Q3 2022 Cedar Fair LP Earnings Call
[music].
Good morning, My name is Chris and I'll be your conference operator today.
At this time I would like to welcome everyone to the Cedar Fair Entertainment Company in 2022 third quarter earnings call.
All lines have been placed on mute to prevent any background noise. After.
After the Speakers' remarks, there'll be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
I'll now turn it over to Cedar fair.
Thank you, Chris and good morning to everyone. My name is Michael Russell Corporate director of Investor Relations for Cedar Fair.
Welcome to today's earnings call to review, our 2022 third quarter results ended September 25th as well as trends we are seeing through this past Sunday October 30 <unk>.
Earlier. This morning, we distributed via wire service our earnings press release, a copy of which is available under the news tab of our investors website at IR <unk> Dot com on.
On the call with me. This morning are Richard Zimmerman, Cedar Fair's, President and CEO , and Brian Witherow, Our executive Vice President and CFO before.
Before we begin I need to remind you that comments made during this call will include forward looking statements within the meaning of the federal Securities laws. These statements may involve risks and uncertainties that could cause actual results to differ from those described in such.
For a more detailed discussion of these risks you may refer to the company's filings with the SEC and compliance with the SEC's regulation FD. This webcast is being made available to the media and the general public as well as analysts and investors.
Because the webcast is open to all constituents and prior notification has been widely and on the selectively disseminated all content on this call will be considered fully disclosed.
With that I'd like to introduce our CEO Richard Zimmerman Richard.
Thank you Michael and good morning, everyone.
Earlier this morning, we announced record results for the third quarter and for the first 10 months of 2022.
As you all know the third quarter of the year is our biggest and most important quarter and I am extremely proud of what our team accomplished over the last few months and since we reopened our parks, there's no better group of professionals in the business.
Together, we have quickly and effectively address the effects of the pandemic on our business and put Cedar fair back on course to drive significant growth.
Our strong recovery in record performance. This year has allowed us to deliver on our capital allocation priorities of reducing leverage and returning capital to unitholders.
Brian will provide more detail on the state of our balance sheet in just a moment, but I am extremely proud of the fact that we have already reduced net leverage back inside four times adjusted EBITDA in line with pre pandemic levels.
This morning, we also announced that the board has authorized a fourth quarter cash distribution of <unk> 30 cents per limited partner unit, which is in line with our third quarter distribution.
In addition to our quarterly cash distribution, we are returning capital to unitholders through our $250 million unit repurchase program, which was initiated in August in just a few short months, we have repurchased approximately two 8 million units or 5% with Cedar Fair's outstanding <unk>.
At an average at an aggregate cost of approximately $115 million.
We believe that a combination of quarterly cash distribution payments and buying back units is the most effective and value enhancing path to return capital to our unit holders in the current environment and we will continue to execute on our capital return plans as we head into 2023.
Before I turn the call over to Brian to review our financial results in more detail. Let me highlight some of the key measures that underlie our outstanding year to date performance.
First.
We set a record for third quarter net revenues improving on last year's third quarter by 12%.
We established a new high in the third quarter for adjusted EBITDA, beating last year's third quarter performance by 9%.
Third our trailing 12 month adjusted EBITDA at the end of the quarter totaled $537 million, which was 6% better than the adjusted EBITDA of $505 million, we delivered in fiscal 2019.
Fourth preliminary net revenues year to date through October 31, 86, 168 billion a record for the 10 month period, despite attendance remaining below historical levels.
And finally trends in our long lead indicators through October , including our season pass products reservation at our resort properties and group bookings look solid heading into next year.
Looking at more recent results.
Our Halloween and fall events, which kicked off in mid September once again have produced some of our most profitable days of the season, despite ongoing economic uncertainty and mounting financial pressures on consumers.
During the month of October revenues were up approximately 4% to October of last year, driven by higher attendance and continued growth in out of park revenues.
In Park per capita spending during the month remained in line with October of last year. Despite a sizable increase in our season pass mix of this year the.
The strength of our recent results and our excellent top line performance through the first 10 months of the year sets the stage for us to deliver the best year in the company's history.
Most importantly, our year to date results demonstrate our ability to generate record revenues. Despite attendance remaining below pre pandemic levels.
As we've previously noted demand levels. This year have been impacted by a number of factors, including the anticipated slower recovery of our group channel and inclement weather during key periods of the summer season.
Helping offset our demand levels had been the solid trends in guest spending inside our parks as well as at our resorts and adjacent properties.
Guest spending on food and beverage has again led the way validating the significant investments we've made this year and over the past several years to expand and enhance our in park offerings.
The price increases have played a part in delivering per cap growth.
Guest spending reflects the success of our investments to deliver higher quality offerings, and a more efficient manner driving increases in transaction counts and average transaction values.
With more room for improvement, we will continue to invest behind our F&B strategy in the future.
The results from our resort properties, which we consider a differentiator of our business model from others have also helped offset the demand headwinds are.
Our hotels cottages and campgrounds quietly generate steady and reliable cash flow and they play a valuable role in the ecosystem of our parks.
Our resort properties extend the stay of our guests to multiple days create flexibility for our guests to visit our parks multiple times and represent a sticky demand channel for tenants.
We are extremely pleased with the early guest response from our recently completed a resort renovations and believe the renovations currently underway at the Knott's Berry Farm hotel will be a game changer for that property as well.
