we will do what we have two and we'll obviously be complete proper on that and what you'll see it. The investors day is we'll we'll share and Thats. All reason I want to doing investors day. It will just give us an opportunity to have an interactive session, where we can.
Transparently talk about our business have an engagement discussion on the business. So you know, where we're going and that will be the real inflection point every year, we're able to give you a lot if that answers your questions.
It does and then lastly from me you've kind of touched on the membership program cleaning it up.
But I wanted to ask it directly membership 2.0 to various tiers.
Ultimately think that that was the right strategy and do you think that in any way that contributed to some of the weakness.
The last couple years.
So absolutely the right strategy.
James absolutely recurring revenue driving increased frequency of loyal consumers gas customer always always the right thing to do because you're retaining a whale what you're getting more share of wallet.
In every business you just get such a lifetime value.
That gas I found that every business so right thing to do and specific we're talking to our gas.
It every park as we test what they like and don't like about the membership would they won are there other things they want out of it as we think our base business investments at the same time as I said.
People have a lot of choices. So I still we still want those single day visits coming where somebody wants had experienced and ideally.
Once we get them has set up that first visit the six flags, if we give them that great guest experience.
Then we retain them and that's exactly why you love membership because it gives them a vehicle to get more great experiences from six flags given the many things we can do with themes entertainment.
But just clarify.
Membership on on steroids is what I'm asking about right the platinum the diamond in the Diamond delete.
Thats more recent within the last year and a half as you think that was the right strategy.
Yes, just looking at it from a base or from a base business standpoint, our our membership per caps are up 40% more than our season pass per caps. So it's absolutely the right long term strategy because it drives the prices up and it ultimately brings more revenue in for all the people that are willing to the upgrade to those levels.
So the question is is there a way to simplify the message and make it more attract will target for people that want that product and that's what the research we're going to do going forward before to to finalize our strategic plan.
Perfect really appreciate it guys and good luck.
Thank you thanks for your question.
Now I'll turn the conference back over to management for any further remarks.
Thanks for Dana I am thrilled to be part of the six flags team and I'm looking forward to our next phase of growth I look forward to seeing you out in one of our 26 parks in 2020 and at our Investor Day on May 28. Thank you for joining our call and more importantly for your continued support take care everyone. Thank you very much.
Ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.
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