Q2 2022 Cedar Fair LP Earnings Call
More detail, let me share some additional thoughts on Cedar fair and why we're so excited about the remainder of 2022 season and beyond.
As we work to get back to pre pandemic levels, we sharpened our focus to ensure we are meeting or exceeding our most important business objectives, it's especially rewarding to see how the decisions. We've made the capital we've invested and the initiatives. We have deployed over the last few years have resulted in better experiences for our guests.
And better results for all Cedar Fair unit holders.
The breadth and scale of our properties continued to lead the industry.
Our extensive offering of unique high quality dining options and premium experiences are being wholly embraced by our guests.
In our resort properties remained popular destinations for the family Staycation, which appears to be.
Which appears to be in full swing once again in 2022.
Okay.
While it's rewarding to see our revenue channels performing well equally pleased with how our park Gms have responded to the additional challenge of managing costs in such an inflationary environment labor.
Labor costs are more than half of our operating cost structure. So driving EBITDA growth requires a more efficient utilization of labor something our teams have successfully executed against this year.
I'll wrap up my opening remarks with a few comments about our recent real estate transaction just after the close of the second quarter. We sold approximately 117 acres of land located in Santa Clara, California, The land upon which our Great America Park is located was sold for approximately $2.
$7 million per acre, a significant premium compared to our cost to purchase the land three years ago.
While a difficult decision.
Selling the land at Great America was a generational opportunity to capitalize on a very attractive real estate market. While at the same time, allowing us to continue to operate the part for the foreseeable future.
The monetization of our real estate also enables us to strategically accelerate our capital allocation priorities returning.
Returning capital to all unit holders and making Cedar fair much stronger company going forward.
I'll pause here, so that Brian can review, our financial results in more detail Brian .
Thanks, Richard and good morning, everyone I'll start by discussing our second quarter operating results before providing an overview of preliminary results through July 31.
Wrap up my remarks, with an update on our balance sheet and free cash flow outlook, but first I need to remind everyone that because of the impact of the pandemic on park operations in 2020 in 2021, there was a lack of meaningful data comparisons for the second quarter of this year to the second quarter of the last two years, which is why we have used comparisons to 2019 and <unk>.
During the quarter, our parks had 708 total operating days compared with 726 total operating days in the second quarter of 2019.
708 operating days in the most recently completed quarter included 96 days at our two Schlitterbahn water parks, which we acquired on July one 2019.
Excluding the Schlitterbahn parks second quarter operating days at our legacy properties decreased 114 days compared to the second quarter of 2019 due to a four day calendar shift and the planned removal of certain early season operating days at several of our parks.
In the second quarter, we entertained $7 8 million guests and generated net revenues of $509 million, representing a 17% or $73 million increase compared to the second quarter of 2019.
The record net revenue was primarily driven by a 26% increase in in park per capita spending and a 21% increase in out of park revenues as well as the inclusion of the Schlitterbahn parks in this year's second quarter.
These increases were offset in part by an 8% decline in attendance during the recently completed quarter.
The decline in second quarter attendance was the result of fewer operating days at our legacy parks and expected slower recovery within the group sales channel and the strategic elimination of several low value ticket programs as we use the disruption of the pandemic as an opportunity to review all aspects of our business model.
Despite these headwinds attendance per operating day in the second quarter. The legacy parks was approximately 12100 guests up 3% versus the comparable period in 2019.
Reflecting the impact of strong demand within the season pass channel in the quarter season pass visits represented 62% of our attendance mix, which compares to 56% during the second quarter of 2019.
Meanwhile, as Richard noted, our pricing strategies and initiatives to enhance the guest experience continue to resonate and drive guest spending resulting in in in park per capita in the quarter of $59 52.
Compared to $47 22 in the second quarter of 2019, we are extremely pleased with the stickiness and sustained momentum in per caps, particularly coming off the second half performance last year. When we achieved a step function improvement in guest spending from pre pandemic levels.
The per capita increase reflects higher levels of guest spending across all key revenue categories on which we are keenly focused.
In the quarter admissions per capita increased to $32 27.
Up 20% from the second quarter of 2019, while combined spending on food and beverage merchandising games, an extra charge attractions increased to $27 25.
Up 35% from 2019 levels the.
The improved levels of in park guest spending were driven by an increase in transaction counts as well as higher average value per transaction.
The increase in admissions per cap was the realization of both higher pricing and better yield management, resulting from our strategic pricing efforts.
We've invested in delivering great experiences to our guests we have been able to effectively increase admission pricing without negatively impacting demand. The increase in single day ticket prices has also amplified the value represented by our season passes contributing to the record number of passes sold this year.
Out of park revenues in the quarter increased to $60 million compared to $49 million in the second quarter of 2019, the increase reflects higher online customer transaction fees and increased revenues from our resort properties, most notably from the inclusion of the resort at Schlitterbahn, New Braunfels and revenue growth at our Cedar.
Point resorts.