In spite of the pressures on demand we've dealt with this year, we've remained true to our revenue and yield management approach maintaining the integrity of our pricing structures. Looking ahead. We are optimistic that we can recover a meaningful portion of the shortfall to historical attendance levels as early as next season led in part by the improving momentum.
We are seeing around group bookings with that I would like to turn the call over to Brian to review our financial results in more detail Brian .
Thanks, Richard and good morning, everyone I'll start by discussing our third quarter operating results compared to last year's third quarter before providing an overview of preliminary year to date results through October 30 <unk>.
I'll wrap up my remarks, with an update on our balance sheet and free cash flow outlook.
During the quarter, our parks had 1088 total operating days compared with 988 operating days in the third quarter of 2021.
The increase in operating days reflects the impact of the pandemic on last year's operations and the benefit of a return to a normal operating calendar in 2022.
As Richard mentioned at the beginning of the call, we delivered an outstanding quarter with meaningful year over year increases across our key performance metrics in the third quarter, we entertained $12 3 million guests and generated record net revenues of $843 million reps.
Representing a 12% or $90 million increase compared to the third quarter of 2021.
The increase in net revenues was largely attributable to the 100 incremental operating days in the period, which contributed to a $1 5 million visit gain in attendance and a 17% or $14 million increase in out of park revenues.
The increase in out of park revenues reflects incremental third quarter results at Castaway Bay and sawmill Creek resort two properties that were closed for renovations during the third quarter last year as well as higher occupancy rates and higher ADR across the majority of our resort portfolio.
As we noted on our last call. The continued strong performance of our resort properties validates the investments we made in recent years to refresh and expand that side of our business.
Meanwhile, in park per capita spending in the quarter totaled $62 62.
<unk>, 3% compared with the third quarter last year. The decline in per capita in the period was due primarily to lower levels of guest spending an extra charge products and admissions.
<unk> spent an extra charge products was largely the result of lower average daily attendance at several key parks, while the slight decline in admissions per cap can be attributed to a higher season pass mix in 2022.
Year to date season pass attendance represents 58% of our total attendance mix.
By comparison in season pass visitation represented 55% of 2021 full year attendance and 51% of 2019 attendants.
Offsetting the small pullback in guest spending an extra charge attractions in admissions was continued strength in guest spending within our retail channels.
Something that was a focus for our park teams coming into the season.
In the quarter combined per capita spending on food and beverage merchandise and games increased to $22 28.
Up 2% from last year and up 31% from pre pandemic levels.
The improved per capital levels were driven by increases in transaction counts and average value per transaction and reflects the stickiness of guest spending from year to year.
Moving onto the cost front operating costs and expenses in the third quarter totaled $485 million compared with $424 million for the third quarter of 2021.
$61 million increase was the result of a $14 million increase of cost of goods sold.
$50 million increase in operating costs, and a $3 million decrease in SG&A expense.
The increase in cost of goods sold reflects higher sales in the quarter as well as the impact of rising product costs. Despite despite these cost pressures cost of goods sold as a percentage of food merchant games revenue only increased 150 basis points from the third quarter last year.
The increase in operating costs was largely attributable to the 100 incremental operating days in the current period and the related impact on variable costs, including operating supplies and seasonal labor.
Based on <unk>.
Based primarily on the expanded operating calendar, our parks had approximately $1 million more seasonal labor hours in the current period compared to the third quarter last year accounting for more than 35% of the increase in operating costs.
Also contributing to the increase in operating costs were higher full time wages related to planned increase in head count in select parks higher maintenance labor rates and incremental land lease and property tax costs associated with the sale leaseback of the land at California's Great America.
The decline in third quarter SG&A expense reflects a decrease in wages, including incentive plan expense offset by an increase in transaction and credit card fees.
These higher fees were driven in part by this year's conversion of all of our properties to cashless and initiative that has been received very well by our guests and is helping us take labor hours out of the system.
Looking a little more deeply and labor costs, while the labor markets. This year remain challenging we are very pleased with the progress we've made around improving our staffing levels and controlling cost during the quarter, we maintained adequate staffing levels, while managing our average seasonal labor rate down 2% from the third quarter last year and year to date.
Our average seasonal labor rate remains essentially flat to last year, reflecting the success of our revamped seasonal pay structure implemented for the 2022 season.
While there is still more to do we are extremely pleased with our ability to flatten the growth curve around labor rates, particularly given seasonal labor represents our single largest operating cost.
Adjusted EBITDA, which management believes is a meaningful measure of the Companys Park level operating results increased $29 million third quarter to a record $362 million compared to $333 million for the third quarter of 2021.
The increase reflects the impact of our incremental operating earnings in the current quarter and the continued strength in the gas spending offset in part by higher operating cost, particularly for labor and cost of goods sold.
Shifting focus to our preliminary results preliminary results for the month of October and operating trends for the first 10 months of the year over the past five weeks, our parks entertained a record $3 2 million guests and generated $227 million of net revenues.
Just on preliminary.
Preliminary results for the five week period, which had 177 total operating days in park per capita spending was $64 91.
And out of park revenues totaled a record $21 million.
For the comparable five week period in 2021, which had 176 operating days net revenues totaled $219 million on total attendance of $3 2 million guests in park per capita spending of $64 97.
And out of park revenues of $19 million.
Compared to October of 2019 demand levels October attendance. This year was up 11% or approximately 318000 visits.
Underscoring the growing demand of our call event offerings and the benefit of Halloween falling on or near a weekend.
