Cedar Fair net revenue and income down in 2023Q3

Posted | Contributed by Jeff

From the press release:

SANDUSKY, Ohio--(BUSINESS WIRE)-- Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, today announced its financial results for the third quarter ended Sept. 24, 2023. In addition, the Company announced the declaration of a cash distribution of $0.30 per limited partner (LP) unit payable on Dec. 20, 2023, to unitholders of record as of Dec. 6, 2023, consistent with Cedar Fair’s current annualized distribution rate of $1.20 per LP unit.

2023 Third Quarter Highlights

• Net revenues totaled $842 million, a decrease of $1 million from the third quarter of 2022.
• Net income was $215 million, a decrease of $118 million from the third quarter of 2022, the result of a $155 million prior period gain recognized on the sale of the land at California’s Great America.
• Net income margin, calculated as net income divided by net revenues, declined to 25.6% from 39.5% for the third quarter of 2022, and was also the result of the prior period gain on sale of the land at California’s Great America.
• Adjusted EBITDA⁽¹⁾ totaled $388 million, an increase of $27 million, or 7%, from the third quarter of 2022.
• Adjusted EBITDA margin⁽¹⁾ improved 320 basis points to 46.1% from 42.9% for the third quarter of 2022.
• Attendance totaled 12.4 million guests, an increase of 1%, or 129,000 guests, from the third quarter of 2022.
• In-park per capita spending⁽²⁾ was $61.65, a 2% decrease from the third quarter of 2022, the result of a reassessment of pricing strategies and the recovery of lower priced attendance channels.
• Out-of-park revenues⁽²⁾ totaled $99 million, representing a $2 million, or 2%, increase from the third quarter of 2022.

October 2023 Highlights

• For the five-week period ended Oct. 29, 2023, preliminary net revenues totaled $226 million, a decrease of $1 million, or less than 1%, from the comparable five-week period in 2022.
• Attendance for the five-week period ended Oct. 29, 2023, totaled 3.3 million guests, an increase of 2%, or 69,000 guests, from October of 2022.
• In-park per capita spending⁽²⁾for the five-week period ended Oct. 29, 2023, was $63.15, a 3% decrease from October of 2022.
• Out-of-park revenues⁽²⁾for the five-week period ended Oct. 29, 2023, totaled $21 million, consistent with the comparable period in 2022.

Balance Sheet and Capital Allocation Highlights

• On Sept. 24, 2023, net debt⁽³⁾ totaled $2.17 billion, calculated as total debt before debt issuance costs of $2.3 billion less cash and cash equivalents of $134 million.
• In the 2023 fourth quarter, Cedar Fair will pay to unitholders a cash distribution of $0.30 per limited partner (LP) unit.

CEO Commentary

“The strength and resiliency of our business model was on full display during our peak attendance and revenue months, as we delivered another strong performance and positioned Cedar Fair for a great finish to 2023,” said Cedar Fair President and CEO Richard A. Zimmerman. “Our rapid recovery during the third quarter, combined with our meaningful cost-saving measures, helped offset attendance and revenue shortfalls experienced earlier in the year and put us back on track to deliver another very strong performance in 2023. The strong demand trends we’ve seen so far in the second half of the year, including in the month of October, give us confidence in our ability to carry our success into 2024.”

“Our efforts to drive more demand with increased advertising and a reassessment of our pricing strategy in several key markets resonated well with consumers, and our popular fall events are once again producing some of our biggest attendance days of the year,” added Zimmerman. “In addition to stimulating attendance levels and topline revenue, our team has been optimizing our cost structure to improve margins. By actively managing our variable operating costs to better align with attendance levels and reassessing our overhead needs, we reduced operating costs in the third quarter resulting in a 300-basis-point improvement in Adjusted EBITDA margin over the third quarter last year. I am grateful for our team’s perseverance through such a challenging season.”

Zimmerman continued, “Today we also announced that we have entered into a definitive agreement to merge with Six Flags to create a leading amusement park operator in North America with the largest portfolio of best-in-class parks and brands. With Six Flags, we will expand our footprint, enhance the resilience of our business model, and bolster our financial profile to drive in-park investments. This transaction will allow us to build on our strategy to transform our park operations and deliver the most entertaining experiences to guests.”

Results for 2023 Third Quarter

Operating days in the third quarter of 2023 totaled 1,091 compared to 1,088 in the third quarter of 2022.

