Q2 2021 Six Flags Entertainment Corp Earnings Call
Good morning, ladies and gentlemen, welcome to the 6 flags Q2.2021 earnings conference call.
My name is Catherine and I'll be your.
Operator for today's call.
During the presentation all lines will be in a listen only mode. After the speaker's remarks, we will conduct a question and answer session.
Do you have a question.
At that time simply press Star then the number 1 on your telephone keypad, if he would like to withdraw your question press the pound key.
I will now turn the call over to Steve Purtell, Senior Vice President of Investor Relations.
Good morning, and welcome to our second quarter 2021 call with me are Mike Spanish President and CEO.
6 flags and Sandeep Reddy, our Chief Financial Officer.
We will begin the call with prepared comments and then open the call to your questions. Our comments will include forward looking statements within the meaning of the federal Securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such.
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 at both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the company's annual reports quarterly reports and other.
Other forms filed or furnished with the SEC.
At this time I will turn the call over to Mike.
Good morning, Thank you for joining our call we have divided our call into 3 parts first I will provide an overview of our operating performance and the strong demand trends we are seeing <unk>.
Second Sandeep will.
We'll go into more detail about our financial results and our capital allocation strategy. Finally, I'll return to provide some comments about the initial progress we've made on our 3 key strategic priorities.
I am pleased to report that the strong start we experienced in the first quarter continued through the second quarter.
At the heart of our summer season.
Our results this quarter are due to the dedication of our team members, who really stepped up and pulled together to safely reopen our parks in fact, the second quarter marks the first time since 2019 that all of our parks were open and as of.
In day, there are no constraints on park capacity or rise seating in any of our U S parks I am proud to see our employees working hard to deliver a great guest experience in this difficult operating environment.
I'm also proud of our efforts to give back to our communities over the past few months.
Today, we have hosted numerous vaccination sites at our parks and we have donated more than 140000 tickets as an incentive for residents in areas around our parks in Texas, Illinois, and California to get vaccinated.
Turning to our operating trends, we continue to experience.
And strong consumer demand at all of our parks through July 25 year to date attendance and open parks was 82% of 2019 levels.
A significant portion of our attendance shortfall relative to 2019 is a result of lower pre booked group.
<unk> ticket sales, which have historically accounted for significant portion of our early season attendance and which have been slower to recover.
Excluding pre booked groups year to date attendance at our parks during the periods. They were opened in 2021 was 89% compared to the same.
Same periods in 2019.
We're also seeing strong guest spending per capita for the second quarter. Our guest spending per capita was up more than 20% versus the second quarter of 2019 due to progress on several several of our transformation initiatives as.
With a strong consumer spending backdrop.
In addition, our season pass sales trends have accelerated as of July 4.2021, our active pass base was essentially flat with the same day in 2019.
As a result of our strong rem.
As well trends in season pass sales, we generated $190 million of cash flow during the quarter.
While we are encouraged by our results and the early progress we are making on our transformation operating conditions continue to be quite challenging we continue to operate with COVID-19 relate.
Related constraints at our park in Montreal, and our 2 parks in Mexico.
And like many other businesses. We also continue to face a tight labor market and supply chain constraints.
While labor challenges persist our team has worked aggressively and creatively to alleviate some.
Some of the pressures we.
We selectively raised hourly rates for seasonal team members.
Offered a bonus for any team members, who were employed as of July 1 and who stay through the end of the summer season, and we recently offered an additional bonus for those who stay through the end of October.
In addition.
We have expanded our outreach and recruiting efforts through traditional channels as well as social media.
These measures have helped us manage through the labor challenges the entire industry is facing.
Our results this quarter are encouraging, but we were still in the early stages of transforming our operating.
Model our goal is to delight, both our guests and our shareholders by providing classic 6 flags thrills enhanced with modern technology.
While keeping a careful eye on costs.
I will now turn the call over to Sandeep, who will provide details about the quarter's results.
As a review of our capital allocation strategy Sandeep.
Thank you, Mike and good morning to everyone.
I would like to start by reminding everyone that results for the second quarter and year to date trends are not comparable to prior year, because we closed all of our parks in mid March last year and many of our park.
As Walgreens closed or curtailed operations during the second quarter 2020.
For that reason I will provide comparisons to 2019.
Total attendance for the quarter was $8.5 million guests, a 19% decline from second quarter 2019, reflecting fewer.
Core operating days at several of our parks due to the pandemic COVID-19.
That's the day restrictions at some of the parks that were open and the loss of most of our pre booked group sales.
These headwinds were partially offset by a favorable calendar shift from a fiscal year change.
Because of our fiscal year change.
Our second fiscal quarter of 2021 ended on July 4th instead of June 30th as it did in 2019.
As a result second quarter 2021 includes 4 calendar days in July or most of the July 4th holiday weekend.
This was partially offset.
By 4 days of April.
Including the Easter holiday in 2021 that shifted out of the second quarter and into the first quarter. This year.
The net benefit of the ships.
To the second quarter of 2021 was 614000 of attendance and $32 million of revenue.
In the spring and early summer with historically derive a significant amount of attendance from group sales, which includes school groups and company buyouts.
