Q2 2020 Six Flags Entertainment Corp Earnings Call

Fourth almost ninety percent of our guests come within driving distance. So we are not dependent on air travel or other other public transportation. Finally our Parks generate cash flow in excess of their variable costs and significantly less than 25% of their maximum capacity. Although this crisis is affected our business profoundly in the short term. It's not giving us the opportunity to make necessary changes in the business that will benefit us in the long term. I will discuss our long-term transformation initiative in the second part of my prepared remarks before I share some additional thoughts about our strategic Direction. I will turn the call over to Sunday to introduce himself and provide some details about our financial performance in liquidity position Palm Sunday.

Thank you, Mike and good morning to everyone on the call. I'm very excited to be at Six Flags. I'm a huge fan of the brand and have long admired the consumer experience that delivers.

My first month on the job is only confirmed my view of the opportunities ahead a substantial and the company is well-positioned for its next round of profitable growth.

I will Begin by telling you a little bit about myself then discuss our second-quarter financial results and liquidity position and end by outlining our team priorities.

I have 25 years of finance and strategy experience primarily in consumer-facing businesses.

Most recently. I was a CFO of gas Incorporated a publicly traded Global multi-channel Lifestyle brand in the fashion industry and prior to that. I worked in financial Incorporated one of the leading toy companies in the world.

CFO of Six Flags, I believe my primary role in partnership with Mike and the leadership team is to identify and drive a value creation agenda for the company.

I've done this in the past and believe that they're incredible brand and Company like Six Flags. We can generate significant value for all stakeholders.

I look forward to this opportunities and to meeting many of you on this call. I need the Six Flags financial performance results for the second quarter were not comparable to Pryor because of the operations of our parks for almost the entire quarter during the pandemic as Mike mentioned. We were able to limit our net cash outflow for the second quarter of the Seventy-Six million dollars.

This was excluding the costs associated with out financing initiatives or approximately twenty-five million dollars per month.

This represented an improvement compared to the previously projected net cash outflow of thirty to thirty-five million dollars per month during the last nine months of 2020.

The Improvement was driven by discipline cost management higher active Parts base retention due to the lower than anticipated membership cancellations and season pass refund requests as well as positive cash flow from our parts that have reopened.

Total attendance for the quarter was 433000 half of its came from our Drive Through Safari Park in New Jersey, which was our first attraction to open.

As a result Revenue decline by $458 billion dollars or 96% to $19.

Production and revenue included three nine million dollars of membership revenue from our members that have completed that initial 12-month commitment. That we devote into future.

Ordinarily when our members enter the 13 month of membership. We recognize the revenue on a monthly basis according to their cash payments.

However, Spotify retention efforts, we offer an additional months from members for every month. They could not use their home park.

As a result for those members who have completed their initial 12-month commitment. We will recognize Revenue at the end of their membership term whenever those members utilize their additional months.

The decrease in Revenue was also partially attributable to a $29 reduction in sponsorship International agreements and accommodations Revenue. This reduction was driven by a things the termination of the companies International contracts in China and Dubai resulting in no revenue from those contracts in 2020.

But the most sponsorship revenues while the Box were not operating.

the suspension of almost all accommodations operations

We recognize little revenue from corporate sponsorships in the second quarter, but are working with our corporate Partners on a case-by-case basis to the other plan programs until our parks are open Thursday. We also continue to recognize revenue from our part being developed in Saudi Arabia.

Just spending per capita in the quarter decreased 15% to $35.70.

Admissions per capita increased 5% primarily due to a higher mix of single day paid tickets.

Inbox many for Capital decreased 43% primarily due to the large proportion of attendance from our drive-thru Supply Park where there's no opportunity in park spending money on the plus side cash operating and sg&a expenses increased by $141 billion or 60% primarily due to cost savings measures. We took off suspended operations.

This evenings were partially offset by costs being incurred to open an operator apart. But we ended the war including increased costs related to enhanced sanitization an additional package preventative measures to help minimize the spread of covid-19.

In addition, we increased our legal reserves by $10 in the quarter.

This expenses associated with several unrelated legal claims.

For the quarter was a loss of $96 compared to income of $180 million in the prior.

We know that's fourteen of twenty six bucks open.

This box generated more than 50% of our 2019 attendance on a full year basis.

In July, we are averaging approximately 30% of priority tendons at the parks that are open.

We are holding in some states but are doing much better and improving in states that are experiencing covid-19 trends.

This gives us confidence that we will see a rebound once the virus is abated.

In the near-term. It is unclear if we will be able to open any of the remaining parts this year or whether we will close any of the open box earlier than five years at this time. We are evaluating a modified version of our popular Fright Fest and Holiday In the Park events.

Turning to our Active Space which represents the total number of guests and rolled in the company's membership program or that have a season pass.

As anticipated we lost a significant season. We lost significant season passes membership sales while our parts were not operating.

Are active as of the end of the second quarter was down 38% compared to the prior-year quarter.

This includes two point 1 million members compared to two point six million at the end of calendar 2019 and 2.4 million at the end of the first quarter 2020.

