Six Flags Entertainment Corporation New

Good morning, ladies and gentlemen. Welcome to the Six Flags Q4 and Full Year 2020 Earnings Conference Call. My name is Catherine, and I will be your operator for today's call. During the presentation, all lines will be in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. If you have a question at that time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I will now turn the call over to Steve Purtell, Senior Vice President, Investor Relations.

Good morning, and welcome to our fourth quarter and full year 2020 call. With me are Mike Spanos, President and CEO of Six Flags, and Sandy Preddy, our Chief Financial Officer. We will begin the call with prepared comments and then open the call to your questions. Our comments will include forward-looking statements within the meaning of the Federal Securities Law. These statements are subject to risk and uncertainty, that could cause actual results to differ materially from those described in such statements, and the company undertakes no obligation to update or revise these statements. In addition, on the call, we will discuss non-GAAP financial measures. Investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the company's annual reports, quarterly reports, and other forms filed or furnished with the SEC. At this time, I will turn the call over to Mike.

Good morning. Thank you for joining our call. This past year has been exceptionally challenging as the world contends with a pandemic that has upended all of our lives. We are grateful for the first responders who keep us safe and for those who provide the services we all count on every day. I am proud that Six Flags has been able to make a difference in the communities we serve by hosting vaccination sites and testing locations and and by donating to food banks for those in need. I also want to thank our Six Flags team for rising to meet the challenges of the past year. They have continued to amaze me with their dedication, perseverance, and resilience as we found innovative ways to safely entertain nearly 7 million guests as a preferred entertainment choice. We established the highest standards of cleanliness and safety protocol as validated by local health officials and our guest feedback. We strengthened our liquidity position, significantly reduced our operating and capital expenditures, and continue to innovate to safely and successfully reopen our parks. I've never been more proud of our company or more confident in our future. In the fourth quarter, we continue to make significant progress on our transformation plan, which focuses on strengthening our core business. This plan is in full action and will fuel our new strategy to drive long-term profitable growth. Our new strategy is evolutionary, not revolutionary. We are going to do many of the same things we did in the past, but we are going to do them better. Specifically, we will modernize all aspects of the guest experience, and we will operate more efficiently as an organization. As I stressed on our last call, our guests still love our roller coasters and funnel cakes. They just want a more seamless experience, and we can provide them that through technology. We have divided our call into three parts. First, I will provide an overview of our recent operating performance and the strong demand trends we are seeing. Second, Sandeep will go into more detail about our financial results and give an update on the progress of our transformation plan. Finally, I will return to discuss our new strategy in more detail and review our three strategic focus areas. We are pleased that our attendance has consistently improved since we first reopened our parks last year in the second quarter. I'd like to highlight a few reasons why we're so optimistic about the upcoming season, despite the challenging operating environment. First, on a comparable period basis, attendance trends in open parks have increased from 20 to 25 percent of 2019 levels in the second quarter to 35 percent in the third quarter to 51 percent in the fourth quarter. We have continued to see strong signs so far this year, with attendance at open parks trending at consistent levels as the fourth quarter, despite extreme weather conditions in Texas over the past couple of weeks. Our guest surveys indicate that there is extraordinary pent-up demand for outdoor entertainment options close to home, and we believe that this widespread desire will drive attendance in the coming quarters. Second, we are encouraged by the resiliency of our active pass base. which was approximately flat between the third quarter and fourth quarter of 2020. Even more encouraging, the number of members who retain their membership after their initial 12-month commitment period, our most valuable guess, is actually up versus this time last year. We see the strong retention of our members, even in the midst of a pandemic, as a testament to our unique offering and our loyal following. Once our parks are back up and running at full capacity, We expect that our active pass space will quickly ramp back up to previous levels and beyond. Third, the pandemic encouraged us to think creatively about how to maximize use of our parks. Both the creative solutions we found and the underlying dynamism of our team will continue to drive growth well past COVID. Our drive-through safari operate as a separately gated attraction through the Thanksgiving weekend. Demand was so high that we will operate the drive-through safari again starting in March 2021, creating the longest season in the animal parks history. In the fourth quarter, we also offer drive-through or walk-through holiday experiences without rides at four of our theme parks, giving our guests the opportunity to celebrate the season with lights, beloved characters, and festivities. These events proved so popular that we extended them into January. Going forward, we expect to continue many of these events, which will allow us to extend our operating season and give guests even more reasons to visit our parks throughout the year. So while the environment remains fluid, we are encouraged by recent trends and are optimistic about both the short and long-term prospects of our business. I will now turn the call over to Sandeep, who will give us some more details about the quarter and our transformation efforts. Sandeep?

