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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 28, 2021.
“In our business, few things are more exciting and rewarding than reopening our parks each year for another FUN-filled season,” said Cedar Fair President and CEO Richard A. Zimmerman. “We are pleased that all of our U.S. properties are ready to reopen in May, and we can’t wait to welcome back our guests, including our loyal season pass holders, many of whom may be returning for the first time since 2019. We anticipate strong pent-up demand for close-to-home, outdoor entertainment, and are committed to resuming normal park operations as quickly as possible so friends and families can enjoy our unique brand of large-scale entertainment.
“As always, the safety and welfare of our guests and associates is our highest priority,” added Zimmerman.
“In addition to preparing for the 2021 season, our team remains focused on long-term value creation,” continued Zimmerman. “Over the course of the past year, we have been taking actions to transform our business into a more efficient, consumer-focused, and profitable company. Combined with the strategic initiatives we began to implement several years ago to broaden and enhance the guest experience, we expect our business optimization program will help drive superior results and enhanced value in the business for both our guests and our investors.”
First Quarter 2021 Results
While the COVID-19 pandemic had a material impact on the Company’s 2021 first quarter results, as previously announced the Company has established a 2021 operating strategy designed to maximize results for its seasonally weighted second half.
In response to the spread of the coronavirus, and in compliance with California mandates, full park operations at Knott’s Berry Farm, Cedar Fair’s only year-round park, remained suspended in the first quarter, with the park limited to hosting a culinary festival beginning in early March. Results from the culinary festival are reflected as out-of-park revenues and are not included in the Company’s attendance or in-park per capita spending data.
Given the effects of the coronavirus pandemic on park operations, results for the 2021 first quarter are not directly comparable to results for 2020, which included full park operations of Knott’s Berry Farm, as well as abbreviated operations of the two Schlitterbahn water parks prior to the suspension of all park operations beginning on March 14, 2020. In the 2021 first quarter, the Company had zero total operating days, excluding the culinary festival at Knott’s Berry Farm, compared to 90 operating days in the first quarter of 2020.
For the quarter ended March 28, 2021, net revenues totaled $10 million versus $54 million for the first quarter of 2020. The decrease in net revenues was the direct result of a 936,000-visit decrease in attendance and a $2 million decrease in out-of-park revenues due to COVID-19-related park closures and operating calendar changes in the first quarter of 2021.
Because amusement park operations were suspended in the first quarter of 2021, there was no in-park per capita spending for the period. In-park per capita spending was $45.95 for first quarter of 2020, which reflected the COVID-19-related park closures beginning March 14, 2020.
No park operations in the first quarter, combined with cost-saving measures implemented in response to disrupted park operations, led to a decrease in operating costs and expenses in the period. For the first quarter, operating costs and expenses totaled $99 million, compared with $138 million for the first quarter of 2020. During the first quarter of 2021, the Company had no impairment of goodwill and other intangibles, compared to a loss on impairment of goodwill and other intangibles of $88 million during the first quarter of 2020, which was triggered by the anticipated impacts of the COVID-19 pandemic.
Including the items noted above, the Company’s operating loss for the first quarter totaled $92 million, compared with an operating loss of $184 million for the first quarter of 2020, which reflected the $88 million impairment charge. The operating loss in the first quarter of 2021 was the result of the 82% decline in net revenues between years, offset in part by the $39 million decrease in operating costs and expenses.
Interest expense for the first quarter was $44 million, up $17 million from $27 million in the first quarter of 2020, due primarily to incremental interest incurred on the Company’s 2025 senior secured notes issued in April 2020 and its 2028 senior unsecured notes issued in October 2020. The net effect of the Company’s swaps resulted in a $4 million benefit to earnings during the first quarter of 2021, compared with a $20 million charge in the same period a year ago. The difference reflects the change in fair market value movement in the Company’s swap portfolio. During the first quarter, the Company also recognized a $6 million net benefit to earnings for foreign currency gains and losses related to its U.S.-dollar denominated Canadian notes, compared with a $34 million net charge to earnings for the first quarter of 2020.
For the first quarter, a benefit for taxes of $16 million was recorded to account for publicly traded partnership taxes and federal, state, local and foreign income taxes, compared to a benefit for taxes of $49 million in the first quarter of 2020. The decrease in benefit for taxes was attributable to the prior period increase in pretax loss from the Company’s corporate subsidiaries, as well as benefits from the Coronavirus Aid, Relief, and Economic Security Act.
After the items above, the Company reported a first quarter net loss of $110 million, or $1.95 per diluted LP unit. This compares to a first quarter 2020 net loss of $216 million, or $3.83 per diluted LP unit. The first quarter 2021 net loss is directly attributable to the impact of COVID-19 on attendance and revenues during the period, offset in part by effective cost management.