Because most schools and offices of yet to resume group events and these outings are typically booked in advance we have experienced a significant.
And in group sales during the spring and early summer months.
Through July 25th year to date attendance at urban parks was 82% of 2019 levels and has accelerated since the end of the quarter.
A significant portion of our attendance shortfall relative.
Decline <unk> thousand 19, as a result of lower pre booked group ticket sales.
Excluding pre booked groups year to date attendance at our parks that have been open all year was 89% of 2019 levels.
Attendance from on a single day guests in the second quarter represented 30.
56% of total attendance versus 39% for the second quarter of 2019, reflecting the impact of low pre book sales, which are counted towards single day attendance.
Excluding pre book sales the attendance mix from a single day guests increased by 8 percentage points versus 2019.
Looking ahead, we expect group sales to have less of an impact since groups typically represent a smaller portion of our attendance during the second half of the year.
However, our new fiscal calendar will continue to create attendance shifts between quarters for the balance of this fiscal year.
36 third quarter will include an extra weekend during fright fest compared to 2019.
We expect this calendar shift.
The change to shift approximately 500000 of attendance out of the fourth quarter and into the third quarter.
When netted against the shift of the July 4th weekend out of the third.
We expect the changes in our fiscal calendar to negatively impact the third quarter's attendance compared to 2019 by approximately 400000 guests.
Total guest spending per capita increased 23% in the quarter versus 2019.
Third quarter pro forma allocation mentioned on last quarter's earning call earnings call for 2019 admissions spending per capita increased 24%.
And in park spending per capita increased 22% compared to the second quarter of 2019.
The increase in admissions.
Spending per capita compared to 2019 was driven primarily by our new approach to revenue management.
That approach includes pricing I think it's based on the demand curve as well as the new pricing architecture that allows us to optimize relative pricing amongst our various ticket types and to reduce promotions.
Applying the addition, as much of our season pass sales are occurring later in the season than usual, we are recognizing season pass revenue over a shorter time frame, which boosted our ticket per capita in the second quarter.
Looking ahead to the second half of 2021 and 2022, we expect the ticket.
Capital growth rate to moderate.
Pendants and promotional cadence begins to normalize.
The increase in in park spending per capita compared to 2019 was primarily due to early progress on several of our transformation initiatives, including.
And.
<unk> penetration in the uptake of mobile dining, which carries a higher average order value.
Our new F&B strategy, including a new food pricing architecture, and the introduction of more premium offerings.
Our new cash to card kiosk, making it easier for.
<unk> wants to spend money on games and merchandise in a box.
Our QR code enabled flash pass program.
And a higher mix of non group single day guests.
Typically spend more in a box per visit.
In addition, the overall consumer spending.
Lending environment was very strong in the second quarter.
And we believe that we benefited from an unusually high level of consumer discretionary spending.
Looking ahead to the second half of 2021, we expect our in park spending per capita to increase relative to 2019.
But we expect.
The growth rates to moderate.
Revenue in the quarter was $460 million down $17 million or 4%.
Excluding the impact of reduced sponsorship international agreements and accommodations revenue revenue was down less than $1 million.
The decrease was also a result of lower attendance net of the fiscal calendar change, mostly offset by higher guest spending per capita.
On the cost side cash operating and SG&A expenses versus 2019.
Decreased by $4 million.
2%.
The reduction in expenses reflected cost savings measures during the quarter driven by our transformation plan lower advertising costs and a benefit from a portion of the proceeds received in connection with 1 of our terminated international development agreements in China, partially offset by higher.
Incentive costs to attract and retain team members.
Due to the labor conditions, we currently face.
During higher wage rates for seasonal employees.
During the second quarter these additional costs.
All set by a reduction of Oswald due to the tight labor market.
Our adjusted EBITDA for the second quarter was $170 million down $9 million or 5% versus second quarter 2019.
This included a net benefit of the physical quarter change, which shifted attendance entered the quarter.
Second quarter 2021 also included.
The $11 million of proceeds received in connection with quantified terminated international development agreements in China.
As a reminder, second quarter 2019 included a $7.5 million settlement related to the termination of our international development agreements in Dubai.
We are pleased with the retention of our active pass base.
At the end of the second quarter, we had $6.3 million pass holders, which included $2.1 million members and $4.2 million traditional season pass holders.
Due to our fiscal calendar reporting change.
The second quarter of 2021 benefited from additional sales over the July 4th weekend.
Adjusting for the reporting calendar change the active pass base as of June 30 of 2021 was essentially flat compared to June 32019, with an increase in traditional.
Traditional season pass holders offset by a commensurate decrease in members.
We are focused on increasing our membership base and we expect our total members to grow over time.
Our active pass base retention is a testament to our unique offering and loyal following.
<unk> deferred revenue as of July 4.2021 was $310 million up $75 million or 22% compared to second quarter 2019.
The increase was primarily due to strong season pass sales in the second quarter of 2021 and to the deferral of.
Revenue from members and season pass holders, whose benefits were extended through 2021.
We expect to recognize most of this deferred revenue in 2021.