Thank you, Mike, and good morning, everyone. Results for the fourth quarter and full year are not comparable to prior year because of temporary park closures, modified operations, and attendance limitations. Total attendance for the quarter was 2.2 million guests, 338,000 of which came from the four parks that offered modified holiday-in-the-park lights without rides and our drive-through safari in New Jersey. Revenue in the quarter was down $152 million or 58% to $109 million as a result of a 65% decline in attendance. Sponsorship, international and accommodations revenue in the fourth quarter declined by $8 million due to the deferral of most sponsorship revenue and the suspension of the majority of our accommodations operations. Guest spending per capita in the quarter increased 17 percent, driven by a 16 percent increase in admission spending per capita, and a 19 percent increase in in-park spending per capita. The increase in admission spending per capita was driven primarily by recurring monthly membership revenue from members who retained their memberships after their initial 12-month commitment period, as well as an increase in the mix of single-day guests. The increase in in-park spending per capita was primarily driven by a higher mix of single-day guests who tend to spend more per visit. In addition, revenue from recurring monthly all-season membership products, such as the all-season dining pass, contributed to the increase. Attendance from our active pass in the fourth quarter represented 55% of total attendance versus 71 percent for the fourth quarter of 2019, demonstrating our success in attracting visitation of single-day guests. On the cost side, cash operating and SG&E expenses decreased by $30 million, or 18 percent, primarily due to the following. First, cost-saving measures primarily related to reduced salaries and wages and lower Fright Fest and Holiday in the Park related costs due to the restricted operating environment and our organizational redesign completed in October. Second, lower advertising costs. Third, savings in utilities and other costs related to the fact that several of our parks were not operating or were operating with a reduced product offering. These cost savings were offset by a charge of $19 million due to an increase in legal reserves. The total amount recorded reflects management's estimate of the probable outcome of a legacy class action lawsuit. Excluding the litigation charge, cash costs decreased by $49 million, or 29%. While we have taken measures to reduce our variable costs, we retained 90% of our full-time members and maintained their benefits in order to position ourselves to reopen parks as safely and as soon as possible. We reduced salaries of all employees by 25% during 2020 in order to preserve cash, and our directors also deferred their compensation for the last three quarters of 2020. Several of them, including our retiring and new chairman, opted to take that compensation in the form of stock. Due to the improving outlook, we have restored all our employees to full salaries, with the exception of our CEO, who opted to be restored in March. Although these actions offset our cost reduction efforts somewhat, we believe they were the right decisions for both the short and long term. By keeping our parks in a state of readiness, we were able to maximize the number of days we could operate. We also were able to keep our guests engaged, our employees motivated, and our parks prepared for 2021. Adjusted EBITDA for the quarter was a loss of $39 million, which included a $19 million increase in legal reserves compared to income of $72 million in the prior period. Moving to full-year performance. Attendance of 6.8 million guests was down 79 percent from prior year. Total revenue of $357 million was down 76 percent, driven by lower attendance due to park closures and limited operations. Total guest spending per capita increased more than $6, or 14 percent, due to a higher percentage of single-day guests and the positive revenue impact from members who have remained past their initial 12-month commitment period. Attendance from our active past base for the full year represented 56 percent of total attendance versus 63 percent for full year 2019. Cash, operating, and SG&E expenses were down 35 percent for the year due to cost savings measures taken immediately after we suspended operations. This cost reduction offset a portion of the revenue decline, resulting in an adjusted EBITDA loss of $231 million. Fully delivered gap loss per share was $4.99, a decline of $7.10, primarily due to the lower attendance in our box. We are making significant efforts to ensure the continued loyalty of our active class base. We extended the use of all 2020 season passes to the end of 2021. For our members, we added an additional month to their membership for every month they paid when their home park was closed. We are also rolling out a gift card option in the second quarter that members can choose to use in our parks in lieu of adding additional months to their membership. Finally, all members have the option to pause their membership payments at any time through spring 2021. However, we have offered a menu of benefits, including upgrades to higher membership tiers, if they elect to continue on their normal payment schedule. As of today, only about 20% of current members have chosen to pause their membership. We anticipate that most of these PAWS members will return to active paying members once we reopen our remaining parks. We are pleased with the retention of our very large active pass space, which included 1.7 million members and 2.1 million season pass holders at the end of 2020. Our active pass space was approximately flat compared to the end of the third quarter of 2020 when we had 1.9 million members and 1.9 million season pass holders. Our active pass base at the end of 2020 is down 51% compared to the end of 2019. While this is a significant decline, it is important to assess this in proper context. This decline is almost entirely due to lower sales of new season passes and memberships during 2020, as they were difficult to sell with so much uncertainty during the pandemic. We also did not hold our usual past sales events, including our flash sale in September, which contributes significantly to our year-end active passways. That being said, because we extended our 2020 season passes through the end of 2021, Our active pass base as of today is down less than 10% versus the same day last year, which preceded the pandemic's impact. We believe this represents a more meaningful comparison for our active pass base heading into the 2021 operating season, as we believe the season pass holders and members who are extended will visit our parks in 2021. Looking ahead, we expect the active pass base trends to continue to improve as we start selling more new passes and memberships. Deferred revenue as of December 31st, 2020, was $205 million, up $61 million, or 42% to prior year, as we expect to recognize most of this deferred revenue in 2021. The increase was primarily due to the deferral of revenue from members and season pass holders whose benefits were extended through 2021, partially offset by lower new season pass and membership sales. Total capital expenditures for the year were $98 million, a reduction of 30% from 2019. We expect our 2021 capital spend to be slightly lower than 2020 due to the carryover of new rides that were delivered and paid for but not commissioned in 2020. Our liquidity position as of December 31st was $618 million. This included $460 million of available revolver capacity, net of $21 million of letters of credit, and $158 million of cash. This compares to a liquidity position of $673 million as of September 30th, 2020. Net cash outflow for the quarter was $56 million, representing an average of $19 million per month. As a reminder, our net cash outflow in the fourth quarter included partnership park distributions that represented an average of $7 million per month. Our fourth quarter cash flow benefited by $8 million from the sale of some excess land in New Jersey, which was not in our prior estimates. Without the land sale, our net cash outflow was $21 million per month, an improvement from our prior estimates of $25 million to $30 million. We historically experienced significant cash outflow in the first quarter of the year as the majority of our parks are closed. Yet, we elevated operating and capital expenditures to prepare for our parks opening in the spring. We estimate that our net cash outflow in the first quarter of 2021 will be higher than normal or approximately $53 million to $58 million per month. This is primarily due to three things. First, the normal seasonality of our business. Second, the timing of interest payments on our newly issued $725 million of senior secure debt. And third, the pandemic-related limitations on our parks, including our California and Mexico parks that typically have year-round operations. We are striving to be cash flow positive for the balance of the year, but this is largely dependent upon all our parks opening and attendance levels continuing to normalize. I would now like to give you an update on the progress of our transformation plan. The headline is this. We are on track with our plan, and we are highly confident in our ability to achieve our objectives. Executing the transformation plan will require one-time costs of approximately $70 million through 2021, including $60 million of cash and $10 million of non-cash write-offs. So far, $35 million has been incurred to the end of 2020, including the non-cash write-offs of $10 million. We expect to incur the remaining $35 million by the end of 2021. Approximately two-thirds of the spending in 2021 is related to investments in technology, beginning with the implementation of a state-of-the-art CRM system. We expect the transformation plan to unlock 80 to $110 million in incremental annual run rate EBITDA once fully implemented and the company is operating in a normal business environment. In 2021, we expect to achieve 30 to $35 million from our organization redesign and other fixed cost reductions. In January alone, we realized more than $2 million of fixed cost value due to transformation so we are well on track to achieve our estimated savings for 2021. We expect to ramp up to the full amount of benefits as attendance grows to 2019 levels. We have already completed significant portions of the work that will benefit us in 2021, starting with our three cost initiatives. First, as we announced last fall, we reduced our full-time headcount costs by approximately 10%. We are piloting new approaches to recruiting and training and moving to centralize some of our back office operations, such as finance, human resources, and IT. Second, from a non-headcount cost perspective, we closed offices in New York City and West Hollywood and are in the midst of driving savings through centralized negotiations with a number of our vendors. Initial results are validating the projected value opportunities of these initiatives. Third, from a variable labor perspective, we are piloting our park level labor model, which will allow us to dynamically match staffing with attendance levels throughout the day. We are conducting this pilot in our Texas parks and plan to roll it out to our remaining parks once we validate that the model is working effectively. We will realize the benefits of the model as attendance levels rise, and we will keep you updated as our parks continue to open. We are also making excellent progress on our revenue initiatives. Specifically, we are testing our new and improved menu assortment, pricing, and merchandising strategy in Over Texas and Fiesta Texas. We expect to expand these initiatives to all other parks once they reopen. Our marketing team and media agency have incorporated the use of our media ROI tool, and we plan to measure our ROI by park in the future. We continue to improve our website, which we rolled out last fall. We will soon make it available for our parks in Mexico and Canada. Finally, we continue to make progress with our initiative to bring back single day visitors, particularly those We've been living far away enough from our parks where a season pass is not an attractive option. While we always prefer to sell a season pass or a membership because of the highest full season revenue, we believe there is a significant opportunity to capture additional attendance by targeting single-day visitors. We are already seeing a positive impact on our attendance and per caps as a result of this initiative. As we announced last December, we are changing our method of determining our fiscal quarters and fiscal years such that each fiscal quarter shall consist of 13 consecutive weeks ending on a Sunday. Each fiscal year shall consist of 52 weeks or 53 weeks and shall end on the Sunday closest to December 31st. During the years when there are 53 weeks, the fourth quarter shall consist of 14 weeks. Because of this change, our first fiscal quarter of 2021 will end on April 4th instead of March 31st, and the current fiscal year will end on January 2nd, 2022. The purpose of this change is to align our reporting calendar with how we operate our business and to improve comparability across periods. Looking ahead, the operating environment remains unpredictable, so it's difficult to project beyond the next three months. For that reason, we are not providing annual guidance at this time. We have announced opening dates for all our parks that are not already open, with start dates beginning in March. That being said, we will remain flexible and will be cautious to commit our capital, media, and labor dollars only when we believe there will be a strong ROI. We are extremely encouraged by the improvements in our attendance trends in the face of the pandemic, and we are very excited about the value creation that will come from implementing our transformation plan. We have more work to do, but I'm pleased by our progress so far. The whole company is intently focused on executing the transformation plan over the coming quarters. Now, I will pass the call back over to Mike, who will tell you more about our strategy.

