Six Flags Entertainment Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

Key Takeaways

  • Leading indicators show season pass sales up double digits in both units and average price, with add-ons like all-season dining and Flash Pass sales also ahead of last year.
  • Group sales are outperforming expectations, surpassing last year by over 20% and trending toward pre-pandemic levels.
  • In-park spending per capita increased 5%, driving record Q1 in-park revenues through initiatives like automated parking and self-service kiosks.
  • Total revenue declined 6% to $133 million and adjusted EBITDA loss widened to $26 million from $17 million, driven by delayed international licensing recognition and a $12 million reduction in legacy membership revenue.
  • New digital features—Gen AI chat, a personalized concierge, digital wallets and a metaverse gaming platform—are being introduced to enhance the customer journey and may boost future monetization.
AI Generated. May Contain Errors.
Earnings Conference Call
Six Flags Entertainment Q1 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to the 6 Flags First Quarter 2024 Earnings Conference Call. My name is Betsy, and I will be your operator for today's call. During the presentation, all lines will be in a listen only mode. After the speakers' remarks, we will conduct a question and answer session.

Operator

Thank you. I will now turn the call over to Evan Bertrand, Vice President, Investor Relations and Treasurer. Please go ahead.

Speaker 1

Good morning, and welcome to our Q1 2024 earnings call. With me is Selim Basuil, President and CEO of 6 Flags and Gary Mick, 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 laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements.

Speaker 1

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. While our call today will focus on the results of Q1 2024, I do want to provide a few updates on the merger process. First, we received overwhelming shareholder approval of the merger on March 12, helping us achieve a key milestone in the process.

Speaker 1

2nd, we have certified compliance with the DOJ's request for additional information and documentary material. And last, we completed certain credit refinancing in preparation for the merger. We expect the merger to close in the first half of twenty twenty four. With that said, we will not be taking any questions on the merger on this call. Now, I will turn this call over to Selim.

Speaker 2

Good morning. Thank you for joining our call. We are nearly 3 years into our transformation and we are excited to see our results trending upward. Early indications for the season show positive trajectory for this season and that people are spending more money in our parks. We have carved a clear path for profitable growth and attribute this progress to 2 key aspects of our strategy.

Speaker 2

The first is premiumization. We are transforming our parks. We are creating multi generational appeal proving that thrills know no age. Thrills know no age. We alleviate choke points and amplify value in every aspect of the past experience.

Speaker 2

We are also alleviating burden on our rights and on our employees, which in turn freed up space to better serve our guests, making us easier to do business with. We are enhancing park infrastructure, in park offerings, luxury accommodations, comfort seating and beautified our parks, which is resonating with our guests, giving them a reason to stay longer and spend more. The second key aspect is that we are reinventing the customer journey from before they enter the park to after they leave. Through our digital transformation, we have introduced new ways to personalize the guest experience and to increase engagement. I will discuss this in more detail later in the call.

Speaker 2

Today, I will highlight several leading indicators that give us confidence that we are on the right path for profitable growth. First, our pass sales remain strong. Through April, 2024 total pass sales are ahead of last year by double digits with both units and average pass price showing solid increases over last year. Add on sales of all season dining and all season flash passes are also ahead of last year and we are selling a higher mix of diamond and platinum passes. 2nd, group sales are outperforming expectations.

Speaker 2

Our move last year to place our sales team back in the park has empowered our team, enabling them to work closely with park leadership and to better engage with customers. Based on our current bookings, we are surpassing last year's group sales by over 20% and approaching pre pandemic levels for the full year. 3rd, in park spending continues to grow. We are seeing underlying in park spending per capita increasing 5% excluding the headwinds from our discontinued legacy memberships. This growth helped us achieve record 1st quarter in part revenues and reflects our focus on driving monetization through technology as well as on elevating the experience which promotes multi generational family visitation in our parks and encourages guests to stay longer.

Speaker 2

On technology, for example, our new speedy parking automated toll plazas are quickly gaining popularity and generating additional revenues with roughly half of our guests now using this service. Another example is our new self-service kiosks at our restaurants which are reducing food wait times and increasing average check sizes. It is all about convenience. I repeat, it is all about convenience. We elevate the experience by striving to engage our guests at a deeper emotional level, whether it is riding one of our record breaking thrill rides, the nostalgia of eating a funnel cake or smelling freshly made cotton candy, watching your child ride his or her first roller coaster or providing an opportunity for a group of old friends to reconnect, we validate every day that a memorable experience outshines a crowded experience.

Speaker 2

A memorable experience outshines a crowded experience every day. I have personally observed the desire for guests to enjoy the Six Flags experience. On a recent Saturday, I was at Six Flags over Texas. There were 11,000 guests in the park that day. Around 7 pm, they were still over 75% of the guests at the park and I saw many of them sharing a meal, treating themselves to dessert and shopping for their favorite apparel at our retail location.