Customers typically purchased new season passes or memberships when they are planning to visit a park.

For that reason the temporary closure of our Parks had a temporary but large impact on our ability to sell new season passes and memberships.

So where were we were pleased with the retention of our existing members as we retain 81% of our members as the sort of the through the second quarter.

Since we opened up box we have begun to serve you memberships and season passes.

We are proactively working to retain existing members and season pass holders in several ways.

First we offer day-to-day extensions for season pass holders for each operating day. Their home park is closed and extended our members by one month for each month that their home park is closed.

Second we offer to automatically upgrade memberships to the next tier level for the rest of the 2020 season 4 members who continue to make payments until the parks reopen?

Until we offered to pause payments for any member requesting to do so.

We are taking members of pause as we as we open our parks and we anticipate that most of our pause members will return to activate members once we reopen our remaining box.

In addition, we are actively recruiting cancel members back to our programs now that are corporations are beginning to resume.

We have received very few refund requests are season passes to date.

While we have no contractual obligation to make a refund and almost all of our existing pass holders have used their parts at least once the satisfaction of our guests is very important to us.

We are actively engaged in conversations with them to ensure a continued loyalty.

In response to our field operations would continue to take actions to reduce operating expenses and to defer or eliminate at least fifty to sixty million dollars of capital expenditures.

We now expect to spend $80 on Capital expenditures and 2020 $10 lower than our previous projections.

We have kept our full-time team members on the payroll and maintain the benefits at the same cost.

We believe this has left us in the best position to open our Parks quickie.

However, we will continue to evaluate all options in the future given the the fluidity of the virus and any Associated impacts on Park operating calendars.

Based on all the cost savings measures. We have implemented the retention of most of our membership base and positive cash flow from the parks that are currently open. We estimate that our Network cash outflows will average between twenty-five to Thirty million dollars per month through the end of 2020.

This includes all operating expenditures and capital expenditures relating to our parks along with contractual rent interest and partnership Park distributions wage note the partnership of distributions occur only in the back half of the year and represent an average rate of $7 per month for the last six months of the year.

We believe we have adequate liquidity to the end of 2021. Even if we need to close our box. However, if operations remain curtailed, we will likely need further and back to our senior secured leverage ratio cabinet.

We also incurred approximately six million dollars of cost of the Strategic work related to transformation initiative that Michael discounts.

Cost and future periods are included in our net cash outflow estimates.

However, we will not finalize the costs associated savings until we complete the work.

We anticipate that a portion of the work will be completed by the fourth quarter of 2020 and the remaining portion will be completed when the parts are again operating at more normal capacity.

Deferred revenue of 182 million dollars was down $53 billion dollars or 22% two prior driven by fewer membership and seasoned sales a season pass sales wildlife parks have been closed.

These lower sales were partially offset by the deferral of Revenue out of the corner from our members who have completed their industrial 12-month commitment. An extension of visitation privileges into the 2031 season for our season pass holders and members in the initial 12-month commitment.

Liquidity position as of June 30th was $756 Million this included $460 have available revolver capacity negative $21 of that issue credit and 296 million dollars of cash.

This compares to a pro forma liquidity position of 832 million dollars as of March 31st, 2020 a reduction of $76 or approximately $25 million dollars per month.

Do not expect to draw on our revolver until q1 2021.

I know I would like to turn to our media priorities for the company.

First with caution and prioritize the health of our employees and guests.

Second focus on liquidity and minimizing cash expenditure while we go through this period of uncertainty third be conservative with capex ensuring we own life and projects with a good return of investment and finally continue building business and team capability.

We have a John guidance due to uncertainty to the uncertain trajectory of the virus. However, like Mike I am committed to providing additional disclosures when feasible and being as often as possible.

Our Capital allocation strategy will be focused on growing the base business and paying down debt to return our net leverage ratio to between three and four times adjusted ebitda. I suspended on dividend and share repurchases for the foreseeable future and we believe targeting the low end of the range is appropriate given the new environment.

In summary, despite the challenges our entire industry is facing we have adapted our operations in response to the crisis and we remain a healthy company with a bright future wage will not let these difficulties slow down our efforts to build new business capabilities and prepare the company for its next phase of profitable growth. Now, I will pass the call back over to Mike. Thank you Sunday. Our focus is on building a stronger base business and reducing our net leverage ratio. We will be disciplined in this Focus post the pandemic Thursday. We're developing a holistic transformation program that will allow us to accelerate growth and unlock significant new efficiencies as we emerge from the pandemic walk-in ramp up to full-scale operations. We will focus on Revenue generation and cost efficiency programs in our base business as we become a more agile commercially wage.

A technology-savvy organization or transformation will improve the guests and then experience while reducing our operating costs to descend. We having a dated a detailed review of our business as we complete different work streams. We will provide our expectations for annual earnings improvements our transformation initiative composed of three elements. The first element is top-line growth. This element is about improving the end-to-end guest experience starting with price and simplicity website redesign and a compelling value proposition for food and beverage one Focus area that we previously highlighted was the recapture of lost single day guests. We already saw progress in this area who are focused and targeted offers prior to the covid-19 crisis and it will continue to be a major Focus going forward.

the second element

His organizational design the purpose of this element is to enhance the gas and team member experience while creating cost efficiencies. We will re-examine what work belongs in South Park's versus headquarters and eliminate any redundancy while being careful to protect the guest and team member experience. This organizational design will be constructed in a way that Foss entrepreneurial culture in our Park leadership teams.

