Q4 2020 Six Flags Entertainment Corp Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to the six flags Q4, and full year 2020 earnings Conference call. My name is Catherine and I'll be your operator for today's call.
And the presentation all lines will be in a listen only mode. After the Speakers' remarks, and we will conduct a question and answer session.
If you have a question at that time simply press Star and then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
I will now turn the call over to Steve Purtell, Senior Vice President Investor Relations.
Good morning, and welcome to our fourth quarter and full year 'twenty and 'twenty call with me are Mike Spanos, President and CEO of six flags and Sandeep Reddy, our Chief Financial Officer.
I'll begin the call with prepared comments and then open the call to your questions.
Comments will include forward looking statements within the meaning of the federal Securities Law. These.
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 and addition on the call and we'll discuss non-GAAP financial measures and that.
You can find both a detailed discussion of business risks.
Reconciliations of non-GAAP financial measures to GAAP financial measures.
And reports quarterly reports and other forms filed and furnished with the SEC.
This time I will turn the call over to Mike.
Good morning, Thank you for joining our call. This past year has been exceptionally challenging as the world contends with a pandemic that is up and it all of our lives.
We are grateful for the first responders, who keep us safe and for.
For those who provide the services we all count on every day I am proud that six flags has been able to make a difference and the communities. We serve by hosting vaccination sites and testing locations and by donating food banks for those and need I.
I also want to thank our six flags team for rising to meet the challenges of the past year. They have continue to amaze me with their dedication and perseverance and resilience as we found innovative ways to safely entertained nearly $7 million cash as a preferred entertainment choice.
We established the highest standards of cleanliness and safety protocol as validated by local health officials and our guest feedback we strengthened our liquidity position significantly reduced our operating and capital expenditures and continue to innovate to safely and successfully reopen our parks I've never been more proud of our company.
Or more confident and our future.
In the fourth quarter, we continued to make significant progress on our transformation plan, which focuses on strengthening our core business. This plan is and full action and will fuel our new strategy to drive long term profitable growth.
Our new strategy as evolutionary not revolutionary.
We're going to do many of the same things we did in the past we were going to do them better specifically, we will modernize all aspects for the guest experience and we will operate more efficiently as an organization.
As I stressed on our last call our guests still love, our roller coasters and funnel cakes and they just want a more seamless experience and we can provide them that through technology.
We have divided our call into three parts first I will provide an overview of our recent operating performance and the strong demand trends we are seeing.
Second Sandeep will go into more detail about our financial results and give an update on the progress of our transformation plan for.
Finally, I'll return to discuss our new strategy and more detail and review our three strategic focus areas.
We are pleased that our tenants has consistently improved since we first reopened our parks last year and the second quarter I'd like to highlight a few reasons why we're so optimistic about the upcoming season, despite the challenging operating environment.
First on a comparable period basis attendance trends and open parks have increased from 20% to 25% of 2019 levels and the second quarter.
To 35% and the third quarter to 51% and the fourth quarter. We have continued to see strong signs. So far this year with attendance and open parks trending at consistent levels as the fourth quarter, despite extreme weather conditions and Texas over the past couple of weeks.
Our guest surveys indicate that there was extraordinary pent up demand for outdoor entertainment options close to home and.
And we believe that this widespread desire will drive.
And it's in the coming quarters.
Second we are encouraged by the resiliency of our active pass base.
Which was approximately flat between the third quarter and fourth quarter of 2020.
Even more encouraging the number of members who retain their membership after their initial 12 month commitment period, our most valuable gas is.
<unk> up versus this time last year, we see the strong retention of our members even in the midst of a pandemic is a testament to our unique offering and our loyal following.
Once our parks are back up and running at full capacity, we expect that our active pass base will quickly ramp back up to previous levels and beyond.
Third the pandemic encourage us to think creatively about how to maximize use of our parks both.
Both the creative solutions, we found and the underlying dynamism of our team will continue to drive growth well past COVID-19 or drive through Safari operators are separately gated attraction through the Thanksgiving weekend.
Demand was so high that we will operate the drive through Safari again, starting in March 2021, creating the longest season and the animal park's history.
And the fourth quarter, we all saw for drive through or walk through holiday experiences without rides at four of our theme parks, giving our guests the opportunity to celebrate the season with lights beloved characters and festivities.
These events proved so popular that we extended them into January.
Going forward, we expect to continue many of these events, which will allow us to extend our operating season and give guests even more reasons to visit our parks throughout the year.
So while the environment remains fluid we are encouraged by recent trends and are optimistic about both the short and long term prospects of our business.
I will now turn the call over to Sandeep, who will give us some more details about the quarter and our transformation efforts sandeep.
Thank you, Mike and good morning, everyone.
Results for the fourth quarter and full year non comparable to prior year because of temporary park closures modified operations and.
And attendance limitations.
Total attendance for the quarter was $2 2 million guests three.
338000 of which came from the for parks and offered modified holiday and the park lights without lives and our drive through Safari and New Jersey.
Revenue in the quarter was down $152 million or <unk>.
58% to $109 million as a result of a 65% decline and attendance.
Sponsorship and international and accommodations revenue and the fourth quarter.
Declined by $8 million due to the deferral of both sponsorship revenue and the suspension of the majority of our accommodations operations.
Guest spending per capita and the quarter increased 17%.
Driven by a 16% increase and admissions spending per capita.
And then 19% increase and in park spending per capita.
The increase in admissions spending per capita was driven primarily by recurring monthly membership revenue from members, who routinely and memberships. After their initial 12 month commitment period.
As well as an increase and the mix of single day guests.
The increase and in park spending per capita was primarily driven by a higher mix of single day guests, who tend to spend more per visit.
In addition revenue from recurring monthly all season membership products such.
Such as the all season dining pass contributed to the increase.
Attendance from the active prospects at.
For the fourth quarter.
<unk> represented 55% of total attendance versus 71% for the fourth quarter of 2019.
Demonstrating our success and attracting visitation of single day guests.