Year to date capital expenditures were $42 million.
For the full year, we previously.
Effected to spend less and $98 million spent in 2020.
However, because of our strong operating results and cash flow and our confidence that our operating performance will continue to improve.
We now have capital expenditures of $130 million to $140 million.
Mistakes in 2021.
We expect to believe 9% to 10% of revenue is an appropriate level of annual capital expenditures in a normalized environment.
Our balance sheet is very healthy with no borrowings under our revolver and no debt maturities before 2024.
Our liquidity position as of July 4th was $714 million.
This included $461 million of them.
Available revolver capacity net of $20 million of letters of credit and $253 million of cash.
Net cash flow for the quarter was $190 million.
Given the significant operating losses, we incurred in 2020.
As well as our preexisting Nols, we expect to pay minimum federal taxes this year and next.
We do not expect to become a full cash taxpayer until 2024 at the earliest.
I would now like.
Give you a quick update on our transformation plan.
We continue to make progress with our revenue and cost initiatives as shown by the positive impact on our attendance per capita spending and cost savings.
In 2021, we expect to achieve $30 million to $35 million from a fixed cost reductions and we have already.
Like device more than $16 million through the first half of this year.
We continue to be on track to deliver 80 million to $110 million in incremental annual run rate EBITDA. Once our transformation plan has been fully implemented and attendance returns for 2019 levels.
This includes an incremental investment of approximately $20 million and seasonal wage rate increases annually on a go forward basis. In addition to the $20 million, we called out in our previous baseline for a net increase of $40 million labor dollars compared to 2019.
The.
Full impact of the wage rate increases will likely materialize in 2022, but we expect them to be offset by an increase in the expected value of our revenue initiatives.
As part of our transformation plan, we expect to incur $70 million in charges.
We have incurred 40.
$6 million in cost so hard through second quarter 2021, including the noncash write offs of $10 million that occurred in 2020.
We expect to incur the remaining $24 million in 2021, and 2022, the majority of which is related to investments in technology, including.
Including a new CRM system.
Finally, I'd like to touch on our capital allocation strategy, which is particularly important given our large cash balance and our expectation that we will generate significant cash in the back half of this year.
Our first priority will always be to invest back in our base business.
When we see opportunities to generate attractive returns.
As I just mentioned, we expect to increase our capital expenditures this year, which will allow us to invest in high priority and high return park infrastructure and technology projects.
Priority number 2 is to pay down debt until we reach our targeted leverage.
Range of 3 to 4 times net debt to adjusted EBITDA.
Longer term once we are within our targeted leverage range, we will consider strategic acquisition opportunities and if there are none then we will return excess capital to our shareholders via dividends or share repurchases.
To.
Conclude we are encouraged by the initial progress on our transformation plan and are well positioned to achieve our adjusted EBITDA baseline range of $5.30 million to $560 million when attendance levels returned to 2019 levels in.
Clearly the impact from labor inflation.
This new.
Baseline is not the endpoint, but rather the beginning and once it is achieved we expect to grow EBITDA by mid to high single digits.
Mid to high single digits annually thereafter.
Now I will pass the call back over to Mike.
Thank you Sandeep.
I'd like to take a few minutes to review our strategic priority.
Priorities.
We believe that improving the guest experience will be the most important driver of our long term sustainable earnings growth.
We are evolving our culture to center on our guests.
Everything we do we will focus on how to delight, our visitors with a fun.
And memorable experience.
Our second strategic priority is to continuously improve operational efficiency.
Essentially means that we will be laser focused on managing costs as we grow our revenue.
And finally, our third priority is driving financial excellence.
Which means that we.
We'll make sure that our operating improvements flow through to bottom line profits and that we achieve strong returns on any investments we make.
Despite the challenging operating environment, we have already made progress on some of these strategic priorities at <unk>.
To highlight a few of these areas before opening up the call for Q&A.
And our first strategic priority modernizing the guest experience through technology I'd like to call out for initiatives that are already starting to have an impact.
<unk> customer relationship management, we recently launched our new CRM platform that will allow us to understand and predict our guest preferences from them.
Good day visit our website to the moment they leave the park based on our new consumer database.
We have already begun tailoring our communications based on our guest preferences and over time, we will be able to customize their experiences so they get exactly what they want when they want it.
Second.
The moment mobile Flash pass, which now includes QR code capabilities. We recently have begun transitioning our traditional flash pass.
A mobile environment at certain parks. This has been very well received by our guests as they no longer have to wait in line to retrieve and return a physical flash pass.
And they can easily show a QR code.
On their phones for faster entry to rights. This has helped generate a double digit increase in our flash pass sales.
Third cash to card kiosks. This provides several benefits.
First it makes it easier for guests.
To spend money on games and merchandise because they don't have to worry about carrying around cash and it speeds up transactions.
Second it reduces shrinkage in our parks and minimizing cash handling costs.
Finally, it improves hygiene, we've already seen a benefit to our in park per caps from.
From this initiative.
Finally mobile dining our guests.
We will no longer have to wait in long lines to order food instead, they can choose to order on their smartphones and pick up their food when it is ready, we're still testing and iterating the implementation of mobile dining, but even in this early stage.
