Q3 2020 Six Flags Entertainment Corp Earnings Call
Good morning, ladies and gentlemen, welcome to the six flags Q3, Twentytwenty earnings Conference call.
I get it and I will be your operator for today's call.
During the presentation all lines will be in a listen only mode. After the speakers remarks, there will be a key.
Question and answer session.
If you have a question at that time simply press star one on your telephone keypad, if youd like to withdraw your question. Please press the pound key. Thank you I will now turn the call over to Steve for Telx Senior Vice President Investor Relations.
Good morning, and welcome to our third quarter call.
Their bikes that us president and CEO of six flags and Sandeep Reddy, our Chief Financial Officer.
We will begin the call with prepared comments and then open the call to your questions.
Comical looks forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements and the company undertakes no obligation to update or revise these statements.
In addition on.
The call, we will discuss non-GAAP financial measures.
Investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the company's annual report quarterly reports and other forms filed or furnished with the FCC.
At this time I will turn the call over to Mike.
Good morning, Thank you for joining our third quarter earnings call.
Two weeks ago, My wife, and I spent a day at six flags over Texas I.
I wanted to get some first hand feedback by chatting with employees and guests.
What really struck me on that visit though was what I saw all around me it was something simple but meaningful.
I saw people getting out in the fresh air writing roller coasters eating funnel cakes, and our other great food items, and having fun, while spending quality time together.
Coburn has been a worldwide crisis, but to many of US. It is also revealed what really matters in more covert has obviously had a severe impact on our business.
It has demonstrated just how important the work of six flags really is having fun together is vital to our happiness and well being.
And so I want to begin by thanking our six flags team for rising to meet the challenges of the past few months, but operator parks at the highest levels of safety cleanliness, you've made it possible for millions of visitors to make thrilling personal positive memories, just when they have needed. It most you.
Helps families and friends connect you have lifted morale you have given someone a brighter day during a difficult time I've never been more proud of what we do how we do it.
On today's call we will cover two topics as usual, we will provide our quarterly results. But in addition, we will also describe the outlines of our transformation plan, which is already well underway.
First I will focus on the transformation plan then.
Then sundeep will discuss our quarterly financial results, including our cash outflow when liquidity. He will also provide details on the financial implications of our transformation plan. Finally, I will conclude with a few comments and why I'm. So confident that six flags future is bright.
Even though six flags offers a truly unique combination of thrills and fun for guests of all ages.
Our base attendance growth have slowed for several years prior to the pandemic because we did not have all at the same pace as our guests' expectations.
Specifically, our guests expect to Cmos and personalize experienced up once the heritage of our theme parks with the conveniences of modern technology people still want roller coasters in adults and foods like our great funnel cakes, they just want it to be an easier and faster experience.
In order to provide our guests with the value for their time and money that they have come to expect we launched or transformation plan earlier this year to modernize our operations and to improve the guest experience well.
Well the transformation work is ongoing we have already developed a strategic framework and are focusing on specific high value areas that we believe will lead to significant revenue and earnings growth.
We engaged outside consultants to assist with the sole patient and provider Jody capacity and a fresh outside in perspective. However, it is our six flags team that is leading and completing the work. We're also creating internal office to take on this work beginning in the second quarter of two three.
Sales and 21.
[noise] functionally we have broken our transformation plan into two distinct components cost efficiencies and revenue enhancements on.
On the cost side, we need to make sure that we are operating officially at both the corporate and park level.
No we are eliminating any unnecessary costs within our operations on the revenue side, we need to ensure that we improve the guest experience from the moment, our guest log onto our website to the moment they exit our park in order to maximize our attendance and per capita spending.
Starting with the cost side, our three productivity initiatives are to first optimize our corporate overhead structure second reduced non head count operating costs and third optimize our park level labor expense.
On the corporate overhead piece, we have updated our organizational design to reduce the layers in our organization. So that we are leaner and more agile well.
Lowering our total cost and improving our speed of decision making.
I've installed a new senior leadership team that is about 30% more affordable than 2019, but includes a dedicated guest experience team and a transformation team to focus on the guest experience and ensure we operate more efficiently and effectively.
We will also be consolidating certain positions out of the parks into a new parks support shared services Center. These.
These positions are primarily back office functions, such as finance human resources and I T.
Moving some more flows into functional shared service centers allows us to become more efficient.
As previously announced we reduced our full time headcount by 240 employees or about 10% of the workforce.
These have been very difficult decisions as they affect many dedicated and talented team members, but we do believe this will improve our efficiency as an organization.
Despite these changes one key element of our corporate overhead structure will remain the same local leaders will continue to lead local markets Park leaders know their parks communities employees and markets best we want to enable them to provide the best guest experience for the unique demands of each.
Local market.
Our second productivity initiative is to reduce non head count operating costs.
This essentially means that we're reviewing each operating cost with a fine tooth comb to eliminate excess for example, we're eliminating two of our satellite offices and modifying our t. any policies to lower our corporate expenditures.
A large portion of our non head count operating cost reductions will involve leveraging the scale of six flags as a whole to centralize procurement consolidate vendors and renegotiate contracts.
As we go through this process, we're leaving no stone unturned examining light items as small as our lettuce expense, which serves as an interesting example.
If we standardize that one order and by just one kind of let us we will save $40000 per year, we have hundreds of goods, where this concept would apply from napkins to paid to chlorine to uniforms.
In addition, optimizing our rides will save us enough Capex to fund a new ride every single year, Our park presence engineers and maintenance teams have studied the performance of each and every ride.
Calculating the cost against the rides throughput productivity.
