Six Flags Entertainment Corporation (FUN) Earnings Call Transcript & Summary

Good afternoon and welcome to Cedar Fair, L.P.'s 2020 annual meeting. It is my pleasure to introduce Richard Zimmerman, President and CEO of Cedar Fair. Please go ahead.

Good afternoon, everybody. My name is Richard Zimmerman, Cedar Fair's President and Chief Executive Officer and a member of the Board of Directors. On behalf of your Board, I welcome you to this annual meeting of limited partners of Cedar Fair, L.P. Out of an abundance of caution related to the COVID-19 pandemic, our meeting this year is being held for the first time as a virtual unitholders' meeting. We are happy you can join us today. Our directors are with us virtually as well. They are our Chairman, Dan Hanrahan; Scott Olivet; John Scott; Lauri Shanahan; Debra Smithart-Oglesby; Carlos Ruisanchez; and our director nominees, Gina France, Matt Ouimet and myself, Richard Zimmerman. We are joined today by members of Cedar Fair's senior management team; as well as Michael Russell, Corporate Director of Investor Relations, to whom you may direct any follow-up questions after this meeting. To ensure an orderly meeting today, we will conduct the formal business portion of our meeting first then answer any questions at the end of the meeting regarding your investment in Cedar Fair. Although we may not be able to answer every question, we will do our best to offer a response to as many questions as possible in the time frame permitted. We are also joined today by Deloitte & Touche, our independent auditors; and our inspector of election, Cedar Fair's Executive Vice President, General Counsel and Corporate Secretary, Duff Milkie. Mr. Milkie has taken the oath of inspector of election earlier today. And now to the formal portion of today's meeting. I would like to call the meeting to order. A number of matters are required to be covered at this meeting, so I will be reading from a script from time to time. The script is designed to make certain that all matters are appropriately covered and to expedite the formal portion of our meeting. The formal business of this meeting will include the consideration of 3 proposals. The proposals to be voted on at this meeting are discussed in the proxy statement that was mailed to unitholders. Will the inspector present to the meeting the affidavit regarding notice of this meeting?

Yes. I present the affidavit of Broadridge Financial Solutions showing that the mailing of the notice of this Annual Meeting of Unitholders was completed on April 7, 2020, to each unitholder of record as of March 25, 2020, the record date for this annual meeting.

As established by the Board of Directors and as stated in the notice of this meeting, only unitholders of record as of the close of business on March 25, 2020, may vote at this meeting. A list of the unitholders as of the record date will be available for inspection by any unitholder at this meeting. The affidavit of Broadridge Financial and the list of unitholders have been filed with the official records of the company and will also be included with the record of this annual meeting. Based on information from [ Mauro Sodali ], the company's proxy solicitor, we believe a quorum under the requirements of the company's limited partnership agreement is present. Due to the notice having been sent to all unitholders and a quorum being present, this annual meeting is duly convened. The first order of business today is to consider and vote on the nomination of Gina France, Matthew Ouimet and Richard Zimmerman to serve as Class III directors of the general partner for a 3-year term expiring 2023 and until their successors are duly elected and qualified. Your Board of Directors recommends a vote for Gina France, Matt Ouimet and Richard Zimmerman for election as Class III directors at the annual meeting. The second order of business is to confirm the appointment of Deloitte & Touche LLP as our registered -- independent registered public accounting firm to audit our consolidated financial statements for 2020. Your Board of Directors recommends a vote for proposal 2 to confirm the Audit Committee's appointment of Deloitte & Touche as our independent registered public accounting firm for 2020. The third order of business is to hold an advisory vote on the approval of the compensation for our named executive officers. Your Board of Directors recommends a vote for proposal 3 to approve the compensation of our named executive officers as described in the company's proxy statement. These matters will now be put to a vote. I hereby declare that the polls for the matters to be voted upon at this meeting are now open. Any unitholder who hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Unitholders who have sent in proxies or voted via telephone or Internet and do not want to change their vote do not need to take any further action. We will pause now for the votes to be cast. [Voting]