On the cost side cash operating and SG&A expenses decreased by $30 million or 18% primarily due to the following.
Sure.
Cost saving measures, primarily related to reduced salaries and wages and lower fright Fest and holiday and the park related costs.
Due to the restricted operating environment and our organization redesign completed in October.
Second no advertising costs.
For savings and utilities and other costs related to the fact that several of our parks when non operating all we're operating with a reduced product offering.
These cost savings were offset by a charge of $19 million due to an increase and legal reserves.
The total amount recorded reflects management's estimate of the probable outcome of our legacy class action law suit.
Excluding the litigation charge cash.
<unk> costs decreased by $49 million or 29%.
While we have taken measures to reduce our variable costs.
And we tend to 90% of our full time members and maintain their benefits and order to position ourselves to reopen parks.
And as soon as possible.
We reduced salaries of all employees by 25% during 2020 and order to preserve cash and our directors also deferred the compensation for the <unk>.
Last three quarters of 2020.
Several of them, including our retiring our new chairman.
Opted to take that compensation and the form of stock.
Due to the improving outlook, we have restored all of our employees to full salaries.
With the exception of a CEO, who opted to be restored in March.
Although these actions offset our cost reduction efforts somewhat.
We believe the right decisions for both the short and long term.
By keeping our parks and a state of readiness.
We're able to maximize the number of days we could operate.
We also were able to keep our guests engaged our employees motivated.
And our Pax prepared for 2021.
Adjusted EBITDA for the quarter was a loss of $39 million.
Which included a $19 million increase and legal reserves.
Compared to income of $72 million and the prior year period.
Moving to full year performance.
Attendance of 6.8 million guests was down 79% from prior year.
Total revenue of $357 million was down 76% driven by lower attendance due to parking garages and.
Limited operations.
Total guest spending per capita increased more than $6 or 14% due to a higher percentage of single day guests and the positive revenue impact from members who have remained passed the initial 12 month commitment period.
Attendance from our active pass base for the full year represented 56% of total attendance versus 63 per cent for full year 2019.
Cash operating and SG&A expenses were down 35 per cent for the year due to cost savings measures taken immediately after we suspended operations.
This cost reduction offset a portion of the revenue decline.
Belting and on an adjusted EBITDA loss of $231 million.
Full year diluted GAAP GAAP loss per share was $4.99 a decline of $7 10.
Primarily due to the lower attendance and a box.
We are making significant efforts to ensure the continued loyalty of our active pass base.
We extended the use of all 2020 season passes through the end of 2021.
For our members we added an additional months to their membership for every month they paid when they're home park was closed.
We are also rolling out a gift card option and the second quarter net members can choose to use and our products and.
Liu of adding additional months to their membership.
Finally, all members have the option to pause their membership payments at any time through spring 2021.
However, we have offered a menu of benefits, including upgrades to higher membership tiers, if they elect to continue on their normal payment schedule.
As of today, only about 20% of card members have chosen to pause their membership.
We anticipate that most of these paused members will return to active paying members once we reopen our remaining box.
We are pleased with and retention of our very large active pass base, which included $1 7 million members and $2 1 million season pass holders at the end of 2020.
Our active pass base was approximately flat compared to the end of the third quarter 2020, when we had $1 9 million members and $1 9 million season pass holders.
Our active pass base at the end of 2020 is down 51% compared to the end of 2019.
While this is a significant decline.
It is important to assess this and proper context.
This decline is almost entirely due to lower sales of new season passes and memberships during 2020.
And as they were difficult to sell with so much uncertainty during the pandemic.
We also did not hold our usual cash sales events and.
Including our flash sales in September, which contributed significantly to our year and active pass base.
That being said because we extended our 2020 season passes through the end of 2021.
Our active pass base as of today is down less than 10% versus the same day last year.
Which preceded the pandemic impact.
We believe this represents a more meaningful comparison for our active pass base heading into the 2021 operating season.
We believe the season pass holders and members who were and extended will visit our parks in 2021.
Looking ahead, we expect the active pass base trends to continue to improve as we start selling more new classes and memberships.
Deferred revenue as of December 31st 2020 was $205 million up $61 million or 42% to prior year as we expect to recognize most of this deferred revenue in 2021.
The increase was primarily due to the deferral of revenue from members and season pass holders, whose benefits were extended through 2021, partially offset by lower new season pass and membership sales.
Total capital expenditures for the other were $98 million a reduction of 30% from 2019.
We expect our 2021 capital spend to be slightly lower than 2020 due to the carryover of new rights that were delivered and paid for but not commissioned in 2020.
Our liquidity position as of December 31.
And for $618 million.
This included $460 million of available revolver capacity net of $21 million of letters of credit and.
<unk> hundred $58 million of cash.
This compares to a liquidity position of $673 million as of September 32020.
Net cash outflow for the quarter was $56 million, representing an average of $19 million per month.
As a reminder, our net cash outflow in the fourth quarter included partnership Park distributions that represented an average of $7 million per month.
Our fourth quarter cash flow benefited by $8 million from the sale of some excess land and New Jersey.
Which was not in our prior estimates.
Without the land sales, our net cash outflow was $21 million per month and improvement from our prior estimates of 25 million to $30 million to $30 million.
We historically experienced significant cash outflow and the first quarter of the year.
As the majority of our parks are closed yet we incurred elevated operating and capital expenditures to prepare for a box opening and this spring.
We estimate that our net cash outflow and the first quarter of 2021 will be higher than normal.
And approximately 53 million to $58 million per month.
And this is primarily due to three things.
First and normal seasonality of our business.
And.
The timing of interest payments on our newly issued $725 million of senior secured debt.
And third.
The pandemic related limitations on our parks, including our California, and Mexico Pax that typically have your own operations.
We are striving to be cash flow positive for the balance of the year.
But this is largely dependent upon all our parks opening and.
And attendance levels continuing to normalize.
I would now like to give you an update and the progress of our transformation plan.