The improvement in the performance of our resort properties reflects the value of the investments. We've made in recent years to refresh and expand that side of our business and is even more impressive considering our castaway Bay in saw Mill Creek properties did not reopen until late in the second quarter.
Moving onto the cost front operating costs and expenses in the second quarter increased to $347 million up.
Up $70 million compared with the second quarter of 2019.
The increase was the result of a $9 million increase in cost of goods sold a $55 million increase in operating expenses and a $6 million increase in SG&A expense.
<unk> displayed despite inflationary cost pressures cost of goods sold as a percentage of food merchandise and games revenue only increased 128 basis points from 2019 levels. The.
The increase in operating costs was largely attributable to an increase in seasonal labor costs driven by higher rates.
Higher full time wages, primarily related to planned increases in head count at select parks.
And the inclusion of the operations of the Schlitterbahn parks.
Looking at more recent comparisons our average seasonal labor rate in the second quarter was only up 3% over the second quarter of 2021, reflecting the successful efforts to revamp our seasonal pay structure last year.
The increase in the most recent quarter's SG&A expense was primarily due to an increase in full time wages, including higher incentive plan expense as well as higher transaction fees driven in part by this year's initiative to convert all of our properties to cashless.
These increases were somewhat offset by a reduction in advertising costs. The result of a strategic pivot to more efficient and flexible digital advertising.
Adjusted EBITDA for the quarter, which management believes is a meaningful measure of the Companys park level operating results totaled $171 million representing.
An increase of $7 million or 5% compared with the second quarter of 2019.
Shifting the focus to our preliminary results for the last five weeks and operating trends for the first seven months of the year over the past five weeks, our parks have entertained $6 1 million guests and generated $421 million of net revenues.
Based on preliminary results for the five week period, which had 524 total operating days in park per capita spending was a record $62 80.
And out of park revenue revenues totaled a record $48 million.
For the comparable five week period in 2021, which had 471 total operating days.
Net revenues totaled $354 million, reflecting attendance of $5 2 million guests.
In Park per capita spending of $61 99.
And out of park revenues of $41 million.
The July attendance trends are consistent with what we've seen over the first half of the year with much of the variance again due to the expected slower recovery of the group channel and the elimination of certain ticket programs in any short window attendants can also be impacted by macro factors such as extreme heat or rainy weekends, however, broadly speak.
In July demand remained in line with expectations.
Based on our preliminary July results through the first seven months of the year, we've entertained $15 4 million guests and generated net revenues of one point over $3 billion, representing an increase of 17% or $152 million compared to the first seven months of 2019.
Over this seven month period same seven month period in Park per capita spending was a record $60 76.
Up 25% from 2019 levels in out of park revenues totaled a record $125 million.
Up $20 million or 19% from the same period in 2019.
For reference operating days for the first seven months of 2022, and 2029 totaled 1362 days in 1352 days respectively.
After we released our interim updates for the Memorial day and July 4th weekend. Some investors ask why do we reduce the number of operating days for 2022.
Let me assure you our decision to do so was purposeful and strategic.
While labor availability has improved it remains challenging more so in certain markets are adjustments to the park operating calendars reflect those challenges channeling demand into fewer operating days not only improves labor utilization and reduces operating costs, but it also enhances the guest experience will continue to adjust.
Operating calendars as necessary, both adding and reducing days when appropriate.
As park calendars currently stand we project the balance of the season, we will have approximately 80 additional days compared to the same period in 2019, driven in large part by the later timing of Labor day. This year. These.
These incremental operating days provide us with an opportunity to recoup a meaningful portion of the early season attendance variance.
As our park teams remained focused on driving demand and maximizing operating efficiencies access to market intelligence and better analytics and form when it's beneficial to adjust the operating calendars. It's just one example of how our company is now using data and analytics to be smarter and more proactive and decision making to drive value creation.
Now turning to our balance sheet as Richard mentioned for the 2022 season, we established a new record high for season pass sales.
Through the end of July total sales were $3 2 million units, while sales of related all season products, including all season dining and all season beverage, where 56% ahead of the previous sales record for add on products.
These record results combined with strong resort bookings drove deferred revenues to $307 million at the end of the second quarter, representing an increase of $73 million or 31% from the end of the first quarter of 2022, and an increase of $15 million or 5% when compared to deferred revenues.
At the end of the second quarter of 2021.
As of the end of the quarter <unk> balance sheet is in solid financial condition, we had cash on hand of $125 million and $194 million available under our revolving credit facility net of $16 million of letters of credit.
Representing total liquidity at the end of the quarter of $319 million.
This compares to $284 million of total liquidity at the end of the first quarter.
Net debt at the end of the second quarter totaled $2 5 billion calculated as total debt of $2 6 billion less cash and cash equivalents of $125 million.
None of these figures reflects the proceeds from the sale of our California real estate, if that transaction did not close until the first week of the third quarter.
During the second quarter, we spent $62 million on capital investments, bringing the total spend on capex for the first half of the year to $96 million.
Looking ahead to the full year, we anticipate spending 160 to 170 <unk>.