We now know which rights to redeploy across parks, which rides need to be refurbished and which can be removed entirely.
We are eliminating 15 underperforming rides this year, reducing maintenance costs and freeing up significant capex resources.
Our third and final productivity initiative is to optimize park level labor.
We have developed a system that enables us to model more narrow attendance bands by park by time of day and by guess location in order to better forecast or labor needs better data analysis will allow us to align labor with gas demand by season by day and by our.
Better staffing will also increase gas transaction opportunities and decreased wait times. So we expect a revenue benefit from this initiative as well.
Moving to the revenue side, our five revenue initiatives are to optimize the following areas first overall guest experience in our parks second website and search engine optimization.
Third pricing and promotions for media spending and fifth our culinary and retail offerings.
Let's start with the most important initiative modernizing the overall guest experience.
We have already begun to implement systems like advanced reservation systems prepaid parking mobile ordering contact with security and cash the debit card kiosk to provide a contact with his experience on purchase transactions.
All these improvements our guest to spend more time, having fun and less time waiting.
We also started testing virtual queuing in order to learn how we can enable our guests to better plan when they can ride their favorite roller coasters and reduce waiting in line.
Our second revenue initiative redesigning the website in improving search engine optimization can be a significant revenue driver and we have already witnessed its powerful impact through higher conversion rates, we launched our new web site at one of our parks in August and realized improved conversion of web site traffic to sales by a double.
Digit percentage.
More than half of our revenue is derived from our web site. So this is a very encouraging sign we launched a new website across all of our parks in mid October.
We have also seen how our third initiative optimizing pricing and promotions can drive attendance and revenue growth.
Before the pandemic, we began to change our pricing and outreach to target more single day guests.
In the first quarter prior to shutting the seven parks that were opened during that timeframe. We sold 38% more paid single day tickets compared to the previous year with total attendance up 19%.
The fourth revenue initiative is to optimize media spending.
Our marketing team and media partners began using a new customized artificial intelligence tool to analyze the return on our media spending by park and buy media channel.
Weve tested this new tool and found that a highly targeted media spend has a clear and demonstrably impact on our attendance growth.
So in addition to improving the efficacy of our media spend by using our new analytical tool, we intend to increase our marketing spend to 4% to 5% of revenue versus the historical 3% to 4% based on observed returns of increased investments to drive incremental EBITDA dollars.
Our fifth revenue initiative is to optimize our culinary and retail offerings.
Food and beverage consistently rates as our lowest score in terms of guest satisfaction, we know that our guests expect more from us and we intend to focus on providing a greater breadth of higher quality options, including healthy indulgent and premium food and beverage choices.
We have tested several enhanced food and beverage concepts and are pleased with the initial uptick in our sales. This is a very big opportunity for us. So it's more than a third of our revenue comes from in park spending and the majority of that is food and beverage.
Well will take time to fully implement all of our initiatives. We are already starting to see the impact on our results and look forward to updating you on our continued progress in the months ahead now I'll turn it over to Sandeep.
Thank you, Mike and good morning, everyone on the call.
My first 90 days on the job I've only reinforced my belief that this is a great business.
Six flags has an exceptional Brian and the largest portfolio of trimmed rights have been providing lasting memories to our guests for generations.
I'm trying to help drive the transformation efforts that are already underway.
Results for the third quarter with no comparable to prior year, because we suspended the operations the mine the far 26 Bucks.
Almost the entire quarter and had attendants limitations at our other parks that are open.
The folks that were opened represented slightly more than 50% of our 2019 attendance and exit approximately 35% of prior levels in the quarter.
We have been pleased with the sequential improvement in our attendance trends since we began reopening our parks.
Couple of initial reopening of the second quarter.
Attendance at our open box average, 20% to 25% of prior levels.
That's groups through the third quarter from 27% in July to 43% in September.
In October so far we are indexing more than 50% of prior.
Well the number of Pocs, beating priority tenders on several operating days.
Our guess government officials and health authorities have given us high marks for our safety standards and procedures as we expect that we will continue to see improvement in our attendance trends.
Currently we are operating a modified how do we hold how fast at seven of our two bucks.
Plan to keep these parks open for holiday in the park in November and December.
In addition, we opened door.
We opened the Waterpark in Mexico on September 12.
Buck in Mexico City on October 20 code and we plan to open a holiday walks were experience.
Great America Park outside of Chicago in mid November through December.
We are pleased to reopen our Fox in Mexico as they are able to operate.
Given the favorable climate conditions.
Total attendance for the quarter was 2.6 million yes.
371000 of which came from our drive Thru Safari Park in New Jersey.
As a result of 81% decline in attendance revenue in the quarter was down $495 million or 80%.
$126 million.
Sponsorship international and accommodations revenue declined by $22 million due to the following three things.
Number one.
The termination of the company's international contracts in China, resulting in no revenue from those contracts in 2000 and trend.
Number two the.
The deferral of most sponsorship revenue while many of our box were not operating.
And number three.
The suspension of a majority of our accommodations operations.
Guest spending per capita in the quarter increased 10% driven by an 11% increase in admissions per capita and a 9% increase in in park spending per capita.
The increase in admissions per capita spending was primarily driven by recurring monthly membership revenue from members who retain their memberships. After the initial 12 month commitment period and.
Excluding the impact of membership revenue admissions per capita spending was approximately flat.
The increase in in Park spending per capita was primarily driven by a higher mix of single day guests, who tend to spend more on a per visit basis.
In addition, recurring monthly all season membership products, such as all season dining pass contributed to the increase.