Thank you, Sandeep. Our strategy is to drive profit from our core business because this will create sustainable value over time. We can grow our business from its core because we operate in a healthy industry that is benefiting from long-term secular trends as consumers increasingly choose to spend on experiences over objects. Even within out-of-home entertainment, regional theme parks are a compelling sector because they enjoy high recurring cash flow that has proven to be extremely resilient during downturns. These attributes have enabled our industry and our company to deliver strong revenue and earnings growth over time. However, over the past few years, we did not evolve at the same pace as our guests' expectations. As a result, we underperformed the industry from both a top line and bottom line perspective. To reinvigorate profitable growth, our team has reassessed every aspect of our business. We have developed an updated strategy to ensure that we constantly evolve so we not only meet but exceed our guests' expectations both now and for many years to come. So here it is. Our strategy is to create thrilling, memorable experiences at our regional parks. delivered by a diverse and empowered team through industry-leading innovation and technology. Our vision is to be the preferred regional destination for entertainment, and our mission is to create fun and thrilling memories for all. Our core values prioritize safety and the guest experience and drive accountability throughout the organization. Our values will result in a guest-centric culture, a commitment to prioritize the guests at every decision point. Looking to the future, three key long-term focus areas will drive our strategy. First, modernizing the guest experience through technology. Second, continuously improving operational efficiency. And third, driving financial excellence. For each of these focus areas, we will measure our progress based on certain key performance indicators. For our first focus area, modernizing the guest experience through technology, our goal is to create a seamless and improved in-park experience with new applications of technology. First, we will provide opportunities for our guests to tailor the in-park experience to each of their individual preferences. Second, we will decrease wait times wherever possible. especially for our roller coasters where we are testing several virtual queuing and reservation systems. Third, we will facilitate our guests' ability and desire to share their experience on social media. Finally, we will improve food and beverage quality and the overall appearance of our parks. In everything we do, we will prioritize the guest experience. Here are a few highlights of our progress on this focus area thus far. Website redesign. Our new, simplified website has made it easier than ever for guests to find information about our offerings and to purchase tickets. This has led to higher sales conversion rates and higher per caps. Customer relationship management. We are in the midst of developing a new CRM platform that will allow us to understand and predict our guests' preferences from the moment they visit our website to the moment they leave the park. Based on this consumer data, we will begin tailoring our offerings to their preferences and customize their experiences so they get exactly what they want when they want it. Contactless security. Our guests no longer have to wait in long lines or have their bags searched to enter our parks. They now walk seamlessly through our contactless security systems, which scans them for anything unsafe and also measures their temperature to ensure a safe environment. Cash card kiosks. All our domestic parks that open for normal operations in the fourth quarter have offered any guests who only have cash the ability to obtain cash cards from kiosks throughout the parks in order to facilitate electronic transactions. This improves hygiene within our parks while also speeding up transactions and eliminating cash handling costs. Mobile dining. Our guests no longer have to wait in long lines to order food. Instead, they can choose to order on their smartphones and pick up their food when it is ready. Mobile dining has also led to higher average checks. For this first focus area, modernizing the guest experience through technology, the key performance indicators will be attendance and revenue. Moving on to our second focus area, continuously improving operational efficiency, we will deliver products and services in a more cost-efficient manner, including effectively deploying park-level labor, leveraging our scale to increase purchasing power, and optimizing our ride portfolio. We are also focused on increased guest throughput on our rides, as well as our food and beverage locations. As Sandeep mentioned, we have moved quickly to streamline our organization and reduce other fixed costs, and we expect to realize $30 to $35 million of fixed cost savings in 2021. For the second focus area, continuously improving operational efficiency, the key performance indicator will be operating expense ratio, which is the ratio of our operating expenses relative to our revenue. We will begin to measure this ratio once we return to a more normal business environment. Finally, our third focus area is driving financial excellence. We expect our transformation initiatives to create a new adjusted EBITDA baseline $530 million to $560 million once our plan is implemented and we are operating in a more normal business environment. After we achieve this baseline, we believe our strategy will allow us to grow revenue at low to mid single digits in line with the overall out-of-home entertainment industry. Combined with our annual productivity initiatives, We will continue to invest back in our parks and improve margins to accelerate annual adjusted EBITDA growth to a range of mid to high single digits. In addition, we will be disciplined in the way we allocate capital to ensure we deliver sustainable earnings growth. We have developed the following capital allocation priorities to guide our path towards financial excellence. First, invest in our base business to facilitate profitable and sustainable growth. This includes investments in our park infrastructure, in technology for our parks, and in systems that help us oversee our park operations. This also includes investments in new rides and attractions, as well as other in-park offerings such as food and beverage. We expect to maintain our annual capital expenditures at 9 to 10 percent of revenue. Second, use free cash flow to pay down debt and return our net leverage ratio to between three and four times. Third, once we are within our targeted leverage range, consider strategic acquisition opportunities that further build our regional network of parks. Finally, if there are no acquisition opportunities that meet our strategic and financial return thresholds, we will return excess cash flow to shareholders via dividends or share repurchases. For this third focus area, driving financial excellence, the key performance indicator will be adjusted EBITDA. We have a resilient team and a resilient business. Our team's focus for 2021 is to safely open all of our parks and ensure that we successfully execute our transformation plan. I look forward to updating you on our continued progress in the months ahead. Catherine, at this point, could you please open the call for any questions?