$75 million on core Capex in 2022, with another $40 million of investments on resort renovations, including the recently reopened Castaway Bay and sawmill Creek resort properties at Cedar point.
The projected total investment for 2022 is comparable to our planned capital program of $200 million for the upcoming 2023 season.
With that I'll turn the call back over to Richard to share some final thoughts.
Thanks, Brian .
I want to take a few minutes to discuss our updated capital allocation strategy, which we announced earlier this morning.
<unk>, Italy, our priorities remain the same that is we intend to invest in Cedar Fair's core business strengthen the balance sheet and return capital to unitholders. The difference now is we have all the levers available to us and we can adjust our emphasis on each of these elements as market conditions evolve.
Certainly the headline of today's announcement is the reinstatement of the quarterly cash distribution, reflecting an annualized rate of $1 20 per unit or approximately one third of our pre pandemic distribution rates for <unk>.
<unk> of the distribution reflects our board's confidence, but cedar fairs business outlook is strong and its financial position is stable and improving.
Setting aside the disruption of the pandemic Cedar Fair has a proven long term track record of successfully balancing with capital allocation needs of the business to support an attractive reliable and steadily growing distributions a priority on which we remain laser focused.
Today, we also expanded our ability to return capital to unitholders with the board's authorization of a $250 million unit.
Unit repurchase plan, which further strengthens our capital return policy.
When combined with a growing and sustainable quarterly distribution, we believe opportunistic well timed unit repurchases will serve as a very effective means to enhance total return over time.
This is especially true at current price levels, we believe units of Cedar fair represent a very attractive investment opportunity.
The current unit price does not reflect the underlying value of the business as demonstrated by Cedar Fair's rapid recovery since the pandemic, including the company stronger balance sheet and the record results we delivered since reopening the park last season.
Moreover, the company's current market valuation does not reflect the value of long lead indicators, nor the consistent growth and sustainability of our recurring revenue streams, such as season pass sales, which continually which continue to substantially outpace pre pandemic levels and position us well to post a.
Other record performance in 2022.
Cedar Fair's generation of significant free cash flow as the primary strength of our business model and fuels, our capital allocation strategy, including our priorities of paying down debt and reinvesting in our properties to drive growth and value creation.
Our commitment to investing in the guest experience improve the pace of our recovery and is the primary driver of the record levels of in park guest spending and out of park revenues. We've achieved this year.
As I previously mentioned, thanks to our outstanding performance over the past 12 months and disciplined approach to cash management, we greatly strengthened the company's balance sheet.
Based on our outlook for the full year, we're on pace to finish this year with a net leverage ratio well inside four times, adjusted EBITDA and approaching pre pandemic levels.
Achieving that milestone will give us added flexibility to default to deploy free cash flow, whether investing in capital projects with compelling returns.
Increase in our distribution over time or buying back equity when we believe it is undervalued.
Along with our board our management team remains focused on driving growth and delivering upon our commitment of creating value for our unit holders.
Finally, while we are proud of what we've accomplished so far this year by no means are we resting on our laurels next Thursday, we will be unveiling our 2023 capital investment program sharing with our guests communities and associates, a first look at what exciting new rides attractions and immersive entertainment are coming to our.
Parks and resort properties, some of which are already under construction.
While continuously improving our properties is a cedar fair tradition, we also never lose sight of what matters, most making people happy.
Having emerged from the pandemic and more flexible more flexible as a business and more cohesive as a team we're thrilled to be in a position to continue to fully deliver on that purpose.
But at the end of our prepared remarks, please open the call for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Okay.
Okay.
Your first question comes from the line of Steven Your line is open.
Yeah, Hey, guys good morning.
So.
I wanted to dig into the change in capital allocation here, a little bit more just look I understand your business. It seems like it's been a pretty good spot at this point.
But I guess the.
The question's going to be more of I'm trying to understand why you decided to put the buyback in there or why the board decided to put the buyback in there now versus.
Maybe going down the path of the newly higher.
Higher distribution.
Good morning, Steve Great question. Thank you.
We think as I said in my prepared remarks, both the board and our management team Bill Cedar Fair represents a really attractive invest.
Investment opportunity.
And as we've looked at it we think there is ability to boost our total return over time.
The distribution has always been the core focus of our company and certainly with our MLP entity structure been very tax efficient way to return capital, but we also believe when there are dislocations in what we believe the market values of our company yet that we've got an opportunity to Opportunistically go in.
And and buy units at a really attractive valuation level that will improve the return to all of our unitholders over time.
Okay, great. Thanks, Thanks, Rick really appreciate that.
Then I'm going to ask Brian I know you got into this a little bit in your prepared remarks, but I wanted to ask you about July .
I guess it would be kind of back into the the attendance number it looks like there was a drop of let's say kind of upper single digits relative to 2019 and look I understand there are obviously are shifts in the calendar shifts and the operating days.
But I guess the real question here I'm, just trying to figure out how material. It is.
Taking away those low value ticket programs and at the same time.
On the group side of things I'm, just trying to figure out.
