Posted Wednesday, October 24, 2018 10:04 AM | Contributed by Jeff
From the press release:
Six Flags Entertainment Corporation (NYSE: SIX), the world’s largest regional theme park company and the largest operator of waterparks in North America, today announced that revenue for the third quarter of 2018 increased $39 million or 7 percent from the third quarter of 2017 to $620 million. The revenue growth was primarily driven by a 5 percent increase in attendance to 13.6 million guests, and a 42 percent increase in sponsorship, international agreement and accommodations revenue.
Net income1 for the quarter increased $3 million or 2 percent compared to the prior year period, and diluted earnings per share increased 2 percent to $2.16, primarily due to the growth in the business and the positive impact of tax reform, partially offset by an increase in stock-based compensation related to accounting for the company’s Project 600 award. Adjusted EBITDA2 in the third quarter of 2018 increased $6 million or 2 percent to $307 million compared to the prior-year period. Cash operating costs, including associated lease expense, increased 14 percent in the quarter primarily due to our five newly acquired parks, which have significantly lower margins than our existing parks. Foreign currency translation3 had a negative impact on Adjusted EBITDA in the third quarter of $1 million.
“We were pleased to achieve record revenue and Adjusted EBITDA for the first nine months of 2018, and we are on track for our ninth record year in a row,” said Jim Reid-Anderson, Chairman, President and CEO. “Our five key growth initiatives provide a strong platform for growth for many years to come: we are increasing ticket yields; enhancing recurring revenue through our new membership and loyalty programs and expanding our operating calendar; growing in park revenue, especially culinary sales; expanding our domestic footprint via targeted acquisitions; and pursuing additional Six Flags-branded international parks.”
Total guest spending per capita for the third quarter of 2018 was $43.02, which was an improvement of $0.08 compared to the third quarter of 2017. Ticket price gains and sales of premium membership tiers were partially offset by lower per capita spending in our five newly acquired parks and the deferral of a portion of new membership revenue into 2019. Admissions per capita increased 1 percent to $25.86 and in-park spending per capita decreased 1 percent to $17.16.
For the first nine months of 2018, revenue was $1.2 billion, an 8 percent improvement compared to the prior-year period, driven primarily by 6 percent growth in attendance and a 23 percent increase in sponsorship, international agreement and accommodations revenue. Net income grew $21 million or 12 percent and diluted earnings per share increased 17 percent to $2.30 driven by the growth in the business and the positive impact of tax reform, partially offset by an increase in stock-based compensation related to the accounting for the company’s Project 600 award. Adjusted EBITDA increased $26 million or 6% to $458 million.
Attendance at the company’s parks for the first nine months of 2018 grew to 25.7 million guests, an increase of 6 percent as compared to the first nine months of 2017. The increase in attendance was primarily driven by the five newly acquired parks, the two new waterparks in Mexico and California, and the benefit of 365-day operations at Six Flags Magic Mountain. Guest spending per capita increased 1 percent to $43.15 for the first nine months of 2018, with admissions per capita increasing 3 percent to $25.59 and in-park spending per capita decreasing 1 percent to $17.56.
The Active Pass Base, which represents the total number of guests who are enrolled in the company’s membership program or have a season pass, increased 9 percent year-over-year as a result of the company’s continued success in upselling guests from single day tickets to memberships and season passes. The mix of memberships in the Active Pass Base significantly increased as a result of the company’s roll-out of a new, premium-tiered membership program. Members are the company’s most loyal and valuable guests, with higher retention rates and higher revenue—especially from the premium membership tiers—compared to traditional season passes. Deferred revenue of $193 million, a record high for the third quarter, increased by $14 million or 8 percent over September 30, 2017, primarily due to incremental sales of memberships, season passes, and all-season dining passes.
In the first nine months of 2018, the company invested $112 million in new capital projects and $23 million, less net working capital and other customary adjustments, to acquire the lease rights to five new parks; paid $198 million in dividends, or $0.78 per common share per quarter; and repurchased $81 million of its common stock. The authorized amount available for additional share repurchases as of September 30, 2018, was $262 million. Net debt as of September 30, 2018, calculated as total reported debt of $2,062 million less cash and cash equivalents of $69 million, was $1,994 million, representing a 3.7 times Adjusted EBITDA net leverage ratio.
Read the entire press release from Six Flags.
Successfully upselling people into season passes has to be the weirdest thing I've ever read. It gets you a little more (and I do mean a little) up front, but does it really translate to more revenue for the duration of the season? Does it negatively impact the guest experience with crowd size? Again, it just feels like a short-term cash play that dilutes margins and profit in the long run.