The third element is 9 headcount cost reductions. We will leverage the scale of Six Flags and examine each area of our cash operating expenses to determine what is essential will capture savings by implementing consistent systems standards and processes. In addition. We are beginning to revamp our environmental so program which is a special emphasis on diversity and inclusion. This is a personal priority for me. I know the importance of this first-hand for my Decades of experiences working with diverse teams and customer bases, including the multiple countries and cultures around the globe. I believe diversity and inclusion provides a necessary foundation for sustainable and healthy business more importantly or simply the values. We should all uphold.

We will integrate diversity and inclusion into our existing business agenda and we will hold ourselves accountable by measuring our results to ensure that we make sustainable progress with our plans will focus on five key areas one. Listen. We are creating a diversity and inclusion Council made up of members of our team to provide me a cake Co direct feedback on how we are doing and what we can do to improve to train. We are conducting robust training on diversity and inclusion for all of our team members including dedicated sessions with our top 200 and understanding the business rationale identifying unconscious biases and learning how to lead open and honest conversations with our team.

Three address unconscious biases we have updated our grooming social media and hiring policies. We are also reviewing and correcting all brand names Park attractions wage structure that might be offensive in any way to our guests and team members. We expect our social Media Partners to model the same values.

For build a diverse team, we will establish a leadership team that represents the diversity of our Marketplace. We're reviewing and updating our recruiting and talent management programs to Foster more objective processes for all team members. We aspire to have a Workforce that represents the population of our markets and to improve leadership representation by hiring and mentoring individuals from those groups who have been under-represented five partner with communities. We will proactively work with minority suppliers to develop long-term alliances. We will pledge up to 5 million dollars cumulatively in Investments and ticket value by the end of 2022 tour programs dedicated to equality and the socio-economic advantages of people of color. Our transformation initiative is an ambitious and important program and I am confident it will reshape our business for future profitable growth and sustained value.

Coming out of a covid-19.

crisis

We look forward to updating you on our progress during the third quarter earnings call Operator at this point. Could you please open the call for any questions as a reminder? If you would like to ask a question, please press star. Then the number one on your telephone keypad. That is star one to ask a question. We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Brett Andrews with KeyBank.

Hey, good morning. So so you highlighted the impact of cases increasing but can you help us a little more with you know, maybe the pacing wage leasing of the attendants in the parts that have been opened, you know, really for any substitutive length of time and how does that pacing defer? Um, you know, depending on the code that status in that region. Yeah. Hey Brett, good morning. I'll take that. You know, so first of all remember, we we had a very phased approach on attendance mean when you look at that step one was we we tested in very small tenants levels and Alignment would city and state officials that that was the first portion of the alignment of opening then we went to basically what was about a 25 index to the average, you know, historical Peak attendance or theoretical Max attempts, which against was in alignment with the City, New Jersey.

Dates, then we were ramping up to about a 50 index roughly fifty to sixty index to that theoretical Max Capacity, which was also very incumbent upon also off touring social distancing and we were on that track broadly across the entire Enterprise. Now what I've seen within the last month we've seen that split we've seen in the church states that number has come down after it was ramping up very consistent with the surge. However, we've seen really good Trends in the non search States. So if you look at our parks that are up north specifically in America, you'll get a great event for you. Look at a Saint Louis. We've seen really good steady numbers to include Great Adventure. We've hit Max numbers that we aligned on with the local city and state and we're still in that phase dup approach and that Park and that's again just the pure theme park numbers. So I do think you know what we're seeing broadly is wage.

Want to get out but they're also being very concerned with the virus depending where it is. So, you know, I'm very optimistic. We'll see a rebound when the Health crisis subsides cuz we've seen that in our surveys we're surveying gas every week and what they're telling us is when they see a flattening of the curve they want to get out and we also see a chunk of gas that are saying when they're comfortable with the vaccine they want to get out. So in the short-term, we're going to have to continue to monitor the situation a little basis.

Just to follow up on that. I think you mentioned that kind of a capacity index is how does that translate to you know attendance I guess is maybe it's a percent of last year. Just trying to you know, kind of disaggregate Mm Yeah, again, it depends depends by Parks, you know is is Sundeep said we're seeing numbers that are roughly on average twenty-five to Thirty index choices prior we've seen in the parks that are not searching. We've been getting in the mid to high 40s fairly quickly versus prior. So I think that you know, I think that's that's pretty solid. So, um, you know, roughly we average about, you know fifty percent in 2018 versus the max is a baseline Brad, you know, just as a barometer, but what we see Ninja on search States, we're we're seeing on days. We're in the mid to high 40s versus prior year, which I think is encouraging given our ramp up in our agreement with the local states and cities dead.

Thank you for that.