Since all those desiring to vote or submit a proxy card have done so, I hereby declare that the polls for the matters to be voted upon at this annual meeting are now closed. The inspector will tabulate the votes and results and will be available shortly. The tabulation of the votes has now been completed, and the inspector has provided me with the results of the 3 proposals. On proposal 1, the following individuals received favorable votes of a plurality of the units present and entitled to vote on proposal 1: Gina France, Matt Ouimet and Richard Zimmerman. On proposal 2, to confirm the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for Cedar Fair, received favorable votes from more than 50% of the units present and entitled to vote on proposal 2. On proposal 3, an advisory vote to approve the compensation of our named executive officers received favorable votes from more than 50% of the units present and entitled to vote on proposal 3. Based on these results, I hereby declare Gina France, Matt Ouimet and Richard Zimmerman to be duly elected directors of Cedar Fair Management, Inc. I confirm the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. Finally, the advisory votes on executive compensation will be taken under consideration by the Compensation Committee and the Board of Directors. The certificate of the inspector, with the final tabulation, will be filed with the proxies and ballots with the corporate records; and we will be reporting the final vote results in a Form 8-K. That concludes the formal portion of the meeting. Therefore, I declare the meeting is now adjourned. Now we have a few minutes for unitholder questions. We will take questions submitted via the online web portal, but only questions that are germane to the meeting or Cedar Fair's business will be addressed. We will pause for a moment so that our Corporate Director of Investor Relations can collect any questions from the queue. Michael, are there any questions?

Richard, we have questions. The first question is: with anticipated losses during the COVID pandemic shutdown, what assurances are there that the distribution will be reinstated?

As we said in our earnings call last week, this distribution is a high priority for us. We have taken steps to address the business disruption and suspended the distribution. We suspended it until operating visibility improves and we are able to pay a distribution under the covenants of our bond indentures and credit agreement.

Okay. The next question is, is Dorney Park receiving a new roller coaster?

We are -- we can't wait to get all of our parks open and keep planning for exciting new attractions. We think about what's appropriate for each of our respective markets. I think Dorney has a great collection of coasters as it is and certainly a fabulous water park. We've got exciting plans for Dorney, but my marketing department would; and our CMO, Kelley, would not be happy with me if I let the cat out of the bag.

Next question, Richard. Are there any attractions that have not been completed at this time? And will they be completed for the openings of the parks this year?

We continue to work. One of our measures that we took to make sure we were conserving cash is we went through and made sure that we appropriately halted some of the construction projects and the capital in order to conserve our liquidity. When you look at all the projects that are in plan, many of them -- particularly for the parks that were close to opening in the springtime, many of them are either completed or were near completion. So as we get line of sight into when we will open the parks as we work closely with the governmental authorities in state and local, we'll be making those decisions in terms of finishing those things up or potentially seeing if there's still enough runway in the season to bring them online.

Next question. What long-term impact will COVID have on the company? What changes are being put in place for COVID-19?

Yes, a fair question and a really good question. As I think back through the many years I've been doing this: we've seen events like 9/11 and the SARS situation in Toronto in 2003. There have been many situations where there's been lasting impact not just on our business model but on the consumer mentality broadly in our markets. I expect that there will be some longer-lasting impact. We're working through with our state and local authorities what the operating protocols and procedures will be when we open up. I don't know that we can anticipate all the things that will stick. I think some of the things that we'll put in place and other businesses will put in place over the next few months will stick, but I think some of them will also fade as the health side of the COVID-19 pandemic starts to get in the rearview mirror.

Next question, regarding Cedar Point Hotel Breakers. Are there any plans to create meeting room space for hosting or entertaining a group meeting for 150 to 200 attendees?

We're really proud -- listen, Hotel Breakers has really been one of the -- it's one of our iconic assets. It's really been a true success story. We started that renovation several years ago, did it in 2 phases. The guest reaction has been tremendous. We have tremendous demand for the guest rooms now. We do have 3 meeting rooms in that space that aren't rented out frequently that are available, but what we've seen overwhelmingly is that most people who come to Hotel Breakers are far more interested in wandering out the doors and spending time on the beach or going to Cedar Point's water park or heading into the park to ride the coasters. Not a lot of them come to the edge of Cedar Point and then don't want to do all those things, so...

Sticking with Cedar Point. What's the next major addition here?

We -- one of the disappointments in not opening our parks as soon as we liked to next year -- this year, rather, is celebrating the 150th anniversary of Cedar Point. We had big plans for the anniversary celebration, and that's really what's next for us. We've always got several -- we plan -- as everybody knows, we plan many years in advance. And we've got a lineup of exciting attractions coming, but right now what I'm most excited about is celebrating 150 years of entertaining and satisfying our guests. That's really quite an accomplishment. I don't want to step over that one before we start talking about things that will come beyond it.

When will the parks open? And at what percentage of capacity of attendance do you hope to break even?