The headline is this we.
We are on track with our plan and we are highly confident and our ability to achieve our objectives.
Executing the transformation plan will require one time costs of approximately $70 million through 2021, including $60 million of cash and $10 million of noncash write offs.
So far.
$35 million has been incurred through the end of 2020.
Including the noncash write offs of $10 million.
We expect to incur the remaining $35 million by the end of 2021.
Approximately two thirds of the spending in 2021 is related to investments and technology.
Beginning with the implementation of a state of the art CRM system.
We expect the transformation plan to unlock $80 million to $110 million and incremental annual run rate EBITDA.
Once fully implemented and the company is operating in a normal business environment.
In 2021, we expect to achieve $30 million to $35 million for.
From our organization redesign and other fixed cost reductions.
And January alone and we realized more than $2 million of fixed cost value due to transformation. So we're well on track to achieve our estimated savings for 2021.
We expect to ramp up to the full amount of benefits as attendance gross to 2019 levels.
We have already completed significant portions of the work that will benefit us in 2021, starting with our three cost initiatives.
First as we announced last fall and we reduced our full time head count costs by approximately 10%.
We are piloting new approaches for recruiting and training and moving to centralized some of our back office operations, such as finance human resources and it.
Second from a non headcount cost perspective.
Those offices in New York City, and West Hollywood and are in the midst of driving savings through centralized negotiations with a number of other vendors.
Initial results are validating the projected value opportunities off these initiatives.
Food from a variable labor perspective, we are piloting a park level.
Labor model, which will allow us to dynamically match staffing with attendance levels throughout the day.
We are conducting this pilot and our Texas box and plan to roll it out to our remaining parks once we validate that the model is working effectively.
We will realize the benefits of the model as attendance levels rise and we will keep you updated as our parks continue to open.
We are also making excellent progress on our revenue initiatives.
Specifically.
We are testing, a new and improved menu assortment pricing and merchandising strategy and over Texas and Fiesta, Texas.
We expect to expand these initiatives to all other parks once they reopen.
Our marketing team and media agency have incorporated the use of our media ROI tool and we plan to measure our ROI by park and the future.
We've continued to improve our website, which we rolled out last fall we will soon make it available for our parks and Mexico and Canada.
Finally, we continue to make progress with our initiative to bring back single day visitors.
Particularly those been living far away and not from a pox winter season pass is not an attractive option.
While we always prefer to sell low season pass or a membership because of the highest food season revenue.
We believe there is a significant opportunity to capture additional attendance by targeting single day visitors.
We are already seeing a positive impact on our attendance and per caps as a result of this initiative.
Has been announced last December we are changing and method of determining our fiscal quarters and fiscal years, such that each fiscal quarter should consist of 13 consecutive weeks ending on a Sunday.
Each fiscal year are still consists of 52 weeks of 53 weeks and.
And on the Sunday closest to December 31.
During the years when there are 53 weeks for fourth quarter sales consist of 14 weeks.
Because of this change our first fiscal quarter of 2021 will end on April 4th instead of March 31st.
And the current fiscal year will end on January <unk> 2022.
The purpose of this change is to align our reporting calendar with how we operate our business and.
And to improve comparability across periods.
Looking ahead, the operating environment remains unpredictable so it's difficult to project beyond the next three months.
For that reason, we are not providing annual guidance at this time.
We have announced opening dates for all of our parks.
There are not already open but start dates beginning in March.
That being said, we will remain flexible and we'll be cautious to commit capital and media and labor dollars only when we believe there will be a strong ROI.
We are extremely encouraged by the improvements and our attendance trends and the face of the pandemic and we are very excited about the value creation that will come from and implementing our transformation plan.
We have more work to do but I'm pleased by our progress so far.
The whole company is intensely focused on executing the transformation plan over the coming quarters.
Now I will pass the call back over to Mike, who will tell you more about our strategy.
Thank you Sandeep are.
Our strategy is to drive profit from our core business because this will create sustainable value over time.
We can grow our business from its core because we operate and a healthy industry that is benefiting from long term secular trends as consumers increasingly choose to spend on experiences over objects.
Even within out of home entertainment.
Regional theme parks are compelling sector, because they enjoy high recurring cash flow that has proven to be extremely resilient during downturns.
These attributes have enabled our industry and our company to deliver strong revenue and earnings growth over time.
However over the past few years, we did not evolve at the same pace as our guest expectations. As a result, we underperformed the industry from both a topline and bottom line perspective.
To reinvigorate profitable growth our team has reassessed every aspect of our business, we have developed and updated strategy to ensure that we constantly evolve. So we not only meet but exceed our guests' expectations, both now and for many years to come so here it is.
Our strategy is to create thrilling memorable experiences that are regional parks delivered by a diverse and empower team through industry, leading innovation and technology.
Our vision is to be the preferred regional destination for entertainment and our mission is to create fun and thrilling memories for all.
Our core values prioritize safety and the guest experience and drive accountability throughout the organization.
Our values will result in a guest centric culture, our commitment to prioritize the guests at every decision point.
Looking at the future three key long term focus areas will drive our strategy first modernizing the guest experience through technology.
And continuously improving operational efficiency.
And third driving financial excellence for.
For each of these focus areas, we will measure our progress based on certain key performance indicators.
For our first focus area modernizing the guest experience through technology and our goal is to create a seamless and improved in park experience with new applications of technology.
First we will provide opportunities for our guests to tailor the in park experience to each of their individual preferences.
Second we will decrease wait times wherever possible, especially for our roller coasters, we are where we are testing several virtual queuing and reservation systems.
Third we will facilitate our guests' ability and desire to share their experience on social media.
Finally, we will improve food and beverage quality and the overall appearance of our parks and everything we do we will prioritize the guest experience here are a few highlights of our progress on this focus area, thus far website redesign.
Our new simplified website has made it easier than ever for guests to find information about our offerings and to purchase tickets. This has led to higher sales conversion rates and higher per caps.