On the cost side cash.
Cash operating units unit expenses decreased by $94 million or 29% primarily due to the following.
First cost saving measures, primarily related to salaries and wages, especially of the products that were not offering.
Second lower operating no advertising costs.
Todd savings of utilities, and other costs related to many of our bogs not operating.
Why we have taken measures to reduce our variable costs, we have decided to retain the balance of all full time members.
Maybe team their benefits.
In order to position ourselves to reopen talks safely and quickly as soon as we receive authorization from government authorities.
Employees at close box.
On a 25% salary reduction has our senior leadership team and other corporate executives.
We will continue to evaluate all options in the future.
Given the fluidity of the situation.
Adjusted EBITDA for the quarter was a loss of $54 million.
Grant income of $307 million in the prior year period.
Deferred revenue of $199 million was up $1 million or less than 1% supply are driven by suspension of operations at our parks and extension of the 2020 season passes through.
Through the 2021 operating season.
This was mostly offset by fuel membership and season pass sales.
We are making significant efforts to ensure the continued loyalty of our active pass base.
We recently extended the U.S privileges for all 2020 season passes.
End of 2021.
Well members.
An additional bonds to their membership for every month they paid when there.
Was close.
All members have the option to pose their membership payments.
Any time until spring of next year, but we have also a menu of benefits, including upgrades to higher membership peers.
I'd like to continue on their normal payment schedule.
We also are you only got a gift card program. The members can choose to use in our parks can.
If you are adding additional bonds to their membership.
We are very pleased with the loyalty and retention of our very large active pass base of 3.7 million, which included 1.9 million members and 1.9 billion season pass holders at the end of the third quarter.
In fact, our active pass base is close to flat most of the end of the second quarter of this year. When do you have 2.1 million members and.
1.7 million season pass holders.
Although the active pass base at the end of the third quarter is down 49% compared to the same time last year. This is primarily due to substantially lower sales of new season passes and memberships due to the short term impact on demand from the pandemic.
To date, 40% of card members have chosen to paused their membership and we anticipate that most of these paused members will return to active paying members once we reopened our remaining box.
In the first nine months of 2020, we spent $90 million on capital expenditures net of property insurance recoveries, but expect to spend minimal capital in the fourth quarter.
Our liquidity position as of September Thirtyth was $673 million.
This included $459 million of available revolver capacity net of $22 million of letters of credit.
$214 million of cash.
This compares to a pro forma liquidity position of $756 million as of June Thirtyth 2020.
Production of $82 million, representing approximately $27 million per month of net cash outflows in line with our prior estimates.
We estimate that our net cash outflows will continue to average.
$85 million to $30 million per month.
Through the end of 2020, including partnership distributions that represents an average run rate of $7 million from on for the last three months for the year.
The operating environment is quite fluid and changes almost baby so.
So it is difficult to project more than three months into the future.
However, the first quarter has historically consume more cash than the rest of the year. When we have been in a normal operating environment.
We expect this to be the case next year, as well, which will have better visibility into the operating environment, but the time, we report our fourth quarter results next year.
No let me take a minute to talk about breakeven levels for the company on an annual basis.
Then on three levels of breakeven that we calculate.
First off breakeven levels.
Okay. Pocs that are operating are generating positive cash flow on a variable basis.
We wouldn't operate them otherwise.
Second.
Breakeven EBITDA levels for the company.
This level is definitely mix, driven, but we estimate breakeven EBITDA levels and then the attendance range of 45% to 55% of 2019.
So.
Free cash flow breakeven levels for the company.
This level is also mixed driven what would cover our cash interest and partnership distributions.
We estimate breakeven free cash flows at an attendance range of 65% to 75% of 2019.
We believe we have adequate liquidity through the end of 2021, even if we need to close our parks.
In August we further amended our credit facility to extend the covenant waiver period by one year from the fourth quarter of 2022, the fourth quarter of 2021, and the covenant modification period by one year to the end of 2022.
Between our current liquidity and our recent covenant modifications.
Given ourselves a significant runway to navigate through this challenging period.
I would now like to turn to the financial impact of our transformation plan.
Executing a transformation will require one time costs of approximately $69 million.
2021.
$16 million or which is expected to be cash and $9 million of noncash write offs.
So far.
$89 million has been incurred through the end of the third quarter of 2020.
$6 million of which was incurred in the second quarter.
$23 million of which was incurred in the third quarter.
We anticipate that we want to go to approximately $5 million in charges in the fourth quarter of 2020.
Including the $3 million in employee termination costs related to our full time headcount reduction previously discussed.
The remainder of the $69 million in costs are expected to be incurred by the end of 2021.
Approximately two thirds of which will be technology investments.
Financially, we expect the transformation to unlock $80 million to $110 million.
Incremental annual run rate EBITDA once fully executed.
Taking the midpoint of our pre pandemic 2020.
Adjusted EBITDA guidance of $250 million this.
This implies a new baseline of at least 530 million to $560 million. Once the transformation plan is completed and we are operating in a normal business environment.
Okay $80 million to $110 million in transformation value roughly half the volume is expected to be realized through a reduction of fixed costs.
Independent of attendance levels and is fully in our control.
The other half is expected to be realized from incremental revenue initiatives and more variable cost but.
Better than me, but optimization.
These estimates are based on historical data.
Adjusted operating parks before and during cold and my team and to the validation of our teams.
Shlomo revenue initiatives, we expected them about $30 million to $40 million of EBITDA.
For our three cost of productivity initiatives, we expect to deliver $50 million to $70 million in EBITDA.
Of this.