What the real kind of year over year.
Things in July really looks like.
That kind of makes sense.
Yes, Steve.
I'll try and hit that and you can tell me if I haven't answered it directly but.
As I said in my prepared remarks, I would characterize a July as.
Generally consistent with the results we've seen through the first six months of the year.
The the the <unk>.
Hi points are certainly the stickiness and sustained momentum that we're seeing in guest spending levels.
While.
The law of big numbers kicks in and maybe on a percentage July is pared back a little bit.
Per cap growth more towards 24% versus 26 ish percent.
In Q2, that's in terms of absolute dollars, we're still seeing very consistent trends in guest spending out of park revenues very strong and then on the attendance perspective as I said short periods like a five week period, often have macro factor of effects that you have to take into account a lot of.
Record temperatures on the East coast hurt us from time to time it at the parks, there a little bit of rain, but broadly speaking.
The demand trends have been consistent with our expectation and the delta to 2019 levels.
Tie back to your point group is still a bit disconnected, but that was expected coming into the year and we knew that was going to take a couple of years to fully recover and the unplugging of those programs is a strategic decision that we made there are some very low margin legacy ticket programs that we felt had.
Less value and using the pandemic as an opportunity to hit the reset button, if you will and.
And push us forward on a better path, we thought that was the right direction to to go.
What I would add is as you look at the health of July I think the other <unk>.
Metric that we look very closely at is some of those longer lead indicators.
Hotel bookings continue to pace significantly ahead of 2019 levels.
During the month of July much like we saw over the first half of the year and season pass sales as well we saw a season pass sales for the five week period compared to 19 up more than 50%.
Which is a better indicator to us of where the consumer is where the health of the business is and maybe strips out some of those those macro short term factors that I just mentioned.
Okay got you. Thanks, rich thanks, Brian really appreciate the color.
Okay.
Your next question comes from the line of James Hardiman. Your line is open.
Yeah.
Hey, good morning, Thanks for taking my call. So.
I wanted to pick up pick up.
Maybe you left off there, Brian when you talk sort of macro factors.
No that youre talking to a lot of ways sort of short term maybe weather related things.
What I'm trying to figure out.
What impact if any of the sort.
Macroeconomic environment is having on the consumer.
Sort of an open ended question I'm curious what consumer.
Or how how youre able to sort of slice and dice the trends of the consumer obviously gas prices have been a big concern or are you seeing delta between short distance versus long distance.
Are there particular parks or geographies that are that are doing better than others.
And then low end versus high end sort of open ended based on whatever data you guys might have available to you.
Yes, James certainly something that we're very focused on as as everyone else is as we analyze the data that we have to date and it's difficult sometimes mid season to reach definitive conclusions until you have the the totality of the year and you sort of strip.
Some of the timing.
<unk>.
That may exist mid season or in these interim periods, we are not seeing anything at this point.
That's meaningful in terms of that debt down ship. We are certainly focused on looking at aspects of our business, where maybe we might see.
A pullback in the behavior of the lower end consumer so as we look at our accommodations.
Group.
Looking at the Express hotel as an example, booking the booking curve there versus the sawmill Creek and the Breakers Hotel.
That sometimes would show as the discount hotel, maybe a little bit of pullback sooner, we're not seeing that yet and as I mentioned. The per capita spending is still a very strong as are those other long lead indicators guests are continuing to migrate up to our most expensive ticket, which is the season pass as Richard said and I commented.
Our record sales for 2022 extremely encouraging and we have not seen that slowing down as I just mentioned.
Steve's question that only accelerated on a percentage basis through the month of July leading up to the final breakpoint before we shift here. This week actually into our 2023 sales cycle at some of the parks James Good morning, Richard Let me jump in here and emphasize what Brian just talked about as I look at the health, it's really the long.
Long lead indicators and how they relate to our approach to the business that loyal customer base. When we came into the year. We knew we were carrying over.
Season pass privileges with knobs through early May in Canada through the summer. The fact that <unk> had a record season passenger in spite of that in Canada has been extremely strong and their performance and their sales of season passes when I look at some of the comparable industries that are out there, notably the ski resorts <unk>.
To sell more season passes up more than 20% I don't want to step over that at higher prices. We continue to see a migration of our most loyal customers up the scale to season pass where they it's our most expensive ticket, but they see the most value that's really really healthy for our business not just in the month of.
Of July , but as I think about the longer term trends and how we build our revenue model going forward.
Really encouraged by that by the choices that our consumers are making.
Got it and then.
Sort of a follow up here.
<unk>.
It sounds like Youre generally pleased with where we are certainly versus 2019, you seem to make growth.
I think the EBITDA numbers may have come in a little bit light of Av.
Where the street was.
I guess I'm curious if that was also.
Where you thought you would be three months ago.
How is this compared and then sort of connect that to the distribution question.
What about the fact that this is a third of.
The pre pandemic distribution despite.
EBITDA is going to come in better than it was.
In 2019, right and so you guys. Obviously you guys were back then.