Based on these preliminary October results through the first 10 months of the year, we've entertained $24 9 million guests and generated $1 $6 8 billion and net revenues, representing an increase of 22% or $306 million compared to the first 10 months of 2019.
Over this same period in park per capita spending was $61 72.
27% from 2019 levels and out of park revenues totaled $195 million up $40 million or 26% from the same period in 2019.
For reference operating days for the first 10 months of 2022, and 2029 2019 totaled 2103 days in 2028 days respectively.
As park calendars currently stand we project that in November and December we will have a total of six incremental operating days compared to last year and 17 additional days compared to November and December of 2019 drew.
Driven in large part by our efforts to expand the operating calendar in select markets.
These additional operating days are projected to be modestly profitable, but more importantly provide us with incremental opportunities to sell season passes and other advanced purchase commitment.
Commitment products for the 2023 season.
Now turning to our balance sheet, our deferred revenue balance at the end of the third quarter totaled $188 million. This compares to $211 million at the end of the third quarter of last year, which included approximately $30 million of Covid related product extensions at Knott's Berry farm and Canada's Wonderland into 2002.
Two.
Excluding the extensions than the prior year quarter deferred revenues would have been up approximately $7 million or 4%.
<unk> year over year, including results from early fall sales of 2023 season passes and related all season products.
Compared to September of 2019 third quarter deferred revenues are up 26% or $39 million with.
With 70% of the season pass sales cycle remaining including the spring window that accounts for more than 40% of our full program sales. We remain laser focused on driving unit sales higher and matching the record performance of our 2022 season pass program.
As Richard mentioned, we have a strong balance sheet position, which we expect to continue to improve as we deliver on our strategic initiatives.
As of September 25, 2022, Cedar fairs, total available liquidity was $568 million, including $288 million of cash and cash equivalents and $280 million available under our revolving credit facility, which is undrawn.
This compares to $319 million of total liquidity at the end of the second quarter of 2022.
During the first nine months of the year cash flow from operations totaled $412 million besting, our comparable 2019 performance by $23 million or 6%.
During the nine month period, we also generated $310 million from the sale leaseback of the land at our Great America Park in Santa Clara, California.
Through the first nine months of the year, we used $264 million to fully repay the company's term loan, bringing total debt outstanding down to $2 3 billion and net leverage back to pre pandemic levels at three seven times trailing 12 month adjusted EBITDA at the end of the quarter.
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During the nine months period, we used another $17 million to pay cash distributions to our unit holders and $64 million to repurchase units under the unit repurchase program.
Regarding capital investments through the first nine months of the year, we spent $138 million on capex, including investments in new rides and attractions upgraded and expanded F&B facilities and renovations to several of our resort properties.
For the full year, we now anticipate investing approximately $170 million to $180 million on Capex.
By comparison, we project investing $180 million.
200 million on capital projects for the upcoming 2023 season.
Lastly for modeling purposes for the full year 2022, we are projecting cash interest payments of $145 million to $150 million and cash taxes of $40 million to $50 million with that I'd like to turn the call back to Richard to share some final thoughts.
Thanks, Brian .
While we are extremely pleased with our performance year to date. We are just as excited about the remainder of 2022 and the compelling opportunity that we have to build on our momentum in the coming year in.
In the weeks ahead, a number of our parks and resort properties will be transforming themselves into winter Wonderland and hosting holiday events. These immersive season, ending holiday events have proven to be extremely popular with everyone from grandkids to grandparents, while offering our loyal season pass holders another compelling reason to visit the parks.
We believe the success of our fourth quarter events, which now account for more than 15% of our annual attendance is a catalyst for expanding our appeal as well as the steady growth of our season pass sales program.
To ensure our parks remain a top entertainment choice among consumers, we continually improve the quality and breadth of our offerings and enhance our guest experience.
That is why we continue to invest a significant amount of our free cash flow back into our properties each year, creating a powerful economic lifecycle that benefits our guests our associates and our park communities and ultimately drive sustainable growth and value creation for our unit holders.
The guest focused strategies, we have in place are producing record results.
One more effective than our expanding season pass program offering.
Dream.
We are also generating excellent returns from the capital we have invested to improve the quality and scale of our food and beverage offerings.
Beverage is a top priority for our guests and we are focused on continuing to invest in our capabilities to improve and grow our offerings.
For 2023, we are investing in marketable new attractions at five at our five largest parks and seven parks overall.
These include large scale updates the major sections of our parks and will include the addition of new coasters and a rebirth of iconic rides from the past.
We are also investing in new high capacity dining facilities major events to support 250 year anniversary celebrations and a number of other additions designed to delight our guests.
Our marketing team does a great job of creating excitement and urgency around the introduction of new attractions.
Historically lift attendance and guest spending and increased season pass sales.
On the other side of the coin we remain committed to optimizing our cost structure and getting back to 2019 margin levels as we get deeper into the recovery.
A return to pre pandemic attendance levels, along with moderating the cost pressures we've experienced over the past few years.
Will be critical to achieving our margin goals coming into the 2022 season, we felt that the fastest and most effective way to facilitate a recovery of the business was to drive attendance and top line revenue by staying connected with our guests and maintaining the quality of the guest experience.
This included ensuring our rides attractions and retail centers, we're appropriately staffed for the level of demand they generated throughout the season.
As expected this approach led to an increase in seasonal labor hours compared to last year, we help somewhat offset the impact of higher labor hours by managing our average seasonal labor rate to essentially flat between the years something I'm extremely proud of in today's market and something that I believe we can build on going forward.