<unk>, our guests utilization of mobile dining continues to accelerate.
Mobile dining has already led to higher average transaction spend and improved guest satisfaction with our food ordering and pick up process.
We are pleased that our 2 key performance indicators for the strategic priority.
Attendance and revenue are both accelerating and we look forward to implementing more of our initiatives to improve the guest experience over time.
We've also made progress on our other strategic priorities continuously improving operational efficiency and driving financial excellence on.
On operational.
I can see 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.
Finally, our financial Excellence, we are pleased to report that our adjusted.
Efficiency is improving although we are still a long way from where we would like to be.
As the operating environment returns to 2019 levels and we implement more of our transformation program, we expect to achieve our adjusted EBITDA baseline range of $530 million to $560 million.
<unk>. Most importantly, we expect expect that level to serve as a jumping off point from which we can sustainably grow mid to high single digits over time.
In conclusion, we are pleased with our high customer retention and loyalty demonstrated by our active pass base, which continues.
<unk> to grow our.
Our transformation efforts are proving their value as we see cost savings from our changes in the operating model and increased per capita spending from our revenue initiatives.
Our team members are working very hard to create fun and thrills for our guests.
With a clear focus on improving the guest experience.
Experience and a talented and dedicated team to execute our strategy, we are well positioned to accelerate growth in the back half of 2021 into 2022.
Catherine at this point could you. Please open the call for any questions.
Yes, Sir ladies and gentlemen, if you would like to ask a question. Please press star and then the number 1 on your telephone keypad.
Your first question comes from the line of Steve <unk> with Stifel.
So wanted to dig into the labor pressure a little bit more.
Impact that it's having or not having on your customer experience it seems.
If we start to read some of these review sites that are out there a lot of customers are potentially complaining about park not having all the rides open or certain parts of the park not being operational.
Look I fully understand your view sides are always going to be negatively biased, but just wanted to get your.
More on what you're seeing from customer satisfaction scores and how you're trying to combat the labor issue versus balancing the customer experience.
Good morning, Steve Thanks for the question.
Yes, absolutely.
We are committed to an outstanding guest experience and that is our standard.
And as you said it has been a challenging operating environment given the demand.
Apply chain issues and what is a tight labor market and the surveys that we're tracking with our guests continued to demonstrate that the biggest pain points for our guests are waiting in lines, whether it's for rides are for food, which was before.
The pandemic and post pandemic, so that is without a doubt our biggest execution will in the short term and longer term transformation focus to make the guest experience faster and easier.
And that's where we're going we do have a large active pass base or they've been very appreciative.
That our parks are open.
They feel really good about this and I've been personally thank and many of the parks on this but.
The headline here is it's really reinforced what we know we need to do it's about pivoting to a guest centric culture, it's about making that guest experience faster and easier and driving that through technology, that's going to drive.
<unk> earnings momentum, that's going to drive sustained loyalty of our guests.
Okay got you. Thanks, Mike and then second question would be around the percent of unique visitors during the quarter and I'm not sure if I missed out in your prepared remarks, but if I did I apologize, but just trying to figure out what what unique visitors looked like in the quarter and.
Trying to really understand is your product was <unk>.
<unk> introduced to customers, but it really hasnt been to your properties before and I hope that somewhat makes sense.
Good morning, Steve is that Sandeep and I think that's a great question, because we did cover it in the prepared remarks, but but I think there's a nuance to what.
<unk> see happened in the quarter. So for for instance, during the quarter, 64% of our attendance.
Jim for the active pass base compared to 61% in 2019 and on the face it looks like a reduction in a single day ticket, but it's not when you adjust for pre book sales that we've talked about in the prepared remarks.
<unk>.
The shift in pre books sales alone had an 8 percentage point impact.
Versus 2019, so we continue to see strength in.
Single day tickets in the quarter, but what we're really pleased about was we actually saw strong growth in the active pass base and we saw a strong attendance.
Said continuously it's an add on and off and so it's very very.
Reassuring for us to see the strong rebound that we saw in the <unk> space. In addition to the single day ticket momentum that we've been seeing.
For last few quarters as well so really pleased I think from a transformation standpoint, as Mike talked about.
<unk>.
Experience is 1 side of it but I think.
Driving unique attendance is another key focus area of us and we feel there are already showing proof points on progress on that front.
Okay, great. Thanks, guys. Thanks for the color.
Thanks.
Your next question comes from.
James Hardiman with WAC price.
Yeah.
Hey, good morning, Thanks for taking my call. So first question here.
Feel like I should be able to do the math, but I don't think I quite.
John.
July attendance.
I'd love, a number but if not just sort of qualitatively.
Where we were.
Versus 19 pretty clear that it's improved versus the end of the second quarter, but just how much would be helpful. Thanks.
Hey morning, James how are you.
Our attendance trends are strong and they have been accelerating since the fourth of July.
And as Sandeep said in his.
<unk> remarks.
If you look at the quarter quarter, 2 without the pre booked group sales are trend wasn't 89 index versus 2019, and we saw very strong demand for both active pass base and single day ticket.