We're working with the state and local authorities to determine what and when and how we -- where we sit in terms of the phased reopening of the state economies where we operate. We won't be in the first phase. In most localities and states, we'll be in the second or third phase. We anticipate starting more slowly. And if you look across the landscape of theme parks and amusement parks that are opening up, all of them are opening up on reduced capacity. It could be somewhere between -- anywhere from 25% to 35%, up to 50%, but I think -- once we get open and we got other amusement parks and other large gathering spots open, I think there'll be a natural course of evolution to what the consumer is comfortable with, what we're seeing in terms of the impact within the community and how we can grow that over time. But our primary mission and our top priority is always making sure that our guests and our employees are healthy and can have fun in a safe environment, and we'll make sure that, that happens.

What single medical development, government policy or restriction on relaxation will constitute a green light to resume operating Cedar Fair parks in a modified or normal paradigm?

The really good situation we find ourselves is we've got very strong relationship with all of our local and state governmental partners on the other side. There has been very open dialogue with us and other members of our industry and other large gathering organizations throughout each of the states, with the government. I don't think there's any one thing. I think it's making sure that everybody is comfortable at the package of procedures and protocols that we're going to put in place that really target reacting to this pandemic.

If there are planned with the other parks to offer similar to-go services, as you do with Knott's Chicken Dinner, merchandise, et cetera, to generate some type of revenue while closed due to the pandemic.

We're fortunate to have several operations. I can think of Famous Dave's, which sits right next to the Cedar Point Marina, which we'll be opening to to-go, but we're looking at all those things. And once we do open the park -- by the way, we've been testing -- as I mentioned in my remarks last week, on the earning call, we've been testing mobile ordering within our parks. So we've got lots of plans to try and ramp up as quickly as we can some of the ancillary operations we have, so stay tuned on that.

Due to the COVID-19 and having delayed opening the parks, what type of financial loss are you anticipating for the year?

The difficulty that all businesses have right now is there's so much uncertainty. With us not being sure of when exactly each of the parks are open, it's difficult to forecast a precise number, but as we look at it, we're making sure that we are staying ready to open and that we can get opened as quickly as we can. As I said in my remarks last week, we think it will take on average about 2 to 3 weeks to open at each of our sites. So it's a different kind of challenge for us this year to be in a beautiful spring and not have our parks open, so we're looking forward to getting the green light from our governmental partners.

Many Cedar Fair parks, Knott's and Cedar Point are very developed, if not fully. How can Cedar Fair add more rides there?

One of the really fun things about being involved in our business is you think of each of our respective parks as a small city. There is always acreage and plots of land within the park that we can redevelop to find areas for new attractions. Over the course of the years, we have taken out attractions and taken down buildings that are -- weren't working as hard as we need to -- them for us. So there's always a way to find a little bit more room and spread out the traffic patterns. Master planning is one of the key things we do. Tim Fisher, our COO; and Chuck Myers, our head of our design group, work extensively on master planning to make sure that we can create the best guest experience setting within the industry.

Have you announced estimated openings for the parks? And do you have a date by which you would believe it would not make sense to open the parks?

Yes, we've not announced a date. Again, we have a new term. We call it COVID year. It seems like -- this is the most dynamic environment that I've seen in my career, and things are changing quickly every 2 to 3 days. So we have a way of thinking about it, a framework that we put all this information into, but when we think about what's the right time to open, first, we -- again, we've got to get a green light from our governmental partners. We've got to get the parks ready and then open. We don't have any hard and fast but -- hard and fast dates on any parks right now. I would say we're monitoring the situation closely, and as each week goes by, we're adjusting our plans as we look at each site.

How will you handle foreign employees this year? Will you be able to bring them here to Cedar Point?

We've -- J-1, the J-1 Visa program, with international students coming over and working in our parks, has been a big part of our employment picture. That program is not available to us right now. We'll see if that maintains, but what we're doing is planning that it won't be available to us. And we're making contingency plans around staffing both at Cedar Point and our other parks so that we've got the level of staffing we need once the parks open.

Any information you can provide on the updates of the Schlitterbahn properties?

We're really excited about that we were able to add the Schlitterbahn properties to our portfolio. We talked at length about how iconic the Knott's Berry Farm and our brand positioning that we use there has been and how successful that's been. Schlitterbahn, when I first walked, it reminded me a lot of that texture and that type of feel that you get at Knott's. So we're really excited with some of the improvements we've put in there. Texas, as you know, is in the first phase of their reopening and has already opened some restaurants and other things. So we're working closely with the State of Texas and believe that we will be able to get Schlitterbahn open whenever the authorities give us the green light.

Is Shanghai Disney a template for Cedar Fair?