Ladies and gentlemen, if you'd like to ask a question, please press star and then the number one on your telephone keypad. Your first question comes from the line of Steve Wisinski with Stiefel.

Hey, guys. Good morning. So, Mike, I guess first of all, when you guys talk about becoming potentially cash flow positive over the last nine months, can you help us understand maybe what is going into making that statement? I guess what I'm trying to get at here is, is that assuming kind of park operations are you know, everything is basically up and running and still running at some kind of capacity restraint? Or, you know, are there other things that, you know, kind of embedded in there?

Steve, how are you doing? Good morning to you. And I'll take the first part of it, and Sandeep can go from there. I think the first thing is we are seeing consistent and continued improving signs of pent-up demand across all the geographies, and we're ready to operate all of our parks starting in the spring of 2021. You know, as far as right now, which parks are open and not open that go into that, as we saw last week, we got the green light to open up our water park in Mexico, Huastapac, February 27th, and we got the green light in New York as well. We are still working collaboratively through California, Massachusetts, Illinois, Mexico, and Montreal. But remember, it's a volatile environment. as far as where we're at, and we continue to work with the cities and states. You know, Sandeep's been clear in the past that the assumptions to get to cash flow neutral assumes that we're roughly at about a 65 to 75 index to 2019 attendance levels. And that's, you know, that's the guardrail. But again, we'll continue to keep you posted. Sandeep, anything there I missed?

Yeah, I think just to be clear on the assumptions, what we're saying is once we get past Q1, for the remaining nine months, we're looking to be cash flow positive. It's to a definitely extent dependent on the park opening schedule. We're ready to open in spring 2021. It's more a question of getting authorization. And I think if you go back to look at our historical cash flows, the second quarter and the third quarter typically are significant cash generators. And if you think back to what happened last year, especially the second quarter and third quarter, we didn't really have that much of attendance because of the closure for the most part of the second quarter and limited operations in the third quarter. So I think it is dependent for sure on the opening cadence, but I think we feel that we can get to positive cash flows if it actually works to what we're expecting.

Okay, gotcha. Thanks, guys. Second question, Mike and Sandeep, you guys saw a nice uptick in the fourth quarter in terms of the single day guests, so to speak. And I'm just wondering, do you have any more data from meaning from where did those folks come from? And I guess what I'm trying to get at here is, are these folks that were potentially on a pass before and dropped off the pass? Or are these folks that essentially have never even really visited one of your parks before?