Customer relationship management, we are in the midst of developing a new CRM platform that will allow us to understand and predict our guest preferences from the moment. They visit our website to the moment. They leave the park based on this consumer data, we will begin tailoring our offerings to their preferences and customize their experiences so they can.
Exactly what they want when they want it.
Contact with security and our guests no longer have to wait and long lines are have their bag searched and of our parks. They now work seamlessly through our contactless security systems with scans them for anything unsafe and also measures their temperature to ensure a safe environment.
Cash card kiosks.
All our domestic parks that opened for normal operations in the fourth quarter have offered any guests who only have cash the ability to obtain cash cards from kiosks throughout the parks in order to facilitate electronic transactions. This improves hygiene within our parks, while also speeding up transactions and eliminating cash.
Handling costs.
Mobile dining our guests no longer have to wait and long lines to order food instead, they can choose to order on their smartphones and pick up their food when it is ready.
Mobile dining has also led to higher average checks.
For this first focus area modernizing the guest experience through technology. The key performance indicators will be attendance and revenue.
Moving on to our second focus area continuously improving operational efficiency, we will deliver products and services and a more cost efficient manner.
<unk> effectively deploying park level labor.
Leveraging our scale and increased purchasing power and optimizing our REIT portfolio.
We are also focused on increased guest throughput on our rights as well as our food and beverage locations and so I think mentioned, we have moved quickly to streamline our organization and reduce other fixed costs and we expect to realize $30 million to $35 million of fixed cost savings in 2021.
For the second focus area continuously improving operational efficiency. The key performance indicator will be operating expense ratio, which is the ratio of our operating expenses relative to our revenue. We will begin to measure this ratio once we return to a more normal business environment.
Finally, our third focus area is driving financial excellence, we expect our transformation initiatives to create a new adjusted EBITDA baseline of $530 million to $560 million Whats. Our plan is implemented and we are operating and a more normal business environment. After we.
Achieve this baseline.
We believe our strategy will allow us to grow revenue at low to mid single digits in line with the overall out of home entertainment industry.
Combined with our annual productivity initiatives, we will continue and invest back and our parks and improve margins too.
To accelerate annual adjusted EBIT growth to a range of mid to high single digits.
In addition, we will be disciplined and the way we allocate capital to ensure we deliver sustainable earnings growth. We have developed the following capital allocation priorities to guide our path towards financial excellence.
First <unk>.
Invest and our base business to facilitate profitable and sustainable growth. This includes investments and our park infrastructure and technology for our parks and its systems that help us oversee our park operations.
This also includes investments and new rides and attractions as well as other and park offerings, such as food and beverage, we expect to maintain our annual capital expenditures at 9% to 10% of revenue.
Second use free cash flow to pay down debt and return our net leverage ratio to between 3% and four times.
Third once we are within our targeted leverage range consider strategic acquisition opportunities that further build our regional network of parks for.
Finally, if there are no acquisition opportunities that meet our strategic and financial return thresholds, we will return excess cash flow to shareholders via dividends or share repurchases.
For the third focus area driving financial excellence.
The key performance indicator will be adjusted EBITDA.
We are a resilient team and a resilient business. Our teams focus for 2021 is to safely open all of our parks and assure that we successfully execute our transformation plan and.
I look forward to updating you on our continued progress and the months ahead.
Catherine at this point could you. Please open the call for any questions.
Ladies and gentlemen, and you'd like to ask a question. Please press star and then the number one on your telephone keypad.
Your first question comes from the line of Stephen <unk> with Stifel.
Yeah, Hey, guys good morning.
So Mike I guess first of all when you guys talk about becoming potentially cash flow positive over the last nine months.
Help us understand maybe what what is going into making that statement I guess, what I'm trying to get out here as well.
That assuming kind of park operations are.
Everything is basically up and running and still running at some kind of capacity restraint or are there are there other things and kind of embedded in there.
Steve how are you doing good morning to you.
And I'll take the first part of it and Sandeep can go from there.
The first thing is we are seeing consistent and continued improving signs of pent up demand across all the geographies and we're ready to operate.
All of our park starting in the spring of 2021.
As far as right now, which parks are open and not open that go into that as we saw last week, we got the Green light to open up our water Park and Mexico <unk> February 7th and we got the Green Light and New York as well and.
And we are still working collaboratively through California, and Massachusetts, Illinois, and Mexico and Montreal.
But remember it's a volatile environment.
As far as where we're at and we continue to work with.
With the cities and states.
And deep has been clear in the past that.
The assumptions to get to cash flow neutral assumes that we're roughly at about a 65 to 75 index for 2019 attendance levels.
And that's that's the guardrail, but Doug and we'll continue to keep you posted.
So and deep anything there I missed.
Yeah, I think Joe just to be clear on the assumptions, what we're saying is once we get past Q1 for the remaining nine months, we're looking to be cash flow positive.
It's two to a definitely and extent dependent on the park opening schedule.
Ready to open and the spring 2021 is more of a question and getting authorization and.
And I think if you go back and look at our historical cash flows.
Second quarter and third quarter typically are significant cash generators, and if you think back to what happened last year, especially the second quarter and third quarter. We didn't really have that much of attendance because of the closure for the most part and the second quarter.
And limited operations and third quarter. So I think it is dependent for sure on the opening cadence, but but I think we feel that we can get to positive cash flows.
She looks to what we were expecting.
Okay got you thanks, guys and then.
Second question.
Mike and Sandeep you guys saw up.
Nice uptick and the fourth quarter in terms of the debt.
The single day guests, so to speak and I'm just wondering.
And do you have any more data.
From meaning from where did those folks come from and I guess, what I'm trying to get at here is are.
Or are these folks that were potentially on a path before and dropped off the past or are these folks that essentially have never even really visited one of your parks before.
Yeah I think.
On this one Steve we're extremely pleased on a single day ticket strength have you actually been seeing and it's actually and not just the fourth quarter. If you go back to John Fab of 'twenty and 'twenty before the pandemic hit we were already seeing significant single day ticket.
