Stacy Frole - Vice President of Investor Relations Matthew Ouimet - President and Chief Executive Officer Brian Witherow - Executive Vice President and Chief Financial Officer.
Timothy Conder - Wells Fargo Securities, LLC James Hardiman - Wedbush Securities Inc. Benjamin Chaiken - Credit Suisse Securities LLC Barton Crockett - FBR Capital Markets & Co. Joel Edelstein - Stephens Inc Michael Bunyaner - TLF Capital, LLC.
Presentation:.
Good day everyone, and welcome to today's Cedar Fair Second Quarter Conference Call. Today's conference is being recorded and at this time, I would like to turn the call over to Stacy Frole. Please go ahead..
Thank you Lisa. Good morning, and welcome to our second quarter earnings conference call. I’m Stacy Frole, Cedar Fair's Vice President of Investor Relations. Earlier today, we issued our 2016 second quarter earnings release.
A copy of that release can be obtained on our website at www.cedarfair.com under the investors tab or by contacting our investor relation offices at 419-627-2233. On the call this morning are Matthew Ouimet, our President and Chief Executive Officer; and Brian Witherow, our Executive Vice President and Chief Financial Officer.
Before we begin, I need to remind you that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements.
For a more detailed discussion of these risks you can refer to filings made by the company with the SEC. In addition in accordance with Regulation G, non GAAP financial measures used on the conference call today are required to be required to the most directly comparable GAAP measures.
During today’s call we’ll make reference to adjusted as to find in our earnings releases. It required reconciliation of adjusted EBITDA is in the earnings release and it’s also available to investors on our website be as a conference call at that page.
In compliance with the SECs Regulation FD, this webcast is being made available to the media and the general public as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.
Now I will turn the call over to Matt Ouimet..
Thank you Stacey and good morning everyone. As you read in this morning’s earning release, we expect 2016 to be another record year and we remain on-track to achieve our long-term adjusted EBITDA goal of $500 million earlier than our original target of 2018.
It is important to note our confidence is supported by certain data points, including preliminary year-to-date revenues through July 31, which were up 2%, season pass sales are up 15% and second quarter differed deferred revenues are up $25 million or 17% over the prior year.
The growth in top-line revenue is the result of increases across all areas of our business, including record levels of attendance and guest spending. Out-of-park revenues including resort accommodations are also up and room reservations for the reminder of the year are trending ahead of the same period a year ago.
In a moment Brian will address many of the details you need to update your financial models, but first, I want to proactively address what we experienced in July. We know our investors value having visibility into not just the previous quarter, but the most recent results as well.
The shallow side of this transparency is the risk that smaller periods of time are not representative of what we expect for the full-year. We knew coming into this July, we would have tough year-over-year comps. In 2015, the July weather was nearly perfect.
This year was different with extended heat wave and related storms negatively impacting many of our parks towards the end of the month. Even though we experienced the pull back in revenues during the month, we have the second best July in our history and as I said earlier we remained firmly on track to deliver record results again this year.
To complete the transparency there is always the risk that management team overreact short-term trends both positive and negative. That behavior is not unique to stock analysts. At this time, we see nothing that would change our promotional programs for the balance of the year.
Our Halloween events continue to increase in popularity and we continue to price into this demand.
We also expect the introduction of Winterfest at Great America and Santa Clara California to be just the first of several such events, which increase the productivity of our parks established asset basis and enhance the appeal of our season pass programs. My read of our year-to-date results confirms our strategy is working.
Part of our improvement in the first seven months of your stems from our new approach to early season value pricing, which I have talked about before. Unlike the destination parks where most people could readily identified between the peak and value seasons, the regional amusement park industry historically did not have similar clarity.
With this in mind, last year we started multiyear revenue management and marketing campaign that will let value sensitive consumers know that the May, June in timeframe provides both a great value and the great experience.
Besides the direct impacts on our early season results, this also provides this would greater pricing confidence through the balance of the season. It was a successful strategy for us last year and we are certainly seeing the benefits continuing to this year.
Today our record attendance reflects increases in the number of unique visitors to our park as well as more visits from our loyal season pass customers. I would also like to say that quality and efficiency of our operations had never been better. Our guests are staying longer, riding more rides and visiting more often.
Our attractions and building are freshly painted, we have more comfortable places for people to relax and there is more mid way entertainment to experience. The quality and diversity of our merchandise and food and beverage offerings has significantly improved.
