From the press release:
Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, today announced results for its first quarter ended March 29, 2020. Historically, first-quarter results represent less than 5% of the Company’s full-year net revenues, as most parks and facilities are closed during the first quarter. As a result, the Company typically operates at a loss during this three-month period.
“The near-term financial impact of the COVID-19 pandemic is rapidly evolving and difficult to measure and quantify. First-quarter attendance and revenues were trending ahead of the first quarter last year and were consistent with our expectations through the middle of March, when we were forced to indefinitely close our parks or delay park openings,” said Richard Zimmerman, president and CEO of Cedar Fair.
“In response to the COVID-19 pandemic, we have taken timely, proactive steps to adapt the Company to the current environment, and to further strengthen our financial position,” continued Zimmerman. “The ability to quickly adjust our flexible business model enables us to manage through these uncertain times while remaining prepared to reopen our properties as soon as reasonably possible.”
Zimmerman added, “Although the COVID-19 pandemic created conditions which led to the closure of our operations in mid-March, we are nevertheless pleased that the record pace we established in 2019 carried well into the first quarter of 2020. Strong season passes sales, coupled with Knott’s Berry Farm’s very strong start this year and an anticipated pent-up demand for outdoor entertainment, give us confidence our parks are well positioned to provide our guests with an outstanding choice for family outdoor entertainment.”
For the first quarter ended March 29, 2020, Cedar Fair’s net revenues totaled $54 million compared with $67 million for last year’s first quarter ended March 31, 2019. The decrease in net revenues for the period was the direct result of a 239,000-visit decrease in attendance and a $3 million decrease in out-of-park revenues, both shortfalls due to COVID-19-related park closures beginning March 14, 2020, through the end of the quarter.
Prior to the mid-March disruption of operations, attendance was up 149,000 visits, or 19%, and revenues were up more than $8 million, both increases primarily driven by a record start to the 2020 season at Knott’s Berry Farm, the Company’s only year-round park. During the last two weeks of the quarter, with no parks in operation as a result of COVID-19, the Company estimates it lost 388,000 visits and more than $20 million in revenues when compared with the same two-week period a year ago.
Early cost-savings measures implemented after park operations were suspended helped offset a portion of the decrease in revenues. For the first quarter, operating costs and expenses totaled $138 million, which was comparable to the first quarter of 2019. Depreciation and amortization expense in the quarter decreased $9 million compared to the first quarter of 2019 due to less depreciation expense being recognized in the current period due to the COVID-19 park closures, as well as a change in the estimated useful life of a long-lived park asset in the prior period.
The loss on impairment / retirement of fixed assets in the quarter was $7 million, compared with $1 million in the first quarter last year. The increase between years included a $3 million impairment charge with respect to the newly acquired Schlitterbahn parks’ long-lived assets, triggered by the anticipated impacts of COVID-19, as well as the impairment of two specific assets during the current-year period. Similarly, the loss on impairment of goodwill and other intangibles of $88 million during the first quarter of 2020 was also triggered by the anticipated impacts of COVID-19.
After the items noted above, the operating loss for the first quarter totaled $184 million, compared with an operating loss of $85 million in the first quarter last year.
Interest expense for the first quarter was $27 million, up from $21 million in the first quarter of 2019 due to incremental interest incurred on the Company’s 2029 senior notes issued in June 2019. The net effect of the Company’s swaps resulted in a $20 million charge to earnings during the first quarter of 2020, compared with a $6 million charge to earnings in the same period last year. The difference reflects the change in fair market value movements in the Company’s swap portfolio. During the first quarter of 2020, the Company also recognized a $34 million net charge to earnings for foreign currency gains and losses related to the U.S.-dollar denominated Canadian notes, compared with a $9 million net benefit to earnings for the first quarter of 2019.
During the first three months of 2020, a benefit for taxes of $49 million was recorded to account for publicly traded partnership taxes and federal, state, local and foreign income taxes compared to a tax benefit of $20 million recorded in the first quarter of 2019.
After the items above, net loss for the 2020 first quarter totaled $216 million, or $3.83 per diluted LP unit, versus a net loss of $84 million, or $1.49 per diluted LP unit, reported in the first quarter of 2019.
In spite of the disruption caused by COVID-19, the Company’s season pass sales remained up more than 30% as of the end of the first quarter, compared to the prior-year period. The year-over-year increase reflects the record pace in season pass sales coming out of 2019 and the continuation of that strong momentum in the current year prior to COVID-19. As of March 29, 2020, deferred revenues totaled $195 million, representing an increase of $33 million, or more than 20%, from this same time last year.