I will say this in July we saw group sales continuing to rebound.
And as you know they make up a smaller portion of the attendance during the rest of the year. So we feel really good about how it positions us balance of 2021 as well as into 2022.
It's a tight period of time, we're going to give you an update at the end of the quarter, but I would say what everyone should takeaway we have seen very strong demand.
Our continued acceleration post the fourth of July and we.
We're hoping to continue to move closer and closer to the 2019 levels.
Got it so.
Let me ask it more more bluntly.
July up versus 2019, because I feel like the math would suggest it is but.
<unk>, maybe you are not there yet in terms of answering that question.
Yeah close very close.
This is where we're at but again, it's a small window of time, James and I think we've got obviously get through the rest of the quarter, but as I said.
Strong trends and.
And we saw a nice.
Our group sales, which helped out.
Got it Okay, and then on the Labor front, just wanted to contextualize that as much as possible.
How much of it is how much of your cost base again, you've given us these numbers before but how much does it represent and how much inflation.
Should we expect a fun deep you gave us a $20 million number in the prepared remarks, which I believe was sort of the incremental pinch that you now expect long run versus where we were 3 months ago I guess at the end of the day the simple too.
To.
To say that.
Versus 3 months ago, you think labor is going to be $20 million worse.
But that you've found $20 million of additional revenue opportunities to offset that.
That's correct.
James I think that's exactly what we said in my prepared remarks.
And I think.
If you go back to the last call that'd be had in April as well, we've talked about doing surgical wage rate increases where it made sense and be so on ROI and as the last few months have played out that process has continued and be answering now have a pretty good indication that too.
Recruit and retain the quantity of labor that we need to deliver the.
The guest experience that we want to it's going to cost us another $20 million and wage rate increases and the impact of this really will be seen in 2022, and but we're really confident with the trend that we're seeing on our revenue management initiatives that we're seeing in our per caps that we have this company without revenue.
But with the revenue increase so from an adjusted EBITDA baseline perspective, we're able to hold the $539.6 6 million range that we provided previously been attendance gets to back to 2019 levels.
Got it and then if I could just slip 1 more in just.
There's a lot of it.
Moving parts.
But I'm just trying to figure out sort of the EBITDA, excluding the international business versus 2019, obviously attendance was down in the second quarter, I think 19%, maybe 24% comparable calendar.
I'm trying to do the math on EBITDA it doesn't seem like it was down much.
If we pull out much if at all if we pull out the international business you have those numbers by any chance.
Yeah, I think we don't we don't get into specifics on that split on EBITDA, James but what I'll go back to what I said in the prepared remarks on revenue right. So if we take revenue.
We actually are well.
Relatively flat.
On revenue, excluding international sponsorship and.
In accommodations so.
The big piece of what happened was we got a benefit from the fiscal calendar shift that helped our revenue, but that was offset by lower attendance.
And.
Which actually was netted into the into.
Flat, so EBITDA wise.
Pleased with the trends that you saw remember that from an EBITDA perspective, and 19 on the international business, we did get a settlement.
Our Dubai partner $7.5 million I mentioned that in the prepared remarks, and we did have a settlement there.
That'd be.
It didn't happen.
The payment that we received this year was $11.3 million as well. So that's the comparison them from an EBITDA standpoint.
And James It's Mike just.
1 thing I would add onto the 6 it's a really good question.
I think the first thing it's important for everybody to understand is.
Is.
We're not certain on the exact extrapolation trends as to your question, it's a challenging operating environment.
But I'd say the second thing is we're very confident with the recovery aspect of our business the improvement.
Unlike the trends on.
It shows I think our liquidity position is solid we've got good momentum on active pass base and transformation is on track and as Sandeep said, we're highly confident.
And that $80 million to $110 million, but I think the last thing I would say is that I think.
What's more exciting as we think about the future.
The financing to a guest centric culture thinking about sustained earnings momentum that is driven by our strategic focus areas, which is all about modernizing the guest experience through technology and operating more efficiently that's going to drive the sustainability and as we said in previous calls.
Pivoting once we achieve that $5.30 to $5.60.
As we build that capability through transformation that gives us.
Robust mid to high single digit EBITDA growth levels after that 5.3 or $5.60, and thats where oriented as a group there's a lot of challenges in the short term.
Is that.
But that's how we're thinking about it as we move forward in their short term and the longer term.
Yeah.
Your next question comes from the line of David Katz with Jefferies.
Hi, good morning, everyone. Thanks for taking my questions I appreciate it.
I wanted to go back to Mike.
Term 4 initiatives that you laid out in terms of the flash pass the kiosks mobile dining et cetera, et cetera can you just elaborate a bit more on what the scale of that rollout is just so far what it would look like through the remainder of the season and if.
If we were to look at 2022.
Is that sort of closer to fully baked rollout of those initiatives and the last part is really.
How much of any of these are really contemplated in the $5.30 to $5.60, a normalized level you have thanks.
Good morning, David how are you.
Well thanks good.
So we're very we're very far along in our progress on these we have been.
We started the cash card kiosks, we start rolling that out in quarter 4 of 2020.