And just one last one. Just curious what the guest satisfaction feedback has been in this environment. Maybe what you're learning from them and whether or not that experiences in your mind impacting any dependents level. It's a great question Brian. I've personally been in the parks in observe this so the the what we're seeing is it's consistent meaning what the guests want is they want more rides per day. That's the number one item their zoning in on so that's been the first area they continue to hone in on is they want to continue to ride as many coasters as they can that day off which were very cognizant of the second is although more than two-thirds of our guests. Absolutely agree with masks. They're all telling us that when you're down in Texas. It can be tough when it's pretty humid and hot out but that's why we've done a lot of the right things in the parks with mass break areas in in other accommodations. Um, so you know, I would say is it's consistent what wage

See, we're also by the way getting really high marks on our our health standards what we're being told by the Guess is it's we are best-in-class example across all business channels. Okay, so well, I think we probably won't move on to the next question if that's okay, bro. Thank you. Yeah take her for next question.

Steve with with people. Yeah. Hey guys, good morning. So first one asked about the the reservation system. That's that's currently in place that you're parks. And I guess the question is how much is that reservation system really helping you guys control your cost structure. And is this something that could permanently be implemented as things go back to normal or do you think the potential negative reaction you would get from your customers would outweigh the benefits and if I can add on to that question, I guess how far in advance is your typical customer making his or her online reservation.

Yeah, how you doing Steve? So first of all, I think what the beauty we've been able to accomplish in a couple of months when you think about it Steve as we now got no point. If you're a guest you can go from making a reservation paint for every element get through security and you're never touched right? So this our ability to implement technology and make it work. I'll tell you the front gate experience. I've heard it right from the guest. They love what we have done love it now on the reservation system. This was a big component to get sick States very comfortable with flowing capacity controlling capacity of the park cuz that's one of the beauties of us is we're not relying on a start-and-stop time like, you know other venues. Um, we have also though. This is an advanced. Guess like they're paying for parking online. They like the ability to reserve and we are you know, seeing the reservation state. They're pretty consistent with what we saw before we're seeing folks go away.

On others and then we're seeing others honestly wait until a day or two before but that seems to be more weather dependent Steve, you know where they're they're gauging the weather.

And they're looking at the open slots. So I think we're going to continue to look at it. And I really liked the fact how they able to pick the technology to make this front gate experience starting with the preparation getting in the park a much more positive time reduction process. So we are going to definitely want to keep doing this post-cold. It stars a reservation system will continue to monitor on how it works in terms of guests at home.

Okay, gotcha. Gotcha. Thanks for that. And then and then turning to your your active passive bass bass bass. I guess the question is around the decision to offer members the ability to pause payments and not sure if you could say this but you know, can you give us some kind of idea of how much of your active pass base has elected that option and then I think Sandeep also talked about you've seen an uptick in your active pass base wage, you know as Parks have started to reopen so maybe if you could go in a little more color around that as well, that'd be helpful.

You bet. So first of all our pivot it might have it is we got to be consumer-centric. Yes, that's work on this Steve which was why we said you think about members we wanted to give them gas. The option option is they can pause if they're dealing with some personal financial issues or they can keep paying and if they keep paying they get upgraded to the the higher level and they suck at extension of time, you know. So for every month to Parks shut they get extension time, which has been very favorably reviewed cuz you think about it, we've maintained 81% of our members, you know from from the Star this which I think is very positive to specific your question. We've seen roughly about a five-point pause rate of the base of members. It's been quite small. She actually people have been really excited about being able to get that upgrade with the same payment that they were making before.

Okay, gotcha. Thanks guys. Appreciate it. Thanks for next question comes from the line of Tyler Latorre with Danny Capital Market.

Hey, good morning. Thank you. I wanted to follow up on the demand the demand side of things and the tendons and what you seen in some of these non search seats. Are you bumping up against your capacity limits off, you know, in other words if there weren't capacity limits would attendance even higher and and some of these markets that are performing a little bit better. How are you thinking about increasing some of those limits? And what would you have time see and how much flexibility do you have to remove those limits in the park?

Yeah. Hey Tyler, how you doing? So yes, this is like I said, this is what I think is a really good positive person on search States we have had days off as we've had this phased up ramp up scheduling line with local city officials. We have hit Max numbers, but that is temporary mean again. If you go back we have this what I call test age twenty-five percent index theoretical Max Capacity then get roughly to a 50 and then we've had the ability to go higher where we have enough usable Acres. It's very specific by part. So we are still in that in the non search states that we look at when we open a lot of these parks and not even been open a month. So we're still in that ramp up to go to the highest levels. So yes, we do have the ability to go back further and we've been very clear. We're going to continue do that in the phase manner that gets everybody comfortable with the way we're managing concerns around the pandemic of giving our best-in-class safety standards wage.

And will continue to do that.

So, um, you know as far as um, I think it'll be on those levels power think a lot is just going to be where the curve is in terms of flatness in each area. And with that how everybody gets comfortable with off of that and then obviously into the future as we get closer to vaccines. I think that just, you know creates much more opportunities for us.