Improvement in terms of penetration and growth were up 38% and thank you for the first couple of months and 2020.
And I think historically, we've actually probably and the last few years lots of and attraction on our single day tickets and this has been and initiatives that we actually look to embracing the early part of 2020 and in for.
When we went and talked about the transformation plan back in October we identified the pricing and promotion.
Initially it was one of our key problems and this is Keith.
A key component of it because we were.
And we're looking to drive a mix improvement and our portfolio.
And it is not an owner so these single day tickets.
And guests are intended to be incremental for the active pass base and will be half and.
And I think we've been very pleased that they'll be getting traction on this on a single day ticket side and what's really good is we.
We're actually pleased about our active pass base, because we've been able to retain our Q3 for Q4 was relatively flat and frankly going back to Q2 Q2 was relatively flat from Q3, so it's been pretty consistent over the six month period in terms of the active pass base and total theres been a bit of a trade between members and season pass holders but.
Overall, we're really pleased about and in the prepared remarks, I told you because we extended the season pass holders from 2020 to the end of 2021, given the pandemic if we look at it today.
Actually down less than double digits from the active pass base and these season pass holders and members who've been getting extensions arent going to come and visit our parks and they will definitely drive attendance and and in addition to that incremental revenue on in park spend depending on the type of.
Cost per day wallboard. So overall, we feel really good about the single day ticket attendant as being incremental to the active pass base and and accretive to our overall attendance long term.
Okay, great. Thanks, guys appreciate it.
From.
Your next question comes from the line of David Katz with Jefferies.
Good morning, everyone.
And thanks for all the detail.
When we look forward to this notional or aspirational kind of normal year again that we all push for.
And that you're facing.
For the $5 30 to $5 60, EBITDA and can.
Can you talk about the <unk>.
Mix of membership Slash pass members.
Coupled with kind of the spend per capita and how you're assuming that mix evolves within that kind of $5 30 to $5 60.
Because if we can sort of think out loud both ways, where perhaps there is less growth in the past space for membership base and more of it coming from the spend per capita or we could probably argue with the other way too.
David Great question and I.
If you think back to what I, just talked about and the earlier and zero on single day ticket penetration and the active pass base.
Look I mean, our per caps have been extremely strong as we've gone through this past year in the fourth quarter, and particularly and I think as you've been seeing the sequential income.
For the acceleration and the per caps within Q3 and Q4. It was driven by a few things one is.
Embers from core prostate 12 month commitment period contributed definitely to those admissions per caps growing in addition to the single day ticket holders contributed to that for the growth and per caps. The single day ticket holders actually spend more per visit in the park when they come in and so all of that contributed to two day.
Per cap increase however, we do have.
A good strong retention of the active pass base and.
And I think what we're looking for is the and not the old. So we've won and basically layer. These single day tickets on top of the active pass base and as we move into the normal operating seasons, we would like to actually rebuild the active pass base and.
As we go through the year to have a much more balanced approach between single day ticket and active pass base, it's not trading off one for the other is just and I think we will further behind on single day tickets and so the growth is actually a bit higher and the initial phases, but over time, it should be very balanced and and sort of the revenue mix that should come from that.
Should reflect that balance and and.
And the per capsule and adjust accordingly.
And if I can follow that up right.
What Mike laid out.
And as sort of a flow through of one to one and a half times growth on that mid single digit topline.
And how does the evolving mix.
Slide the outcome right the profit outcome.
And that presumably the more single day visitors you have the closer you get to the top end of that range.
Is that a fair assumption.
Yes, I would say that.
And let me just step back a little bit Dave David and just say that overall and we've been talking about mid to high single digit improvements and EBITDA growth. It is based on productivity improvements.
Which include elements of the cost structure that index.
And as.
As well as the revenue growth for us.
So what I would say is.
And the mix impact is part of our revenue growth plans and so embedded but I wouldn't necessarily say that it is going to hurt us or help us one way or the other keys to maintain the balance at all times and we will continuously reevaluated if the balances out of kilter and pushed one side.
The other a little bit more but the key over here is.
We're looking to make sure that we deliver.
The option for gifts looks for because we can look at.
Both our pricing and promotions for our approach and the transformation initiative to understand if they are more inclined to go for.
Single day take it because of the cohort for belongs for like Mike described.
And or if they want and basically trade up and buy a season pass or a membership and debt.
And so something will continuously reevaluate as per.
John its transformation, we've invested and this revenue management team that is now in place and and you're seeing the results you've actually you've seen the results from Q4 Theres more of a debt should come as we continue from this year.
Perfect. Thank you all.
Thank you thanks, David.
Your next question comes from the Hanes Hardiman with Wedbush Securities.
Hey, good morning, guys.
Really appreciate all the color, particularly with respect to the.
For the longer term.
Outlook for longer term plan, obviously, we're in the midst of some pretty unprecedented.
Precedented disruption, but.
I wanted to continue down this path of what things look like post pandemic, particularly on the capital priority side.
As you sort of laid out your priorities it seems like <unk>.
M&A is a higher priority than than dividends and share repurchases and maybe just just help us think about why that's the case are you seeing do you believe that there are better return sort of in a post pandemic environment.
On M&A, and then dividends and share repos.
And then you know the previous management team, obviously had a pretty well defined strategy for acquiring.
Small park water Park specifically.
At the local level do you see your M&A strategy, and a continuation of that or or something that's new and different and why.
Well good morning James.
What I would start with is our focus.
It is on our core business and.
And that's the focus.
And we want to absolutely leverage transformation to drive real operational effectiveness on our core business and I start there.
Second on M&A as you know, it's always been our policy not to comment on that topic.
But I wanted to go to your question as well as we as we said and our prepared remarks.
Our first priority consistent with transformation and a focus on the core business and delivering sustainable value creation, there is to invest and the base business to facilitate profitable sustainable growth out of rides attractions and other and park areas that is absolutely going to be the focus.