Addressing actions recently announced in response to COVID-19, Zimmerman noted the Company has taken proactive measures to reduce operating costs and capital spending in order to improve financial flexibility while its parks remain closed and in a state of readiness to reopen for the 2020 season. In addition, the Company has suspended its quarterly cash distribution payments until operating visibility improves and distribution payments can be reinstituted under our recently revised debt covenants. “Concurrent with the proactive steps we’ve taken to date, our park GMs and their teams have been actively addressing and planning for new measures and guidelines to ensure our properties can reopen as soon as possible once state and local restrictions have been lifted,” said Zimmerman. “As we contemplate what new measures could be necessary, our overarching goal is to ensure the safety and well-being of everyone inside our properties, while still providing our guests a best-day experience.”
Liquidity and Balance Sheet Update
To provide for incremental liquidity should COVID-19 create an extended disruption, the Company recently announced the completion of a private offering of $1.0 billion of 5.500% senior secured notes due in 2025, of which $463 million was used to repay a portion of its senior secured term loan. In concert with the bond offering, the Company added an incremental $100 million of revolving credit commitments to its existing revolving credit facility, increasing the total size of the revolver to $375 million.
In addition, the Company and its secured lenders agreed to amend the credit facility covenants to provide additional covenant headroom, further enhancing the Company’s financial flexibility. The amendment suspends the Company’s total leverage ratio financial maintenance covenant after the first quarter of 2020. Thereafter, the total leverage ratio covenant will be replaced by a senior secured leverage ratio covenant. Commencing with the first quarter of 2021, through the third quarter of 2021, the Company will calculate leverage by substituting results from the second, third and fourth quarters of 2020 with results from the second, third and fourth quarters of 2019, preventing the effects of the COVID-19 pandemic from distorting the covenant calculations and distracting the Company or its lenders from the prudent management of the business over the quarters ahead. In addition, there is an added requirement the Company maintain a minimum liquidity level of $125.0 million, and the Company may not make restricted payments such as distributions, generally through December 31, 2021.
“In a very uncertain economic environment, we are extremely pleased with the market’s confidence as demonstrated by our very successful notes offering,” said Zimmerman. “Additionally, we greatly appreciate and value the continued support from our long-tenured bank group during these unprecedented times. With our cash on hand, plus the remaining availability under our expanded revolving credit facility, our pro-forma liquidity position as of March 29, 2020, was approximately $821 million.”
Given the cost-cutting and cash-savings measures taken to date, the Company anticipates its average cash burn rate going forward, including operating expenses while its parks remain closed, capital expenditures and debt facility costs, after consideration for the recently completed bond offering, will be approximately $30-40 million per month. Should its parks remain closed for an extended period of time, the Company is prepared to activate additional cost-cutting and cash-savings measures to further reduce its cash burn rate.
Commenting on the current state of business, Zimmerman said, “We continue to work closely with local and state health authorities to monitor the COVID-19 pandemic. Based on the best information we have currently, we do not anticipate resuming operations at any of our parks in the near term. This projection remains fluid and subject to change as the situation evolves, including if state and local guidelines are modified.”
Zimmerman concluded by noting, “There is nothing we want more than to safely open our parks and provide our guests with the thrilling, high-quality and value-oriented entertainment for which Cedar Fair parks are widely known. With the completion of our recent notes offering, expansion of our revolving credit facility, and cost-cutting and cash-savings measures now in place, we are confident we have the resources to effectively manage our business through an extended disruption. When the time is right, we look forward to welcoming our loyal park guests and families back to our midways.”
Read the entire press release from Cedar Fair.
For financial covenant testing purposes under debt docs, they will deem the EBITDA for the last 3 quarters of 2020 to be what it was for the last three quarters of 2019. That is an approach other companies have taken because its very difficult to estimate what your EBITDA this year will be and as a result, trying to determine what leverage ratios should be for testing purposes is a huge challenge. And won't work at all if EBITDA is negative.
Distributions blocked (or at least restricted) through December 31, 2021.
I understand the impairment related to Schlitterbahn, but what were the other two assets that were impaired? Inquiring minds want to know. In Park, Out-of-Park; what was determined to be worth less than before, which isn't fully depreciated? Was it mentioned on the call? From the announcement it sounds like 2 items totaling $3MM. hmmmmm
I don't see anything in the transcript about the other impairments.
Interesting responses to some of the questions. This one struck me:
James, it's Brian. So at a high level, I guess the way I would answer it is, outside of a handful of days each year, most of our parks would operate in normal day, probably someplace at or below 50% of theoretical capacity. As you know, full, well, being close to Cedar Point, Cedar Points can do 50-plus thousand people on a day, and that's maybe not at theoretical capacity, but it's getting up there. Let's put it in the 90-plus percent kind of range. But on average, that's not what it's doing over the course of an entire operating season. The average attendances is probably, like I said, closer to 50% of that. So I think as we think about the impact of limiting capacity up against the theoretical capacity number, the answer really comes down in large part to on a park by park basis, just based on this the structural limitations of the park.
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