Speaker 2

You could see the excitement in their faces and they did not want to leave. As we work to encourage guests to stay longer, enhance our in park offerings and cultivate memorable experiences, this will drive continued progress in growing guest spending in our parks. Before I hand it over to Gary, I want to reiterate how transformative the past few years have been for us. We have streamlined our organization, removing unnecessary layers, creating a more nimble and agile team. We have decentralized certain key functions to put ownership back in the park, empowering local teams which has been central to better serving customers and reinvigorating our group sales.

Speaker 2

Our culture of urgency, excellence and ownership has been central to navigating numerous challenges, adapting quickly and setting a strong foundation for the future. We remain dedicated to creating a premium guest experience as well as staying vigilant in managing our costs so that we can deliver profitable and sustainable growth. With that, I would like to turn the call over to Gary to discuss the financial results for the quarter.

Speaker 3

Thank you, Selim, and good morning, everyone. I will start with attendance, revenue and per caps and move to expenses and adjusted EBITDA for the quarter. I will then discuss our ActivePass base metrics, select balance sheet items and capital allocation. Total attendance was 1,700,000 guests, a 6% increase from the prior year, driven primarily by the early Easter holiday, which occurred in the Q1 of 2024 compared to the Q2 of 2023. We estimate that the Easter timing shift provided a benefit of 90,000 guests in the Q1 of 2024 and will result in a year over year headwind in the Q2.

Speaker 3

Unfortunately, the weather was just as challenging in the Q1 of 2024 as it was in the prior year, and the number of operating days were essentially flat year over year. Revenue was $133,000,000 a decrease of $9,000,000 or 6% versus last year. The change was driven primarily by 2 factors. The first was a reduction in international licensing revenue caused by a change in the estimated opening date of 6 Flags Cadia to mid-twenty 25, which shifted $4,000,000 of revenue previously recognized to future periods. The second was a $12,000,000 reduction in revenue from memberships beyond the initial 12 month commitment period, what we call 13 plus, which is recognized evenly each month and is not associated with attendance and includes revenue allocated to admissions and in park revenues.

Speaker 3

Admissions revenue was $71,000,000 a decrease of $6,000,000 or 7% versus last year. In park revenues were a 1st quarter record at $54,000,000 an increase of dollars or 3% versus last year with our in park initiatives more than offsetting lower 13 plus membership revenue. Total guest spending Total

Speaker 2

$7

Speaker 3

Excluding the impact of 13 plus revenue from both periods, which we believe better reflects our higher average pricing and in park monetization efforts, guest spending per capita would be higher than prior year by $1.59 or 3%, which includes a slight increase in emission spending per capita of $0.31 or 1 percent and an increase in in park spending per capita of $1.28 or 5%. We expect revenue headwinds from 13 plus members to continue into the 2nd quarter with an anticipated reduction in 13 plus revenue of approximately $10,000,000 compared to the Q2 last year. As Salim mentioned, our Strong Pass sales are an encouraging leading indicator that gives us confidence we can grow attendance again in 2024. We also expect to grow our per caps for each category of guest and across our in park revenue channels. However, this growth will be tempered by the following factors.

Speaker 3

First, 13 plus revenue headwinds that we have previously mentioned. 2nd, a higher mix of season pass attendance, which carries a lower per cap versus a single day visit. 3rd, a higher mix of group attendance, which typically comes at a lower per cap versus our company average. Based on early trends, coupled with these tempering factors, we expect our total guest spending per capita in 2024 to be up slightly versus prior year. Moving on to costs.

Speaker 3

In Q1 2024, we incurred $5,000,000 of merger related expenses associated with the proposed merger with Cedar Fair. Cash operating costs, which includes cash operating and SG and A expense, but excludes merger related costs, decreased $1,000,000 or 1% in the Q1 versus the prior year. Looking ahead, there are several factors driving our cost expectations for the remainder of the year. First, we are optimizing our events calendar, focusing on our guests' favorite events to deliver the biggest impact, which will result in lower event spending in the second half of twenty twenty four compared to the second half of twenty twenty three. 2nd, we expect advertising spend to be flat for the full year 2024 versus prior year.

Speaker 3

That said, we plan to spend more on advertising in the Q2 to build on our early success and to better align with the timing of our past promotions moving into the peak season. This will make for tougher quarterly comparisons for the Q2 versus last year. Finally, we expect full year average cost inflation to be around 4%. Keep in mind, many of the parks in jurisdictions with the largest minimum wage increases were either closed or did not have significant operations in the Q1, but will be ramping up operations in the second quarter. Adjusted EBITDA loss for the quarter was $26,000,000 versus a $17,000,000 adjusted EBITDA loss in the prior year Q1, driven primarily by the shift in international licensing revenue to 2025 and lower membership 13 plus revenue, partially offset by higher attendance and higher underlying per capita growth, particularly on in park revenues.

