Posted
From the press release:
Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, today announced its financial results for the quarter ended June 25, 2023. In addition, the Company announced the declaration of a cash distribution of $0.30 per limited partner (LP) unit payable on September 20, 2023, to unitholders of record as of September 6, 2023, consistent with Cedar Fair’s current annualized distribution rate of $1.20 per LP unit.
Second Quarter 2023 Highlights
- Net revenues totaled $501 million, a decrease of $9 million, or 2%, from the second quarter of 2022.
- Net income was $54 million, an increase of $3 million, or 5%, from the second quarter of 2022. Net income per diluted LP unit increased to $1.04, up 17%, or $0.15, from the second quarter of 2022.
- Adjusted EBITDA(1) totaled $151 million, a decrease of $19 million, or 11%, from the second quarter of 2022.
- Attendance totaled 7.4 million guests, a decrease of 6%, or 0.4 million guests, from the second quarter of 2022.
- In-park per capita spending(2) was $61.46, a 3% increase from the second quarter of 2022, driven by higher levels of guest spending on admissions and food and beverage.
- Out-of-park revenues(2) totaled $62 million, representing a $3 million, or 5%, increase from the second quarter of 2022.
July 2023 Highlights
- For the five-week period ended July 30, 2023, preliminary net revenues totaled $414 million, down 2% compared with the same five-week period in 2022.
- Attendance for the month of July totaled 5.9 million guests, a decrease of 4%, or 219,000 guests, from July of 2022.
- In-park per capita spending(2) for the month of July was $63.82, a 2% increase from July of 2022.
- Out-of-park revenues(2) for the five-week period totaled $48 million, consistent with the comparable period in 2022.
CEO Commentary
"The investments we have made in our parks for the 2023 season, as well as those made over the past several years, have improved the guest experience, helped us achieve record guest satisfaction ratings, driven increased guest spending, and positioned Cedar Fair to continue delivering strong economic returns for investors,” commented Richard Zimmerman, Cedar Fair’s president and CEO. “Unfortunately, anomalous weather patterns – including unprecedented rainfall in California and wildfires in Canada – have significantly disrupted year-to-date attendance, as well as sales of 2023 season passes, creating a headwind on demand. To better adapt to changing market dynamics, we have expanded our research efforts to further isolate the impact of macro factors on specific markets.”
Zimmerman added, “Macro-related headwinds have disrupted demand and season pass sales at our California parks, contributing to a 17% decline in combined attendance at those parks during the quarter. Meanwhile, combined attendance at our six parks located in the Midwest, which have been least affected by weather, was up 7% during the quarter, which includes two of our largest parks, Cedar Point and Kings Island, both located in Ohio. We have also continued to drive improvements in other key areas of performance, including guest spending levels and booking trends within our resort and group channels. In-park per capita spending was up 3% over the second quarter of 2022, led once again by increased guest spending on food and beverage, reflecting growth in both transaction counts per guest and average transaction value. The solid performance at our parks operating under normal conditions, and notable improvements in several key financial performance metrics, underscore the resilience of our business model and the benefit of our strategic initiatives over the last two years.”
“Several initiatives are underway to spur demand and maximize profits over the balance of the year,” added Zimmerman. “We have increased our marketing outreach activities at our largest parks and are testing limited-duration pricing for single-day tickets, with the goal of driving incremental demand and creating urgency to visit our parks over the balance of our summer operating calendar and into the important fall season. Our operating trends in July demonstrate that our marketing initiatives led to an initial lift in attendance, aided by a return of more normal operating conditions at several parks previously impacted by extreme weather. The early success of these initiatives, combined with anticipated demand for our popular Halloween and WinterFest events, the continued strength of our group and resort bookings, and the catch-up impact we expect to see as our 2024 season pass sales kickoff in early August, give us confidence in a more robust outlook over the balance of the year.”