Yeah, I think on this one, Steve, we're extremely pleased on the single day ticket strength that we've actually been seeing. And it's actually not just the fourth quarter. If you go back to Jan, Feb of 2020, before the pandemic hit, we were already seeing significant single day ticket improvement in terms of penetration and growth. We're up 38%, I think, in the first couple of months of 2020. And I think historically, we've actually probably, in the last few years, lost a bit of traction on single day tickets. And this has been an initiative that we actually look to embrace in the early part of 2020. And in fact, when we talked about the transformation plan back in October, we identified the pricing and promotion initiative as one of our key prongs. And this is a key component of it because we're looking to drive a mixed improvement in our portfolio, but it's an and, it is not an or. So, These single-day ticket guests are intended to be incremental to the active pass space that we have. And I think we feel really pleased that they're getting traction on this, on the single-day ticket side. And what's really good is we're actually pleased about our active pass space because we've been able to retain it. Our Q3 to Q4 was relatively flat. And frankly, going back to Q2, Q2 was relatively flat with Q3. So it's been pretty consistent over the six-month period in terms of the active pass base in total. There's been a bit of a trade between members and season pass holders. But overall, we're really pleased about it. And in the prepared remarks I told you, because we extended the season pass holders from 2020 to the end of 2021, given the pandemic, if we look at it today, we're actually down less than double digits on the active pass base. And these season pass holders and members who have been getting extensions are going to come and visit our parks, and they will definitely drive attendance. And in addition to that, incremental revenue on in-park spend, depending on the type of park that they want. So overall, we feel really good about the single-day ticket attendance being incremental to the active pass space and accretive to our overall attendance long-term.

Okay, great. Thanks, guys. Appreciate it.

Your next question comes from the line of David Katz with Jefferies.

Morning, everyone, and thanks for all of the detail. When we look forward to, you know, this notional or aspirational kind of normal year again that we all wish for, you know, that you're basing – the 530 to 560 EBITDA on. Can you talk about the mix of membership slash past members coupled with kind of the spend per capita and how you're assuming that mix evolves within that kind of 530 to 560 place? Because we can sort of think out loud both ways where perhaps there's less growth in the, you know, past base or membership base and more of it coming from the spend per capita? Or, you know, we could probably argue it the other way, too.

David, a great question. And I think if you think back to what I just talked about in the earlier answer on single-day ticket penetration in the active past base, Look, I mean, our per caps have been extremely strong as we've gone through this past year and the fourth quarter in particular. And I think you've been seeing a sequential acceleration in the per caps between Q3 and Q4. It was driven by a few things. One is our members who have passed their 12-month commitment period contributed definitely to those admissions per caps growing. In addition, the single-day ticket holders contributed to their to the growth in per caps. The single day ticket holders actually spend more per visit in the parks when they come in. So all of that actually contributed to the per cap increase. However, we do have a good strong retention of the active pass space. And I think what we are looking for is the and, not the or. So we want to basically layer these single day tickets on top of the active pass space. And as we move into the normal operating seasons, we would like to actually rebuild the active class space. Uh, and as we go through the year to have a much more balanced approach between single day ticket and active class space, it's not trading off one for the other. It's just that I think we will further behind on single day tickets. And so the growth is actually a bit higher in the initial phases, but over time it should be very balanced. And, and so the revenue mix that should come from that should reflect that balance. And, um, And the pro caps will adjust accordingly.

And if I can follow that up, right, what Mike laid out is sort of a flow through of one to one and a half times growth on that mid single digit top line. How does the evolving mix, you know, sort of slide the outcome, right, the profit outcome within that? presumably the more single-day visitors you have, the closer you get to the top end of that range? Is that a fair assumption?

Yeah, I would say that let me just step back a little bit, David, and just say that overall we've been talking about mid- to high-single-digit improvements in EBITDA growth. It is based on productivity improvements, which include elements of the cost structure that we're investing in, as well as the revenue growth lease. And so what I would say is the mix, in fact, is part of our revenue growth plans. And so it's embedded. But I wouldn't necessarily say that it's going to hurt us or help us one way or the other. The key is to maintain the balance at all times. And we will continuously reevaluate if the balance is out of kilter and push one side or the other a little bit more. But the key over here is We're looking to make sure that we deliver the option the guest looks for because we can look at both our pricing and promotions approach and the transformation initiative to understand if they're more inclined to go for a single-day ticket because of the cohort they belong to, like Mike described, or if they want to basically trade up and buy a season pass or a membership. And that balance is something we'll continuously reevaluate As part of transformation, we've invested in this revenue management team that is now in place, and you're seeing the results. You're actually seeing the results in Q4. There's more of it that should come as we continue down this year.

Perfect. Thank you all.

Thank you.

Thanks, Evan.

Your next question comes from Haynes Hardiman with Wedbush Securities.

Hey, good morning, guys. Really appreciate all the color, particularly with respect to the longer-term outlook, the longer-term plan. Obviously, we're in the midst of some pretty unprecedented disruption, but I wanted to continue down this path of what things look like sort of post-pandemic, particularly on the capital priority side. As you sort of laid out your priorities, it seems like M&A is a higher priority than dividends and share repurchases. Maybe just help us think about why that's the case. Do you believe that there are better returns sort of in a post-pandemic environment on M&A than dividends and share reposts? And then, you know, the previous management team obviously had a pretty well-defined strategy for acquiring small parks, water parks specifically, at the local level. Do you see your M&A strategy as a continuation of that or something that's new and different in some way?

Well, good morning, James. You know, what I would start with is our focus is on our core business, and that's the focus. We want to absolutely leverage transformation to drive real operational effectiveness on our core business, and I start there. Second on M&A, as you know, it's always been our policy not to comment on that topic. But I want to go to your question as well. As we said in our prepared remarks, our first priority, consistent with transformation and a focus on the core business and delivering sustainable value creation there, is to invest in the base business to facilitate profitable, sustainable growth. out of rides, attractions, other in-park areas. That is absolutely going to be the focus. Second is to use that free cash flow to pay down the debt, get that net leverage ratio to between three and four. And then we'll consider opportunities on the M&A front and any excess cash will definitely return in terms of dividends and share purchases. And we're always going to look at the return aspect. But that is the priority. But I think everybody should take away the focus is the base business here.