Okay, I'll leave it there. Thank you. Thank you for next question comes from the line with thank you and get a gentleman that I can grats on the the safety Protocols of our good feedback there and Sandeep also good feedback from our sources due diligence on your on your background. So congrats joining. Thank you. Thank you gentlemen a couple of things here. First of all, maybe a housekeeping. What was the International Revenue in the quarter? And then I'm Mike or Sandeep whoever wants to take this. Can you maybe talk about what you're considering on the Halloween Christmas events the modifications there be any any time table for for decisions on those Yeah, Tim. Hi and thanks for the accolades real quick. I I do I will tell you this Tim and I want everybody to hear this. I've had governor.

And reopening task force. Tell us our safety standards are best-in-class. They've been lifting and shift them across multiple Industries and we were very data focusing from day one. Both is an industry and a Six Flags, which I think has been very powerful for the industry. Let me let me take the latter part of your question Tim as far as fright fests and wage holiday in the park. You know, what what we're doing here Tim is we're looking at it and there's going to be really for me three decision trees on this number one is safety and we're continuing to talk to Medical experts on what package are comfortable with from a safety of guests and team members as we execute. The second is we want to make sure we're cash-flow positive in anything. We do around that and then third I'm being very watchful brand reputation, especially around Fright Fest and I want to make sure we don't disappoint guests. We're in the middle of that. We're working through it over the next few weeks will finalize that but we are playing at home.

Being out there that excites families and their and our guests to get out there and come to the parks during that time. Is as far as International page. Did you want to take that? I know sure. Yeah, I think with you go back to what we said since the beginning of the year. A lot of the International Revenue was not expecting this year compared to nineteen because of Dubai in China relationships basically being one down. And and what we said previously is there's one part that's basically in progress right now in Saudi Arabia and and typically for new parks pre-opening. We run between five and ten million needed on an annual basis and so long, you know, we're not going to get into too much specifics on this because the numbers become less and less material to be the total business, but but that's pretty much a good estimate for you.

Okay, okay and just a follow-up on the Fright Fest holiday in the park.

Again, maybe the decisions that Disney and Universal have done versus, you know, yourselves and a couple of your other Regional competitors have not really made a firm decision exactly what you're going to do it but you outline your new your your your uh, sort of benchmarks maybe or they taking is that just because we're they're located. Do you think my coverage vs. We're obviously you guys have more diversity there and then I guess as a follow-on to that is the plans on you said whether or not you open some of the parks that are remain closed just any any thoughts. They're obviously as we get deeper here in Q3, the probability would decrease I would suspect there. Yeah Tim. I I'll comment on us around 5. I think this is really the advantage one of the Bands we have is Six Flags in our attraction the great thing and I think this is a huge positive KO bed. We're not sure.

On hotel or airfare. So as long as we can operate the parks and operate on cash flow positive and you see a flattening a curve. I think we can get great pent-up demand wage are prepared to capture that with our team members that are working and we have not furloughed our our full-time folks. So I think that has and will be an advantage for us given the way we're spread out and we're very regionally diverse which which we talked about and so as far as we're concerned is that's a good advantage and as long as we can keep running the parks cash flow positive, we're going to keep running the parks cash flow positive which would include Fright Fest and holiday in the park and we'll make a local decision to him. These are very local decisions based on where covid-19 the Dynamics in that market. So I think that principle will stay there long. And anyway, that's how we're thinking about it Tim. Was there another I'm sorry. Tim was another part of the question. I think I was a I think that feeds in both The Breakfast Club.

As well as the additional Park opening. Thank you. Yes you back. Thank you, sir.

Next question comes from the line of Paul Goldie's with Macquarie Capital home.

Thanks Sandeep. Great to meet over the phone and appreciate the the question for either Mike or Sandy. It's just a little more housekeeping for me the roll out of the tech the mobile enablement the social distancing enabled them. Where is that being booked? And what should we expect of going forward? Is that is that going to be a is that part of the effects that we should look at? Is that more like a part of the eighty to ninety million in Cafe, how can we think about that?

Yep, all this is Sunday. I'll take that. I think in terms of the tech enablement is the combination of capex and Opex. But but for the most part, I think I have is the cost that were built into the Opex were we're definitely part of the quarter Cashman that we just went through in the second quarter and off the great thing about the tech enablement is once it was caused have been caught in the technology side. We actually were able to save on labor to some of the automation measures that we took so there was an offsetting impact on that and and I think from the standpoint it's it's it's very minimal and it's the extent that we've been coded. It's it's within the 8290 that regarding to for the year, but it's a small in relative terms, but hopefully that gives you a bit of color on Monday. We are on that on that diesel the quarter in the

Yeah, that's great. I appreciate it. And then Mike on your transformation initiative commentary we're talking about recapture of single day. I guess off any.

Are you can provide on how you're going to weigh attracting single day and versus conversion of single day to members or season passes wage has been the the goal in the past. I would say any color around the strategy there and and how you're weighing that we we are in is like I said in the past it's an aunt. I think again, there's different consumer demand spaces and consumer needs that relate to our parts. So we do have what I would call light users that initially want to engage in a trial experience in our parks at the single day ticket. They're great guests we want um, and we should have the right value which is a function of price and benefits to bring them in properly and responsibly off now. Ideally we want to make them Loyals and that's where we have the active pass space and ideally we want to show them the benefits of trading up on the right incentive curve to age.