Zimmerman concluded, “In addition to strategic marketing initiatives, we are laser-focused on reducing fixed operating costs and expenses and implementing other measures to reduce variable operating costs per operating day. We believe these cost saving initiatives, combined with a return to pre-pandemic attendance levels of 27 million to 28 million guests while maintaining current guest spending levels, would boost annual margin performance back to our most recent pre-pandemic levels and maximize annual cash flow.”
Results for Second Quarter 2023
During the 2023 second quarter, the Company’s parks had 736 total operating days compared with 708 total operating days in the 2022 second quarter.
For the second quarter ended June 25, 2023, net revenues totaled $501 million on attendance of 7.4 million guests, compared with net revenues of $509 million on attendance of 7.8 million guests for the quarter ended June 26, 2022. The decrease in net revenues reflected the impact of a 6%, or 0.4 million-visit, decrease in attendance, offset in part by a 3% increase in in-park per capita spending to $61.46 and a 5%, or $3 million, increase in out-of-park revenues. While operating days in the second quarter increased, the incremental attendance on those additional days was not enough to offset the attendance shortfall caused by a combination of factors, including a 9% decrease in season pass units sold for the 2023 season, largely at the Company’s California parks; extreme weather conditions affecting several key amusement parks and the Company’s four stand-alone water parks; and air quality issues caused by smoke from wildfires in Canada.
The increase in in-park per capita spending in the second quarter was primarily attributable to higher levels of guest spending on food and beverage and admissions. The increase in food and beverage spending was driven by increases in both the average number of transactions per guest and the average transaction value. The increase in admissions spending was driven by an increase in revenue recognized per season pass visit, reflecting higher pricing on season passes, as well as the impact of a lower season pass mix on attendance. The increase in out-of-park revenues during the period was attributable to the reopening of Castaway Bay Resort and Sawmill Creek Resort at Cedar Point following temporary closures for renovations through most of last year’s second quarter, offset in part by a decrease in out-of-park revenues at the hotel at Knott’s Berry Farm due to ongoing renovations.
The Company reported 2023 second quarter operating income of $94 million compared with $112 million in the prior year’s second quarter. The decline in operating income reflects the 2% decrease in net revenues and a 1% increase in operating costs and expenses, when compared with the second quarter of 2022. The increase in operating costs and expenses reflects the impact of 28 incremental operating days during the period and was driven by a $4 million increase in operating expenses and a $1 million increase in SG&A expenses, offset in part by a $0.5 million decrease in cost of goods sold. The higher operating costs and expenses were primarily due to anticipated increases in land lease and property tax expenses related to the sale-leaseback of land at California’s Great America. The increase in SG&A expenses was attributable to higher advertising and technology-related expenses, offset in part by a decline in the anticipated payout of outstanding equity-based compensation plans. Despite total operating costs and expenses increasing as compared to last year’s second quarter, on a per operating day basis, operating costs and expenses were down 2%, driven by a reduction in variable operating costs, including a 3% decrease in total seasonal labor hours, or a 6% decrease in seasonal labor hours per operating day.
Depreciation and amortization expense for the second quarter decreased $1 million from the comparable period in 2022, reflecting the full depreciation of certain assets that more than offset additional depreciation recorded due to the reduction of the estimated useful lives of long-lived assets at California’s Great America following the sale-leaseback of the land at the park. A loss on impairment/retirement of fixed assets of approximately $7 million was recorded in the second quarter of 2023 compared with a $1 million loss in the prior-year period, the result of the retirement of a specific asset.
Interest expense for the second quarter decreased $3 million compared to the second quarter of 2022 as a 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. The reduction in interest expense was partially offset by interest on higher borrowings from the Company’s revolving credit facility in the second quarter of 2023. Prior to the termination of the Company’s interest rate swaps, the change in fair value of the swap portfolio resulted in an $8 million benefit to earnings for the three months ended June 26, 2022. During the second quarter of 2023, the Company recognized an $11 million net benefit 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 $10 million net charge to earnings in the comparable period in 2022.