Although the macroeconomic environment remains unclear what drives our optimism for 2023 is solid momentum once again in our season pass programs.
An extremely compelling lineup of new marketable attractions planned for next season.
Early signs of recovery in our group channel.
And ongoing strength in guest spending driven by guest experience. We believe is second to none.
Should economic headwinds increase heading into next season, our team is prepared to take the necessary measures to respond quickly and appropriately.
Finally, I want to take this opportunity to welcome our two new directors Michel Mchaney Fry Myer, and Jennifer Mason to our board.
Michelle and Jennifer bring to Cedar fair more than 40 years of executive leadership, and senior management experience in the travel leisure and hospitality industries.
Our board prides itself on best in class governance, and regularly and actively refreshes its composition with the addition of outstanding New directors like Michelle and Jennifer.
They each bring a great <unk>.
Perspective to the board that will only strengthen our ability to drive future growth and create value for our unit holders.
Chris that's the end of our prepared remarks, please open the call for questions.
Certainly as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from James Hardiman with Citigroup. Your line is open.
Hey, good morning, Thanks for taking my questions here so.
A lot of a lot of data a lot of math.
Fifth through here, but basically since your labor day release.
It looks like we saw a pretty material deceleration in September .
Ultimately through the end of the third quarter and then.
Pretty significant reacceleration in the month of October I guess, a good morning.
Verify or or just spell that.
Good.
Rod narrative.
Andy why.
Why do you think thats happening.
Yes.
James Great question, I think we would say exactly what you just said, which is September was a tough month in part because of the weather that impacted us in the early part of the month, but I think what we've seen in October is our markets respond to the.
The quality of our Halloween events.
No.
With <unk>.
Season pass sales up 20%. This year there are a lot of folks out there that we're itching to come.
Weather was really good in October , but the appeal of our events really carried through and we saw we saw that through all of our all of our channels demand group and season pass.
Every year, we look at October and go it's been another great October I think it speaks to the appeal of the product not just the holiday, but the appeal of the product culturally that people look forward to holidays, but overall, we continue to see a strengthening of demand in the fall.
And that seems to be an ongoing almost multi decades.
Trend.
It makes sense and then.
Let's talk about cost for a little bit here.
A significant amount of operating expense deleverage here I think by my math that that line is up.
42% versus 2019.
I guess maybe.
Just given that there's so much more than revenues are growing.
I don't know if theres a way to do sort of a bridge I know you now have an incremental lease.
That is adding.
With some of your cost bank in that line.
Obviously operating days were up as well, but I'm struggling to sort of bridge the gap.
In that number, particularly when when it sounds like you guys have done a good job in sort of saving off.
Labor increases or at least the.
Wage rate increases.
James I'll, let Brian weigh in here, but overall listen we've tried to be as transparent as possible as we went through the pandemic about what we thought the effects work.
Labor is our single biggest line and we've been very transparent about what we needed to do in each of our regional markets to be able to get the staff, we needed to run our parks and get the experience.
When I look back on where we are year to date through the third quarter were down.
Approximately 1 million seasonal hours to 2019, so we are focused on efficiencies.
But we've also focused on driving the revenue.
But when your single largest line item is going up by significant percentage. That's the challenge. We think we can work that out over time and get back to pre pandemic margin levels.
That takes time and it certainly takes a recovery to 2019 attendance levels Brian .
Yes, just adding on James to Richard's comment.
I think the efforts to to take hours out of the system are certainly producing theres more opportunity there to to optimize some of those workforce management tools.
Being able to flatten that growth rate.
Around seasonal labor.
For the full year as Richard noted down slightly in the third quarter is certainly helping but to your point. There is there is pressure the other way by.
By the incremental days that are in the system and then when you look at it versus last year the recovery of some the attendants in the variable related costs.
But when we look at it overall I am I think you hit on it labor is the largest single cost item.
And it would represent probably more than two thirds of that increase that youre seeing.
In the third quarter versus where we were at 19 and that's that's primarily rate will continue to focus on it as Richard noted I think there is opportunities given the momentum we've established more recently, but there's more work to be done.
And let me maybe ask the question a slightly different way.
That line seems to be growing faster than revenues, so to turnaround margins right, we need to get that line to grow at least start by getting those two things.
To grow at a commensurate rate.
Any any thoughts on when that that might happen.
There sort of an opportunity to get back on par.
At least not a big deleverage item.
Yes, I think.
As Richard noted in his prepared remarks, I mean, the focus is to get back to those pre pandemic margin levels. One of the key factors that will assist in accomplishing that he is getting back to those pre pandemic.
Tenants levels right, we talked about group remaining disrupted that certainly puts more pressure.
On margins earlier in the season.
Still somewhat in the third quarter as well, but as we've talked about a price in prior calls.
Youth in school groups being lost in the spring.
As a big headwind when it comes to margins. So I think recovering volume and we feel very good about that.
The trends, we're seeing in that area as we wrap up 2022 and head into 'twenty, three particularly around use in school.
And so I think thats the first step and then the.
The second piece is.
We are already starting to show some some some wins in this area is flattening out.
And starting to decelerate that growth around the labor rates.
More of that was accomplished here recently I think we will have to have the benefit of that now for a full season as we roll into into 2023 and theirs and we feel very good about the other the top line.
<unk> metrics, where we're seeing guest spend in the park as I noted in my prepared remarks up 20 plus <unk>.
