Cedar Fair finishes quarter 17% over 2019 net revenue, reinstates distribution

Posted | Contributed by Jeff

From the capital allocation press release:

Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, today announced its Board of Directors has approved an updated capital allocation strategy, highlighted by the declaration of a cash distribution of $0.30 per limited partner (LP) unit and the authorization of a $250 million unit repurchase program.

• The distribution is payable on September 15, 2022, to unitholders of record as of August 31, 2022.
• The repurchase program authorizes the Company to make unit purchases in the open market, or through privately negotiated transactions, up to $250 million.

From the 2022Q2 results press release:

Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, today announced results for its second quarter ended June 26, 2022, and provided preliminary results and operating trends through July 31, 2022.

Separately today the Company announced its updated capital allocation strategy, including the declaration of a cash distribution of $0.30 per limited partner (LP) unit payable on Sept. 15, 2022, to unitholders of record as of Aug. 31, 2022, and the Board’s authorization to repurchase up to $250 million of Cedar Fair units.

Cedar Fair President and CEO Richard Zimmerman, said, “The strength and pace of our recovery post-pandemic, supported by our strong first-half operational performance, has allowed us to deliver strong financial results and advance our key strategic priorities. Since resuming full-park operations, we have generated significant free cash flow that has allowed us to pay down the equivalent of 75% of the debt we incurred during the pandemic, continue to reinvest in our parks and resort properties to further enhance the guest experience, and put in place a capital allocation strategy focused on returning capital to unitholders. This includes reinstating our distribution in the third quarter of 2022 and establishing a new unit repurchase program to opportunistically buy back units of Cedar Fair.”

Second Quarter 2022 Highlights

• Net revenues totaled a record $509 million, an increase of $285 million from the second quarter of 2021. Compared to the second quarter of 2019, net revenues increased by $73 million, or 17%.
• Net income was $51 million, an increase of $110 million from the second quarter of 2021. Compared to the second quarter of 2019, net income decreased by $13 million.
• Adjusted EBITDA totaled $171 million, an increase of $169 million from the second quarter of 2021. Compared to the second quarter of 2019, Adjusted EBITDA increased by $7 million, or 5%.
• Attendance totaled 7.8 million guests, an increase of 4.4 million guests from the second quarter of 2021. Compared to the second quarter of 2019, attendance declined by 654,000 guests, or 8%.
• In-park per capita spending was a record $59.52, a 6% increase from the second quarter of 2021. Compared to the second quarter of 2019, in-park per capita spending increased 26%, driven by double-digit percentage increases across all key revenue categories.
• Out-of-park revenues were a record $60 million, representing a $19 million increase from the second quarter of 2021. Compared to the second quarter of 2019, out-of-park revenues increased by $10 million, or 21%.

First Seven Months 2022 Highlights

• For the seven-month period ended July 31, 2022, preliminary net revenues totaled a record $1.03 billion, an increase of $441 million from the comparable seven-month period in 2021. Compared to the seven-month period ended Aug. 4, 2019, net revenues increased by $152 million, or 17%.
• Attendance for the first seven months of the year totaled 15.4 million guests, an increase of 6.8 million guests from the comparable period in 2021. Compared to the same seven-month period in 2019, attendance declined by 1.0 million guests, or 6%.
• In-park per capita spending for the seven months was a record $60.76, a 2% increase from the comparable seven-month period in 2021. Compared to the first seven months of 2019, in-park per capita spending increased 25%.
• Out-of-park revenues for the seven-month period were a record $125 million, a $33 million increase from the comparable period in 2021. Compared to same seven-month period in 2019, out-of-park revenues increased by $20 million, or 19%
• Through the end of July, sales of 2022 season passes totaled a record 3.2 million units, while sales of all-season products, including all-season dining and all-season beverage, continued to pace well ahead of the previous record established for the sale of season pass add-on products.

“While demand for our parks is foundational to our success, one of our primary objectives is to drive revenue growth by optimizing both attendance and guest spending levels,” said Zimmerman. “By strategically investing in our business and broadly elevating the guest experience, we have achieved new highs for in-park per capita spending and out-of-park revenues, resulting in record net revenues through the first seven months of the year.”