$40 million to $55 million little bit realized through a reduction of fixed cost that is independent of attendance levels.
We expect to deliver $20 million to $25 million in EBITDA in 2021 from the reduction of the fixed costs.
We expected the number the food $40 million to $55 million in EBITDA by 2022 Inds.
Independent of attendance levels with incremental benefits to be realized from revenue and a variable labor initiatives, depending on overall attendance in both 2021 2022.
Our capital allocation strategy will be focused on growing the base business and paying down debt to return on net leverage ratio to between three and four times adjusted EBITDA overtime.
We have suspended our dividend and share repurchases for the foreseeable future to allow us to focus on these two objectives.
In summary, despite the challenging challenges our entire industry is facing we have adapted the operations in response to the crisis and have not met these difficulties slow down our efforts to transform our business.
We are very excited about the value creation opportunity for the company that comes from implementing our transformation.
Transformation plan.
Now I will pass the call back over to Mike.
Thank you sandeep, despite a challenging operating environment I am very optimistic about six flags future for the following reasons first we have an incredible portfolio regional theme parks, serving all the top 10, D.M. ace in the us as well as major metropolitan areas in Mexico and Canada.
Our parks provide a unique live experience for families and teens that cannot be replicated by other forms of entertainment, they're outdoors and spread over hundreds of acres, making them naturally conducive to social distancing and our guests continue to visit our parks and engage with our brand despite the sub optimal operating environment.
Second our recent surveys of several thousand consumers real that 93% of them would visit the theme park. If they were guaranteed a coated free environment by rapid testing.
In addition, 87% of consumer say they would visit the park after vaccine becomes available. So while the current environment is tough we are confident that our guests will return once the pandemic subsides.
Third our transformational agenda will provide what our customers want and it is readily achievable from a business perspective.
I've overseen three distinct transformational agenda is over my career and I am confident that we can execute on our goals fine.
Finally, we have an exceptional team of dedicated people working at our company. They love six flags and are excited to up our game and deliver an outstanding guest experience.
We're also fortunate to be aided by two new ACV.
Exceptional board members.
See I will send bracey Enrique Ramirez Mena are highly accomplished business leaders, who bring complementary diverse skills and experiences to our organization skills that are especially critical as we focus on getting closer to our customers and on operating more effectively and efficiently.
In the coming months, we will remain focused on modernizing the guest experience, making it easier for our guests to enjoy six flags as the thrill rides destination of the world wonderful.
We want to provide our guests a memorable experience and an excellent value for both their time and their money.
We remain intently focused on executing our transformational plan to achieve our earnings baseline of at least $530 million to $560 million. Once we are operating in a normal business environment.
I look forward to updating you on our continued progress in the months ahead.
Operator at this point could you. Please open the call for any questions.
Certainly at this time, we would like to take any questions you may have for us.
Ask a question over the phone please press star.
One.
Todd we ask that you please limit yourself to one question and one follow up.
Next question is from James Hardiman with Wedbush Your line is open.
Hey, good morning, Thanks for taking my question so.
Leap.
The cash flow analysis that you gave I thought was fantastic but.
But just.
Help us understand.
If I if I look at the 27 million per month of cash burn that you did in the third quarter.
That's in line with the 25 to 30 EBIT you had called out three months ago, but it seems like the attendance trends actually got better so help us understand why that that.
Didnt move towards the lower end of the range or better.
Because it sounds like as we move forward, if we continue to get.
Even where dependent sounds like it is right now.
I feel that we should be better than that that previous range that help with connect the dots between those two.
Good morning, James Thanks for the question I think it's a really good question, but.
One thing that's really important to two ready nodes phase when you look at the third quarter, there's definitely a different weights between the months. So July if you remember when we go back to the July call that we had was trending somewhere closer to 30% range, when we actually announced the second quarter earnings.
We finished at about 27 like we said in his prepared remarks, well then picks up a significant waves of our third quarter revenues. So as a result on the weighted average even though we saw sequential improvements getting up to 43% in the month of September the weighted average for the quarter was about 25%. So yes.
It was a sequential improvement, but just would be hoped but it was not massive in terms of the weighted average for the quarter and so so you did see a small impact, but not a very material impact in the quarter versus our expectations from a cash flow standpoint, but that being said we are really encouraged because sequentially.
We've been improving September you saw it at 43% I think children. Like you said was all of these are trending above 50 at the time, we actually ended this weekend. So we're really pleased about the sequential improvement that's coming in and I think that's why we are very encouraged as we go forward.
And just to clarify if we're able to pick up obviously.
Obviously seasonally things are low for the next few months, but we're able to pick up where we left off in 2021, we should be close to that EBITDA breakeven point based on sort of how you laid things out is that right.
Yeah, I think really when you think about it this year, we almost done right I think after we get past the Halloween.
Events essentially it is really on the holiday in the park clip so, but when you look at 2021 or any younger what you're trying to explain as we got to get attendance to between 45 and 55 to get to breakeven EBITDA.
And so that's a function of lovejoy stuff attendance on the open parks, but also how many parks and open interest right now what's happening is 50% of the attendance base was open roughly into the third quarter and Paul.
Talks to the open that 60% of your tenant base in 2019.
So you can do the math, but but really open box are as important as productivity Oh, sorry, opening bauxite is important because productivity in the open talks.
Got it and then.
Just a quick follow up here, Mike you gave us some too.
He really good data points in terms of the consumer work that you guys had done.
Maybe I can just wait for the transcript to come up but then last point you made about 87% of people.
I'm willing to come to your parks.