Speaker 3

Our active pass base as of March 31, 2024 comprised 2,900,000 passholders, a 10% decrease versus the prior year Q1. As you will recall, our active pass base at the end of Q4 2023 was flat with the prior year. The sequential drop in the prior year comparison from Q4 to Q1 is due to the inclusion of our discontinued annual pass product in the prior year's active pass phase. These annual passes which were sold in 2022, but not in 2023 were valid for 12 months and did not expire in January like traditional passes. Excluding these annual passes, which we feel better reflects our pass sales, our active pass base at the end of Q1 would have been higher than the prior year Q1 by high single digits.

Speaker 3

Deferred revenue as of March 31, 2024 was $165,000,000 an increase of $13,000,000 or 9% versus the prior year. CapEx spend was $37,000,000 in the Q1, an increase of $12,000,000 compared to Q1 2023, as we continue our work on enhancing guest facing technology and rolling out new rides and attractions. Total liquidity as of March 31 was $310,000,000 which includes $249,000,000 of available revolver capacity, net of $21,000,000 letters of credit, plus $61,000,000 of cash. On May 2nd, we raised $850,000,000 of 6.5eight percent senior secured notes due 2,032. In anticipation of closing the merger, we have fully repaid the term loan and the outstanding revolver balance.

Speaker 3

Additionally, we will pay down $165,000,000 of our 2025 secondured notes in July when the call premium steps down to par, leaving $200,000,000 outstanding on our 7% notes due July 5. This refinancing was part of a series of financing transactions that were completed in anticipation of the merger closing. Including the refinancing this month of Cedar Fair's $1,000,000,000 Term Loan B and $300,000,000 revolving credit facility, which is expected to be upsized to $850,000,000 upon the closing of the merger, and that will be assumed by the combined company. These steps help put Six Flags and the combined company in a position with sufficient cash flows and revolver capacity to address the near term debt maturities and the anticipated fees and obligations associated with closing the merger. We intend to use excess cash flows to pay down debt until we reach our target leverage ratio of 3x net debt to adjusted EBITDA.

Speaker 3

With that, I will turn it over to Selene.

Speaker 2

Thank you, Gary. It is exciting to see the premiumization strategy taking hold on our results as evidenced by our positive leading indicators including our strong season pass sales, improving group sales and consistent growth in our in part sales channels. As we move into the next phase of our strategy, we are focused on transforming guest engagement from before they enter the park to after they leave. Through our digital initiatives, we are reinventing the customer journey and we are excited to update you on new developments that will propel us in this endeavor. Starting with the pre visit experience, First, we are launching a brand new website with stunning visual displays and it will incorporate an intuitive design and mobile friendly navigation to help drive website conversions and repeat visits to our site.

Speaker 2

The site will utilize our new Gen AI chat feature, which will be able to answer most of our guests' questions instantaneously, reducing the need for a live agent. 2nd, our new Gen AI concierge named Missy 6 will be launched on our app and website. This feature will help guests plan their entire day tailored specifically to their ride and food preference. Both of these developments are expected sometime in the Q2. Now let's move on to the experience in the park.

Speaker 2

We are expanding our self serve kiosks to many of our retail locations later this season. Based on the popularity and success we see at our F and B locations, this will help streamline operations and increase average ticket sizes in our retail facilities, helping guests buy their favorite parks merchandise without needing to wait in line. Next, live ride wait times will be rolled out to multiple parks this season, providing guests with more accurate wait times, helping guests to maximize every minute in the park. Finally, our new digital wallet is set to be rolled out later in the Q2. Will simplify the payment process for guests, consolidating all payment activity for the entire family and can be integrated with your credit card, cell phone or smartwatch.

Speaker 2

This will give parents more control to monitor payment activity and will provide us with valuable customer insight to help personalize our promotions and enhance guest outreach. We are also driving guest engagement after they leave the park to keep them wanting to come back for more. 6 Flags is tapping into the metaverse, launching a virtual interactive gaming platform later in the Q2. Guests will be able to play online games to earn virtual coins that can be redeemed for real world benefits at the park. Plus, we are developing a new digital loyalty program that we plan to unveil later this year.

Speaker 2

This will help us to encourage repeat visits, promote in park offerings and improve overall guest engagement and also reward our most loyal guests. We will provide more detail on this program at a later date. Our digital innovations have shown early success in helping to drive monetization. We feel there is plenty of headroom to expand on this front and unlock even bigger returns in the future. Now, I want to talk about why I'm so excited about the 2024 season.