We also did the same thing with mobile and we accelerated that with the pandemic, even though pick up only located.
That's been very positive and the QR aspect the flash pass we started that.
This year, it's really gained momentum will continue to roll that out and we also want to mobile enable it as well.
So very very all of it it is very on track and we feel as I said confident I'm highly confident in our ability to get.
At $80.110.
Sandeep mentioned.
What I think is important is we do feel good very good about the progress on our revenue initiatives.
Well, which is.
While we feel good about that number and as I said about building, even more sustained earnings momentum out of these initiatives.
And if I can just sorry go ahead. Please.
Yeah, David I think you asked directionally about the value that they are confident we are very confident about going back to the prepared remarks about directionally. This is.
<unk> revenue driven by our transformation plan, we do expect that because.
With the high level of consumer discretionary spending there will be a moderation in the level of spend not the direction. So.
So we do expect growth, but I think the level of growth, finishing T program.
Understood and just with respect to labor if I may ask for 1.
No.
Pression right how much of the pressures that you're seeing do you think would you guess is transitory right and you know just a function of kind of reopening and consistency.
Versus some that that may endure and be permanent do you have any sense about.
That yeah, I think that's a great question, David I think this is a bit of a unique year. So I would say the the supply side of labor has definitely been in.
<unk> by some unique factors this year and I think that is probably a bit more transitory in nature.
And as I think.
We get through this year and into next we believe that this should basically born.
However, I think as we go through.
Whats available in the market the quality of labor and the quality of people that they need to deliver the guest experience. It is clear that in certain areas, we need to make investments in base rates.
To hire and retain high quality labor and to that extent that investment that we've made to deliver the high quality labor to deliver a great guest experience, we expect to see the cost increase of $20 million that we're expecting low to materialize in 2022.
In the current year I think as we've talked about in the prepared remarks.
In the second quarter, we actually saw.
So an offset of the the.
The wage rate pressures with reduced hours that we were able to.
The staff and and we see more or less the same driver as we move into the second half of the year.
In the third quarter as well so so.
So I think that's part of it I would say is it's more of a timing standpoint on the on the wage rate increase we did specifically talk about some seasonal incentives that we're offering to our staff.
Team members for those who come around from July onwards in states through Labor day, we're offering a 10.
And some of them.
We offer ambition to incentive for those who would actually stay on until the end of October. So this would be again transitory or temporary in nature. We don't expect this to repeat I think it's more a function of the unique circumstances of this year, where the supply of labor availability.
10 per cent and has been impacted so we want to protect the.
The guest experience as we go through the back half of the year, but by taking this action Thats a smaller and.
Small investment relative to what I think is going to pay back both in terms of per cats as well as the guest experience.
Perfect. Thank you.
Okay.
Has the next question comes from the line have been taken with credit Suisse.
Hey, How's it going bank looks like you guys had some good momentum I think you mentioned the 'twenty..1 season pass has been filled later in the season than 19, which which makes sense I guess just with.
In regard to that what's the you said you're expecting this year on the path.
I guess number 1 and number 2 would be what.
What's an apples to apples per cap increase I don't know if the best way to do that is just ex season pass or whatever you think is appropriate.
Yeah, Great question I think.
Thank God.
In the 'twenty 1 season passes.
You can see from our trends we'd be sold a lot of season passes traditional season passes in the second quarter, which is a free.
Very late in the year for us to be selling into considering the price of expire by the end of the year and so the number of visits that we would expect from these classes would be less than that.
Possibly sold much earlier.
And the season, so as a result of it I think the per caps.
We have reported on the admissions have definitely been increase and that's why we called out that we expect this to moderate going forward.
As attendance trends normalize them and.
And.
Basically we.
On a move forward with a with a normal promotional cadence, which has been disrupted the sales will depend on it.
And so I think I'm not going to get into specific numbers on per caps.
X.
Excellent timing, because I think there's a lot of moving pieces in it.
It was going.
Gonna be strong because I think what is happening with our admissions per caps.
Very reflective of our transformation efforts on revenue management specifically.
Extremely pleased without us on.
Admissions both growth on active pass base as well as on single day ticket and.
And we see continued momentum.
And just Directionally, we see growth just like I talked to David about in park spend we see the same thing on an admissions as well, but just with a moderation in terms of the growth rate.
Okay I appreciate it thank you.
Okay.
Your next question comes from the line.
Jim Mike Swartz with <unk> Securities.
Hey, good morning, guys.
Just wanted to maybe dig into what you're seeing in the average profile of a visit or maybe in the second quarter or year to date have you seen any major changes maybe in distance traveled.
Those staying for multi day visits or maybe any other metrics that are relevant.
Mike Good morning.
Ryan.
Yeah, No I think.
What we're seeing is as really a robust attendance and I think typical attendance I would.
We're a regional theme park and so a lot of our attendance is coming from the radius of 150 miles around our parks and and that's been a strategic advantage.
Based on the pandemic where.
Travel has been a bit more difficult to get to and and for us having so many so.
So many potential guests.
Or the amazing in which we operate within driving distance has been a great help so we've seen a very strong <unk>.