I wonder what the Visits per Guest number is for their pass population. They might be capturing a non-trivial amount from people who think they might come back later in the year, but never do.
Yeah, I wonder how many people are pulled in by the "for $x more, you can visit as many times as you want," buy the pass but never come back that season.
Well, I haven't been back since 2001 I think... :)
Does Six Flags have the auto renewal passes? People could still be paying for passes and their last visit was 3 years ago. LOL
Six Flags Magic Mountain is selling gold flash passes that are good for the rest of this year and all of 2019 for 2019 for $199. And platinum flash passes for $399. That seems crazy to me in terms of pricing. Though maybe its the same model: people will buy for the deal but not use it.
I've heard from people I know on the local level at Six Flags that they attribute their current attendance and financial success to the cheap season passes, memberships, and season dining passes. It seems like a very short term plan, but they're seeing something in it that makes it a long game. I don't get it.
GoBucks said "SFMM selling stuff cheap" (my summary), and he's right. In the Season Pass deals thread we beat this to death, but for an annualized $660 (ignoring the "three months free" I get on the membership/pass), I got $199 pass, $399 FOTL, and $60 dining. So, I get admission to both SFMM and SFHH, God-Like FOTL, super premium parking, free lunch, dinner, snack, and sodas for a 365 day operating park, free wristband each night for Fright Fest, and 50% off if I actually spend any money in the park. That 50% is the the MINIMUM ticket discount I get for all family/friends any day). They've been pimping weekday friend tix for $9.99 for most of this time, and this week it was bring a friend for free. (and that's on top of few normally scheduled bring a friend free days). I've now been 5 times (short 2-3 hour spurts) since Labor day, and have spent $0.00 out of pocket.
So are they making money (additional profit) with this? Granted the $399 for FOTL is high margin (minimal cost to lease the Qbots and staff the desk), but they are surely losing money on the dining plan. Base pass is $90, diamond elite is $199 for 12 months of admission (which includes free parking, and 2 free FOTL passes) and is double the base pass price for Knott's, but considerably cheaper than any pass for Disney which would have massive blackouts and no parking (different experience I know, but listed for comparison),
So yes, attendance is up and total revenue is up (since I've never had a SFMM pass and usually go only once every 2-3 years they certainly got my money), but that per capita is going to come crashing down quickly I would assume. Also, to Jeff's point, now that I have the FOTL I damn sure use it, so how much does that degrade the non-pass/membership experience and are they losing future business? who knows.
On the lightly attended Sept/Oct weekdays I tried my best to scope the crowd to see what kind of pass they're sporting (or which colored soda jug they're carrying), and there certainly seem to be a lot of the Diamond Elite peeps. So was that a move up in revenue from prior pass levels from $90 to $199, and if so, what does that incremental cash/revenue represent in higher costs (new 365 day ops for MM are throwing this calculus off).
I bought myself a SF membership plan on a visit to SFMM back in March. While I had no plans to visit a SF park in the next year, and don't even live near one, as a coastertool who travels for work, "you never know." I may or may not get another use out of it, but I was still the right purchase in my eyes.
I think the monthly fee thing is smart for SF, because much like a gym membership, they benefit from long term users. People may say something like "well, I don't go as much as I used to, but it's cheaper to keep paying over the months that I don't than to let it expire and then re-commit for another year.
I wonder how much they make from in park spending off people who normally would go once or twice but buy a cheap season pass and then go three or four times.
Hobbes: "What's the point of attaching a number to everything you do?"
Calvin: "If your numbers go up, it means you're having more fun."
My wife and I were "upsold" Diamond Elite Memberships when our regular memberships were discontinued at the start of the season. My son is three and we were going to get him a regular season pass once his age was questioned at the gate but since that hasn't happened yet, he's still free. We spend a pretty good amount of time at SFOG, plus we each have the dining pass which was heavily discounted, it was an easy sell to them and an easy buy for us. All that for the low low price of $42 a month.
The big selling point of the pass is that everything we purchase in the park is 50% off. Generally we are not park shoppers, but have been lured into buying junk all over the park because it's 50% off. Crap that I would have never dreamed of buying has been purchased simply because of the discount. I have to believe that will also attract other membership holders to buy things they wouldn't generally purchase just because it's discounted. I think it's pretty safe to say the memberships/season passes will generate additional revenue just based on the levels of discounts associated with the passes, since merchandise that would generally just be sitting on the shelf is getting moved by suckers like myself.