Speaker 2

First, our exciting lineup of new rides and multi generational attraction is already generating buzz and sure to excite our guests. At Six Flags Over Georgia, we are launching the Georgia Surfer Coaster, a first of its kind surf coaster featuring the ultimate combination of a roller coaster with unique water attraction features reaching a maximum speed of 60 miles per hour and a height of 100 and 44 feet. At Six Flags St. Louis and Six Flags Great America, we are opening 2 new 17 story pendulum rides, a proven fan favorite that takes guests over 170 feet into the air at speeds up to 75 miles per hour. Big Flags Great Escape will be celebrating its 70th anniversary with the new Bobcat wooden family costers, which will take guests 55 feet in the air and reach speeds of nearly 40 miles per hour.

Speaker 2

6 Flags Chester, Texas will be unveiling our revamped DC Universe area with new theming and rides including the Cyborg Cyber Revolution, Shazam Tower of Authority and the Metropolis Transit Authority, which will create a truly immersive experience for all members of the family. And last, but certainly not least, we are celebrating our 50th anniversary of SIG FLAG's great adventure and we are doing it big. The Flash vertical velocity, a first of its kind super boomerang coaster will zip you 100 feet off the ground, feature 180 degree twisted drop followed by the 0 gs roll and will reach speed of up to 59 miles an hour. At Hurricane Harbor, New Jersey, we are installing the new Splash Island Kids Playhouse structure complete with 50 play features, slides, waterfalls and a gigantic water bucket to soak splash seekers. And in June, we will be opening our new Savannah, Sunset Resort and Spa, an overnight oasis offering panoramic view within our 350 Acres safari and behind the scenes encounters.

Speaker 2

Spots are filling up quickly, so be sure to book this luxury experience as soon as possible. Next, this year's Frive Fest is really going to raise the bar for our signature event. We are amping up the thrills with new scare zones, upgraded maces and other new hair raising attraction to take the fear factor to a whole new level. We are also adding new movie themed haunted houses at even more of our parks this year. That's all I will say for now, so stay tuned for more details.

Speaker 2

Before opening the call for your questions, I want to highlight an initiative that we are practically proud of. This summer, we expect to complete our 3rd major solar installation at save over $100,000,000 over the next 30 years and it will provide a convenient shaded parking option for our guests. That is another convenience for our guests. Combined with our solar installation at Six Flags Great Adventures and Six Flags Discovery Kingdom, we will be the largest producer of carport solar power in North America. Also, we have finalized plans to launch our 4th solar installation project at 6 Flags Great America.

Speaker 2

These initiatives are a win win for everyone we serve. They serve our guests by improving our parking lots, they serve our communities by using renewable energy to power to the largest investment in rides ever to reinventing the customer journey is about putting the guests at the heart of the experience where every family member from toddlers to teenagers to grandparents find moments of joy and thrills. Every minute at SIG FLAGS is a minute well spent. With that, operator, would you please open the call for any questions?

Operator

The first question today comes from Steve Wieczynski with Stifel. Please go ahead.

Speaker 4

Hey guys, good morning. Good morning, Steve. How are you? So Gary, can you help us think about the per caps a little bit better, not only for the Q2, but for the rest of the year? I think you confused me a little bit with some of your commentary.

Speaker 4

So let me see if I got this right. Full year total guest spending will be up slightly versus last year, but it sounds like the biggest drag on those per caps is going to be occurring in the Q2. So I just want to make sure I have that right. And then anything else you could you would add on in terms of the cadence for the rest of the year from a per cap perspective would be super helpful? Thanks.

Speaker 3

Yes. You're welcome, Steve, and good morning. So the per caps on in park spends are the aspect that will be favorable for the balance of the year. We're seeing again good traction there from what we would say our in park revenue generations, investments and revenue strategies are providing a solid lift. The admission side of the per caps is also we believe to be up slightly, but it will be more moderated over the time of the year.

Speaker 3

And that goes to the 13 plus impact on that aspect. So the Q2 has the impact of the $10,000,000 of the $13,000,000 plus. So that to your point is certainly going to moderate the impact, the upside impact of the in park spend on Q2. But Q3 and Q4 should provide a nice lift.

Speaker 4

So then Q3 and Q4 should be up nicely? Yes. Okay. And then Salim, I want to ask about pass sales. And I fully understand the unit side of the equation being up so much, given that you guys didn't sell as many past sales last year.

Speaker 4

But I'm surprised that you indicated pricing is up significantly as well. So just wondering if you can kind of break the pricing side down and maybe what is driving the price increase at this point? And if that's a much higher mix of the premium priced pass products? Thanks.

Speaker 2

Exactly, Steve. You remember that we all increased pass prices pretty significantly in 2022. And then we knew that this was a challenge, but we needed to reset and recalibrate with our guests. Now what we've done, we've learned a lot since then and we went to a more balanced and holistic approach to our past offerings. So what we're doing right now is we're optimizing the balance of single day tickets and pricing of our simplified passes.

Speaker 2

So from that perspective, we have basically a promo going on right now where the pricing is very simple. You buy a gold pass, you get a platinum you become platinum member. You buy a platinum, you become a diamond member. And we've seen a significant so far, we've launched it a couple of days ago and it's been a fantastic response to that promo. Now, I want to remind everybody that pricing of that promo is higher.