And I definitely get that. I guess to the question of the previous water park acquisition strategy, is that sort of something we should think about as the previous management team and not continued under your leadership?

No, what I would say is, well, we've been clear on this. I think with any M&A, it's always going to be about, is it strategically relevant? Does it deliver shareholder value? And do we think we have the capability and capacity to deal with it? And I think we're going to look at anything in that framework.

Got it. And then my second question, I wanted to talk about wages, which are obviously an important topic, just given the the momentum that a federal minimum wage seems to be gaining here. Who knows? Obviously, that presumably wouldn't happen overnight, if at all. But just curious where you stand in terms of sort of a weighted average basis in terms of your associates at your parks. And maybe as I think about this 530 to 560 baseline EBITDA number, Sort of what's assumed in there? Is there potentially some downside if we do see a ramping up of the minimum wage? Thanks.

Sure. Sure. Yeah, it's a really good question, James. You know, let me start with this is clearly an area that we've been focused on in managing for quite some time. As you remember, in our earnings baseline as part of our 2020 earnings guidance prior to COVID, We already reflected minimum wage risk in seven states, which was about approximately $20 million. And so we know and we knew that was an issue. We got ahead of it. So that's why a second strategic focus area is about continuously improving our operating efficiencies. It's a major part of the strategy. Now, we also believe, conversely, there's going to be potentially bigger labor pools out there as well because there's a higher unemployment rate. But I think the last thing I would say on this is that's a whole reason we engaged on park level labor as part of transformation. We knew we had to get ahead of this. So, you know, we're going to continue to monitor it and stay close to the states. But we do think we got the right tools in place with transformation. And we also think that our earnings baseline before the pandemic improved. reflected that. Sandeep, anything I missed there? Evidently not. So we'll take the next question. Who's next in the queue? And one question, please, just because I know we've got a number of other folks in the queue.

Sorry, Mike. I accidentally went on mute. Just to answer the question that you asked specifically, James, on what's resumed in our EBITDA goal of $530 million to $560 million. We've resumed both the headwind from minimum wage and also the offset from productivity gains from the park-level labor model that Mike just talked about. So that is already resumed in our EBITDA goals.

Got it. Thanks, Mike. Thanks, Handeep. Thanks, James.

Our next question comes from the line of Tyler Batorre with Jannings.

Good morning. Thank you. I wanted to circle back on pent-up demand specifically this year. In the prepared remarks, I think you cited some guest survey data, but just interested if you can give us a better sense of what indicators you're looking at that's informing your opinions on pent-up demand for the second half of this year, whether it's group bookings or the past sales, just trying to get a sense of what's most important there and what those indicators are telling you about what demand might look like in the summer season.

Good morning, Tyler. Hope you're well. So I start with the broad umbrella of, I think it's fantastic that as an industry, and we have six flags, we've entertained nearly 7 million guests. And I believe that our safety protocols and standards have created a significant trust lever with our guests, both in terms of recruiting guests as well as retaining. This gets to the single-day ticket and the retention of the active pass space. So I start there because people feel confident in the safety umbrella we give them. And I think that is a big deal for the industry. It's a big deal for us in a positive way. Specifically, to your question, first, we're seeing very consistent demand for across all geographies, which I think number one is a really positive sign. Second, as Sandeep mentioned, we continue to see really good attendance trends from 35% in Q3 of 2019 to 51% in Q4 and similar levels year to date. That includes what has been two weekends of tough weather in Texas. We're also, as part of that, seeing guest satisfaction surveys now equal or better in our open parks than 2019. We think that's a very good positive as guests are understanding the safety protocols. The other item, obviously, is the resilient active pass space. We think that's a big positive that we're roughly flat, really from actually quarter to quarter. And we still have the opportunity with our active pass space to revamp once we reopen up the parks. And then lastly, when we look at our surveys, and I mentioned this on the last call, we've seen an improvement. As we've been surveying guests, we're seeing 97% of those surveyed want to visit in a COVID-free environment. Last call was approximately 93%. And we're seeing 96% of guests are saying they want to visit immediately after taking a vaccine. And it's part of that where we are seeing data that people want this close to home, fun, safe experience. And we are seeing data that says people do have more vacation days and they have saved up money, but they want to be able to enjoy it in a safe, fun, uh, close to home experience. And then, uh, you know, we've also been watching the overseas, uh, parks as well. And we've seen some good trends there. So we'll, we'll continue to monitor it. Uh, we stay close to our guests every week, but, uh, We're ready to go. We're ready to operate in 2021. Okay. Very good.

Appreciate the call. I'll leave it there. Thank you. Thank you.

Our next question comes from the line of Ian Zafino with Oppenheimer.

Hi, great. I wanted to touch on that minimum wage question again. On the revenue side, maybe you can kind of give us an idea of what your demographics are as far as people who are showing up to the parks. does a boost in minimum wage actually put more dollars into your visitors' pockets, or are you playing for just a higher demographic? Any type of color you give there would be great.

Ian, you're right, because I think to the extent that there is minimum wage increases in certain of our demographics that we operate, that has got a halo effect on the revenue side as well. I think we've talked about this in the past, too, but that is a factor, and I think that's That's part of what plays into the assumptions that I talked about on the 530 to 560 million adjusted EBITDA goal that we've articulated previously and we did today. So it's all in there, in the assumptions. The headwind on wage was definitely in there and it was in there back when we got it for 2020. And also the assumptions of improving productivity are in there because of park-level labor. And on the revenue side, the assumptions include the assumptions of benefits from a more disposable income available in those demographics, too. So it's all in there, and it's embedded in the EBITDA goal of 530 to 560.