<unk> added to our 30 plus percent I am sorry to 2019 levels and 2% still too last year. Some of the admissions per cap pressure. We're seeing is really more mix driven and not a reflection of the consumer pulling back just really more of a reflection of season pass growth. So I think we think that the <unk>.
Our aligned to start seeing that margin expansion is just going to take a.
It takes more time.
Got it thanks, Brian Thanks, Richard.
James.
The next question is from Steve <unk> with Stifel. Your line is open.
Hey, guys good morning.
So so so Brian a rich want to go back to the in park.
Can you just made some comments about the in park spend levels, which.
We're down year over year, and it's probably one of the first times, we've heard of any kind of slowdown in spend levels across multiple.
Consumer verticals that we looked at it so.
Is there anything you can help us think about as to maybe what drove that slowdown and look I understand you just called out.
Lower spend levels and extra charge products and some negative headwinds from a higher season pass mix, but I guess the question is.
If you look at the average person Joe Schmo coming in.
Are these still spending more as they come in the park versus what they are where they were last year.
Yes, Steve this is Bryan.
I'll reiterate what I said to James' question D.
When we split it apart and we look at those those pure in park areas, where we where we take math big piece of the math out that season pass represents right that impacts admissions more than it affects that was those in park spend areas, we're still seeing the stickiness and growth as I noted up 2% from third quarter of last.
At year.
When we look at just food and beverage merge games, that's transaction count improvement.
Improvement that higher average value per transaction.
The one in park area that saw a little bit of pressure was extra charge overall revenues are up based on pricing, but given that we're not at as high a peak at 10 minutes days, particularly in the summer more July August at some of our Big parks.
It's a reflection of some of the disconnect of group sales. It's also.
Reflection of us moving gas off of some of those busier days through our dynamic pricing techniques that definitely takes took.
Took some of the demand for fast Lane as an example down a little bit.
But overall revenue is still up in that as we price more into it.
So the one area that we've seen the most pressure is more mathematical our accounting and that's that's admissions and that again ties back towards more and more towards that mix. As we noted we're pushing close to 60% of our of our attendants coming from season pass this year versus mid.
$55 56 range.
Last year.
Okay got you thanks for that Brian and then.
Second question is you keep talking about trying to get back to those pre pandemic attendance levels, which I think was around 22000 8 million.
I guess as we kind of think about the 2022 winding down at this point.
How should we think about 'twenty, three and I'm not sure. How you really want to take this question, but is it possible to get back to those levels in 'twenty three I mean, I think that would kind of infer a let's call. It a three 5% to 4% kind of growth rate.
In terms of attendance does that is that too quick or is this more of a 2004 type story or is that still a potential in 'twenty three.
Steve when I think about what we saw this year.
A 20% increase from $2 6 million season pass the three two.
We had more of our loyal customers step up to buying our most expensive ticket. If you think about it as a ticket for the highest price ticket I think that bodes well as we look forward in terms of our ability to mine more out of our existing customer base we've been.
Transparent from the beginning on the group channel what we thought it would take you go back to <unk> It took.
Full three years to get back to similar levels.
We see that kind of recovery happening now I'm really excited by the way the phones are ringing as Brian said.
As we put in particular look at the big chunk, we get back in the spring early summer, which is the youth in school groups. So I think that combined with one of our one of our strategies and our look at the world coming into and it's tough to go back 12 months and say what were thinking as we went into 2022, but when we looked at this.
We felt there would be pent up demand, we've seen that across the board and certainly have seen that up in Canada. This year, but we did we invested heavily in food and beverage to drive that in park spend we thought we could.
We could we could have the demand we need it within the channels I think the season pass 20% up shows that but if we look at next year now we're back to a more traditional.
Approach, which is we're going to have something new in seven different at seven of our posture you talk about I think it is probably the deepest and most complete product line up I've seen us have over the course of since Ive been doing this so I think we have what we need in terms of our marketing folks to go out there and drive demand. So all of that factors into how I kind of look at next year.
Okay got you Richard Brian . Thank you so much for your comments.
Thanks, Steve Thanks, Steve.
The next question is from Chris <unk> with Deutsche Bank. Your line is open.
Hey, guys.
Good morning, Thanks for taking the question.
I'm going to try to come at the I guess the margin question, one different way, which is I think you're back to 93% or so 2000 1910 minutes in the third quarter 'twenty two.
If you get back to 100 next year is there.
How much incremental labor do you really need to get that rate. The question I guess the question or the observation would be yes.
Are you kind of with a higher fixed cost base. When the parks are open is there a lot of incremental labor hours that need to come in to make up that final 7% independents.
Chris.
When we think about the business model, we have it's really it's a fair question I think a really good question the incremental attendance on any given day really doesn't drive a lot of extra cost. So every time, we drive higher attendance on different days, we really those are our high margin days go to October we just talked about being some of our most profitable days that's real.
True so I think the more we can drive back that 7% the more likely we're going to push deeper into the higher margins, but what I'll also tell you and this is what Brian always says.
So where we get the growth from sometimes determined the impact on margin, while which parts are doing well and I'll, even go to something like our Canadian Park, which is Canada Our park in Toronto, Canada wondering if having a phenomenal year.
But because the dollar has weakened that's probably taken our estimate about 50% 50 basis points off of our consolidated margin because that's not flowing through so there's a lot of things that impact that.
But it's a fair question.
Okay.
Okay. Thanks for that and then.
Yes.
Secondly, I know, we're not we're not really talking about 2023, yet but.