Speaker 2

Gary, could you just make sure that I'm correct on this, It's higher than the same time 2023? Yes. And higher than 2019, correct? Yes. Yes.

Speaker 2

So in both cases, the promo is more effective because there are 3 things that I'm happy about. Number 1, we realize that our guests are trying to move up in terms of passes, but some of them might not be able to afford it. So by giving the opportunity to buy a gold pass and you get a platinum benefits have been a big plus and we've seen that last year. But what's interesting for us is that we've added this year, a platinum, you get a diamond and this has been a very good mix. We have had a fantastic mix, almost fifty-fifty so far since the launch of a couple of days ago where 50% of our people are upgrading to platinum and 50% upgrading to diamond.

Speaker 3

Yes, mix has a lot to do with the average season pass price, Steve.

Speaker 5

Okay, got you. Thanks for the

Speaker 4

color guys. Really appreciate it.

Speaker 2

Yes, you bet.

Operator

The next question comes from James Hardiman with Citi. Please go ahead.

Speaker 5

Hey, good morning. Thanks for taking my question. And at the risk of trying to do some math on the slide here, which is always, I think difficult, I just wanted to make sure we've got all the puzzle pieces for the Q2 because it feels like 2Q is going to be bit challenged. So you talked about sort of the Easter shift being a negative, call it, a 90 1,000 visit headwind. So that's maybe 1 point, 1.5 of attendance headwind.

Speaker 5

And we've got this per cap issue, which is another 2, 2.5 points. So I'm getting to maybe a 4% revenue headwind for 2Q. And then we've got advertising, which I think Gary you said in your prepared remarks are going to be up in the Q2. And then you've got inflation, which I think you noted was going to be worse in 2Q than what we saw in 1Q just based on the parks are going to be coming into the mix. So I guess my bottom line question, I mean, you did $161,000,000 in 2Q last year.

Speaker 5

The Street is assuming that you can grow on that this year. That seems maybe overly optimistic based on what you laid out. I don't know if there's a way to think about sort of the starting point of EBITDA as we look at 2Q, but it just feels to me like it's going to be really difficult to grow EBITDA in the Q2. Is that fair?

Speaker 3

Hi, James, and good morning. Great question. Of course, that depends on many things. But you laid out the items that we had identified. We have 13 plus as revenue headwind.

Speaker 3

We mentioned that was $10,000,000 and that mostly drops through the bottom line. We're investing in media. We have a new ad campaign that we're very excited about and that has recently launched and we're carrying that deeper into Q2 than we did in the prior year. So we believe that's going to be very impactful on season pass sales group and single day tickets. So that's an additional investment.

Speaker 3

The Easter shift, which we've talked about here and inflation. So the offset to those are our cost mitigation strategies, which Seamus and the team are aggressively and diligently pursuing as well as a lift on per caps, all right. So we've laid the investment strategies and the revenue strategies for Q2. It depends on attendance and of course weather and penetration factors that determine how much the per cap lift is, but that's upside to those headwinds.

Speaker 5

Got it. Go ahead.

Speaker 2

I want to make sure that we understand that the same we have not we are not managing and we've never managed quarter to quarter. I'm going to tell you that's why we haven't done guidance. But I'm going to share with you that, that second quarter, we're investing in 1st of all, we're investing in our media spend to make sure that our season pass promotion is very effective. And we've learned from the last 2 years that we cannot miss the Memorial Day sale and we're putting a lot of effort into it. So we're basically moving some advertising money from the Q3 into Q2.

Speaker 2

So that's number 1. Number 2, we are also facing we had April, we had significant rain in April and we had several days of rain that affected many of our parks that were open at that time, specifically in Dallas. And then we have the Easter shift. So your comment about being EBITDA down in the second quarter is correct. And then in the second half is where we will basically this year is all about the second half.

Speaker 2

So our second half is where we're putting all the emphasis and where all our monetization is coming through. So we've put a lot of things coming through. We have a lot of rides opening up. And FryFest, we are investing in significant FryFest in IP. It will be the biggest investment in Fryfest ever in the history of this company, 5

Speaker 3

or 6 IPs that are totally new. Right. And the 20 rides and attractions that we have coming out, James, all hit in general between May and the 4th July weekend, more of the in the 4th July. So the impact on that lift in attendance would be more felt in the second half.

Speaker 5

Got it. And so and that dovetails nicely into the second part of my question. It sounds like 2Q is sort of an investment quarter effectively. And the way you've laid out the second half, it sounds like per caps should inflect positively. It sounds like all else equal, maybe margins get a little bit of a lift because you're shifting some of that advertising spend.