Yeah, and Ian, just quickly to add, I mean, we're roughly half teens and young adults and roughly half families and children. And to Sandeep's point, we think it absolutely helps in that regard, putting more money in their pockets.

Okay, great. Thank you very much.

Your next question comes from the line of Eric Wald with B. Riley.

Thank you. Good morning. Yeah, I know obviously from everything you talked about today, you're focused on the core business, improving baseline operations and getting those ramped back up. But can you maybe provide just an update as to where you are with potentially restarting the China park development? Have you been in discussion with any potential new partners there since that fell out a year or so ago? And is there a timetable as to kind of when you would want to get that restarted or potentially when it becomes maybe too late on that front?

Morning, Eric. So we've been clear with this, and I've stated this in the past. We obviously are, from an international standpoint, we are focused on Qadiyah in Saudi Arabia, and we are excited about the future there, and we do not anticipate any revenue or operations from China in 21 or moving forward.

Got it. Thank you.

Your next question comes from the line of Steven Grambling with Goldman Sachs.

Hey, good morning. Very quick follow-up on the transformation plans. I think last quarter you gave some big buckets on the fixed cost savings. Can you just confirm the total amount of $40 to $55 million hasn't changed, and what are the big buckets being achieved this year versus next?

So I think we talked about the $30 to $35 million of value being achieved in 2021. which is consistent with what we said last time in October. And I think for what we're expecting is that $40 to $55 million is achieved in 2022. And I think that's the fixed cost independent of attendance. The total transformation value, as we said, was $80 million to $110 million, with the remaining part of the $40 to $55 million coming from a combination of the revenue initiatives that we outlined and the Park Level Labor Initiative that we talked about earlier as well. So no change, really, in what we previously communicated. I think from a proof point standpoint, we're just a month into the year, and as I mentioned in the prepared remarks, we've already realized over $2 million in the first month of the year. So we feel we're pretty well on track to getting the fixed cost savings that we've actually outlined for the year. And it's really coming from a couple of major areas that we've outlined in the previous call, which was the augury design, which we executed in Q4. And in addition to that, we also have the procurement effort on long headcount, which is going to be an additional element that's going to drive it. So pretty confident of the $30 to $35 million, and we're going to continue to update you every quarter as we go along on progress that we're making.

And so just to be clear, it sounds like some of the park-level labor expenses, like the system to better forecast attendance and labor needs, maybe that will evolve and be what kind of builds on this into next year?

Yeah, you're exactly right. So park-level labor is a variable component. So the $30 to $35 million is fixed cost independent of attendance, right? So the park-level labor will flex based on the attendance and also based on when they implement it. The revenue initiatives should also be happening depending on where attendance basically goes. So we're gonna basically update you on the fixed piece and the variable piece as time goes along so you know how much of transformation value has been realized.

Understood, clear, thank you. Okay.

Our next question comes from the line of Paul Golding with Macquarie Capital.

Yeah, thanks so much. Mike, you mentioned earlier in the call that you're testing the virtual queuing and reservation system for some rides. I was wondering just what the outlook is on capacity this year, any limitations, and I guess as an indication of that, whether you're going to maintain the reservation system to get through the front gate. And then I have a quick follow-up.

Good morning, Paul. How are you? Yeah. First on your ladder, we have the ability to continue the reservation system and we have used it where we've needed to use it based on local state officials as well as where we've been able to flow capacity and we've made decisions park by park based on the local guardrails. As far as capacity in total to your former question, First, we're very confident we have ample capacity to meet pent-up demand and satisfy our safety standards. Remember, the second thing I would stress, again, is we're outdoor. We're spread over dozens to hundreds of usable acres, which allows us to reach high levels versus our theoretical max capacity while still satisfying social distancing. And then the third, which you alluded to, when you look at our technology and safety protocols we put in place in 2020, It's really allowed us to, even beyond the pandemic, control the flow capacity and safely increase throughputs. From the website to going through security, you're not even touched. And I think lastly, just as a reminder, we only reach our max capacity on roughly a handful of days. We average about 50% of theoretical max capacity in a pretty typical year. So all of that combined with we're excited about the progress of vaccines. we feel very good about our capacity to meet the pent-up demand across all geographies. And as I said, we're ready to operate.

Thanks for that, Culler. And then just a quick follow-up on the earlier question around international. I know you were saying that you don't expect to see any more revenue or EBITDA come from licensing in China. In parts of the world where maybe COVID wasn't As protracted, do you still see an opportunity for maybe any new deals where the appetite for mass gatherings may be higher than it is currently in the States?

Relative, you mean in terms of pent-up demand or business opportunities? Just so I'm clear on your question, Paul.

Yeah, just business opportunities. We know that the China arrangement that we shouldn't expect to see anything further come from that. So I guess the question is maybe other opportunities. Are you still open to other opportunities since COVID was not as severe in some other parts of the world?

Yeah, very, very clear. What I would reinforce again is our focus is delivering profit from our core business. And, again, transformation is all about driving operational effectiveness of that core business, and that's going to be our focus.

Got it. Thanks so much, Mike. Appreciate it.

Yep, you bet.

Our next question comes from the line of Alex Morocco with Berenberg.

Hi, good morning, guys. Thanks for taking my questions. Based on some of the technology and park improvements you outlined, it sounds like many of these could be related to the pandemic or at least accelerated by it. And here I'm talking about contactless security, mobile dining, and the cash kiosks, all due to their hygienic benefits. How will you be measuring the return on the investments both financially and then in terms of customer satisfaction going forward?