How much confidence do you have based on what you've seen to date in 'twenty. Two so kind of moved pricing up further whether it's.
On certain ticket plans or whether it's on.
The food and food and merchandise.
You feel confident to make that decision today that you could take additional price for next season.
Yeah.
Chris as I look at our approach, it's always been to take price every year and dynamically price. The early indicator for me would be season pass and we've on average targeted a high single low double digit increase in our pricing now mix will impact what comes through which <unk> sell but we think there is.
An opportunity to always move price I also firmly believe when you take price every year, you sort of training the market and they expect it. So our approach is always in dynamic pricing and lean into demand.
We you always hear me talk about price value our guest got great value. This year that gives us an opportunity to continue to take price.
Al.
Answering your question different way, Chris which is if I go back and look what we saw in the one nine to health of the consumer back then we saw hotel booking droppings drop we're not seeing that we saw a season pass soften considerably we're not seeing that in group dried up on us both corporate and school, we're not seeing that schools schools are calling us.
The phones ringing so the things I would be looking at to answer your question I don't see them right now so I'm really confident that we can continue to try and take our approach, where we try and both get recover volume, but good price.
Okay.
Very helpful. Thanks, guys.
Thanks, Chris.
The next question is from Mike Swartz with <unk> Securities. Your line is open.
Hey, good morning, guys maybe.
Maybe just a question on <unk>.
Our plans for marketing in 'twenty, three and then maybe how they differ versus how you marketed historically and then look at the it.
It sounds like season pass visitation is probably higher than it was.
Pre pandemic group, obviously, we know it's starting to come back with that single day visitor is there anything youre planning to do differently to drive those attendance levels back in 'twenty three and beyond.
Yes.
Yes, Mike it's Brian as we look at where we're marketing has has <unk>.
Pivoted or changed over the last couple of years and we've talked about this on prior calls shifting.
During the pandemic out of necessity away from traditional media more heavily into digital and.
And as Richard just mentioned a moment ago, we felt coming into this year. There was going be a lot of pent up consumer demand and so we were pretty aggressive with paring back.
Our advertising dollars and mining some savings there and trying to ride that pent up demand wave and as we look at 2023 and Richard highlighted what's going to be a very strong capital.
Graham.
Big New attractions going in in our five largest parks and 708 parks overall, we want to lean into that and make sure that we're not penny wise dollar foolish.
One on the advertising side, so I think as we look towards 2003, we may accelerate some spending.
Around that that capital program I don't think its going to be material enough and we believe the returns are there to warrant it.
But it will be still somewhat similar approach heavy on digital on because of the efficiencies cost wise, but also the flexibility of that but also getting a little bit back more into mainstream media as we as we lean into that capital program.
Mike as we think about margin I had Kelly Kelly forward, our CMO and I were discussing yesterday. We're so excited about the digital shift because as she would tell you we need to be where the customers are not where they've been they're not they're not watching linear TV anymore. We've got to be out there where they are and we're trying to do.
Look forward to invest where we think we can get them not just mind the efficiency, but get the most impact.
Okay perfect. That's helpful. And then just maybe on I think you said season pass sales if I heard that correctly were up 20% I apologize if I missed it but was that versus 21, I'm sorry, not all year 2022 versus.
Last year to $3 2 million for full year, 2022 versus $2 6 million and 21.
Okay perfect. That's what I was looking for thank you.
The next question is from Ben Chaiken with Credit Suisse. Your line is open.
Hey, How's it going.
Go ahead.
Hey, good morning, Hey, just going back to cost briefly.
<unk> flow through was I think around 5% not as falling 10% and <unk>.
Regardless of how you look at trends Rev is up revenue is up materially and it's not necessarily translating to EBITDA I guess as you reflect on your business in 'twenty. Two season to date do you think you made the right moves on labor hours and rates and <unk> operating days or would you or would you change anything.
Fair question and certainly we always been we always look at how we approach the year and what lessons can we learn and what what can we mine out of our experience. If you go back to and again, we've been transparent with our interim updates we took a number of days out of the calendar early on we Werent sure what demand was going to look like in the spring.
And we had some challenges on the staffing front.
As I look at it as we think about next year, we want to make sure that we're giving our sales a chance to drive as much revenue as possible and when we think about how to mine that most effectively.
As I said.
Through year to date through the end of the third quarter, we've taken over 1 million hours out we want to make sure that we're fine tuning that approach and given us the ability to drive deeper and recover our margin.
To drive the revenue.
Get far more efficient I touched on that with Chris's call, but as we look forward I think there's some things that we'll look at it Brian talked about our ability to invest a little bit more in marketing to make sure we're capturing both.
The demand for one day tickets, but also make sure we are optimizing those price breaks that are so critical for us for season pass Brian anything you want to add.
Yeah, and just reiterate.
Ben as we came into this year the focus was on recovering.
Volume in driving guests spend as we said in our prepared remarks critical that we have all of our revenue centers in our attractions adequately staffed to the expected demand levels on a day by day basis.
There were as Richard noted times early in the year that we werent able to open several of our parks.
Because of shortage of staff and more of a shoulder season issue when students weren't out of school, yet and we felt that we wouldn't be able to deliver the right guest experience. We unplug those operating days in a few markets save some operating cost, but I think to Richard's point, we hurt ourselves on the revenue line item. So I think we can always get.
Smarter and Theres always more upside.
On the cost side of things and more efficiencies to be gathered as I noted I think the progress we've made around the labor rate structure.