For the quarter ended June 25, 2023, a provision for taxes of $14 million was recorded to account for publicly traded partnership taxes and federal, state, local and foreign income taxes, compared to a provision for taxes of $19 million in the second quarter of 2022. The difference in provision for taxes in the second quarter was primarily attributable to lower pretax income from the Company’s taxable subsidiaries versus the comparable period in 2022.
Accounting for the items above, net income for the second quarter totaled $54 million, or $1.04 per diluted LP unit, which compares with net income of $51 million, or $0.89 per diluted LP unit, for the comparable period last year.
For the second quarter, Adjusted EBITDA, which management believes is a meaningful measure of the Company’s park-level operating results, totaled $151 million compared with $171 million for the second quarter of 2022. The decrease in Adjusted EBITDA was due primarily to the attendance-driven decline in revenue combined with anticipated higher operating costs in the quarter associated with the expanded operating calendar, a larger advertising program, and the incremental land lease and property taxes associated with the sale-leaseback at California’s Great America. See the attached table for a reconciliation of net income to Adjusted EBITDA.
Preliminary Results for Five Weeks Ended July 30, 2023
Based on preliminary results, net revenues for the five-week period ended July 30, 2023, were approximately $414 million, which was down 2% compared with net revenues for the same five-week period last year. The July revenues reflect a 2% increase in in-park guest per capita spending, flat out-of-park revenues, and a 4%, or 219,000-visit, decrease in attendance. In total, the Company entertained 5.9 million guests over the five-week period. Operating days for the comparable five-week periods in 2023 and 2022 totaled 525 days and 524 days, respectively.
Balance Sheet and Liquidity Highlights
As of June 25, 2023, the Company’s deferred revenue balance, including non-current deferred revenue, totaled $283 million. This compares to $307 million of deferred revenue at the end of the second quarter last year, which included approximately $9 million of COVID-related product extensions at Canada’s Wonderland into 2022. The decline in the deferred revenue balance was largely due to fewer season passes sold for the 2023 season compared to the 2022 program and, to a lesser extent, a change in timing of sponsorship revenue billed. As of June 25, 2023, the Company had sold a total of 2.7 million passes, down 9% from the same time last year. The decline in season pass units sold was offset in part by the revenue benefit of a 6% increase in the average season pass price.
On June 25, 2023, the Company had cash on hand of $49 million and $123 million available under its revolving credit facility, for total liquidity of $172 million. This compares to $319 million of total liquidity on June 26, 2022. Net debt(3) as of June 25, 2023, was $2.41 billion, calculated as total debt before debt issuance costs of $2.46 billion less cash and cash equivalents of $49 million.
Distribution and Unit Repurchases
On May 4, 2023, Cedar Fair announced its Board of Directors had authorized additional unit repurchases, permitting the Company to buy back units in the open market, or through privately negotiated transactions, up to $250 million. This authorization followed the exhaustion of the previous $250 million unit repurchase program under which the Company bought back six million limited partnership units, or approximately 10% of total units that were outstanding at the beginning of 2022.
From May 4, 2023 through July 31, 2023, the Company repurchased approximately 280,000 limited partnership units under the current repurchase program at a total cost of approximately $11 million.
Under the new unit repurchase program, the Company plans to buy units of Cedar Fair opportunistically using free cash flow from operations and does not intend to increase leverage to buy back units. Repurchases may be made from time to time in accordance with all applicable securities and other laws and regulations. The extent and timing to which the Company repurchases units will depend upon a variety of factors, including liquidity, capital needs of the business, market conditions, regulatory requirements, and other business considerations. No limit is placed on the duration of the new program, and the program does not obligate the Company to repurchase a minimum dollar amount or number of units.
Also today, the Company announced the Cedar Fair Board of Directors approved a quarterly cash distribution of $0.30 per LP unit, to be paid on Sept. 20, 2023, to unitholders of record on Sept. 6, 2023.