After a vaccine becomes available can you just dig into that a little bit because it seems to imply that there is some 13% that wont come back.
Even after things in theory go back to normal maybe I'm missing who those people work, but can you dig into that and I.
I would think that in the in the post Colgate World, but that you know things that demand can get back to where it was or even better but help us.
Thanks for that.
Yeah, James Moore, and look to so it will want to move on to the others in the queue, but good question no we actually see it as very positive we surveyed several thousand.
Consumers in that number.
Was that a moment in time I remember is we surveyed that.
So that's what the data suggests is that that group is saying they want to there will take a vaccine right away.
And as I said, the coated free environment numbers were very high as well and I think if you compare those numbers to the broad society and the way to think about vaccines I thought those numbers were quite positive versus what you see in the use of other vaccines that are out there. So.
We see it as a good one it's a moment in time, we will continue to evaluate.
Got it helpful. Thanks, Scott Thanks for the questions in queue. Thank you.
Your next question is from Steve Parsons with Stifel. Your line is open.
Hey, good morning, guys.
So first quick first question would be around the attendance metrics and improvement that you guys witness and obviously it started in that 20% to 25% range moved all the way up to 43% in September and I'm I guess I'm. Just wondering did that change in attendance coincide with any type of increase marketing or was the marketing spend pretty much.
Status quo throughout that timeframe and then did any of your parks ever hit those attendance limitations.
Yes, Steve how you doing Sundeep I'll take this.
So I think it's a first Steve it's really important to go back because you really get that demand and I'll go through those questions.
First it's important go back to our last earnings call, where we saw a pretty divergent attendance results versus what I would say were the search states versus the non search states. If you go back to the to that point, that's not been the case since July we are seen consistently positive trends across all of our open parks.
Across all the geographies Sundeep set through this last weekend how fast.
And what we're seeing and hearing is consumers want to safely visit outdoor venues that want to write a roller coasters and have great quality time, together and its they trust or safety standards.
So we're very confident based on these trends that we're going to continue to see nice rebound specific to your point it was not a function of increasing spends on media.
That was not the case, we're seeing good momentum and demand momentum.
As we're seeing the consumer wants to get out and they trust our safety standards.
And did any of those parks ever hit the attendance limitations or are no. Yeah. So we have we have room for more attendance flex if that's what you're asking we we feel good about that as well.
So were initially yes earlier in the quarter, where we had capacity limits. When we were first opening up yes, we hit some of those capacity limits because a number of the open states.
We had just started a 25% a theoretical max capacity. So that the case now when you think about it Steve Weve been as we got more flex because of our safety standards. Remember we also have a reservation system. So we're using that to flow the capacity throughout the day at different times.
And the other thing the team's done a great job on Steve is Bonnie.
Bonnie in the park President he may have been really good about expanding hours expanding days as needed.
And as you know, we've got parks or outdoor we've got dozens or hundreds of acres. So we're able to flex up with being able to bring more folks in the park and still exercise the proper social distancing.
Okay got you and then Mike My second question, maybe a little bit more of a bigger picture question, but you know as you.
You start to implement the transformational plan here, how do you balance the the cuts that you're going to make versus the guest to the guest experience to assure you don't start to diminish that guest experience and can you maybe help us think about those you know your satisfaction scores and how those trended throughout the summer maybe what feedback you got from.
Your core guest.
Got it it's two different questions. The transformation is actually investing more into the guest experience and Steve If you pull up on what do we really trying to do with transformation by the way I'm highly confident in our ability to deliver on the value of transformation, but what we're basically doing is we know our guests love our.
Roller coasters, they love our funnel cakes, they just want an easier experience.
And we can do that better by modernizing that experience through technology and we can also do it while we drive an organization that is more efficient and effective by driving more profit from our core parks, we're not sacrificing guest experience, we're not sacrificing sales.
Safety that guest experience and the safety of our team members and our guests are paramount were actually leaning more into that.
Technology is a fundamental part of it because it allows us to be both efficient effective while we modernize the guest experience.
[music].
Okay got you thanks, Mike appreciate it but.
Thank you.
Question is from Tyler.
Capital markets. Your line is open.
Thank you good morning, and I. Appreciate you taking my my question here just one multi part question for me on Capex I know, it's little early but can you talk a little bit more about what you might be spending on capex and 2021 and also remind us what your plans are for spending in 2020, and then also interested.
With the transformation plan you mentioned some changes in terms of what's going on with the with the roller coasters traditionally your targeted 9% right.
Revenue in terms of Capex spending you know would you anticipate that changing significantly in the future and then lastly, when you look at the parks right. Now there was some discussion previously about some capex cash capex. So if you could talk about that as well that would be helpful. Thank you.
Yeah, Tyler show I'll take this on the Capex piece. So I think when you look at the Capex, we Miss spoke about the sequentially in time to be is so in 2020 through the end of the third quarter, we expect $90 million in Capex, but if you actually parse it.
By the time, the pandemic and roll down and we reported the first quarter, we'd already spent more than $15 million for the year.
And I think what we did do was Oh, we went through and completed some projects that will hopefully, but also put a hold on a number of other projects good about.
But I think the because the commitments were there by the time you go to the end of the second quarter. We've already spent over 76 lending and now in the current quarter, we tail down from 19, I mean, we do expect to spend much more capex for the year. So.
Little bit more than 90 minutes, maybe we'd expect to be but this is a year, where we haven't hit the brakes basically will depend on the kit.
Oh, no going into 2021, I think part of what we talked about was it's difficult to talk more than three months out given the visibility there it'd be hard right now, but the difference between this year 2020 next year to 2021 is we already know that we are in a pandemic and.