We now offer park-wide Wi-Fi, new mobile apps and a digital imaging platform that amplifies our social media presence by allowing our guest to share their experiences with families and friends all season long. Our parks have definitely become more than the place ride rides. They are the place to be for FUN.
Many of our full-time employees including our general managers have more than 20 years of experience within the amusement park industry. They are the reason we have reported steadily increasing revenues and adjusted EBITDA throughout the years and have paid a distribution to our investors for 30 consecutive years.
Even better as the successive or FUNforward 2.0 initiative has indicated, our team is constantly looking towards the future. We have many new initiatives coming online next year and many more in developer. Before I discuss our plans for 2017 and beyond, I will let Brian discuss our current year results in more detail. Brian..
Thanks Matt and good morning everyone. Before I begin and following with Matt’s earlier comments, I want to remind everyone on the call that it’s always difficult to extrapolate partial season performance into full-year results.
Essentially, all of the revenues from our seasonal amusement parks, water parks and other resort facilities are realized during the 130 day to 140 day operating period beginning in the second quarter with a vast majority of revenues concentrated in the third quarter, during the peak vacation month of July and August.
Only Knott’s Berry Farm is opened year-round and the third quarter is also their highest level of attendance. As of this past Sunday, July 31, approximately 40% of our operating results are still to come. First, I would like to briefly discuss our results through the second quarter before moving on to more current revenue and attendance trends.
As noted in our earnings release issued earlier this morning, the 2016 season is off to a strong start with meaningful increases in both revenues and adjusted EBITDA. Net revenues for the second quarter months ended June 26, 2016 were $446 million up 5% or $22 million when compared with the same six-month period a year ago.
Our revenue growth over this period was largely driven by a 4% or 337,000 visit increase in attendance to 9 million guests and a 1% or $0.59 increase in-park guest per capita spending to $45.16.
Over the same period, out-of-park revenues increased 7% or $3 million to $54 million when excluding the impact of changes in foreign currency exchange rates, guest per capita spending will be up 2% year-over-year. This revenue growth we've produced over the first half of the year is balanced across all areas of our business.
The 4% growth in attendance is largely attributable to our focus on attracting more value-oriented customers, through dynamically priced ticket offerings early in the season. At the same time, we remain committed to creating urgency for our growing season pass holder base to visit early and to visit often through multi-week special events.
Attendance from our season pass and advanced sales ticketing categories were particularly strong during the first six months of the year. In regards to season pass sales, total revenue for 2016 has increased by 15% when compared with our record sales from last year.
This growth in season pass revenue is the direct results of increases in both the number of passes sold as well as the average price paid per pass. Through the end of June, we have now sold a record number of season passes and the average visitation per pass is also up year-over-year.
At the end of second quarter, our deferred revenue balance totaled $173 million representing an increase of $25 million from the second quarter of 2015.
The year-over-year increase in deferred revenues reflects our record season pass sales as well as the strong second year adoption of our all season dining program and the addition of a new all season beverage program, which was introduced across all of our parks for the first time this year.
Given the continued shift in attendance mix towards season passes, we are very pleased in our ability to generate continued improvement in guest per capita spending levels through the first half of the year.
Slightly more than 1% increase and per capital spending was driven by improved spending across all major categories including admission, food and beverage and premium product offerings.
The 7% or $3 million increase in out-of-park revenues we generated through the first half of the year, reflects the continued growth of our resort properties led largely by the second year performance of the renovated historic hotel breakers at our flagship Park Cedar Point.
Average occupancy rates and ADR’s are up, year-over-year across the system and the forward-booking curve looks solid for the balance of the year. Out-of-park revenues through the first half of the year have been boosted by the continued growth and special event and catering facilities across our products.
Inducing our Great America Park in Santa Clara California, which is adjacent to the 49 Niners Stadium. Moving on to the cost front. Operating cost and expenses through the second quarter, totaled $360 million representing an increase of $14 million or 4% from the same six month period in 2015.
The increase in operating cost are in line with our expectations and reflect higher cost associated with the record attendance and guest spending levels through the first six months of the year.
The increased operating cost also reflect higher labor cost due to normal merit increases and seasonal wage increases as well is higher operating and maintenance supplies and expenses as we continue to support investment made in the infrastructures of our parks.
Meanwhile, adjusted EBITDA, which we believe the meaningful measure of our park level operating results, totaled $92 million for the first half of 2016, up 10% or $8 million in 2015. Adjusted EBITDA margins during the same six month period improved by approximately 90 basis points, compared with the prior period.