Walk us through sort of a change in thinking clearly you weren't getting credit for it it didn't seem like in 2019, but maybe walk us through the thinking and then how that connects to the performance.
Yes, James this is.
Richard again.
We've been very clear laying out our priorities on the capital allocation front, we've said our net debt target of getting down to about two point.
As we evaluate what we what we saw the whole of this year.
We looked back and increasingly and we've seen this over the last several years pre pandemic, we're becoming more back half.
Heavy in terms of our results that really reflects the strength of July and August the huge appeal of our Halloween event in the revenues, we generate in October , but increasingly they're losing revenues and the EBITDA. We can generate in November and December along with season pass sales.
With our winter Fest event so.
Back half heavy.
And as I've said in my prepared remarks more than 80% of our EBITDA driven in the last six months, we think that trend continues so as we look at it we're about where we thought we'd be again.
Again season pass the $73 million increase in deferred revenue is notable it's significant so as we look at the back half of the year and beyond we've got an opportunity now to to a higher base of season pass holders to renew.
And as we start building our plans for 'twenty three with the capital we will announce next week, we're really excited about the demand. We think we can drive in the health of the business.
Ill turn it all the way through we think Theres an opportunity to take a balanced view of capital allocation make sure we invest enough to keep the business healthy start at a rate where we can grow the distribution and reward all of our unit holders, but also take advantage of what as I said earlier with the market gives us we're not really getting credit for the distribution or.
Credit for the free cash flow, we're generating over time, which has been the strength of our both our approach to the business and the strength of our business model. So.
We myself and the board like having all the levers available to us and we just thought it was prudent to have some flexibility in how we return capital to unitholders.
Okay.
Makes a lot of sense. Thanks, guys.
Thanks James.
Your next question comes from the line of Ben Chaiken. Your line is open.
Okay.
Hey, How's it going.
Just to clarify kind of some of the earlier discussion so group and the removal of the lower end ticket programs that sounds something new in July is it. So does that just kind of isolate weather.
Or are those lower end ticket programs you mentioned in group kind of a larger portion of the mix in.
In the last five or six weeks I guess, what I'm getting at is like why wouldn't those changes, which I think we're already at play have impacted the year to date period in the same way.
Because I think the last Steve was kind of alluding to I think the last five or six weeks on attendance are down about 9% versus 19.
And then I guess part two of that is <unk>.
You're kind of suggesting that trend in the last five or six weeks are in line with what you'd expect and in line with one eight so.
I guess are you.
Should we expect the back half of the year to be down nine on attendance.
Thanks.
Sure Ben it's Brian .
No. So as we think about the first part of your question.
Group.
And those lower value ticket programs I wouldn't say that they are.
Over index in July any more than the first half of the year.
The just to put it into perspective, a little bit group.
Has been.
Proving slowly the gap to 2019 has been closing, but generally speaking it's still been down about a third from pre pandemic levels and as you can appreciate that's a tough channel to make up inside a year because a lot of times. Those those groups are very date specific or.
Or period of year specifics, So think youth in school and the spring once you Miss that you've missed it you don't get a chance to make it up until next year those lower value ticket programs are sort of spread throughout.
Throughout the season.
As I said earlier anytime you look at a short window of time.
You can you can create some comparability anomalies.
It is better to look at.
The totality of the year and I think Steve called it out in his update announced this morning that you really to have a good feel for how 2022 is trending yes, im going to almost have to look at the second and third quarters are collectively on a combined basis to sort of see how those calendar shifts.
End up playing out once that later labor day plays and the comment earlier about in line with expectation.
Our own analysis as to how much we thought the weather may have impacted the five week period as well as you can appreciate we we go through a lot of analysis around demand trends in the various channels and try and estimate what we think the impact of macro factors like weather or on a rainy weekend or during a heatwave.
<unk>.
And so that was the.
Included in sort of the Genesis of that comment.
Okay. That's helpful from I guess from moving all else equal moving forward do you think so from August .
August onwards through the end of the season is it a fair expectation that attendance would be up versus <unk> 19, excluding weather or are there things we need to keep an eye out for whether it's group or <unk>.
Or the low end ticket that would skew things.
One way.
I'm just trying to level set.
Sure well, we're not going to provide guidance, but I do think that you will still see some headwinds from group.
And we fully expect that and we will see still.
Still some of those ticketing those lower value ticketing programs that have yet to happen.
<unk>.
We're going to continue to unplug, those we're not changing our strategy around that so there still can be some headwind I think what's most encouraging though as Richard said when you look at the long lead indicator and you think about record number of season passes record.
The amount of deferred revenue on the books.
And then think about 80, approximately 80 incremental operating days from here forward. That's that's a very compelling.
Set of facts that can can lead towards as I said in my prepared remarks, a meaningful pickup from from of the variance that we've seen year to date.
Okay. That's helpful. Yeah, just trying to see how those things translate into attendant to EBITDA, but.
I appreciate it thank you very much.
Thanks Brent.
Your next question comes from the line of Mike Swartz. Your line is open.
Hey, good morning, guys.