For the third quarter ended Sept. 24, 2023, net revenues totaled $842 million on attendance of 12.4 million guests, compared with net revenues of $843 million on attendance of 12.3 million guests for the third quarter of 2022. The decrease in net revenues reflected the impact of a 2%, or $0.97, decrease in in-park per capita spending, to $61.65, offset in part by a 1%, or 0.1 million-visit, increase in attendance and a 2%, or $2 million, increase in out-of-park revenues. The decrease in in-park per capita spending in the third quarter was primarily attributable to lower guest spending on admissions, offset in part by higher levels of guest spending on food and beverage. The decrease in admissions spending reflects the reassessment of pricing strategies and the recovery of lower priced attendance channels during the critical third quarter. The increase in food and beverage spending was driven by an increase in average transaction value, once again underscoring the effectiveness of the Company’s initiatives and ongoing investments in this area.

The Company reported 2023 third quarter operating income of $307 million compared with $442 million in the prior year’s third quarter, which included a $155 million gain recognized on the sale of the land at California’s Great America. Excluding the gain on the land sale, operating income in the third quarter of 2023 increased $20 million, or 7%, compared to the third quarter of 2022. This year-over-year increase reflects the $1 million decrease in net revenues and a $17 million, or 4%, decrease in operating costs and expenses during the period. The decrease in operating costs and expenses reflects a $22 million decrease in operating expenses and a $3 million decrease in cost of goods sold, partially offset by an $8 million increase in SG&A expense. The decrease in operating expenses was driven largely by cost savings initiatives, including meaningful reductions in seasonal labor hours and in-park entertainment costs. The increase in SG&A expense was attributable to higher advertising costs, as well as initial costs associated with the proposed merger with Six Flags.

Depreciation and amortization expense for the third quarter of 2023 totaled $66 million, a decrease of $2 million from the comparable period in 2022. During the period, a loss on impairment/retirement of fixed assets of approximately $2 million was recorded compared with a $4 million loss in the prior-year period.

Interest expense for the third quarter totaled $36 million, a decrease of $1 million compared to the third quarter of 2022, the result of the repayment of the Company’s senior secured term loan facility and related termination of its interest rate swap agreements during the third quarter of 2022. During the quarter, the Company also recognized a $5 million net charge to earnings for foreign currency gains and losses related to the remeasurement of U.S. dollar-denominated notes to the Canadian entity’s functional currency, compared with a $14 million net charge to earnings for the comparable period in 2022.

Accounting for the items above and after a $10 million decrease in provision for taxes driven by the sale of the land at California’s Great America, net income for the 2023 third quarter totaled $215 million, or $4.21 per diluted L.P. unit. This compares with net income of $333 million, or $5.86 per diluted L.P. unit, for the 2022 third quarter.

For the third quarter, Adjusted EBITDA, which management believes is a meaningful measure of the Company’s park-level operating results, totaled $388 million, compared to $362 million for the third quarter of 2022. The $27 million, or 7%, increase in Adjusted EBITDA was driven by a decrease in operating costs and expenses, the outcome of cost saving initiatives designed to maximize efficiencies in variable-operating costs and cost of goods sold.

Preliminary Results for Five Weeks Ended Oct. 29, 2023

Based on preliminary results, net revenues for the five-week period ended Oct. 29, 2023, totaled approximately $226 million, which was down less than 1% compared with net revenues for the same five-week period last year. The October revenues reflect a 2%, or 69,000-visit, increase in attendance, consistent out-of-park revenues, and a 3% decrease in in-park guest per capita spending. In total, the Company entertained 3.3 million guests over the five-week period. Operating days for the comparable five-week periods in 2023 and 2022 totaled 183 days and 177 days, respectively.

Balance Sheet and Liquidity Highlights

As of Sept. 24, 2023, the Company’s deferred revenue balance, including non-current deferred revenue, totaled $208 million. This represents an increase of $20 million, or 11%, compared to deferred revenue at the end of the third quarter last year. The increase in the deferred revenue balance was primarily driven by a strong start to fall sales of 2024 season passes and related all-season products.

On Sept. 24, 2023, the Company had cash on hand of $134 million and $280 million available under its revolving credit facility, for total liquidity of $414 million. Net debt on Sept. 24, 2023, was $2.17 billion, calculated as total debt before debt issuance costs of $2.3 billion less cash and cash equivalents of $134 million.

Distribution

Today, the Company announced the Cedar Fair Board of Directors approved a quarterly cash distribution of $0.30 per limited partner (LP) unit, to be paid on Dec. 20, 2023, to unitholders of record on Dec. 6, 2023.

Merger of Equals with Six Flags

In a separate press release issued today, Cedar Fair and Six Flags announced that they have entered into a definitive merger agreement to combine in an all-stock merger of equals transaction. The combined company, with a pro forma enterprise value of approximately $8 billion, will be an industry leading regional amusement park operator with an expanded and diversified footprint, a best-in-class operating model and a strong revenue and cash flow generation profile. The completion of the merger is subject to receipt of the approval of the shareholders of Six Flags, regulatory approvals, and satisfaction of other customary closing conditions. The merger press release can be found on Cedar Fair’s investor website at https://ir.cedarfair.com.