Zimmerman concluded, “With the momentum we’ve established over the first half of the year, combined with more than three million season passes in the hands of our guests for the first time ever and strong occupancy trends at our resort properties, we are well positioned for a solid finish to the year. Our strong performance over the trailing 12 months gives us the financial strength and flexibility to expedite our strategic priorities and significantly strengthen the core of our enterprise. Although we have more to accomplish, we are well on our way to putting the effects of the pandemic fully behind us and aggressively pursuing the next level of value creation for our guests, associates, communities, and investors.”

Results for Second Quarter 2022 Compared with Second Quarter 2021

Given the material impact the coronavirus pandemic had on park operations in 2021, results for the second quarter of 2022 are not directly comparable to the second quarter of 2021. In the prior period, the Company postponed the opening of its parks to May 2021, when all parks opened except for the Company’s Canadian property, Canada’s Wonderland, which opened in July 2021. As a result, the Company’s parks had 708 total operating days during the second quarter of 2022 compared with 393 total operating days in the second quarter of 2021.

For the second quarter ended June 26, 2022, net revenues totaled $509 million versus $224 million for the second quarter of 2021. The increase in net revenues was attributable to a 315 operating day increase in the period, resulting in a 4.4 million visit increase in attendance and a $19 million increase in out-of-park revenues. In-park per capita spending in the 2022 second quarter totaled a record $59.52, driven by increases in guest spending, particularly for admissions and food and beverage.

Operating income and net income for the second quarter of 2022 benefited from the 315 operating-day increase in the current period and the related improvement in attendance and revenues. These increases were offset in part by higher operating costs in the current period, the result of higher labor rates and an increase in variable operating costs. For the second quarter, operating income totaled $112 million, compared with an operating loss of $38 million in the second quarter of 2021. Net income for the second quarter totaled $51 million, or $0.89 per diluted L.P. unit, which compares with a net loss of $59 million, or $1.04 per diluted LP unit, for the comparable period last year.

Results for Second Quarter 2022 Compared with Second Quarter 2019

Given the material impact the coronavirus pandemic had on park operations in 2020 and 2021, results for the second quarter of 2022 are not directly comparable to the second quarters of the last two years. To provide more informative comparisons, the Company has provided a comparison of its financial results for the three months ended June 26, 2022, to the three months ended June 30, 2019.

During the second quarter of 2022, the Company’s parks had 708 total operating days compared with 726 total operating days in the second quarter of 2019. Of the 708 current period operating days, 96 operating days were at the two Schlitterbahn parks, which were acquired on July 1, 2019. Excluding the Schlitterbahn parks, operating days for the three-month period 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 the Company’s parks.

In the second quarter of 2022, the Company 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 increase in net revenues was the result of a 26%, or $12.30, increase in in-park per capita spending, a 21%, or $10 million, increase in out-of-park revenues, and the inclusion of the Schlitterbahn parks in the current period. These increases were offset in part by an 8%, or 654,000-visit decline in attendance. The increase in in-park per capita spending was driven by higher levels of guest spending across all key revenue categories. In particular, spending on admissions, food and beverage, and extra-charge attractions was up meaningfully, driven by both higher pricing and increased transaction counts. The increase in out-of-park revenues was primarily attributable to an increase in online customer transaction fees, the inclusion of revenues from the Resort at Schlitterbahn New Braunfels, and increased revenues at the Cedar Point resort properties. The decline in attendance was driven by the 114 fewer operating days at the Company’s legacy parks (excluding the Schlitterbahn parks) during the period, an expected slower recovery within the group sales channel, and the strategic elimination of several low-value ticket programs. Despite the recovery shortfall in group business and the discontinuation of certain low-value ticketing programs, same-park attendance per operating day was up 3% in the second quarter of 2022 versus the comparable period in 2019, reflecting the impact of strong demand trends within the season pass channel.