And is to use that free cash flow to pay down the debt I get that net leverage ratio to between three and for.
And then we will consider opportunities on the M&A front and any excess cash will definitely.
Return in terms of dividends and share repurchases and we're always going to look at the return aspect, but that is the priority, but I think everybody should takeaway. The focus is the base business here.
And I definitely get that I guess to the question of the previous water Park acquisition strategy is that sort of.
Something we should think about it.
The previous management team and and not continued under under your leadership.
No what I would say is what we've been clear and this I think with any M&A.
I was going to be about as it strategically relevant doesn't deliver shareholder value.
And do we think we have the capability and capacity to deal with it and I think we're going to look at anything in that and that for.
<unk> framework.
Got it and then my second question I wanted to talk about wages, which are obviously an important topic just given.
The momentum that debt a federal minimum wage seems to be gaining here, who knows obviously that wouldn't presumably wouldn't happen over overnight if at all.
But just curious where you stand in terms of sort of a weighted average basis in terms of your.
And your associates at your parks.
And maybe as I think about the $5 30 to $5 60 baseline EBIT number sort of what's the assumed and there is there potentially.
Some downside if we do see a ramping up of the minimum wage.
Sure Yeah, it's a really good question James.
Let me start with this is clearly an area that we've been focused on and managing for quite some time as you remember and our earnings baseline as part of our 2020 earnings guidance prior to Covid.
And we already reflected minimum wage risk and seven states, which was about approximately $20 million.
And so we know and we knew that was an issue we got ahead of it.
So that's why.
Second strategic focus area is about continuously improving our operating efficiencies. It's a major part of other strategy now.
We also believe Conversely, theres going to be potentially bigger labor pools out there as well because theres, a higher unemployment rate, but I.
I think last day with saying this is that's the whole reason, we engaged on park level labor as part of transformation. We knew we had to get ahead of this so we're going to continue to monitor it and stay close to the states, but we do think we got the right tools in place with transformation and we also think that our earnings baseline before the pandemic.
<unk>.
Reflected that sandeep.
Sandeep anything I missed there.
And not only not so we'll take the next question Who's next and acuity and one question. Please just because I know we've got a number of other folks from the queue.
Sorry, sorry, Mike I'll just.
And I should have been on mute.
Just to answer the question that you are specifically James and what's assumed in our EBITDA goal of $530 million to $760 million.
Assumed both the the headwind from from minimum wage and also the offset from productivity gains from the payoff from the park land and labor model that Mike just talked about so.
That is already assumed in our EBITDA goals.
Got it.
Mike Thanks Sandeep.
Thanks James.
Your next question comes from the line of.
Tyler and Vettori with Janney.
Good morning, Thank you.
And I wanted to circle back on.
Pent up demand, specifically this year and and the prepared remarks, we decided some some guest survey data, but just interested if you can give us a better sense of what indicators you're looking at that's informing your opinions on pent up demand for the second half of this year, whether it's group bookings or the or the path.
Sales and just trying to get a sense of what's most important there and what those indicators are telling you about what demand might look like and.
And the summer season.
Good morning, Tyler and hope you're well.
So I start with the broad umbrella of <unk>.
It's fantastic that as an industry and we at six flags, if we've entertained nearly 7 million gas and I believe that our safety protocols and standards have created a significant trust lever.
And with our guests both in terms of recruiting guests as well as retaining and this gets to the single day ticket and the retention of the active pass space. So I start there because people feel confident in the safety umbrella, we give them and I think that is a big deal for the industry. It's a big deal for us and a positive way.
Specifically.
To your question first we're seeing very consistent demand across all geographies, which I think number one is a really positive sign.
Second as Sandeep mentioned, we continue to see really good attendance trends from 35% and Q3 of 2019, 51% and Q4.
And similar levels year to date.
It includes what has been two two weekends of tough weather in Texas were also as part of that scene and guest satisfaction surveys now equal.
Equal or better and our open parks in 2019, we think Thats a very good positive as guests are understanding.
And the safety protocols.
The other item obviously is a resilient active pass base, we think that's a big positive that were roughly flat really from actually quarter, two and we still have the opportunity with our active pass base.
Revamped once we reopen up the parks and then lastly, when we look at our surveys and I mentioned this on the last call. We've seen an improvement as we've been survey and gas, we're seeing 97% of those surveyed one visit and a COVID-19 free environment last call was approximately 93% and we're seeing 96% of gas for saying they want to visit EMEA.
After taking a vaccine and is part of that where we are seeing data that people want this close to home.
Fun safe experience and we are seeing data that says people do have more vacation days and they have saved up money, but they wanted to be able to enjoy it and a safe fun.
Close to home experience and then.
Also been watching your overseas park as well and we've seen some good trends there. So we'll continue to monitor it and I will stay close to our guests every week, but we're ready to go we're ready to operate in 'twenty and 'twenty one.
Okay very good appreciate the color I'll leave it there. Thank you. Thank you.
Our next question comes from the line of Ian Zaffino with Oppenheimer.
Okay great.
And just touch on that and minimum wage question again.
And the revenue side, maybe you could kind of give us some.
And idea of what your demographics are as far as people, who are showing up to the parks.
And does it boost and minimum wage actually put more dollars into your visitors pockets.
Or are you planning for it and for higher demographic and any other color you gave there would be great.
And Youre right, because I think to the extent that there is a minimum wage increases.
Increases in certain of our demographics, where we operate.
<unk> got a halo effect on the revenue side is that we I think we've talked about this and we'll pass to but.
But that is a factor and I think thats.
And that's part of what plays into the assumptions that I talked about on the $5 $30 million to $560 million adjusted EBITDA goes away.
<unk> articulated previously and bridges today.
So it's all in there and the assumptions the headwind on wage.
I mean, there and it wasn't thereby couldnt be guiding for 2020.
And also the assumptions of improving productivity are and there because of park level labor and on the revenue side the assumptions include.
The assumptions and benefits from.
From a more disposable income.