Into the active pass base either season pass or membership. So we're going to continue to look at that. We're going to be very thoughtful on our price pack architecture. We're going to be very thoughtful in terms of the the volume price elasticity. And what we think is the right value per Market, but we're going to want to continue to both and what I would say is go back to January February. If you remember we had our attendance up those first two months 19% and if you backed out Texas, which we had extended into a tennis or Bass attendance was growing 13% with our single day tickets up 38% so we know we can do this. I did it before the pandemic and we're learning more as we're doing the work. So we'll continue to navigate growing both active pass and single day ticket.

Great. Thank you. Both appreciate it. Your next question comes from the line of Jane.

Good morning. Thanks for taking my call. I really appreciate all the color and transparency that you're giving us with some of the the non traditional metrics during what you know, obviously the most non wage Old Times, uh, that that that any of us have seen I do want to make sure I understand a couple of the numbers that you've given us. So the twenty-five to thirty percent of Prior wage levels as we move forward that's of the parts that are open, right and so as I think about company-wide with with fourteen of the 26 Parts open Monday, is it should I should I be thinking about it as maybe low to mid-teens in terms of of overall attendance versus last year that James. Hi, it's Mike. What I would say is what we I wouldn't want to project into the future which Parks will be open or not only cuz it's such a fluid environment. As you said what we gave you is just what we're seeing today.

With the Rangers. So right now in the state if you just look at July roughly, we've been in that 25 to 30% versus prior on the open Parks. But again the ranges very James. Like I said, you've got the non search states that have been pushing much higher than that and we've seen the last three weeks or so in the search states where those numbers came down. And again, we're seeing now Improvement again back in the search state. So I think it would be I wouldn't want to speculate on the future. I would just tell you that's what's happened so far and will continue to keep you updated as we understand what those numbers look up.

Okay, that's helpful.

Just to know that that is just the open Park obviously close Parks, you know during a tennis there and then just correct that that I think that was that was pretty good. I just wanted to make it a hundred percent clear the $25 million per month that we talked about in the in the second quarter in terms of your cash drag, obviously that sound from what you previously projected in a in a no-parking open scenario. I'm assuming though that since you had some parks open towards the end of the quarter as we sit here today with the parks open are open. I'm assuming that cash burn number is something significantly less than 25 million a month. So James, let me let me take a bath. So I think when you look at the the 25 or 30 million cash burn rate, there's a bit of nuances in terms of cute and let me walk you through YouTube and it didn't understand what you fail looks like and by the way before long

Get started. I just got a note that I said something inadvertently on the prepared remarks cash operating expenses decreased by $141 or 60% in Q2. I think I said increased wage obviously is not the case, but just so you have that record. So now next to Q2 itself welcome. We actually went through Seventy-Six million dollars in the corner, which is about $25 a month and that was better than the 30 to 35. That'd be guided tour in April and there were a few drivers for this right. I think the first driver was they were lower membership cancel a season pass refund. Then we were anticipating which is a very good thing. I think Mike alluded to by talking about the retention our membership which has been very good in the circumstances. The only be done 19% off beginning of the year is a very good fact that it actually helped us from a cash flow standpoint then second. I think the more cash operating expenses is talked about earlier through very tight cost management and all this happened dead.

While keeping very current on our payables. So so I think with that to be able to limit the amount of cash out was was very good for us and and then third to the point that you were just making some box opened up towards the end of June and it should go through the month of June some later some of you and that generated some positive cash flow, but I think in terms of relative impact on the quarter in the second quarter thought it was reasonably small, but if it won't forward and look into the back half a bundle, it is expected to be twenty-five to Thirty million dollars with similar drivers to what we saw in touch with one exception. We actually make cash distributions of $41 to our partnership box only in the back half and that average is seven million dollars a month.

Set another week or cash run of the back half would have been eighteen to twenty-three million dollars on average per month without the partnership of distributions. And so when you think about all this you basically have competitive 30 to 35 that we were talking about back in April. We feel we've actually made a significant improvement in our cash boundary and expectations as well as what we've achieved in life too. But that's a lot of color but I hopefully give you enough to to kind of think at ease into that is extremely helpful and maybe just one last question are your parts of generating enough cash that you know, you only have 14 Parts open now if they were all open but still just operating at that, you know lower attendance rate would the the cash generation be enough to offset sort of the corporate overhead P such that, you know, maybe you could have break even or or battery, but I'm just trying to understand the path back to profitability wage.

Yeah, great question great question. So so right now in July the three considerations to the

Box being open right the first two safety which might talked about extensively earlier. The second is the brand experience of a delivering to our customers in there and the third is financial and and it has taken out of the cash flow is not part of this cash flow. It doesn't make sense from from from that standpoint. So obviously I think in the current situation where we're more than break even on the parks are open the 14 parts are off and we expect that we will continue to monitor this and and as long as this was the case the people to keep opening it, but remember to the point you were making earlier only fourteen of the parts are open the page fifty percent of the revenue. So the impact is going to have on the total company is going to be less when that's the case, but I think it makes economic sense just elope on this box off and then just the what I would say to help you with the break even and the layers of cash flow is remember we got open up all the box or a substantial number of the parks and they're dead.