Speaker 5

I wanted to talk specifically about attendance in the second half. In the Q1, ex the Easter benefit, you're basically flat. But it sounds like you think in the second half, you can do something meaningfully better than flat. I don't know if I'm reading too into that, but it seems like you're pretty optimistic about second half of Tien tsin.

Speaker 3

Yes. James, I agree with you and that's the way we've modeled it out. We have the rides and attractions I just mentioned, the season pass sales trend, the group sales trend, which is very strong. Saleem mentioned Fright Fest, we're really investing heavily in that. The media campaign and our adjusted Active Pass base, you take out those annual passes, which generally start to fall off pretty heavily at the end of Q2 and Q3.

Speaker 3

We should have a pretty strong active pass base at the end of Q3. So all of those leading indicators are saying the second half should be good.

Speaker 5

Really helpful. That's great color. Thanks guys.

Operator

The next question comes from David Katz with Jefferies. Please go

Speaker 6

ahead. Good morning, everybody. Thanks for Sorry. Good morning, everybody. Thanks for taking my question.

Speaker 6

I wanted to go back to the loyalty program, Selim, that you talked about. And I just wanted to get a little more color on what you're going to do with it. But more importantly, how that is intended to fold into the merged company whenever that occurs? Is that going to be a single unified loyalty program? Or how does that what is the notion of that?

Speaker 2

David, first of all, good morning. It's a fantastic question. We have been I am a big believer in loyalty programs. I use them. I believe in them.

Speaker 2

And it allows me to go back to fly the same airline or the same hotel because I like enjoy those loyalty programs. So since I joined this company, I wanted to put a loyalty program, but we at the time, we needed to upgrade 2 things. We need to upgrade our POS systems, so it can honor the points and make that. So we needed technology to help us to put a loyalty program. 2nd, we needed a better mobile app, which we just launched and a better website, so people can track all their points and they can redeem them easily at all times.

Speaker 2

So, the question has been is, where do you see that loyalty program? We see it to be rewarding our repeat visitors, good spend in our parks and make sure that they get great value from it. Now, the success of whether we integrated with Cedar Fair or not, at this moment, we are trying to make sure that this is a very powerful program. So if you notice about what we've done, everything we've done at the company in the last 2 years have taken longer time because we want to do it right. So we went in and put a lot of effort into our website and it took a little bit longer to implement because we wanted that website to be stunning.

Speaker 2

And we spent more money and we put a lot of time and we tested it with many of our park presidents, with our staff and some of our guests. The same with mobile ordering, the same with every technology we're launching, it's taking it very cautiously. So our loyalty program is also being vetted correctly. So from the get go, it gives people excitement. It has to be something that people say, wow, I like it and we're modeling it very much so to what I call the Marriott program.

Speaker 2

We like the Marriott hotel program and we like the way it's easy to use and it's not complicated and that's the program we're going after.

Speaker 6

I understood. I think part of my question, I know we're not supposed to be asking about the merger, but is the notion that it would be there would be a single loyalty program across the platform one day?

Speaker 2

I don't know about that. Honestly, at this moment, I'm going to answer one thing that me and Richard Zimmerman have agreed upon. We like to have our parks remain basically autonomous, being able to cater to their local communities. So we start with something that we've agreed upon. We're trying to make sure what is best for the guests is first.

Speaker 2

And if merging the loyalty program is better, we'll make that happen. If it's too complicated and we won't make it happen. So one thing I love about this merger is that this merger is truly about the gas and I'll talk about it. We are not, for example, merging anything. The names are remaining the same.

Speaker 2

Cedar Point remain Cedar Point. It doesn't become Six Flags Cedar Point. Our great adventure remains the same. I think there is a lot of autonomy of keeping those parts operating very decentralized and operating on its own. I think they are all different competitors, different communities.

Speaker 2

They have local competitors from one to another and we're keeping it very basically through it and let those parts be run and compete and operate as a standalone.

Speaker 6

Understood. One last quick one, if I may. You made some commentary about AI and it's certainly top of mind for everybody. If you could spend a second and just elaborate on is that a customer engagement tool, is that on the operating side, what specific where are you starting with that?

Speaker 2

Well, it starts in 3 places. AI, we're using AI first for training our employees. So this has been already launched internally where our employees can now be trained. All our seasoned workers are being trained and be able to use AI to get all the answers. The second feature is our guest engagement and that goes into specifically making sure that we start with the chat box.

Speaker 2

We want people to be able to get answers and have answers. Today, we have, call it, 100 people plus in customer service answering the questions. And the last thing you want to do is be able is not be able to get through to answer your questions. And we are using AI to make sure that we can personalize your question. The AI feature goes into your specific season pass and specific issue and we'll come back and tell you whatever you need relative to you.

Speaker 2

This is not answering the hours of operating in the park. It's going and answering customized questions and answers. And the CERN, we're using AIs in safety. So we are using upgrading our AI cameras and we're starting with our water parks with our lifeguards and that has been very, very big for us. So it's 3 ways.