And those demographics and so it's all in there and it's embedded in the.
EBITDA goal of five three to five 6%.
Yes, and yes.
And just quickly to add I mean, we're roughly specific where roughly half teens and young adults and roughly half families and children and.
Sandeep point, we think it absolutely helps in that regard I put more money in their pockets.
Okay, great. Thank you very much.
Your next question comes from the line of Eric Wold with B Riley.
Thank you and good morning.
Yeah, no obviously from them and you're talking about today, you're focused on the core business improving based on operations and getting those ramped back up but can you maybe provide and stuff.
And so where you are with potentially restarting the China Park development have you been and discussion with any potential new partners there.
And that fell out.
A year or so ago and is there a timetable as to kind of when you would want to get that restarted or potentially and becomes maybe too late on that front.
Good morning, Eric.
So we've been clear with this and I've stated this in the past, we obviously are from an international standpoint.
We are focused on Korea, and Saudi Arabia and.
We are excited about the future there and we do not anticipate any revenue or operations from China.
And 21 or moving forward.
Got it thank you.
Your next question comes from the line and Stephen Grambling.
Goldman's.
Hey, good morning.
Quick follow up on the transformation plans I think last quarter, you gave some some big buckets on the fixed cost savings and just confirm the total amount of $40 million to $55 million Hasnt changed and what are the big buckets being achieved this year versus next.
So so I think.
We talked about the $30 million to $35 million low value being achieved in 2021, which was consistent with what we said last time in October and.
And I think for we will be expanding as a 40% to $55 million is achieved in 2022.
And I think thats, the fixed cost independent of attendance and total transformation and value as we said.
And was 80 million to $110 million with the remaining part of the 40.
<unk> $40 to $55 million coming from a combination of the revenue initiatives that we outlined and talking to other labor initiatives.
We talked about earlier and as well so no change really and what we previously communicated.
I think from a proof point standpoint, we're just a month and of the year and as I mentioned in the prepared remarks, we've already realized over $2 million from the first months of the year. So so we feel we're pretty well on track to getting the fixed cost savings that there'll be much calpine and for the year and.
And it's really coming from.
A couple of major areas that we try and in the previous call and which was the old redesign.
<unk>.
<unk> executed in Q4 and.
And in addition to that we also have Robby.
And then.
B procurement and put on non head count, which is gonna be and an additional amount of and thats going to drive it.
So pretty.
Pretty pretty confident other $30 million to $35 million and we're going to continue to update you every quarter as we go along on progress that we're making.
And so just to be clear it sounds like some of the park level labor expenses like the system to better forecast the tenants and labor needs, maybe that will evolve and be what what kind of builds on this into next year.
Yeah.
Exactly right. So it's a product you have and they like the variable component and so.
How do you for $35 million as fixed cost and independent of the payments right. So the positive and labor will flex based on the attendance and also based on and then be implemented the revenue initiatives should also be happening depending on bad debt attendance basically goes so we're going to basically update you on the fixed piece.
And the variable piece as time goes along so you know how much of a transformation and value has been realized.
Understood clear thank you.
Okay.
Your next question comes from the line of Paul Golding with.
Macquarie capital.
Yes, thanks, so much.
Mike You mentioned earlier and the call that you're testing the virtual queuing and reservation system for some rides.
I was wondering.
And just what the outlook is on capacity this year any limitations and I guess as an indication of that whether youre going to.
Maintain the reservation system to get through the front and gate.
And then I have a quick follow up.
Yes, good morning, Paul how are you.
First on your ladder, we have the ability to continue the reservation system and we have used it where we've needed to use it based on local state officials as wells, where we've been able to flow capacity and we've made decisions Park by park based on the local.
<unk> sales as far as capacity and total tier tier former question.
First we're very confident we have ample capacity to meet pent up demand and satisfy our safety standards.
Remember the second thing I would stress again as we're outdoor were spread over dozens to hundreds of usable acres, which allows us to reach high levels versus our theoretical Max capacity, while still satisfying and social distancing and.
And then the third which you alluded to when you look at our technology and safety protocols, we put in place and 2020, it's really allowed us to even beyond the pandemic control the flow capacity and safely increase throughput from.
And from the website to go through security Youre not even touched.
And I think lastly, just as a reminder, we only reach our Max capacity on roughly a handful a day. So we average about 50% of theoretical Max capacity and a pretty typical.
A year or so.
All of that combined with what we're excited about the progress of vaccines, we feel very good about our capacity to meet the pent up demand across all geographies and as I said, we're ready to operate.
Thanks for that color and then just a quick follow up on that.
And <unk> earlier question around International I know you were saying that you don't expect to see anymore.
Revenue EBITDA come from licensing and China.
And parts of the World, where maybe Covid wasn't.
As protracted do you.
And you'll see an opportunity for maybe any new deals where the appetite for mass gatherings may be higher than it is currently in the states.
And relative.
And in terms of pent up demand or business opportunity just so I'm clear on your question, Paul, Yes, and business opportunities and we know that the China.
The arrangement.
And that we shouldn't expect to see anything further come from that so I guess the question is maybe you got other opportunities or are you still open to other opportunities since COVID-19 was not as.
Severe and some other parts of the world, Yes, very clear.
What I would reinforce again is our focus is delivering profit from our core business.
And again transformation is all about driving operational effectiveness, so that core business and that that's going to be our focus.
Got it thanks, so much Mike appreciate it yeah you bet.
Your next question comes from the line of Alex Morocco, with Darren and Mark.
Hi, Good morning, guys. Thanks for taking my questions based on some of the technology and and park improvements you outlined it sounds like many of these could be related to the pandemic or at least accelerated by it and here I'm talking about contactless security and mobile dining and the cash kiosks, all due to their hygienic benefits how will you be measuring there.
Turn on the investments both financially and then in terms of customer satisfaction and going forward.
Alex I think it's a really good point.
Well I think first the pandemic helped us accelerate.
What we needed to do to be a more guest centric culture.