To the point of your making on the non-service states, you're seeing continuing momentum or does not answered States and so once we actually get out of the virus constrictions over there in the third States, we took the ten minutes to lift over there to all that should lift or cash flows and closer to break even but obviously this is very mixed depending depending on which Box open and and and which states are certain States and how they took over time and and and I think it's it's kind of dynamic to see what a break-even point would be because it's a function of mix but but those are the layers you really have to think through to actually get to where we get to a break in.

Really helpful. Thanks and Ethan and welcome aboard. Thank you.

For next question comes from the line of David Katz with Jeff. Hi. Good morning. Everyone. Hello, Mike and welcome Sunday. Thanks for all the information so far off we touch on this a few questions back. But Mike I recall, you know, we had a a group discussion pretty sure it was our last week or even our last month in the office about the CRM system that the company has that you felt was, you know, state-of-the-art. I think may have been how you couched it at the time. How are you how have you started to use that learn from that and you know, what remains to be, you know captured from that CRM system and my follow-up question is really around digital Endeavors across all of our coverage, you know, there's obviously increased focus on you know, digital marketing didja.

Everything given the circumstances. Where are you all you know in those efforts and what can we expect to see in here about

Hey David, how are you? So, let me let me let me start with CRM and your questions really good on digital Endeavors a big part. Let me start with that a big part of what we're doing on transformation is to leverage technology for both the end and guest experience to make it much easier for them to engage in our parks and to be a more effective company meaning ways of working. I think technology is going to be an underpinning of both. So we're taking a very and that's a big part of the work we're looking at is how we do that to just make it easier to work reduce those redundant costs and also make it easier for the guests. So I start there now, I'm back to the the Top Line. We are looking really hard at everything from our website mobile apps search engine optimization work and your point CRM and CDP and in the

ERM it's just creating a more personalized.

Relationship with our guests. Um, and you know, I don't know if I Sit Stay are we have a we have a good program, but we think we can make it a lot better to me integrating all the systems in the data points with our faith knowing them personally allows us to create a differentiated offering with the technology to me that's going to create two things. We're going to get more share of mind which means we're going to get more frequent visit more recruitment in new users and it'll allow us to get more share wallet when they're in the Parks our ability to personalize and differentiate is going to get them more engaged and more attractions in the park. So that's going to take this thing. Um, which is a big part of the work we're doing on the transformational front and as we complete that work we will will will unveil that more.

Got it. Okay. Thank you very much. Thank you for next question comes from the line of credit.

Hey, how's it going? I guess it may be early. But for those people who have turned out. Can you talk about how you'll re-engage with that customer and for the season pass customer will have, you know, three or four months free next year how you're going to sell them an extension of that path, so to speak. Thanks.

Then how you doing? So we are we are staying very actively engaged with all of our members. So we're we still have our newsletters going to Thursday. We do direct emails to them. We have a relationship with them and they know that they can unpause when they feel good about their individual credit situations. So what we're doing is communicating and making sure they know we're there for them at the right time. And by the way, they know they can do it themselves as well. Once they go apart and on pause so to speak so we'll continue to do that in a right way and the right professional way with with those guests is has been our policy and we're doing a lot of it email and and can lead direct conversations with them. We ramped up kind of what we call a fresh team that was reaching out to these folks as well.

Okay. You that's helpful and then earlier in the year there was built a discussion of sixty million in, it. Sounds like there's going to be some cost for the transformation as well anticipated being incremental to those three buckets highlighted earlier in the year or what the difference. Yeah, so I think let me start with the three buckets off. Cuz if you go back there was a bucket of investment in the Parks op-ex or a bucket of bonus or was a bucket of what's called Labor headwinds. I would say the we we're not we feel really good that that twenty million bucket of Labor headwinds that was before covid-19.

holistically as we go through

The transformation work which really is about emerging stronger on the other side of the pandemic fundamentally. The work is about getting back to that base business issue when you think about it, it's making sure we have a good role lost top-line growth and that were taken out cost that fuel future sustainable growth both in the bottom line and the top line. So there's going to be cost efficiencies and take-out work there as well as what we can invest in the top line. So if we put all that together as we do this work and we will be very clear on what the push and pulls are. Especially what are the spends weather returns. And what are the pig time into that?

Gotcha. I appreciate it. Thanks. Yep. Thank you.

For next question comes from the line of Mike sports with SunTrust.

Hey, good morning guys. Just just to follow up on the prior question asked you to a different way. I think you said that the the twenty-five to Thirty million in in in monthly cash burn going forward does include costs related to the transformation when when you outline that 30 to 35 back in April that number also include costs related with the transformation.