The increase in adjusted EBITDA and adjusted EBITDA margins is attributable to top-line revenue growth outpacing the growth in operating costs as we continue to focus on effectively managing our fixed cost base.
Consistent with the prior year it's important to note that our year over year operating comparisons continue to be impacted by foreign currency translation from our Park in Canada.
Adjusting from the impact of foreign currency exchange rates, our revenues through the first six months of the year grew 6% or $24 million and operating expenses were up 5% or $15 million.
The net effect of foreign exchange rate on reported adjusted EBITDA for the first half of the year was nominal and based on current rates, we estimate the full-year impact on 2016 reported adjusted EBITDA will be in material when compared with 2015.
Turning our attention to operating results for this past Sunday July 31, based on preliminary results, year to date net revenues through July 31, were up 2% or $16 million to $769 million.
The increase with the result of a 1% increase in attendance, a 1% in average in-park guest per capita spending an approximate 4% increase out-of-park revenues when compared with July 2015. Today we have producing guest spending across all major categories while also increasing attendance from the record levels we achieved last year.
As Matt mentioned, while we did experience pull back in attendance in July, we do not believe this is indicative of a broader trend or a change in the underlying business fundamentals. Throughout the season, when we have seen with weather, we produced the attendance levels and operating results, we expected coming into the year.
Based on the nature of the attendance patterns we have generated to-date and the strength of our advanced purchase commitments, such as season pass sales, group bookings and hotel reservations. We continue to believe the underlying demand for our business remains strong.
To quote Matt, if it rains on any given Saturday, you don't change your strategy on Monday. With that in mind, we remain confident in the capital and marketing programs we have in place, as well as the dynamic pricing programs and operational initiatives we have implemented.
We will continue to run our 2016 playbook and execute against our long-term growth strategy as we look to deliver our seventh straight year of record results. Now let me shift focus to our balance sheet for a moment.
At the close of the second quarter, our balance sheet remains in excellent condition in terms of providing both liquidity and financial flexibility. Our receivables and inventories are at normal seasonal levels and we have long-term credit facilities in place to fund current liabilities, capital expenditures and operating expenses.
At the end of the quarter, we had $68 million in cash on hand and $596 million of variable rate debt before giving consideration in straight swaps. We also had $939 million of fixed rate bonds and $55 million in outstanding borrowing under our revolving credit facilities. In 2016, our revolver usage levels were similar to 2015.
Over the past five years, we have significantly improved our balance sheet and financial flexibility. We have reduced our consolidated leverage ratio from 4.1 times debt to adjusted EBITDA at the end of 2011 to insight 3.4 times debt to adjusted EBITDA today.
Our cash interest costs have decreased to approximately $80 million on an annual basis, down from approximately $150 million five years ago. Over that same timeframe, we have gone from drawing on our revolver during the fourth quarter to having approximately $120 million in cash on hand at the end of the year.
Finally, we have increased our annual distribution rate from $1 per limited partner unit in 2011 to $3.30 per limited partner unit this year while still aggressively investing in growth opportunities at our parks. And we expect our distributions to keep growing.
As I'm hoping to we are pleased with our operating results through the first seven months of the year and we remain confident in our long-term strategy.
We will continue to opportunistically take advantage of market conditions to maintain a strong balance sheet and growing distribution, while at the same time having flexibility to invest in strategic growth opportunities. With that, I’ll turn the call back over to Matt..
Thank you, Brian. As Brian just mentioned we continue to have great confidence in the resilience of our business model, the value of our strategic plan and our ability to successfully implement it. We also have a great degree of confidence in the quality of our total entertainment package and the value proposition is provides.
This includes our upcoming following the events, which continued to be an important part of our operating season. In fact, weekends in October are often the highest volume and most profitable weekends of the year.
We remain focused on ensuring, we continue to deliver and add to the high quality experience, our guests have come to expect from our notorious haunt events.
This year, we will have new skeleton key rooms, which are actor driven experiences included with the purchase of fright line, new themes for many of our mazes, new parades and more family day experiences around the 50th anniversary of it’s The Great pumpkin Charlie Brown.
Also, we will be testing a new upon virtual reality attraction in several of our parks. This is just another example of our broad approach or testing VR in our parks, as we look for finding the operational and commercial sweet spot for tech payment offerings that will appeal to the consumers.
More details around our Halloween events will be release in the near future. Beyond Halloween period, we will expanding Great Americas’ operating schedule with the addition of Winterfest and new holiday experience at the park.