Was huge probably seeing more benefit of that in Q3 than we did in the first half of the year.
And thats going to translate into 2023, but I think as we look at where what we did in 2022, we delivered on what we intended to do which was to achieve record revenues and record adjusted EBITDA and we'll get better at margin and optimization of those revenue.
As we roll forward.
Got you and so just to make sure I'm kind of interpreting first of all that's all that's all Super helpful. Color I. Appreciate it and then just to make sure that I'm interpreting your comments correctly. It sounds like the getting back to 19 margin will be a function of kind of like operating leverage on incremental growth.
Because it sounds like you guys are talking about like maybe some marketing dollars coming in.
Diving incremental revenues so the point the way that we should be thinking about it as operating leverage on incremental revenues rather than necessarily like absolute costs coming down is that.
Fair I.
I'd say its more more heavily skewed towards what you. Just described there are definitely some places where we're going to look to mind some more cost efficiencies.
And then back to Richard's point ultimately that that.
That 2019.
Margin level.
And Chris Chris's question about if we get back to those attendance levels. When you get to that margin level partner is going to depend on the performance right. I mean, Canada's Wonderland had a fantastic year of record performance year for that part coming out of the pandemic.
But unfortunately, when we bring that back over in the U S dollars. The FX is hurting us as Richard noticed noted two to the tune of maybe 50 60 basis points of margin.
Ben the other thing that I'll jump back to when we went into the pandemic a lot of question marks.
We issued $1 billion bond in April 2020 to make sure. We had adequate liquidity you look at what we've done on the capital structure paying down paying down 90 more than 90% of the debt that we incurred to survive. The pandemic can get us through the institution of the distribution getting down to that three seven.
I'm really pleased with the rapid recovery, if I could put it that way.
And I'm really pleased with what we've been able to do with the free cash flow to set the foundation on the capital allocation side for how we create some create even more value for our unitholders I don't want to step over that because I think the impact of that rapid recovery is really let us get healthy very quickly and that's going to let us drive growth in the future.
Sure.
Makes sense I appreciate it thank you.
Again that is star one if you'd like to ask a question. The next question is from Eric Wold with B Riley Securities. Your line is open.
Thank you.
Hey, guys.
Couple of questions kind of follow up on it.
These too much again I guess.
One you talked about obviously the amount of season pass contribution too.
Total attendance.
Well above last year well above.
19.
Is there something youre seeing kind of in the demographics coming into the park given kind of economy. We're in now are you seeing.
Single day, Pat does get impacted because of that maybe the lower income consumer that normally would buy into the past.
Be impacted there, but can you give me the holdup.
In park spending at these elevated levels because that consumer is.
Still there anything to read into that or is that looking at it the wrong way from your point of view.
No what I would say Eric good morning, Richard and Great question, what I would say is when you think about season pass what we think we saw this year as we got more into dynamic pricing and priced and took the price of our demand tickets on the web app the gap between the demand ticket and the season pass we had more people look at that gap ago, Let me.
Trade up.
No.
What we're seeing is a trade up to our highest ticket that helped drive the 20% increase in season pass that I referenced earlier once they get in the park, we continue to sell more all season dining more all season beverage, we're seeing people bundle together a full year's worth of experience in our parks.
And then once they come to the park and we track their spending they spend on other things as well so people trading up from a one day ticket to a season pass is always good for our business. The question. We always get is is there an optimal limit no wed like to sell as many season pass is as we can because once they come they keep they keep enjoying the benefit of the park and even in terms of.
What we're seeing we're seeing now we continue to see an increase in all season dining we're up year over year in our as we look at that line item.
For the 2023 passes so they see value there they come to the park.
Out of the park they want to enjoy the visit.
If you go all the way back to <unk> and the Staycation if people stay close to home they still want to treat themselves well in when they come to our parks they want to indulge themselves a little bit and that's what we see.
Got it and then just.
Another one on labor.
That means decision.
Early.
And have you to drive attendance and guest experience and putting the cart.
Get all of that I guess, when you're taking some some labor hours out of Bard, though maybe there's room, there, but you've got to work through.
Go and kind of closing the gap intended to leverage the <unk>.
Current spend levels.
What are your early thoughts on what hourly wage pressures that may look like next year.
And kind of how will you compete against.
Paid up early in the cycle again people in the park. How are you going to compete and do you think about next year and we think that labor pressure may look like.
Hourly wage side.
Yeah, Eric It's Brian I think when we look at it.
Labor for next year.
Broad comment the availability and affordability challenges aren't going away and we believe those are largely structural.
That said there have been some some tailwind this year that we've that we've leaned into and benefited from the return of the <unk> visa.
Program brought more international students over.
At our parks.
That was extremely helpful.
Our ability to as I mentioned on the call sort of put in place.
A more.
Pay program and scale more aligned with where we've been in the past not everybody at that Max level right. So we will pay up for certain jobs will pay up for seniority and experience, but the newer first year associates that come in or maybe those J. One visa students are only here for.
A short period in the summer, we will keep them at the lower end and so we still in each of our markets want to remain the.
The market Center.
And be the first choice for for folks seeking.
A job during the during the.
The summer season.
And so that's not going to change, but I think leaning into that structure that we did this year continuing to benefit from some of those same tailwind factors will allow us to offset.
<unk> pressure I think.
We'll see if we have to pay up in some markets, we will pay out because what we do know is if we're not staffed appropriately we're losing revenue.
That's the that's the key message that we want to make sure we deliver and.