Maybe just to start with the distribution.
Understanding it's about a third of what it was prior to the pandemic.
Obviously, giving you some flexibility there, but maybe how do we think about the growth in the distribution longer term should we just be thinking about the growth kind of in line with anticipated EBITDA growth over the next several years or.
Should we expect that to grow a little faster in the near term.
Steve Good question I understand the question, but as we think about it we constantly review with the board kind of our outlook for the next few years will go through our planning process, not just establishing twenty-three budgets, but looking at our long range models.
I'll go back to that flexibility that we talked about we've got capital allocation priorities that we want to hit.
The use of the cash much like you saw back in.
2010, 2011 2012, the last time that we that the distribution was was disrupted and then we put it back in as we saw growth we were able to grow that significantly over time, we do understand how important the distribution is to our unit holders.
And that is how.
The tax advantage nature of our entity structure makes it really attractive for those who are long term unitholders. So as we think about that we're not going to give guidance on it but I will tell you that.
It weighs heavily in our discussions about how to return capital to unitholders and make sure that we don't sacrifice.
The opportunity to invest in our core business and go cheap growth, which ultimately is how we'll both sustain the distribution.
But grow it over time.
Okay. Thank you that's helpful and then maybe on the on the sale of the California property can you give us a little more color what was driving that decision.
Help us think about or are there additional costs that you lease costs that we should be thinking about.
Model out the rest of the year and beyond.
Okay.
Good question, Mike and as I look at it. This really was as I said in my prepared remarks, a once in a generation opportunity as we've all seen the real estate market is extremely strong and healthy Silicon Valley has its own dynamics in play. This was really an opportunity for us to take a look at where we've got capital invested.
How we deploy that capital still gives us an opportunity to to both do other things with the capital that we generate from the sale.
<unk>, which we've talked about this morning, but also as we think about that market.
Get to continue to operate that property for a number of years maintain our relationship with the community and maintain our relationship with our customers. So we just thought that it was very unique moment in time in terms of real estate values within Silicon Valley.
And that when you think about.
What we could generate and gave us more flexibility on capital deployment, both in the moment and going forward, Brian you want to take the comment about lease yes, Mike in terms of.
Impact to the business this gets back to <unk>.
Scenario, where much like it was prior to our acquiring the land in 2019 will now be making a lease.
Our rent payment for that land going forward on a full year basis, it will be somewhere in the $12 million to $13 million a year, but as we think about great America in.
The trajectory for growth for that park. The EBITDA has been throwing off we still see that property is being cash flow accretive even after lease payments.
Okay. That's very helpful. Thank you guys.
Thanks, Mike.
Yes.
Your next question comes from the line of Chris.
Your line is open.
Hey, good morning, guys I appreciate all the all the details so far.
I was hoping we could we could revisit the comments about the.
Shifts in the operating days that you have planned I guess, partially on account of labor challenges can you give us a little more color on it.
Is that a specific geography and also does it make you think about.
More permanent changes to park operating hours or the way you stopped outlets or things like that right, you've seen restaurants, close dining rooms, and things like that and just trying to get a sense for whether there is a longer term.
Aspect, we need to think about here.
Okay, Brian Yes.
Chris in terms of the changes to this to this point.
As I mentioned in my prepared remarks the motor.
Motivating factor the biggest motivating factor behind that was some challenges around staffing.
Certainly is not a broad issue across the company and it was more largely confined to some of our smaller.
Mid tier properties.
In the early season and that has always been a challenge or more challenging I should say to find staffing in the shoulder periods of the year right spring fall when we lose access to a lot of the.
The high school and college age folks that our associates.
So I would say as we think forward our focus isn't on.
On making adjustments and relinquishing operating days and just.
Taking it as it's as it's as it happened this year, but really focused on on writing the.
Staffing model, it's part of what's been a motivating factor behind you may recall us talking about over the last year.
Year or so in certain markets, a little bit of a pivot away from.
More seasonal positions to more year round part time.
Or full time positions.
Positions in the company that drove a little bit of some of our operating cost increase that we've talked about the last couple of quarters, but it really at those smaller mid tier parks is going to help us going forward with ensuring that we don't have to take days out of the operating season during those shoulder periods.
Okay. That's helpful. Thanks, Brian .
As a follow up you've talked about where people upgrading to the <unk>.
Season pass, which is your highest priced offering.
Which is which is great when they go into the park are you seeing them generate the same level of ancillary spend.
It would have if they were on a.
Lower price point pass.
Good question Chris.
We look at it we continue to see the same behavior in terms of in park spending that we would expect to see from our season pass holders, whether there are new people that have upgraded or potentially they were one day tickets before when you look at the health up more than 50% in our add on all season dining all season beverage we.
To see healthy spend from both one day, our unique visitors the one day ticket purchases and the season pass holders. So we're encouraged.
I'd go back to our capital program this year.
Let me elevate back up and say, we made a significant investment in a number of facilities would put culinary talent throughout our system and we're reaping the benefits of that so we're seeing higher average transaction values and we're seeing an increased number of transactions.