During Winterfest ,guests will be able to ice-skate in front of the parks iconic double-decor carousel, enjoy magnificent light display, view spectacular live holiday shows and enjoy a wide variety of food and beverage offerings specifically tailored to the event.
While Knott's Berry Farm is been a huge success Knott for some time now this is the first phase of broadest strategy to introduce winter holiday experiences at our seasonal parks. We are extremely excited about the potential Winterfest represents for extending our season and extending the entertainment offerings to our guests.
While our comments so far a primarily focused on the current operating season, I assure you we are already actively engaged in the execution of all strategic aspects of the upcoming 2017 season. This includes Mystic Timbers a world-class wooden roller coaster at Kings Island, which we just announced last week.
Our major water park expansion at our Soak City Waterpark adjacent to Knot Berry farm and the extension of our operating season in three more parks where Winterfest will be introduced. More new risen attractions at our parks will be announced over the coming weeks. We also continue to move forward with our branding initiatives.
As I mentioned on our last call, we have found that embracing the heritage of our unique brands and strategically operationalizing those brands leads to a guest experience unmatched by other generic amusement parks.
The in-depth analysis we are performing in each of our parts directly informs our investment strategy works across all departments and functions and supports strong consumer loyalty. To-date we have completed the brand research and positioning plans at five of our largest parks and we expect that three more completed by the end of next year.
Finally, our 1300 acres of undeveloped plant adjacent to our parks continues to be large opportunity for growth. We are not prepared to announce all of our plans at this time, but I will say our focuses on projects that will drive both direct value adding mission synergies.
A great example of this is the construction of Cedar Point Sport Center, which is currently ahead of schedule and is expected to be completed by the end of this year. Sports Force the company that will be managing these fields has already begun taking tournament registrations beginning next spring.
Imbedded within this tournament is a length of event ticket Cedar Point in Soak City for the athletes along with ticket packages available for their families and friends.
We are more aggressively positioning Cedar Point at a true regional destination with the companies of this new huge sport facility, the ongoing evolution of the parks resort offerings including expanding the amenities and entertainment on its mile-along Lake Erie Beach and the completion of the parks brand positioning as the place to take thrills to the next level.
At Cedar Point the average length of stay and the average rise per guest, two key performance metrics in our world have both steadily been increasing and based on future plans we would expect to see this trend to continue.
Unfortunately, our marketing team won't let even me announce any specifics today, but will look for their announced in the coming weeks. Speaking of water parks the expansion of rebranding of our water park at Carowinds has been extremely successful this year. The attractive growing Charlotte market continues to be an area we planned to invest in.
This park has 100 acres of undeveloped land and similar to the playbook at Cedar Point we believe this area is to be well position for amateur-use sports facilities and resort development. Discussions and analysis are ongoing, we will be sure to keep you updated as our long-term strategic plan continue to progress for this market.
In addition, we continue to develop our CRM platform, our dynamic pricing models, our food and beverage programs, our mobile app and digital emerging platform, our rezoning efforts to Great America and our immersive live entertainment offerings.
Each of these initiatives represents an exciting and lucrative area of growth for us both in the near-term and the long-term. In conclusion, we remain very confident in our ability to deliver record results this year and remain on-track to achieve our long term adjusted EBITDA goal of $500 million earlier than our original target of 2018.
Our top priorities remain to grow our distribution while we continue to invest in our business to create greater value. We are a total return investment with extremely attractive tax advantage 5.6% yield and valuation growth opportunities when compared to our closest peers. With that, we will now open up the call to questions..
[Operator Instructions] We will take our first question from Tim Conder with Wells Fargo Securities..
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And that does conclude today’s question-and-answer session. I would like to turn the conference back over to Matt Ouimet for any additional or closing remarks..
Thank you Lisa and thank you all for your interest and ongoing support of Cedar Fair. I know many of you on this call have got an opportunity to visit the Cedar care part this summer. For those of you that haven’t, I strongly encourage you to take the time to visit one or more of our parks to really understand what differentiates Cedar Fair.
So with that, I’ll turn it back over to Stacy..
Thank you. Thank you, everyone, for joining us on the call today. Should you have any follow-up questions, please feel free to contact me our Investor Relations department at 419-627-2233. We look forward to speaking with you again in about three months to discuss our third quarter results..
And that does conclude today’s presentation. Thank you all for your participation and you may now disconnect..