So to that extent, we can probably take more action to to actually move spending for the route to the extent that we can actually push the projects out and.
And I think we'll do that with a balance because we've already do want to make sure that the assets that we have operating effectively in the box and we are investing for the future as well to make sure that we have the innovation that the guests are looking for when they come to the park. So too early to talk about 2021 specific needs. So we're not going to give you a number.
We're on that right now, but I'd say overall strategic me, what we're going to be doing is looking at.
Looking at what our Capex spend is more from an allocation of the OCA capex.
Anything else and at this time, we really havent.
God finished that analysis, but I think both on the NBR and can report to you next year, we'll have a better sense on what that Capex I'm sorry.
And as a ratio to sales would be.
And I think you had a fourth question on specific Paxton can you just repeat that question for me because I'm not sure quite sure I got it.
No I think you pretty much covered it but my my other my last part of the question just in terms of potential catch up catch up Capex here, you had some deferred maintenance and whatnot I'm interested if you haven't talked about that as well.
Yeah, I think that's that catch up spend as part of what they were definitely making sure we're embracing and because the operating cost and so the safety of our guess is pharma. So we continue to make those investments as we go above the operating the box and Thats intuitive in 2020 and will be a portion of 2021 as we go into <unk>.
Hey, Mark.
Okay. That's all from me appreciate the detail. Thank you.
Okay.
Our next question is from Stephen Grambling.
Your line is open.
Morning. Thanks, just following up on the transformation plan I appreciate all the color on the components.
As we think about whats dependent independent of attendance levels, but as a quick clarification on on the component that is related to attendants, what's the assumption in terms of where attendances to be to achieve those and then the sensitivity on each point of attendance to those buckets.
Sure.
Oh, sorry go ahead Mike.
Yes, Steven Hey, I'll take a sundeep. So appreciate the question let me start on the on the revenue.
Initiative Steven.
We're also very confident in our ability to get these results and we've already seen positive results across the revenue enhancements.
Remember we've been we've been doing this through AB testing Weve done this before co bid and we've actually been testing during.
During co bid and again, just remember that the five revenue initiatives or roughly a delivery of $30 million to $40 million specific to your question. The value is based on achieving 2019 attendance levels, okay, but again, however, its variable so what that means it's going to increase as attendance builds towards that 2019 levels.
It also increase when the attendance levels go above 2019 levels.
So we're confident with it as far as the exact sensitivity I really wouldn't want to give that out on a public call, but it is variable so as I said it builds as we get back to those 2019 levels.
Got it and then maybe an unrelated.
Follow up question on season passes how should investors be thinking about the impact of the extension of the season pass into next year as we think about both GAAP accounting numbers revenue and EBITDA, but then also thinking about.
The cash impact as potentially people are you know.
Repurchasing their season pass next year.
So Steve I'll take this one then I think I'd be.
The guest satisfaction is absolutely paramount to us and I think given the disruption.
And and business for this year, we actually made sure that we use we address their concerns and extended the season passes through 2021, I'll give you a data point, though.
Typically only about 20% of the same season pass holders we knew for the following year. So a lot of the season pass holding is is turned into and as we move year over year.
And so we don't see that being a huge impact to cash flow as a result, but that being said there isn't a revenue impact because all of the season passes that got extended into 2021.
The portion of the revenue from those season passes will be recognized in 2021, even though even though they've been sold over a long time before that.
But I think from a from a members an open pug standpoint.
Our members at the close block standpoint, there is an impact but I think for their members. An open box is really not much of an impact because now we are recognizing revenue for all goes members that have been members more than 12 months.
In the current year.
Current month that they actually paying and those when the when the first 12 months of being recognized as usual. So overall I think the distortion that we sold probably in the second quarter is already been moderated as we moved into the third quarter.
And I think with the close blocks that are remaining baby all nuanced way there have replacement bonds being offered one full month has been as we go as we go along and and those bonds will be recognized when the members of that was utilized a bunch of the ended their membership.
Got it that's helpful. Thank you so much.
Okay.
Our next question is from David Katz with Jefferies. Your line is open.
Hi, good morning, everyone.
Thanks for all the detail much appreciated.
Wanted to just go back to a topic I think you may have touched on earlier.
You know well, we can use the information to determine kind of a notional earnings rate our earnings power going forward.
Can you just talk about your sort of normalized vision for for Capex to the degree that you've gotten into a what you think a normalized level could look like.
So Dave I think I touched on this amendment with the onshore I provided earlier to Tyler.
And I think the process that is if you go into our history. If you spend about 9% on Capex and and we're working through our strategic plans right now with the new leadership team.
And I think we'll have more visibility or more clarity on this because I think it's not just the absolute amount, but it's also how are we allocating the capital, but we're working through right now so but the time, we report our fourth quarter will be much more.
A much better position to give you more trying to my budget at this time, 9% is that it's been historically and it's worked pretty well for the company and so I think there's nothing further I conducted at this point, but we'd be happy to talk about that once we have more challenging.
Yeah, David It's a good morning, Tim one thing we've realized in this process. We both talked about is we've we've seen we can optimize our portfolio.
We've done that well out of the park present teams maintenance teams engineering team they've come to us, saying, Hey, here's what we can remove in terms of rides here's what we need to refurbish here's what we can redeploy that's allowed us to basically eliminate 15 rights.
And that's really given us some savings on on both the ongoing cost as well as the Capex. So we.
We feel that we can continue to be productive and as Sandeep said, we'll give more granularity as we move forward to include if there's you.