We saw play out this year and some of our markets. Once staffing was more challenged our per caps were challenge when staffing was adequate or or at its at its right level. We are delivering our best per caps on those days. So it's critical that we that we maintain those adequate staffing levels and that'll be the focus.
Perfect. Thank you Bob.
The next question is from Barton Crockett with Rosenblatt Securities. Your line is open.
Hi.
One thing I was wondering about was the October trend.
How reasonable it is to think about that as a baseline.
Baseline for what could happen and do you have the holiday period here at the end of the year in December .
If you could talk about puts and takes around.
The reasonableness.
Reasonableness of extrapolating that trend to the balance of the quarter.
Barton Richard Good question.
When I think about the appeal of the holiday events, they fall a different time of year.
Halloween sort of leads into November and not all of our winter Fest events open up right away, but they do open up shortly thereafter, so what we've seen is there is such a thing as momentum when we're top of mind and people visited and they go home and tell their friends about their visit it keeps us in the consideration set so we've always seen that good.
Momentum leads to better next year performance.
As always we've always seen strong spring performance when we have a strong fall. So I think it's a really good sign I think it gives us great momentum, we starting to see some markets pick up.
Anticipate that Canada in particular, which had a great opening winter fast in 2019, given the strength, we've seen there all year long and in their recent trends I think they'll have a phenomenal winter first so I do think.
With our always normal weather caveat.
It's tough to get people come out with reasonable weather I anticipate that the momentum we've seen in October is sort of sets the table.
And positions us for a successful winter Fest Knott's Merry farm season once again.
Okay.
That's helpful and.
I wanted to step back a little bit on the macro view.
Because you guys are in an interesting position right, you'll get you'll see where the consumers.
The titers and willingness to spend.
There.
Sensitivity you also buy a lot of things you pay a lot on labor you buy a lot of products you have a capex cycle it'll be buying a lot of commodities, maybe some steel.
We have a fed right now that is bound and determined to keep raising interest rates until they and if inflationary spiral and there's a lot of speculation about whether that has to be.
Kind of a wage cost spend and just kind of.
Cycle, there has to be ended.
And what I hear from you guys. There's a lot of sense of strength from the consumer maybe.
Maybe some easing of some cost pressures and I'm just wondering how you kind of fit that into what you believe is happening macro wise based on your view of the world and how that kind of informs you know how you think about what the most likely macro setup is as we navigate through next year.
I'll go back to as we went through the pandemic, we said pre pandemic that experiences consumers are prioritizing experiences over possessions clearly that wasn't the case during the pandemic during the heart of it they prioritize possessions and we're buying goods everything that we're seeing as being collaborated by those that I.
Two within the broader leisure hospitality world hotels are doing good.
To see strong interest in all the different sectors of the leisure and hospitality sector. I think you know I think we're back to consumers prioritizing experiences over possessions, whether that's pent up demand revenge spending all of those things we've talked about.
Our experiences are what consumers in.
In the U S and in Canada are looking for and they'll they'll pay up to go get the experiences that they want particularly after being through the depths of the pandemic. However, it impacted everybody I do think from abroad.
Broad front consumers continue to be in pretty good pretty good shape, even though the lower end is getting increasingly pressured and our broad macro view is that we think theres a lot of demand that will continue to come back for us. That's that's code for we continue to see our ability to close the gap on the attendance levels for 2019.
Being a reasonable estimate of next year, Brian anything you want to add.
No I mean, I think you said it well.
Sure.
There is a lot of uncertainty around the macroeconomic environment.
And our crystal ball isn't any clearer than anybody else's. All we can look at Barton is the.
The trends we're seeing.
And as you noted the most recent trends October extremely strong underscoring.
Underscoring again, the demand for that event great weather in October we can't ignore that as Richard noted, but the longer lead indicators along with those strong attendance numbers, we saw standing sales.
<unk>.
The 2023 products, which tells us the consumer still feel pretty good about looking forward because in some cases. These are products that are not going to able to use for another five or six months.
But on the flip side of that cost pressures are you seeing.
Any deceleration it sounds like maybe wage is less of an issue you know other things.
Or is it still kind of inflationary if it ever has been.
Yeah around around labor I think what we've experienced.
Is.
The result of strategies that we've deployed there is certainly still pressure around wage rates. We just deployed a different strategy that is allowing us to flatten that curve as I noted in other areas Youre right. I mean, we are seeing an acceleration of cost. We noted it in terms of the impact it's having on things like cost of.
Thats sold as we work on our capital programs for next year.
Those projects are certainly under pressure increasing costs, we're making adjustments within the capital program, where we can to absorb those those pressures without sacrificing the impact of the product. It may mean, deferring some infrastructure things here or there but.
But we're certainly doing everything we can to offset those pressures.
Okay. That's helpful. Thank you very much.
We have no further questions at this time I will turn it over to Richard Zimmerman for any closing comments.
Alright. Thank you all for your interest in Cedar Fair as a heads up we will be participating in three banking conferences before the end of the year hosted by Stifel in Chicago Deutsche Bank in West Palm Beach, and Truest in Boston, We hope to have a chance to visit with you in person at one of these events otherwise I want to wish you and your families are safe and happy holiday.
Michael.
Thanks, again, everybody with additional questions. Please feel free to contact our Investor Relations Department at 409 six.
<unk> 272233 in our next earnings call will be held in mid February after the release of our full year results for 2022.
Chris that concludes our call today. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Yeah.