<unk> of our guests from the demographics in which we operate.
And that's been consistent with our expectations.
Yes, Mike Sunday pit, Oh, what does it taste.
And about to every 1 of the U S parks and what I'm seeing is we are absolutely attracting as Sandeep said regional gas like we always have and it's roughly you're seeing have families and the other half is teens and young adults.
Consistent but I think it only reinforces that our.
Outdoor regional close to home proposition, we provide is absolutely in the right spot right now in terms of post pandemic and ongoing.
Okay, Great and then just a follow up.
May.
On the on the labor costs.
I've been Ryan and I think Sandeep you you had mentioned that some of the bonus programs. You are running this year may not be repeated in the future, but just help us understand how those bonus program flow through the P&L have you already expense those are those expenses at the time the bonuses are actually paid.
Really good question I think no we haven't.
<unk> expense than me out there.
They're gonna be on expense, they're going to be in our expenses in the back half.
As their own because they've got retention bonuses, so to the extent that.
The team members had been trying to incentive pay do stay.
I've done the calculation that they've gone to a time, then we would pay it out so low for the.
Food too.
Same store labor day that would be a Q3 cost and for the ones that are.
We're going to be also 2 suites at the end of October that would be in Q4 cost.
Okay wonderful thank you.
Okay.
Your next question.
Yeah.
Securities.
Thank you and good morning.
Couple of questions again, obviously I don't want to beat the AR.
The labor horse too much further, but I guess.
Sandeep you talked about largely transitory costs. This year are the bonuses and whatnot and kind of going into next year getting to a $20 million kind of <unk>.
Annualized higher level just to get to the.
The quality of Labor you want how should we think about.
Under that scenario the the average wage rate increase for hourly workers in 2022 versus what you saw in 2019.
Should that be considered kind of a catch up to get to where you needed to be for the quality of labor.
And that labor rate growth rates beyond 'twenty, 2 or more normalized or would you expect to be a little bit higher than normal that's going to keep that to keep up that pace.
Great question, Eric and I think this actually gets back to.
The nuance in the prepared remarks so.
We provided guidance.
In Q4, and 19 on the earnings call for 2020 pre pandemic, we had called out a $20 million headwind on wage rate inflation that we were expecting on a go forward basis, but statutory increases and the like and so that was already in our $5.30 to 5 sustainability.
<unk> EBITDA baseline that when we announced it.
This $20 million in base rate increases that have been identified during this past quarter is incremental to that $20 million. So in total it's about a $40 million increase against 2019.
And that should be all in with what we know about today.
And as part of our projections as we move into 2022.
Clearly I think if things change as time goes along we'll adapt to that.
But this is where we are working on our productivity initiatives through our transformation plan.
We've talked about our park you have the labor initiatives, where.
We'll be looking at artificial intelligence.
It needs to do programmatic staffing of our labor needs in the box that actually comes online.
So there is from that should unlock some some improvements on the productivity levels that are baked into our factories a thousand 60 adjusted baseline.
But I hope that answers your question.
Yes.
Sunday.
But if I can add on I think Eric Sandeep absolutely gave.
Gave you the apps the right information, but I think from a future focus.
Is that $20 million incremental but I think the key is to focus on is this gets back to transformation the capability we're building the per.
Platforms. The capability, we're building will allow us to continue to operate more efficiently and pivot that labor into the guest centric culture and make it faster and easier for the guest and as we said in the last call. We've said, we're going to have a very sharp eye.
On where the Costco.
With the returns of those costs in terms of building recruitment retention and per caps and that's what we're doing as a team we're being very focused and we think about our returns and our operating expense ratios and any cost investments which includes labor.
Perfect and then just last question.
<unk>.
Great.
In park spending cap levels on whenever that youre doing with mobile dining and kiosks et cetera can you give us a sense of how much of the gains you're seeing or.
Higher purchase frequency larger baskets versus just absolute price increases on the strategy.
So.
Really good question.
I think it's 1 of these things work.
Directionally like I said in the answer to David earlier.
This is exactly what we were expecting to see because if our revenue management initiatives.
And on all of them are there is a pricing element.
But there's also an execution that went from transformation.
And so I think.
Well, we see that.
Continuing to to be impactful as we go forward.
But we are in a situation between stimulus payments.
A number of other factors per consumer discretionary spending has been elevated in the second quarter. So so we do see this actually tapering.
As we move into the back half, but we still see a lot of strength in our in park services per capita spend.
Got it thank you.
Okay.
Our next question.
Your line.
Macquarie.
Yes.
Yes.
Congratulations on the quarter guys and thanks, so much for taking my question.
Thank you.
The first item I wanted to ask about was the lower advertising costs.
Called out.
As a source of savings in the quarter I was wondering if you could give me some color around whether that was just from.
Advertising efficiencies and.
Platforms, whether it's CRM or otherwise or if that was intense.
Intentional just around labor constraints, and what the footprint could support as far as demand.
Yeah, I think probably talked about this on the last call as well Paul.