I think it's more about the allocation versus the amount as we think about it moving forward, but again, we'll give more clarity as we get into next year. Okay.
Okay I heard what you said and so I can if you don't mind I'm going to respectfully just follow that up with from a maintenance perspective.
Right.
If you could help us think about what a maintenance.
You know run rate might look like that would be helpful.
Yeah I.
I think from a from the maintenance capital standpoint, I would say that the.
Historical ratio has.
It's actually been a much less than the marketable capital investment and so that will continue to be.
A proportion that is applied.
He would what Mike's getting at is actually something which is a really important which is by by going to the wide optimization process. We can figure out which drugs are keepers, which writes can be redeployed to other parks and new advisory spending new marketable capital and with strides, we basically don't need to invest them going forward. So we.
The tables, so I think it's a little bit iterative, so depending on what marketable capital be spending the acid mavens goes in sync with it but I can tell you that it's a significantly smaller proportion than the marketable capital there'd be missing.
Okay and David rest assured we are we are going to continue to make sure that maintenance capital is right. You know one of the earlier questions was was around some of the guest satisfaction and what we know during cove it.
Right productivity or Throughputs is the biggest pain point for the guest.
So one safety is always Paramount for the guest and the team members and we want to make sure we've got.
The optimal number rise all the rights up and operating safely we're going to continue to do that as well as the other maintenance that needs to be done to ensure we are doing the right things by our guests and team members.
Got it and if I can slip one more quick one and I appreciate it with respect to the past few weeks, where we've seen cases start to you know response or or spike in new in certain areas.
Through this copious process you know have you observed any changes or any data points you can share with respect to that please and that's it for me. Thank you.
Thanks, David.
Well I think the first is we have demonstrated as an industry by the way as well six flags.
That we can operate with.
With the high safety standard so I personally receive feedback from reopening task force and even governors about they have seen our safety standards as a model to apply across other industries.
So we have continued to show we can operate safely with.
Within cobot again for both the team member and the guest.
We've been able to do that back starting day, one weve been consistent in our safety standards.
So we've have states continuing to work with us and I think the other thing to remember too is we've shown we can be very creative.
As we reopened parks and operate them.
As we're working through that Sandeep mentioned, it but I think our work at the great Safari our work in Marine World Discovery Kingdom are Great America is going to have a modified operation for holiday in the park. We've shown we can be very thoughtful and safe with our assets and we'll continue to do so.
Thank you.
Your next question is from Paul Golding with Macquarie Capital. Your line is open.
Hi, Thanks, so much for taking my question I guess from a customer relations perspective, just building off of a prior question and we're coming up on the end of the calendar year on on season pass extension. We continue to expect that if conditions continue to be sort of.
Cove is a persistent that we would see that extension continue and then as part of that question anything any comment you can give on the progress out or lack thereof, given the most recent reopening guidelines that came down from state government. Thanks.
Such.
Oh, you bet Paul Thanks first.
First I think the overarching theme, we've applied always at six flags, but I do believe strongly in the team is so passionate about this during cold. It is we've got to be consumer centric in our solutions and as we've done that we've also said that means you've got to give.
The guest options and that's what we've been doing and that has worked and we will continue to do that and we think we've seen the benefit of that you look at our attendance trends, which we talked about they continue to click up if we've done that in addition, our per caps are increasing in park, so were seeing our gas.
Its reward us for being consumer centric and giving options. So.
So we'll look at all options I don't want to go into specifics what we we would we do with this season pass just in the interest of.
The information, but we'll continue to look at whats right for the gas.
In terms of California to that question Paul It goes back to the way Weve looked at our approach with reopening parks everywhere.
Our principles principles excuse me have been so consistent we've always said number one we're going to start with the safety of our guests and team members every time and we're going to do that in alignment with local health in city state officials and second we're going to do it collaboratively with those officials now includes the.
The state of California, and beyond that as we said the other two is we're going to always look at making sure. We're cash flow positive on a variable basis and we're gonna Lastly, make sure. We do things that created a really positive guest experience and protect the brand so that won't change and that won't change in any state or country you operate in.
Great. Thanks, so much you bet.
Your next question Alex.
With that back.
Your line is open.
Good morning, guys. Thanks for taking my question can you explain the future strategy for both the season pass and membership offerings given that this new focus on pricing and marketing and then secondly on that how much of your feature attendants do you want to come from that active pass it.
Hi, Alex Thanks, Thanks for the question.
So we are it I've said this before on other calls and I want to reinforce that I would not say there is not a change in strategy, we've been consistent that it's an and and what I mean by NAND is.
Number one we feel that we've got to grow both active pass and paid single day tickets.
Because there are just different cohorts, you've got one that may have it either a different distance issue or an out of pocket spend issue and you have others. The active pass that really want to visit us a lot and they are willing to pay more for more.
For the benefits, we need to be approaching both spin.
Specifically when you look at your to your question on media and the spend with our media ROI and our ability to have more awareness in granularity.
By media channel by geography.
Hi time of year and by area, we can be very surgical in where we spend to really get reach as well as to increase frequency and also we can test before we spend any money we have the ability to do the testing.
With our guests.
Through our systems before we spend a penny so we will that's how we'll look at it we know what those optimal fall off rates are in the optimal spend rates.
Okay understandable and then lastly for me historically, how much your revenues have come from large in person events that might be at risk of lower levels than 21, and beyond and Im referencing things like concert corporate events went off festival et cetera.
Okay.
Yes, so I'll take that it's so we.
Look we don't see that is.