Speaker 2

It's one is making sure that our employees can use AI in day in, day out doing their work. We're using AI in interfacing with our parks in with our guests and the search for safety, where our cameras are becoming very AI driven.

Speaker 6

Understood. Thanks very much.

Speaker 2

Thank you, David. Thank you, Dave.

Operator

The next question comes from Ian Zaffino with Oppenheimer. Please go ahead.

Speaker 7

Hi, great. Just wanted to kind of ask about the strengthening group. Is that all just an internal effort? Are you seeing anything different in the market as far as is there a trade down or anything like that? And state of the consumer maybe to wrap it now?

Speaker 7

And then I guess there was a water park recently sold kind of outside of your Chicago Park. Any comments on that? Did you look at it? It was interesting? Or any other comments would be great.

Speaker 7

Thank you.

Speaker 3

Yes. Good morning, Ian. I'll answer the questions in reverse order. I don't have a comment on the Waterpark acquisition. I do not believe it will affect us in any negative way in that market.

Speaker 3

The state of the consumer from what we see so far is very healthy. The in park spends as we indicated in Q1, which is continuing the same directional into April May, it certainly gives us a good look at the spending and it remains healthy. And we feel good about that. Of course, weather and macro and whatever the state of the consumer mindset is, it can affect that, those things we can't control. But what we see so far is solid.

Speaker 3

And then on the group side, we restructured the group teams to go local. And so we physically moved our staff out of the corporate office here in Arlington and back to the parks. And the engagement and the additional media support that we've also provided has given a good lift. I think as I listen to other entertainment and theme park companies, it is a trend across the United States that groups are coming back. I think it's also part of the exiting of COVID and as people realize that this is a really great fun thing to do and we're benefiting maybe from that macro.

Speaker 7

Okay. Thank you very much.

Operator

The next question comes from Chris Woronka with Deutsche Bank. Please go ahead.

Speaker 8

Hey, good morning guys. Thanks for all the details so far. Question on if you look at your portfolio parks, would you say that the top to bottom, are these parks getting closer together in performance in terms of year over year growth? Are they getting further apart? So not asking about specifics really, but just kind of rank ordering.

Speaker 8

Curious as to how that's going the way you guys look at it?

Speaker 3

We don't really give out individual park performance metrics, Chris, at this stage. But Salim's vision and strategy has been applied equally across all parks and it is certainly responding. Each park has a different demographic, each park has a different locale and a different appeal and different ride package. But yes, they are moving in the same direction.

Speaker 2

Okay. All right.

Speaker 4

Thanks, Gary. And then as

Speaker 8

a follow-up, and it's not a merger question, but I'll mention Cedar Fair. I know that one of the things they talked about heading into the season was kind of adjusting some of the operating days and even the hours. And I know you mentioned your days were roughly flat in Q1. Is that something you consider as we move into through shoulder season into prime season? Should we expect any changes in your operating days or hours?

Speaker 3

We don't have anything published at this stage, Chris, but we will always look at a day as to whether it's EBITDA accretive. But the other thing we look at is our events and last year we talked about this on our Q3 earnings call where we executed a significant number of new events. And this year in Q2, Q3 and Q4, we're going to focus on EBITDA accretive, ROI accretive events and so we should save some OpEx.

Operator

The next question comes from Thomas Yih with Morgan Stanley. Please go ahead.

Speaker 9

Thanks. Good morning. I appreciate all the puts and takes on the per caps. Gary, I think you mentioned in park continuing the same kind of directionally in terms of growth into April May. So maybe just to put a finer point on that, if we strip out the $10,000,000 headwind from membership revenues, should we think about kind of the organic per cap growth?

Speaker 9

You did 3% this last quarter in 1Q. Is that still kind of holding up in that zone through the course of the year?

Speaker 3

Great question, Thomas. Yes, I think that's fair to say and it's more meaningful in Q3 and Q4.

Speaker 9

Okay, great. And then I think you cited the 4% cost inflation. Is that inclusive of essentially what your view is on the impact you're seeing from the minimum wage increases for the parks that are opening back up? And should we kind of think about labor costs generally moving in that direction, offset by potentially some efficiency initiatives that you're kind of putting in place?

Speaker 3

Yes. The 4% is a blended overall average, which includes the wage rate increases and it also includes merit increases for our full time staff.

Speaker 9

Okay, awesome. And maybe just to squeeze one last one in on the active pass base. Can you maybe just elaborate a bit on that dynamic that you mentioned about the annual pass comparison sold in 2022 versus not in 2023? Is that a revenue timing headwind? Is that impacting the cadence of quarterly revenues in a meaningful way?

Speaker 9

How should we think about that as it translates into your revenue recognition?