Alex, I think it's a really good point. I think, first, the pandemic helped us accelerate what we needed to do to be a more guest-centric culture. And as we looked at even the pre-pandemic, as I said on the last call, our guests love our parks. They love our roller coasters. They love our funnel cakes. They just want an easier experience. And part of that is just modernizing that guest experience through technology, which is one of our key strategic focus areas. Uh, so our, our measure, our KPI is going to absolutely be attendance and revenue. Uh, as we look at that, uh, it should, we should be seeing top line momentum as we modernize the guest experience through technology. And we will obviously continue to look at guest satisfaction surveys and other levels of guest feedback. So, um, Very consistent, as I said. It will all be about attendance and revenue will be the key KPIs.

All right, that's great. Thank you, Mike.

Thank you.

Your next question comes from the line of Mike Swartz with Truist Securities.

Hey, good morning, guys. Just maybe for Sandeep, I think you said that in your prepared remarks that each park that was open in 2019 was also open in the fourth quarter of 2020. And I may have missed it, but did you give us the operating days in the fourth quarter of 20 versus 19?

Yeah, I got it, Sundeep.

So we've been focused on open parks. And as you know, not all operating days are created equal. The way you want to think about it for the fourth quarter is, first, for the days that the parks were open in 2020, comparable operations in 2019 represented approximately 70% of the 2019 total attendance. That was an increase from about 60% at the end of the third quarter. So we feel good about that. We think that's also another sign of good pent-up demand. Remember, in those numbers, that includes Mexico. Mexico was open part of the quarter, but we ended up closing it early. And it also includes the fact we have four additional parks that offer drive-through or walk-through Holiday in the Lights experiences, and also the drive-through safari that was open for a portion of the quarter. So I think we're also clear on the table releases, but we had eight theme parks, one water park, and the Great Escape Lodge were open during that quarter.

Okay, that's helpful. And is there maybe a way to think about that kind of comparable, you know, ops percentage for 21 and maybe how that flows throughout the year? I know the first quarter will be constrained, but how does that look as we progress through the year?

It's a good point. I mean, we've been – it's obviously, as Sundeep said, it's really a volatile environment, and we've been very focused on open parks and getting the parks reopened in terms of – that focus because we think that's where it is. So our focus is about getting all the parks open by the spring of 2021. And that would be the guidance I would give you. That is the true north for us, is to continue to leverage our safety protocols, work collaboratively in those places we don't have set dates, and to get all the gates open to drive that positive performance balance here. Okay, great. And maybe just follow up.

Sorry, go ahead, Sandy.

Yeah, just to add on, I think, obviously, once we get open, especially past spring 21, we should be going to normal operating schedules. So what you've seen historically is what you would expect to see if the parks are open. So that's the objective.

Okay, that's helpful. And maybe just related to that, talk about, you know, marketing spend, the cadence of marketing spend, and maybe how How does your marketing strategy compare in 2021 relative to maybe when we had normal operations back in 2019?

Yeah, and I think one of the things that we talked about is we're going to be very choiceful about how we deploy our media, which is effectively the marketing spend that we're incurring. And I think we're just taking a look at what is happening actually with the pandemic and the pandemic trajectory. Depending on when things become much more clear in terms of dependent demand being leveraged in a much more significant way, we've historically done a lot of advertising and marketing around the time we actually sell our passes. And so that typically has been done spring and fall. But I think in this year, we could look at it as spring, summer, and fall. And we will time our spend to make sure we're driving the demand and accelerate it.

Okay, great. Thank you.

Our next question comes from the line of Brett Andrus with QBank.

Hey, good morning. Just to be clear on the last point on the operating days, so assuming all of the parks open, how many operating days are you planning for right now compared to 2019? I mean, is it as simple as just you know, taking a normal calendar, backing out one queue, and then maybe adding some of the extensions you talked about earlier. I'm just looking for kind of a ballpark, as you said today.

Yeah, Brett, I would say I'll go back to the last part of what I answered on the calendar. So once we get past spring 21 and we get reopened, go back to normal operating calendars, starting Memorial Day, give or take, sometime in the second quarter. So So that is what the expectation is. So if you go back and look at 2019, that should give you a pretty good indication of what the operating calendar would look like. The additional, the add-ons, I would say, that are incremental to that are the Safari that became a standalone experience, some of the holiday events that we did, which were incremental. But I think that's the way you would think about the operating calendar.

All right. Thank you for the clarity.

Yeah.

And, Brad, just the last thing. The reason we've been clear on this is they're just not created equal, as you know. So that's why we're not drilling into that as much as just focusing on the calendar of the parks. Yep. Understood. Okay. Thank you.

Your last question comes from the line of Ryan Sundby with William Blair.

Yeah. Hey, thanks for taking my question. All right. Mike or Sandy, just I guess to follow up a little bit on the last question, when you look at adding something like West Coast Customs Car Show at Magic Mountain or, you know, even just some of the way you've modified operations to do more drive-through or walk-through at the parks, has there been any change in view, I guess, internally on the kind of programming or types of activities your parks can support? I guess what I'm asking here is just given some of this popularity, is there more demand for using the parks than you realize kind of pre-pandemic?

It's a good question. I think what you're seeing is a testament to how we have and will continue to lead innovation. And that's a driver of being the regional entertainment choice. And it's going to be, we're going to always focus on our core assets and we're going to focus on our core offerings. And if our guests are looking for a product that We can bring it to them safely, and it's cash flow positive on a variable basis. We're going to do it because we've got a great set of team members that can do it. So we'll continue to be innovative and listen and learn from our guests, and that's a big part of the guest-centric culture.

Perfect. Thank you.

And there are no further questions at this time.

Thank you, Catherine. For everyone, again, I want to thank you for your continued support. Our guests are eagerly looking for a memorable experience that is fun, safe, convenient, affordable, and close to home, something Six Flags is uniquely able to offer. Six Flags is truly the preferred regional destination for entertainment, creating fun and thrilling memories for all. Take care and please stay safe.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.