Operating costs and expenses in the second quarter increased to $347 million, 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. Despite inflationary cost pressures, cost of goods sold as a percentage of food, merchandise and games revenue increased only 1% from 2019 levels. 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. The increase in SG&A expense was primarily due to an increase in full-time wages, including higher incentive plan expense, as well as higher transaction fees. These increases were offset by a decline in advertising costs, the result of a strategic pivot to more efficient and flexible digital advertising.

Depreciation and amortization expense for the second quarter decreased $7 million from the comparable period in 2019, due primarily to the full depreciation of certain property and equipment from the Company’s 2006 acquisition of the Paramount Parks. A loss on impairment/retirement of fixed assets of approximately $1 million was recorded in both the current and prior-year periods, the result of the retirement of assets in the normal course of business. Including the items noted above, the Company’s operating income for the second quarter of 2022 totaled $112 million, up $10 million, or 10%, compared to the second quarter of 2019.

Interest expense for the second quarter totaled $40 million, an increase of $17 million from the second quarter of 2019. The increase in interest expense was due to incremental interest incurred on the Company’s 2025 and 2028 senior notes issued in 2020 in response to the pandemic and the 2029 senior notes issued in the second quarter of 2019 in coordination of the Schlitterbahn acquisition, offset in part by the early redemption of the 2024 senior notes in December 2021. The net effect of the Company’s swaps resulted in an $8 million benefit to earnings during the second quarter of 2022, compared with an $11 million charge to earnings in the second quarter of 2019. The difference reflects the change in fair market value movement in the Company’s swap portfolio. During the current quarter, the Company recognized a $10 million net charge to earnings for foreign currency gains and losses related to the remeasurement of U.S. dollar denominated debt to the Canadian entity’s functional currency, compared with a $9 million net benefit to earnings in comparable period in 2019.

For the second quarter, a $19 million provision for taxes was recorded to account for publicly traded partnership taxes and federal, state, local and foreign income taxes, compared to a provision for taxes of $15 million in the second quarter of 2019. The difference in provision for taxes in the second quarter was attributable to an increase in pretax income from the Company’s taxable subsidiaries versus the comparable period in 2019.

Accounting for the items above, net income for the second quarter totaled $51 million, or $0.89 per diluted L.P. unit, which compares with net income of $63 million, or $1.11 per diluted LP unit, for the second quarter of 2019.

Adjusted EBITDA, which management believes is a meaningful measure of the Company’s park-level operating results, totaled $171 million in the second quarter, representing an increase of $7 million, or 5%, compared with the second quarter of 2019. The increase is the result of higher in-park per capita spending, increased out-of-park revenues, and the inclusion of the Schlitterbahn parks, offset in part by higher operating costs in the current period, particularly higher labor costs.

First Seven Months 2022 Results

Given the material impact the coronavirus pandemic had on park operations in 2020 and 2021, the Company has provided a comparison of its preliminary financial results for the seven months ended July 31, 2022 compared with the seven months ended Aug. 4, 2019.

For the seven-month period ended July 31, 2022, the Company entertained 15.4 million guests, representing a decrease of 6%, or 1.0 million visits, and generated preliminary net revenues of $1.03 billion, representing an increase of 17%, or $152 million, compared to the seven-month period ended Aug. 4, 2019. Over this same period, in-park per capita spending was $60.76, up 25% from 2019 levels, and out-of-park revenues totaled $125 million, up $20 million, or 19% from the same period in 2019. Operating days for the seven-month periods in 2022 and 2019, totaled 1,362 days and 1,352 days, respectively. This includes 94 fewer operating days at the Company’s legacy parks during the current seven-month period, due to a natural calendar shift with the comparable period in 2019 and the planned removal of early-season operating days at several of the Company’s parks.

Balance Sheet and Liquidity Update

Deferred revenues as of June 26, 2022, including non-current deferred revenue, totaled $307 million, 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 as of June 27, 2021. On June 26, 2022, the Company had cash on hand of $125 million and $194 million available under its revolving credit facility, net of $16 million of letters of credit, for total liquidity of $319 million. This compares to $284 million of total liquidity on March 27, 2022. Net debt as of June 27, 2022, was $2.5 billion, calculated as total debt of $2.6 billion less cash and cash equivalents of $125 million.