Speaker 3

The annual passes, Thomas, were included in the last year's deferred revenue. So they certainly contributed to prior year's revenue stream and they won't this year. So that helps the correlation between active pest base and deferred revenue. So to

Speaker 9

the extent that you're kind of seeing it flow through into other past sales, you presumably know the timing of the season pass sales kind of makes up for some of that over the course of the year? Is that how to think about it?

Speaker 3

Yes. I think that's exactly right. And I'll follow-up a little bit with the 13 plus. I mean, it's a lot of noise, right? It's a time based revenue recognition as opposed to a visits per pass active where the parks open revenue recognition.

Speaker 3

But essentially it's nothing more than a season pass. And so to make up for the 13 plus, we sell more season passes and that's how that will all balance out.

Speaker 9

Okay. Appreciate the color. Thank you.

Operator

The next question comes from Lizzie Dove with Goldman Sachs. Please go ahead.

Speaker 10

Hi there. Good morning. Thanks for taking the question. Just wanted to go back to attendance trends. I think excluding the 90,000 benefit in the Q1, it grew around 1%.

Speaker 10

And so just want to kind of get a sense of what's the right exit rate to use here. Mexico was a big piece. I think some of the parks opened a little earlier. Your pass units are also up to double digits. So just kind of what's the right kind of underlying excluding these kind of puts and takes rate to use going forward?

Speaker 3

Great question, Lucie. It's a complex equation, right, with many, many, many elements in it. I certainly think that the full year has a meaningful lift of attendance based on what we see on our season pass sales trends, the group sales, all the rides that we have coming in, we talked about with the media. Exactly how that ends up is a function of many things including weather and the economy and other things we can't control.

Speaker 10

That makes sense. I guess to kind of follow-up, James you mentioned the 1.5% headwind in 2Q with the calendar shift, but you've got an important call it 6 weeks to play for with volumes going up. Do you think there's a chance that you can grow in 2Q and make up for that headwind that you've got or kind of too early to say at this point?

Speaker 3

It is too early to say at this point, Lizzie. But yes, there's a chance. It all depends on we have the meat of Q2, I mean, take April out of the equation, 85% of our active volume is in the next is in May June. And we're set up very well for May June to be good. But as you know, the parks are frequently open on the weekends for the 1st, let's say, 3 weeks of May before we go into full operation.

Speaker 3

And if it rains on those weekends, that's always a challenge. But assuming normalized weather per cap lift is possible, yes, it is possible.

Speaker 10

Got it. Thank you.

Speaker 2

Thank you, Lizzie. Thank you, Lizzie.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Celine Bassoul for any closing remarks.

Speaker 2

Thank you for being with us on this conference call this morning. I think we have laid the groundwork for profitable growth in 2024. This is a year we're very excited about. Our solid 2024 pass sales, up double digits, both in higher units and in pricing, the higher mix I've just mentioned, me and Gary, about the mix of Diamond and Platinum, the higher all season dining and Flash Pass, our group sales now near pre pandemic levels 20% above last year so far. Strong in park growth, record first quarter IPL, 5% underlying per cap growth, new immersive experiences, glamping, a lot of fries coming up and the best fry fest ever with brand new IP that are amazing.

Speaker 2

I think the next phase we start we kept on talking about originally the premiumization in part of our transformation and premiumization has most probably helped us be where we are today, but the second phase is reinventing the customer journey. Engaging guests before, during and after park visit and we're doing a lot of all of this through technology. Nearly half of our guests now are using our SpeediGate, a very innovative technology. Our self serve kiosks streamlining operation and expanding it into retail. We are driving IPS seeing growth in nearly all our revenue channels.

Speaker 2

We believe we can grow attendance and per cab this year. We have a continued underlying price growth in admissions and IPS. We are raising the bar. We are focused on families appealing to all ages. Thrills have no age or no no age.

Speaker 2

People are staying longer. As I mentioned in my example, where people at 7 pm, 3 quarter of the people came at 11 o'clock in the morning are still in our park. Rides and attractions geared to all members, we invested a lot in our kids area and now we are upgrading our big rides and now we are also putting water structures and slides in our water park. It took some time. We spent a lot of money the 1st 2 years making sure that we are providing shaded structures, VIP lounging, gaming houses, cooling system, better restrooms and now we are going back to what's our core making sure that our rides and our slides are better.

Speaker 2

Our new technology making it easier to do business with. Our digital wallet, our Gen AI planning, our easier website to navigate, We are putting a lot of amenities in our park infrastructure and at the end to make a memorable experience, it's all about convenience, value, ease of doing business and premiumization and personalization of experiences. Again, making memorable experiences are very simple. We want to provide a convenient way to do business, want to provide value, want to be easy to do business with and we need to personalize and customize premium experiences. On behalf of the 6 Slack team, we appreciate your continued support.

Speaker 2

Have a great day and we look forward to seeing you in our parts this season. Thank you. Bye bye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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