And we monitor that daily and weekly so we're really diving into the data to make sure that we understand how we're driving but coming into the year. There was a lot of question about the stickiness of the per caps and I think what we're seeing even with even with <unk>.
Season pass holder percentage go into 62% were showing that we can drive the in park spending even at higher season pass levels I am not sure pre pandemic, we would have thought that but we're seeing that in spades right now.
Okay very helpful. Thanks, Richard.
Thanks, Chris.
Okay.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Our next question comes from Paul Golding.
Line is open.
Okay.
Attendance property days.
You're yielding.
Record per caps I guess.
Are you doing anything to bring group back is as group, maybe even something that.
Worth forcefully, bringing back or just waiting for organic.
And then the flowback and given how well youre yielding on the current product mix I guess, just any thoughts around how we should think about group, especially since I would expect that it is dilutive to the per cap overall.
Thanks, Paul as Richard Let me jump in here as we look towards 'twenty three and beyond we think group can as we saw backend OE dollars nine follow can return to prior levels, we've met Brian I've met.
With our group sales team.
And they're really excited about next year, one of the things Thats unique to group business as we do a lot of youth groups and those are heavily.
Focused on the spring and early summer. So once you missed that part of the calendar, but as we look forward to next year. There are some very encouraging signs in terms of demand through that channel and we're really focused on how to make sure we're ready to tap into that demand and that we can work through with.
Youth organization school systems things like that.
Getting the dates on the calendar and making sure that we've got what we need.
And so would you say that group then serves more of a top of funnel function given the.
This is likely not.
Pricing thats comparable to your single day order your season pass level.
Yes, I think the group, particularly youth groups corporate customers in particular, those catered outings. Those are unique elements, we might absorb some of the folks in that channel through different ticketing channels that they don't come on those days, but what we have found over the course of years, which is why we've opened up so many week days in the spring.
If we can do youth performance days, Matt Physic science, those sorts of Dave.
We found it to be wholly incremental so getting those groups back take us back to the level that we've been at before.
It's just making sure that.
We set the calendar right those get booked well in advance so we're in the process of doing that now so.
We will have a good look at that by the time, we get into the winter months.
Great and then if I could just.
I'll ask a quick one on the <unk>.
Unit buyback program I know that there is.
No particular time limit on that but I was wondering if you could give any color around.
The board of viewing.
Opportunistic timing, given where the market is right now and weather.
We should consider that in terms of our our projections for overall.
Thanks.
Yes.
Paul It's Brian .
I mean, we're not going to.
Do you have any specific nor can we <unk> in terms of what and when we think we're going to.
Buyback units as Richard said during the call.
We believe that we're <unk>.
Units of Cedar Fair trading right now on does not reflect the strength of the business our outlook for growth going forward. So we'll be as aggressive as as we can be.
Given a number of factors for consideration market.
Considerations, our own liquidity considerations as we noted there are competing priorities right now we still do want to continue to pay down debt, but we're generating a lot of free cash flow and this is another lever that we have at our disposal to poll for returning capital to investors when we feel like there's a disconnect in value.
Thanks, Brian .
Thanks, Paul.
Okay.
Yes.
Your next question comes from the line of Ben Chaiken.
Alright, Thank Barton Crockett.
Your line is open.
Hi, I'm sorry.
We can turn to is it right that you guys tend to be.
Yes go ahead.
Okay.
And so part of that then.
So yes.
I wanted to drill down a little bit more on the sustainability question would be for accounts and.
You talked about your transaction.
Prices and per transaction is going up but.
Okay.
For a little bit more on the units versus pricing so.
Are people buying more things exact.
Is that the principal driver of the growth in per caps or is the cost per thing that they are buying or cost per.
Service that they're buying.
How would you describe kind of the unit versus price mix.
And.
Just stepping back I mean, you guys are in the parks every day.
This is a.
We're out of a pandemic lurch.
That maybe is a bit unsustainable or does this really feels sustainable to you.
I think this is one and everybody part embedded in your question is trying to figure out what the consumer is doing now.
Just their help on how the behavior within our parks when we look at this I see this year as yet another year, where we're seeing the fruits of what we've invested in over several years not just this year and we had a heavy emphasis on food and beverage. So to answer your question, we're doing significantly more volume of transactions, because we built higher volume.
<unk> facilities that are serving higher quality food, we haven't so much taken price as much as we've seen the consumer buy up as we give them.
More quality food options at higher prices going up the menu and choosing.
They're choosing the brisket rather than the Burger. So we're seeing that mix shift, which leads to a higher average transaction value, but the sheer volume of transactions. We are doing is way up and that's in part because of the investments. We continue to make we are renovating older facilities to make them higher volume higher quality.
We are building new facilities that are built for speed and ability to really satisfy the dining experience that our guests want so we're going to continue to lean into food and beverage in particular.
I won't I will also say, we've also seen increased merchandise sales and youll see an emphasis on that as we go forward. So the ability to generate in park spend I think continues to be rooted in our ability to service our guests better provide a higher quality experience and.
