Posted Wednesday, July 29, 2020 11:11 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 reported, as anticipated, weaker financial results for the second quarter and first half of 2020 as compared to the same periods in 2019, primarily due to the COVID-19 pandemic’s negative impact on its operations. Compared to its prior guidance, the company improved its cash flow performance for the second quarter and is projecting reduced cash outflows for the balance of the year. The company has commenced a major transformation initiative to reinvigorate long-term growth and shareholder value, including revenue growth, improved cost efficiencies, and an enhanced end-to-end experience for its guests.
“I am very proud of our team’s performance in the face of unprecedented challenges from the pandemic. We have made transformational changes to park operations by leveraging our experience and technology to create industry-leading safety protocols. In close coordination with government leaders and local communities, these protocols have allowed us to reopen many of our parks while maintaining the safety of our team members and guests as our highest priority. Now more than ever, we believe our guests need opportunities for outdoor entertainment, and I am pleased that city and state officials have acknowledged our safety standards as a best-in-class example of how businesses can safely serve guests during this pandemic,” said Mike Spanos, President and CEO. “Additionally, I would like to thank our loyal season pass holders and members for their commitment to our company during this difficult period.”
“Our team is taking actions that will allow us to emerge a stronger and more profitable company,” continued Spanos, “and we have initiated a fundamental review of our business model with the goal of becoming a more agile, consumer-centric, and technology-savvy organization.”
Second Quarter 2020 Results
As previously announced, the company suspended operations of its North American parks beginning on March 13, 2020, due to the spread of COVID-19 and local government mandates, which had a significant negative impact on the company’s financial performance. The company resumed partial operations at many of its parks on a staggered basis near the end of the second quarter using a cautious and phased approach, including limiting attendance, in accordance with local conditions and government guidelines. A schedule of park reopening dates is set forth in Schedule A of this release.
Revenue for the second quarter of 2020 was $19 million, with attendance of 433,000 guests, both a decrease of 96 percent compared to the same period in 2019. The decrease was due to the pandemic-related suspension of park operations for most of the quarter. The decrease in revenue was also attributable to a $29 million reduction in sponsorship, international agreements, and accommodations revenue due to the previously announced terminations of the company’s contracts in China and Dubai, which generated revenue in 2019; the suspension of most second-quarter sponsorship revenue while the parks were not operating; and the pandemic-related suspension of nearly all accommodations operations. The company partially offset the decrease in revenue by implementing cost savings measures immediately after park operations were suspended.
The company’s net loss during the second quarter of 2020 was $137 million, a decrease of $216 million compared to the prior year period, primarily due to reduced attendance and an aggregate increase in reserves of $8 million associated with several legal claims. The net loss per share for the second quarter of 2020 was $1.62, compared to diluted earnings per share of $0.94 in the second quarter of 2019. Adjusted EBITDA for the second quarter of 2020 was a loss of $96 million, a decrease of $276 million compared to the prior year period. The second quarter 2020 Adjusted EBITDA calculation reflects an add-back adjustment of approximately $6 million of non-recurring costs related to the transformation initiative.
Net cash outflow for the second quarter was $76 million, excluding the one-time financing costs associated with the company’s debt transactions, or approximately $25 million per month. This represented an improvement compared to the company’s previously anticipated average net cash outflow of $30-$35 million per month. The improvement was driven by disciplined cost management, higher than expected retention of the Active Pass Base, which includes all members and season pass holders, and positive cash flow from reopened parks.
Total guest spending per capita for the second quarter of 2020 was $35.77, a decrease of $6.50, or 15 percent, compared to the second quarter of 2019. The decrease was primarily due to park mix: half of the company’s attendance in the second quarter came from the company’s drive-through Safari at Six Flags Great Adventure, which reopened in May 2020 after having been converted to a free park attraction in 2013. The safari experiences lower guest spending per capita compared to the company’s other parks due to the lack of in-park spending opportunities.
Admissions revenue per capita in the second quarter of 2020 increased $1.29, or 5 percent, to $25.32 compared to the second quarter of 2019. This increase was driven by a higher mix of single-day paid admissions, offset by the deferral of approximately $24 million of monthly membership revenue. After a member’s initial 12-month commitment period ends, the company ordinarily recognizes revenue from those membership payments on a monthly basis; however, in response to the pandemic-related park closures, the company added one additional month of membership privileges for every month a member paid but could not visit their home park. The membership payments received while parks were closed due to the pandemic were deferred and will be recognized as revenue when these additional months are used.
In-park spending per capita in the second quarter of 2020 decreased $7.79, or 43 percent compared to the second quarter of 2019, to $10.45, primarily due to the lack of in-park spending opportunity at the company’s drive-through Safari at Six Flags Great Adventure. The decrease was also attributable to the deferral of approximately $6 million of monthly membership revenue related to all-season membership products such as the all-season dining pass. Similar to the membership admission payments described above, this revenue will be deferred until the additional months received for these products are utilized.