Like I said, we were standing ready to deploy media dollars as demand basically came came down came in and and so we actually I started accelerating investments in advertising as we got deeper into the quarter. So most of the savings have come from earlier in the quarter, where we were still waiting for the signs of demand actually manifesting to the.
The levels at which we would get the.
The returns on the media, but I think this goes back to our transformation initiatives.
On media spend and media on line.
We see tremendous value that we can generate by making sure that.
The targeted media investments that we're making by channel.
And by park and by DMA.
Have returns that we can actually get by being much more strategic in the maybe redeploy that spend so going forward. We continue to expect to invest meeting advertising dollars, especially given what Mike talked about on the attendance trends.
And.
I'll, just remind you we talked about 4% to 5% growth.
3% to 4% historically, we fully believe in this we believe that this will actually drive tremendous brand equity and brand strength over time and the purpose of media is it's twofold, 1 is share of voice.
I think our brand basically has to be top of mind to guests and we want to make sure that would be.
Relative to do that and then there's also the actual driver of incremental sales that'd be 1 that incremental demand that they can drive from that so.
So that's.
A high level.
It would be taking this.
Thanks, so much for that Sandeep and then just a quick follow up on single day I was wondering if you could give.
Any color on on.
That dynamic as it continues to unfold as this strategic.
The strategic pricing.
Intelligence that you're deploying to drive this momentum and single day his spontaneity of the of the guest.
Uncertainty around our continued reopening how should we think.
Think about.
The impetus behind the single day momentum.
Yeah, Paul I think that's a great question and I think I'll go back to a point I made earlier, which is.
Our focus was on driving unique attendance and so were agnostic to whether the attendance comes from single day tickets for the active pass base.
Pass holders all of our members.
And I think what we have been doing has been very strategically focused on pricing and the right value for all of the different ticket types and allowing the guest to make the decision on what type of product to want to buy and I think what has been shown is that on a single day tickets, perhaps we hadn't.
It's even gotten to the right price value equation to drive as much momentum as we were looking for but that momentum has actually been coming through as we've gone through the past year.
And we're really happy to see that but I think equally happy to see is the is the momentum that's building on the active pass base, which shows that our revenue management strategy is working very.
Well, because we're attracting guests of all cohorts into our unique attendance growth.
Yeah.
Great. Thanks, so much for them.
Welcome.
And your last question comes from the line of Brett Andress with Keybanc.
Hey, good morning.
So.
Back to your answer to James's question on July.
Seems like we're flirting with 2019 levels.
But I guess, you still have capacity constraints in Mexico, and Canada. So if you exclude that is it is it safe to say that.
We're above 2019 in the domestic business.
And then more specifically.
Specifically have you seen any discernible impacts from delta in the most recent days.
Hey, Brad How're you doing.
So let me let me start with your latter point.
First of all on Delta around the Delta variant.
So first of all we have been seeing very strong demand post July 4th as I already stated.
And we expect high demand for Fright Fest and holiday in the park bounce here based on what we're hearing from our guests.
Second as far as Delta, we will comply with all local.
Requirements and we've been collaboratively working with local health officials ensure we provide our guests and our team members a safe and fund product.
Matter of fact, we have already started discussions with local officials prior to yesterdays CDC announcement.
Because we've been staying very close to our infectious disease.
Doctor consult them. So I think any and again this is really as we do this or anything else, it's going to be very much about guests centricity culture, modernizing the guest experience and creating a really great experience for fright Fest as we move forward.
As far as your other question I think.
Gave plenty of color to James on it.
And.
Like I said, what what ill say again is that we've seen very strong demand post the fourth we were seeing groups sales coming back still has room to go and.
We will continue to provide more transparency as we just get through the third quarter.
Got it fair enough and then just on the guest experience I think we talked about earlier and then also your mix to higher single day tickets do you think any negative experiences. This summer could impact future periods, maybe particularly for people showing up for the first time I mean have you seen any evidence of <unk>.
<unk> visits or anything like that falling off.
Just curious on the knock on effects. If there is any to that with the guest experience.
Yeah. Good question again, as I said before.
It is a challenging operating environment.
We have seen per.
Soon as I've been out in the park we have.
A lot of guests are just so appreciative. We are operating we are open and they get it in the broader society.
We also know we can do better as I said, we've had a tight labor market we've seen some.
Up and downs with some of the supply chain and as I said it only has made us more focused.
On pivoting to a guest centric culture.
What we know is is people don't like to wait in line to long we've seen that before the pandemic we're seeing it.
Post the pandemic and that's our focus is reducing the lines, making it easier and faster for our gas modernizing that experience.
Technology.
The 1 thing, which David asked too if you think about it which we started during the pandemic our entry in the park is now completely contactless will continue that from the minute you get on the website all the way through getting through the evolve contactless security all the way to activating season.
With Tech, we've gone contactless and we will continue to accelerate that to make the experience better to get guests in the park faster.
Okay. Thank you.
And there are no further question that day.
Thank you for your continued support 6 flags is truly the preferred regional destination for entertainment, creating fun thrilling memories for all take care and we hope to see you at our parks for Fright Fest.
Ladies.
Okay.
Uh huh.
Okay.
You may now disconnect.
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