And as we looked at even the pre pandemic as I said and the last call our guests love our parks, they love, our roller coasters, and they love our funnel cakes and they just want and easier experience and part of that is just modernizing that guest experience through technology, which is one of our key strategic focus areas.
So our measure is going to absolutely be.
Tenants and revenue as we look at that.
And it should we should be seeing topline momentum and as we modernize the guest experience through technology and we will obviously continue to look at guest satisfaction surveys and other.
Levels of guest feedback so.
Consistent as I said there'll be albeit about attendance and revenue will be the key.
Kpis.
Alright, that's great. Thank you and Mike Thank you.
Your next question comes from the line of Mike Swartz with <unk> Securities.
Hey, good morning, guys.
Just maybe for Sandeep.
You said that in your prepared remarks that each park that was open in 2019 was also opened in the fourth quarter of 2020 and then.
May have missed it but did you give us.
The operating days and the vs.
'twenty versus <unk> 19.
Yes, so Mike I'm sorry.
I got it sandeep.
So we've been we've been focused on obviously on open parks and as you know not not all operating days are created equal.
And what you want to think about it for the fourth quarter is a first for the days that the parks were open in 2020 comparable operations and 2019 represented approximately 70% of the 2019 total attendance.
That was an increase from about 60% at the end of the third quarter.
So so we feel good about that we think Thats also another sign of good pent up demand remember in those numbers and that includes Mexico, Mexico was opened part of the quarter, but we ended up closing at early.
And it also includes the fact, we have for additional parks that offer drive through or walk through holiday and the right experiences and also the drive through Safari that was opened for a portion of the quarter.
So and I think we were also clear on and the.
The table releases, but we had 18 parks one water park and the greatest scape large were opened during that quarter.
Okay Thats helpful and is there maybe a way to think about that kind of comparable.
Ops percentage for for 'twenty, one and maybe how that flows throughout the year on our first quarter will be will be constrained, but how does that look as we progress from here.
It's a good point I mean, we've been it's obviously as Sandeep said, it's really a volatile environment and we've been very focused on open parks and.
And getting the parks reopen in terms of.
That focus because we think that's where it is so our focus is about getting all the parks open.
By the spring of 2021 and.
And that would be the guidance I would give you that that is the true north for US is to continue to leverage our safety protocols work collaboratively.
And those places we don't have set dates and to get all the gates open to drive that up.
Positive performance balance of year.
Okay, Great and maybe just follow up sorry go ahead and sandy.
And just just to add on and think.
Obviously, once we get our and get opened.
For the spring 'twenty, one we should be going to normal operating schedules and what you've seen historically.
And what you would expect to see for Fox are open.
That's the objective.
Okay. That's helpful and maybe just related to that talk about.
Marketing spend and the cadence of marketing spend and maybe how does your marketing strategy compare in 2021 relative to maybe when we were at normal operations back in 2019.
Yeah, and I think one other things that we talked about and so youre going to be very choice from about how we deploy our media and which is effectively and marketing spend at the parent.
And I think we're just taking a look at what is happening actually with the pandemic and dependent and the trajectory. So.
Depending on when things become much more care in terms of that pent up demand being and.
Leverage and that much more significantly we have historically done a lot of advertising and marketing around the time, we actually sell our passes.
And so debt.
Typically has been done and spring and fall, but I think and this youre.
Looking at and spring summer and fall and how we will time, our spend to make sure we are driving the demand and excellent EBIT.
Okay, great. Thank you.
Okay.
Your next question comes from the line of Brett Andrus with Keybanc.
Hey, good morning, and just to be clear on the last point on the operating days, so assuming all of the parks open.
How many operating days are you planning for right now compared to 2019, I mean is as simple as just taking a normal calendar backing out <unk> and then maybe adding some of the extensions you talked about earlier I'm, just looking for kind of a ballpark.
As you sit today.
Yeah, Brett and I would say I'll go back to the last part of what I said on the on the calendar. So once we get past spring 'twenty, one and we could reopen and go back to normal operating calendars and studying memorial day and give or take.
Sometime in the second quarter. So so that is that is what the expectation and so if you go back and look at 2019 that should give you a pretty good indication of what the operating calendar look like.
Additional add ons I would say that our incrementals for that are the safari they became a stand alone experience.
Some of the holiday events that we did which for incremental.
But I think that's the way you would think about.
The operating calendar.
Alright, thank you for for the clarity.
And Brian just the last day.
The reason we've been clear and this is just they're just not created equal as you know so.
That's why we're not drill into that as much as just focusing on the calendar of the parks.
Yeah understood. Okay. Thank you.
Your last question comes from the line of Ryan Sundby with William Blair.
Yeah, Hey, thanks for taking my question.
All right.
Micro Sandeep, just I guess to follow up a little bit of and the last question.
When you look at adding something like West coast customers car show at Magic Mountain or even just some of the way you've modified operations to do more drive thru and walk through and other parts has there been any change and view I guess and.
And the kind of programming or types of activities your parks and support I guess I guess, what I'm asking here is just give you. Some of this popularity is there more demand for using the parts and you realized kind of pre pandemic.
Ryan It's a good question.
I think what Youre seeing and is a testament to how we have and will continue to lead innovation.
And that's a driver of being the regional Entertainment choice.
And it's going to be we're going to always focus on our core assets and we're going to focus on our core offerings and if our if our guests.
And are looking for a product we can bring it to them safely and it's cash flow positive on a variable basis.
We're going to do it because we got a great set of team members that.
And do it.
So we will continue to be innovative and listen and learn from our guests and that and that's a big part of the guest centric culture.
Perfect. Thanks, guys.
And there are no further questions at this time.
Thank you Catherine for everyone and again I want to thank you for your continued support.
Our guests are eagerly looking for a memorable experience that is fun.
And with convenient affordable and close to home something six flags is uniquely able to offer six flags is truly the preferred regional destination for entertainment, creating fun thrilling memories for all take care and please stay safe.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
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