First Half 2020 Results
For the first six months of 2020, revenue was $122 million, an 80 percent decrease compared to the prior year period. The decrease was due to an 84 percent decrease in attendance resulting from the temporary pandemic-related suspension of park operations, and a $40 million decrease in sponsorship, international agreements, and accommodations revenue. The company had a net loss of $221 million and a net loss per share of $2.62 for the first six months of 2020, compared to net income of $10 million and diluted earnings per share of $0.12 for the same period in 2019. Adjusted EBITDA was a loss of $138 million for the first six months of 2020, compared to Adjusted EBITDA of $148 million for the first six months of 2019.
Attendance for the first six months of 2020 was 2.0 million guests, an 84 percent decrease compared to 12.7 million guests in the first six months of 2019. Guest spending per capita increased $8.80 to $52.13 for the first six months of 2020, with admissions per capita increasing 40 percent and in-park spending per capita decreasing 6 percent to $35.10 and $17.03, respectively.
The improvement in admissions spending per capita for the first six months of 2020 was primarily due to recurring monthly membership revenue in the first quarter of 2020 from members who retained their memberships on a monthly basis after their initial 12-month commitment period ended. Prior to the suspension of park operations, when the company began deferring this revenue while park operations were suspended, these payments were recognized as received. Higher guest spending per capita by single-day guests prior to the suspension of operations also contributed to the improvement. The decrease in in-park spending per capita was driven by attendance at the company’s drive-through Safari, which lacks in-park spending opportunities.
Active Pass Base
The company is working with its members and season pass holders to extend their usage privileges to compensate for any lost days due to its temporary park closures, and is offering higher-tiered benefits to members in return for maintaining their current payment schedule. The company has also offered members the option to pause payments on their current membership. However, as anticipated, the company sold fewer season passes and memberships while its parks were not operating compared to the same period in 2019. As a result, the Active Pass Base decreased 38 percent as of the end of the second quarter of 2020 compared to the same prior year period. Included in the Active Pass Base were 2.1 million members, compared to 2.6 million members at the end of 2019 and 2.4 million members at the end of the first quarter of 2020.
Deferred revenue was $182 million as of June 30, 2020, a decrease of $53 million, or 22 percent, from June 30, 2019. The decrease in deferred revenue was primarily due to lower season pass and membership sales. This was partially offset by the deferral of revenue from members and season pass holders.
For those members whose initial 12-month commitment period ended, but who continued paying for membership on a monthly basis after the parks temporarily closed for the pandemic, revenue will be deferred until the end of their membership. In contrast, payments from members whose initial 12-month commitment period had ended in 2019 were recognized as they were received and had limited contribution to deferred revenue in the prior year period.
Balance Sheet and Liquidity
As of June 30, 2020, the company had cash on hand of $296 million and $460 million available under its revolving credit facility, net of $21 million of letters of credit, or total liquidity of $756 million. Based on the parks that are currently open, the company estimates that its net cash outflow through the end of 2020 will be, on average, $25-$30 million per month. The company has no debt maturities until 2024.
In the first half of 2020, the company invested $73 million in new capital projects, net of property insurance recoveries, paid $21 million in dividends, and prepaid $51 million of its 4.875 percent notes due 2024. Net debt as of June 30, 2020, calculated as total reported debt of $2,620 million less cash and cash equivalents of $296 million, was $2,324 million.
In April, the company amended its credit facility to, among other things, suspend testing of its senior secured leverage ratio financial maintenance covenant through December 31, 2020. The company’s lenders also approved modified testing of the senior secured leverage ratio financial maintenance covenant through December 31, 2021. Through the duration of the amendment period ending December 31, 2021, the company agreed to suspend paying dividends and repurchasing its common stock, and to maintain minimum liquidity of $150 million.
In response to curtailed operations, and to preserve the company’s liquidity position and prepare for multiple contingencies, the company continues to take actions to reduce operating expenses and defer or eliminate certain discretionary capital projects planned for 2020 and 2021. The company is able to take additional measures or further modify park operations and park schedules based on changing conditions.
At this time, the company anticipates it has sufficient liquidity to meet its cash obligations through the end of 2021 even if the currently open parks are forced to close; however, if its operations continue to be significantly reduced in 2021, the company would likely require additional covenant relief during 2021 from its credit facility lenders. The company will continue to explore options to further reduce cash outflows and be prepared to respond to a more protracted reduction of operations.
The company launched a holistic transformation program to reinvigorate revenue growth, reduce operating expenses by optimizing the company’s operating model, and improve its guests’ end-to-end experience through technological advancements. Through this transformation initiative, the company is targeting significant improvement to its financial performance and to the guest experience. The company will not make a final determination of the costs or associated savings until it completes the work. The company anticipates that a portion of the work will be completed by the fourth quarter of 2020, and the remaining portion will be completed when the parks are again operating at a more normal capacity.
Read the entire press release from Six Flags.