You obviously don't get this in the press release, but apparently they missed Wall Street's expectations in a significant way:
I think the other thing with these memberships is it helps move money around to keep cash flow all year round.
But then again, what do I know?
Still staggering to see a debt load of $2B for six flags. Yes, X number of parks, etc, but we all know that with the exception of a few steel coasters, all of the permanent assets of the parks are essentially worthless. It's only the land that is valuable. However, $2B still seems like a large number considering that I don't think they've put +$1B worth of improvements into the parks since the last Bankruptcy, remember that they had $1B in debt upon emergence from bankruptcy.
I would like to think that analysts are having (or have had) the same discussions we've had regarding gate integrity, per caps, operating costs, etc. Yesterday was a bad day for the market in general, so not a good day to break mediocre/bad news. Stock is down another 1.7% as I type this, with the rest of the market rebounding slightly from yesterday's rout. So, do the math.
I have no insight into SF's ops, but one would imagine that after the consolidation/bankruptcy of the Burke/Snyder era, that costs have been managed well at the corporate and operating level, so Revenue is the critical thing. I find it hard to believe that the company would be too fat. Thus the fact that revenue increased but Net Income (or even goofy EBITDAx) didn't move enough, would lead one to believe that our concerns are valid.
Impact of gas prices wasn't mentioned in the press release but don't discount that as being a factor as gas spiked right as the summer travel season kicked in, so that might have some lasting impact as we look towards 2019.Last edited by CreditWh0re, Thursday, October 25, 2018 1:30 PM
Year-over-year growth that matches inflation isn't impressive, even if it's "record" revenue. That's just status quo. I'll be the first to admit that Wall Street's fascination with growth is annoying, but it kind of goes with being public. When the growth is driven by a pricing strategy shift that feels like a race to the bottom, that does not instill confidence. The upsell seems like something you can get away with once, but we know it's hard to shift the revenue back to gate integrity.
How much debt did 6F have when it went into bankruptcy? I had no idea they came out with $1B in debt still.
But then again, what do I know?
They had about $2.7 billion in debt and emerged from bankruptcy with about $1 billion.
Companies that reorganize in bankruptcy typically do not wipe out all of their debt. Existing debt can be reduced, payment terms modified or converted to equity. With Six Flags, the junior debt was converted to equity and pre-bankruptcy equity was wiped out.
A lot of bankruptcies today are really asset sales. All of the assets of the debtor are sold to a new company. Sales proceeds are used to repay debtor's creditors (Bankruptcy Code contains provisions which dictate priority in which debts are repaid because typically there are not sufficient sales proceeds to repay all pre-bankruptcy debt). Buyer of the assets isn't burdened with any pre-bankruptcy debt of the debtor (though sometimes critical vendors/other important creditors will be paid by the new company so they keep supplying to the new entity). Often times, the new entity borrows money to fund the purchase price in the bankruptcy sale so it will have debt going forward. General Motors involved an asset sale. The new company bought the profitable GM assets (including the GM name). GM entity formed in 1908 changed its name to Motors Liquidation Company. The GM entity that is making cars today is only 10 years old. All of that is an oversimplified version of what happened in that case.
Bucks has it conceptually correct, although it's not quite as nefarious as it might sound. Most chap 11 cases these days really don't have much chance of a Reorganization, thus the Sale to new people, the proceeds of which are used to pay off old debts according to Bankruptcy code law, and the valuable assets used as the basis to start a new company (even if it has the same/similar name as the old co). GM, and most old line manufacturing companies that file BK, do a sale to a new entity as it allows them to shed the burden of pension plans, retiree benefit obligations, and litigation liabilities such as Asbestos. For example, If you know any Sears retirees, they're about to get screwed out of a large portion of their pension. Retailers these days usually do a liquidating Chap 11 or a full blown Chap 7 as there is no business left to reorganize around. Others just need to strengthen their balance sheet, use the BK code to get out of bad contracts/deals, and actually can move forward.
Back to original topic, it's a bit scary to see Six Flags having piled up +1Billion in debt since the last bankruptcy, because they certainly haven't increased Net Income, or even (some variant of) EBITDA to make it seem like they've got cash to pay that down. What happens when the next downturn comes along? Answer to that question: Look at the 1,574 new homes, and the commercial development being built around Magic Mountain. put a clock on SFMM. It may be 8-15 years, but SFMM will not survive the top of the next bull market.
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