Balance Sheet and Liquidity Update
Deferred revenues as of March 28, 2021 totaled $206 million, representing an increase of $12 million, or 6%, compared with deferred revenues as of Dec. 31, 2020. The increase in deferred revenues was driven in large part by the sale of season passes and other all-season products during the quarter, as well as improving booking trends at the Company’s resort properties. At the end of the first quarter, the Company had more than 1.8 million season passes outstanding and valid through the 2021 season or longer at Knott’s Berry Farm.
As of March 28, 2021, the Company had cash on hand of $272 million, compared with a cash balance of $377 million as of Dec. 31, 2020, representing a first-quarter cash burn of approximately $105 million, or $35 million per month, which was better than the Company’s prior guidance of $40 million to $50 million per month. The Company's first-quarter cash flow benefited from improving season pass sales, higher than expected revenues at the Knott's Berry Farm culinary festival and Cedar Point resort properties, and better than projected cost savings. Total liquidity as of March 28, 2021, inclusive of $359 million of undrawn capacity under the Company’s revolving credit facility, was $631 million. Based on this level of liquidity, the Company has concluded it will have sufficient liquidity to satisfy its obligations and remain in compliance with debt covenants at least through the second quarter of 2022.
2021 Outlook
The Company plans to have all of its U.S. properties open and entertaining guests by Memorial Day weekend. Due to unfavorable COVID-19 trends in Ontario, Canada's Wonderland is not expected to open as originally scheduled. The park will remain ready to open as quickly as possible once operating restrictions are lifted by local authorities. In the meantime, park operating expenses, which are being partially offset by government subsidies while operations are disrupted, are being minimized as much as possible.
“Based on recent trends and consumer survey results, coupled with broad vaccination efforts underway across the nation, we anticipate strong pent-up consumer demand for closer-to-home, outdoor entertainment, particularly in the year’s second half,” said Zimmerman. “We are pleased with the early leading indicators we have seen thus far, and our 2021 operating strategy is focused on maximizing performance during our seasonally weighted second half of the year. With our park openings right around the corner, we are once again seeing a lift in season pass sales, which are incremental to the more than 1.8 million active season passes already on the books and valid through the 2021 season.”
Zimmerman added, “We continue our disciplined approach of managing liquidity and the use of cash, with planned 2021 capital investments totaling less than historical levels. Because several of our parks were closed for the 2020 season, and the others were only partially open for special events, we have brand new rides and attractions from last year that have yet to be introduced to and enjoyed by many of our guests. We intend to invest approximately $100 million in our parks during the year, with roughly a third focused on the completion of select unfinished 2020 projects, including renovations at some of our resort properties; another third focused on essential compliance and infrastructure requirements for the current season; and the final third directed at the start of projects planned for the 2022 season.”
If conditions permit, the Company may invest in additional capital projects with compelling returns. Over time, the Company anticipates annual capital expenditures within its core business returning to historical investment levels of between 9-10% of revenues.
Regarding cash burn, the Company anticipates spending approximately $60 million(1) per month during the second quarter of 2021, versus the $35 million spent per month during the first quarter. Included in the higher second-quarter cash burn are projected higher capital investments and incremental operating costs related to preparing the parks to open, as well as the interest payments for four of the Company’s five outstanding note issuances. Excluding interest payments, the Company spent approximately $30 million per month during the first quarter of 2021 and anticipates spending approximately $35 million per month during the second quarter.
Business Optimization Program
The Company has commenced a business optimization program as part of its long-range strategic plan, which is designed to drive growth in the business. Over the next 2-3 years, once fully executed, the Company expects its optimization efforts to generate an incremental $50 million in annual run-rate benefit once the business returns to historical attendance levels under normal operating conditions.
“The pandemic, while enormously challenging, has allowed us to step back and rethink how we approach nearly every aspect of our business,” said Zimmerman. “The outcome of our collective efforts was the development of a business optimization program designed to ensure we continue to evolve to not only meet, but exceed, the expectations of our guests and associates.”
The business optimization efforts will focus on capturing cost efficiencies and driving incremental revenues through more data-driven decision making, as well as enhancements to the guest experience to meet changing consumer behaviors and preferences. These efforts represent an intentional evolution of the Company’s business approach, which will in part result in the further build-out of shared-service capabilities, freeing the park teams from time consuming administrative responsibilities so they can focus on the key long-term objectives of broadening and enhancing the guest experience.
The Company expects to realize approximately one-third of the business optimization benefits through reductions in fixed costs that are independent of attendance levels. The balance of the benefits is expected to be realized through incremental revenue opportunities and variable cost savings.
Zimmerman concluded, “We are very pleased to emerge from a yearlong period of uncertainty with momentum heading into the 2021 season and our business optimization program in motion. Our team is actively tackling the challenges that come with business model changes of this magnitude, and we are looking forward to building the Cedar Fair of the future.”
Read the entire press release from Cedar Fair.