And have the ability to do more volume.
Okay.
Thanks for that that's helpful.
The share repurchase authorization you guys are a master limited partnership.
That creates some constraints I was wondering if you could just.
Review for Us again.
What youre constraints are as an MLP on your ability to do share repurchase versus allocating.
Excess cash to the dividend per unit.
Yes, Barton it's Brian .
Within the partnership agreement there is a lot of flexibility for the board.
In terms of how excess cash flow is returned to investors. So our MLP structure doesn't really create any any structural barriers.
Are any difference than it would if we were a C corp. So the flexibility is there we haven't.
Richard noted before use this as it as a tool historically the last time was in the early two thousands.
But we certainly.
<unk> see the value in having a another lever for returning capital to investors that is more flexible debt. When we don't believe there is.
Value being given for the distribution, we're paying out rising interest rate environment may be a time, where that would be the case. We have this now as a tool in our tool belt that we can turn on or off a little bit easier than the distribution itself.
Okay.
Helpful. Thank you.
Thanks Bart.
Yeah.
Our final question comes from the line of been shaken your line is open.
Hey, Thanks for letting me squeeze back in here.
With one more I guess.
One part that.
I don't say I'm struggling with.
Just maybe a little bit confusing as revenues are up versus <unk> 19.
But the mix in theory has changed to something Thats, just a lot higher flow through with your per caps up.
20%.
So is the offset just all labor because we look at your margins in <unk> they are below.
2019, and then is there an opportunity to dial back labor until you see signs of group coming back I.
And I guess part two would be I think you said the labors up 3% versus 21, so as we look to the <unk> 'twenty two should we assume that the Opex line.
Maybe like an opex per operating day is.
Is up 3% or would that be the wrong way to look at it.
Yes, Ben it's Brian I'll take the latter part first.
So the 3% increase that we commented on is the average seasonal labor rates so far in 'twenty two versus where we finished 21.
That's being offset significantly by.
Fewer hours in the system not compared to 21 keep in mind again, 'twenty, one was still a disrupted year and Thats what makes a lot of these comparisons hard right. When we try and compared to 21 is really difficult on the cost side to compare because you have significantly less operating days and hours, because we were still shuttered or.
Our operationally constrained due to capacity limitations et cetera in some markets.
And attendance is hard to compare but when you go back to 19, it's difficult because it's a whole different world whether we're looking at the cost structure three years later or we're looking at the level of guest spending three years later.
As we think about costs going forward.
Hours in the system.
Our labor hours in the system compared to 'twenty, one are probably going to get a little bit more comparable.
Than they've been at this points because now forward is probably about as close to an apples to apples basis that we have.
And as I said right is been up we're really pleased about.
Are the decisions, we made last year to structurally change how we approached seasonal labor rate, we took a step function increase it was painful in the moment.
But while others are seeing big lift this year and a lot of different industries, including our own we're seeing very modest rate pressure because of those decisions. We met those difficult decisions, we made last year. So.
So as we look forward there is certainly cost pressure in this inflationary environment not even just strictly labor.
Seeing it in other areas, we mentioned the cost of goods is up a little bit, but we're doing a good job of trying to flatten that curve as best as possible. There is more work to be done or our procurement team our centralized procurement team that we built out over the last.
Year plus.
We're working and they've got their work cut out for them. They came in thinking we were looking to mine savings in and a lot of it is now really just trying to offset headwinds around cost because this is such an inflationary environment.
But we feel good about where we're at it will take a little bit of time.
To continue to improve margin.
And flow through but we think we are on the right path and can get there over the balance of 2022 and into 2023.
Yes, let me just when you say, yes.
I'm sorry.
No no. Please go ahead.
Let me just jump in and say listen our success is rooted in the quality of our guest experience as we keep saying we continue to want to put and make sure. We've got the right amount of labor and the things that our guests value. We're trying to find ways to take the inefficient labor like going cashless out of our system.
We talked to the Gms that and talk to our food beverage seem they tell you and a lot of parks, where we get our hands are a little more labor. We can drive more revenue. So we're trying to be really efficient, but I don't want to step over again back to our most loyal customer is buying the season pass and that 20% increases they value the experience. So as we think about <unk>.
Making sure that we get the renewals.
We want to make sure we're providing the experience that bring them back next year.
Gotcha.
Thank you very much.
There are no further questions at this time, Mr. Zimmerman I'll turn the call back over to you.
Alright, Thank you rich and thanks to everyone for your continued interest in Cedar Fair, we look forward to seeing many of you many of you.
Sidney let Shaun.
Roadshow it enough Arana coming conference next year.
We look forward to keep you apprised of our progress as the summer season winds down until that until then be well.
Thanks again everybody.
Additional questions. Please feel free to contact our Investor Relations Department at 419, 6% to 722 33. Our next performance update will be after labor day, followed by our third quarter earnings report in early November thanks, everyone.
That concludes our call for today.
This concludes today's conference call you may now disconnect.
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