Inhibitor weve not been dependent for upfront. So the concerts are not a big event first these big events start they're actually quite small.
The meat of our business the meat of our attendance the meter our revenue is from our active pass base and also our single day ticket holders.
And obviously, we'll continue to engage on the group sales portion, but the vast majority of our business is in revenues, reflecting what we've got in our active pass base in single a paid single day tickets.
All right makes sense to me thanks, guys.
Thank you.
Our next question is from Ryan with William Blair. Your line is open.
Yes, hi, good morning, Thanks for taking my questions as well.
I guess just following up on Paul's question earlier.
Steve You mentioned opening parks is just as important as improving it predicts the productivity of the parks that are open.
As you look at his nine parks that were closed during the quarter.
Is there a way to help us understand how maybe parts you could have reopened if you want to add to it maybe just ran out of time on the calendar to make the variable cash contribution work and how many of these parts are going out of your control in terms of Realty.
Well, I think Ryan or to be Oh to be fair I think all of the products that were not open.
I think we were in a place where we work with the local health and.
The city and state officials to get permission to open and then once we get that permission we look at on safety filters in all the parks that we will not open we didnt have permission to open.
And Thats why we Didnt open so I think it was not thought about us being able to execute it was more about getting authorities or.
Got it.
Good to know.
Yes.
Okay, and then Tom just wanted to get I guess, an update on the status of the license Arkon Saudi Arabia.
Just given the impact to covert does that continue to move forward and is.
His international licensing conversation, you're still having the people or is that I'm going to stop here with Cowen.
Hi, Ryan.
I got Sundeep and by the way. It's your earlier question to some deeper I remember, we can move very quickly to reopen parks.
And so we're you know we're very confident in our safety standards. We continue to work with the city and state officials to to keep getting parks open and we'll keep everybody updated.
Yes specific to Saudi absolutely, we're committed to Saudi Arabia, It's moving along we feel really good about the progress there and I think it's going to be a fantastic attraction both for the kingdom of Saudi Arabia as wells for six flags.
Got it okay. Thanks, guys.
Our final question is from Benjie.
Please open.
Hey, How's it going thanks for squeezing me in just a quick clarification here and I am sorry, if it's been asked already but I guess on the on the transformation plan you guys talked about $80 million to $100 million of EBITDA uplift.
Relative to the base of 450, but I guess, if we realize if we rewind the clock a little bit at 450 included but I think I remember it was like $60 million of costs and so can you just help us kind of like separate those two dynamics. So is the is the read that those 60 million of cost reverse and then there's some revenue on top or the costs.
Savings that you had.
That you discussed with that or presumably within that 80 to 110 like different buckets and 60.
Previously discussed is kind of a.
Maybe a little bit stickier than previously expected and that Didnt happen.
I can I can said a different way if that didnt come across.
No I think I think we got it absolutely guidance I doing so.
Let me, let me take that the what I'd say is.
If you go back our earnings guidance for 2020 was the mid range was basically $450 million.
And so you start there and that did include that 60 million you referenced the 60 million was three buckets. It was a bonus buck at a 20 approximately it.
It was a wage.
Portion, which was another 20 and the third 20.
Was basically some investment in opex as well as marketing okay.
So we started with that the transformation than pivots off that start point, a 450 million Ben if that makes sense. So you take that 450, then you go to transformation the transformation amount, which I'm highly confident we'll get is that 80 to 110 billion and benefits of that.
About half 40 to 55 million isn't a reduction of fixed costs independent of attendance levels than the second half of that 80 to 110 is through the revenue opportunities in variable labor optimization that will vary with attendance and just to give you a little more double click as we said.
Just to stress it we see 30 to 35 million from fixed costs.
Coming to us in 2021 again independent of attendance and the full cost coming by 2022, which is approximately 40 to 45 million million okay.
So its a bridge from the Guy it's a bridge from the guidance. If you think about it in terms of like a fallback if that makes sense.
Sure. That's a that's helpful. And then just just quickly one other on the on the membership side of things.
I know it was discussed a little bit, but how are you thinking about reengaging with the memberships that tend to be a little bit stickier.
Yeah, I guess, just how you think about reengaging with the memberships customers.
And how is that different than people, who traditionally by just your normal season passes.
If there is a difference.
We it's another really good point and as I said I start with act look active pass is a critical component of the future attendance growth and our members have been incredibly loyal to us. So the first is what I said, we're going to start with just a whole principle consumer centricity, we are surveying our members.
Ours, we're listening to our members and the beauty is with the new guest experience team that is in place we're talking to them every day, we know what they want from the minute they hit the website to when they exit and also how we service them.
When you think about it Ben so we're listening to them, we're adjusting with them and we're continuing to look at the offers that makes sense for them. So we're going to we're fine.
The offers as we listen to them, but we feel good about it we feel good about our program. We're also going to see should we simplify some of those programs, but thats work that Mark Cooper men and the team Mark cleanup. The guest experience team. He's got 30 years of out of home experience over 20 years and theme parks.
He is going to be lead now with a team both for present and future.
Trends in that space.
Well I appreciate it thanks, Oh, great questions. Thanks.
We have no further questions I turn the call back to make standards for closing remarks, okay. Thank you Megan I appreciate it.
For everyone. Thank you again for joining our call and more importantly for your continued support our guests continue to want fresh air they want to experience, our great roller coasters and eat our great funnel cakes and other indulgent foods. They are looking to have a fun and safe environment something six flags is uniquely able to offer we look.
Forward to updating you on our progress on the fourth quarter earnings call take care and please be safe.
This concludes.
You may now disconnect.
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