So Michael, let me let me take that I would say that for sure this includes the cash one for the backup includes the transformation cost of the expect to age during the back half of the but to Mike's point. I think we not going to get it basically don't have a specific number right now that we want to get into until the work as you can develop. So back in April, but we actually came up with a 30 35. It was probably even less Clarity on exactly where that number was going to be. So there was probably some high level estimates, but but not as clear as we are because we've already incurred some some money in the second quarter as explaining that we talked about and and we do expect to incur some more but it's always a cash buyer number.

Okay, perfect. Thank you. My just as you look at, you know, early days here with the park reopening the 14 Park re-openings, maybe talk about the guest demographic or I think historically you said, you know the vast majority of your your your guests come within a couple of hundred mile radius of the Parks. Have you seen that change in the past month or so maybe relative to what you've seen this dog? Yeah, so it's a really good question like so we tell you all the metrics broadly are very consistent. We've looked at everything from mix two tickets Life Time in the park, you know kind of the mix of you know, all sorts of things and what we're seeing is it's really consistent. Okay, so it's off all boats rise or kind of dropped dependent on the search. We're not seeing anything material where they're coming from whether they're a member single day ticket how long they're in the park their visitation rates. It's very consistent wage.

We saw before covid-19.

Okay, great. Thank you.

Your next question comes from the line of Ryan Sunday with William Blair.

Yeah, hi. Good morning. And thanks for taking my questions. Welcome aboard Cindy. Thank you. I think we can all understand the pressure on spending during the quarter just given the limited opportunities that the Safari drive through and the volume and the attendance line that that accounted for but with more traditional Parks or opening past month. See maybe talk about what you're seeing in terms of imports spending money, you know with more comparable hate to parts now open.

Yeah, as far as I just want to make sure I understand your specific question meaning changes versus before or Dynamics in terms of what are being brought in the Parks dead. Yeah more so I mean just the the pressure on the end part per cat we saw oh I got ya. Yeah clearly impacted by this. But yeah, okay. I understand your question. Yeah. I'm going to give you the answer excluding Safari know the the the impact spending is good. This is consistent with with the prior question. We are seeing good Trends and by the way, one of them as we've been interested mobile ordering when positive or seen of it is we're getting an increase in transactions eyes where we've employed it, which is very positive. We're seeing a definition check which has been one of the nice things you've been testing during this pandemic is how that works and we're seeing a nice uptick in transaction size pre-order. So actually I like what I'm seeing. We're also by the way seeing good pools run bath.

People are spending in the retail shops. People are spending with food, especially by the way, because remember when they're they're getting food. They're they're also getting a mass break. So I've seen this myself and I've seen the numbers with people are in the Parks. They want to spend money. They want to engage. It's been good.

That's great to hear and then my assistant, how should we think about that deferred membership Revenue piece that I moved out of the corner of going forward, you know, should this grow as phone numbers roll off that first year or as more parts come online. Should we see the impact shrink going forward? Just trying to try understand this new parts great questions you take cuz I think it's important life understands. That's a really good question. Go ahead. No, I think it's it's a really really important and and frankly, is there a complexity of moving parts of this so bear with me because it's going to be a bit detailed notes. So just tell her what the thing before driving in a quarter when you actually look across the big components. It's about $29 between between season pass and am and impart dining and in this position to that. We also have some deferrals on corporate sponsorship when in total it was about thirty-five million dollars across everything.

So let me walk you through.

What components because I think there's four components that have discrete and tax. The first will be season pass. The second will be membership within their twelve month. The 3rd. We membership 13 plus tax and the 4th will be sponsorship.

So on the season pass because you the cash upfront so cash. In fact is needed and on the normal circumstances revenue is different based on visitation history. However, because the money for Parks not operating we provided day today extensions in the 2021 and the revenue will be recognized through 2021 based on historical visitation. Now number two was month membership with the 12-month period geocaches received monthly and his Revenue normally gets deferred based on historical visits, but for parks are operating we've offered once a month extension when the members home back is closed and here are two of the revenue will be recognized based on historical visitation. But while members are paying if the parts are closed we're giving them tear upgrade and also the option to cause like we talked about earlier and the the the complex part is really membership 13 plus people have passed its moments here Cassius receive monthly and and revenue normal birth.

Would be recognized on receipt but in this pandemic situation approximate operating we're offering month payment extensions for the month for members home park is closed these extra months will be recognized once the membership ends or it's canceled and and the and the ones actually utilized and number four is sponsorship. And here I am a cash was received from a corporate sponsors prior to the pandemic but because the parks were closed for the most part during the second quarter. The revenue has been deferred and will be recognized only once the parks reopen it's not operating off so that the the corporate sponsors available benefits that they were painful. So so that's really a bit of a long-winded answer to your question. But I think Iraq is dependent accruals on this is the approach we're taking to default revenue and and you know what the triggers now are to recognize the living but I hope that answers your question, right?

Yeah, that's helpful. Thank you.

And ladies and gentlemen. We have reached a lot of time for questions. I'll turn it back over to our speakers for closing remarks. Thank you everybody for joining or call and more importantly for your continued support. We will continue to focus on emerging stronger post the pandemic. Please. Take care and please be safe. Thank you once again.

Thank you. Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.

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