We watch everything. The -- it's a great question. We watch everything that goes on in the industry. One of the things we're excited about is how quickly Shanghai Disney was able to sell out their opening day, I think, in 3 or 4 minutes. So a lot of demand. We're also watching what's happening both in Asia and here in the U.S. We're consulting and collaborating extensively with our industry partners to make sure that we're all thinking through the types of procedures and protocols we're going to put in place. So it's probably the highest level of collaboration I've seen in my career. So I feel really good that not just Disney and others within the industry are reaching out and we're reaching out to them but that there is a lot of collaboration to make sure that we put at the forefront the safety of our guests throughout the industry.

Is the new theme park management program with BGSU still on track? How is that affected by the pandemic?

As far as we know, that program is still set to take off this fall. Obviously, there's a number of educational institutions that are looking to see whether or not the fall semester happens as it has or whether or not there may be more virtual and online. I don't have any further information on that other than to say that, the last time we checked, that program was still on track. And by the way, we're really excited about that program. When we think about the career opportunities that our industry and that our company, Cedar Fair, has and the impact that having a couple hundred students per year studying the real -- and getting real skills and a platform to develop their experience to make them more successful later, that's a program that I'm really excited about. And I hope it does get off the ground this fall as we planned.

Do you anticipate any parks closing permanently due to the financial conditions?

No. Listen, so if you go back to we had -- if you look at how we were headed into the pandemic, we were coming off of our strongest year ever. We're up -- if you go back to the last August through December of 2018, we were up 6% in attendance and revenues heading into 2019. 2019, we posted record results at $505 million. Going into 2020, we -- because of the strong starts to Knott's Berry Farm, we were up significantly in the first 2 months of the year. And our season pass sales were as strong as they've ever been at record levels. We were up over 40% and $40 million at December 31 in our deferred revenue and our season pass sales, the strongest I've ever seen. So I think we went into this pandemic much stronger. And because of that, I think we've got the -- we think we'll come out of it stronger on the other side. We do think the recovery will not be a V shape. It won't be a quick recovery. We think it will be over time, but we think the type of experience we have, the quality, the customer loyalty we've been able to engender over the years will serve us well when we come out of this. And no, I wouldn't anticipate any of our facilities open -- I think all of our parks were -- contributed nicely to that $505 million adjusted EBITDA last year.

How will ordinary operations change when you reopen, face masks, new signage, queue changes, et cetera?

We're working through all those things. And I think you're going to see us put in place a package of protocols that both meet the government-mandated levels of protocols but also, in some cases, maybe slightly higher standards. So I think you'll see a number of changes, but until we get final in those conversations, I think it'd be premature to talk about what the specifics of those are.

What reasons do you say that the stock has declined so much since 2017?

I just -- in my remarks just a couple of seconds ago, I talked about our strong performance. I think the market has taken a look at our industry, and there are many times where Cedar Fair gets affected by macro trends within the industry. Clearly, this pandemic is a very unique situation which hasn't happened before in terms of all of our operations being closed all at one time. I think, over time, what we've seen is that the market has fairly valued both the adjusted EBITDA and the cash flow we generate. We've also gotten credit for the strength of our distribution over time. So what I feel pretty confident in is that -- if we performed at the level that I believe we will, that the market will fairly value us as we go over the longer term. And I think I'd point back to, since the Cedar Fair MLP went public in 1987, we've had a strong record of distribution payment and sustained growth over the years in our free cash flow generation.

What minimum ride capacity percent constitutes a break-even threshold for both profitability and guest satisfaction standpoint? Are you confident that Cedar Fair parks can sustain or surpass this target throughput level with continuity -- sorry, continually exceeding customers' heightened expectations?

We monitor a number of metrics that really reflect the robustness of our guest experience. Ride capacity, ridership, rides per guest are all part of the things that we monitor internally. We pay a lot of attention to that and, as we think about the new attractions we bring on, clearly not just capacity but capacity that appeals to different sets of demographics within our park, be it the Camp Snoopy kids areas, the more major coasters, the family rides. We try and make sure that at each park, we're balancing out the appeal of our overall attraction portfolio and that we've got ample capacity to give a great guest experience to all the folks that want to come, last year being over 28 million folks.

And our final question, Richard: any special plans to maintain season passholders in addition to extending the season validity until 2021?

One of the things that we've always stood on, and you've heard me talk about this on other calls, I really try and focus on the value side of the price/value equation. Season passholders are very important to us. It's our biggest single revenue program, last year over 53% of our attendance, so we felt strongly when we saw the disruption this season that the right thing to do was to extend all the way through '21. As we go through the rest of this year and next year, we're going to do -- we've got lots of things in the works, and we're going to make sure that we're providing great value to season passholders. We believe in the lifetime customer approach. We believe in being consumer-centric. If we deliver guests to our value over time, we'll see lots of repeat visitation.

Richard, unfortunately, we're out of time.

All right, Michael, thank you. With no more questions, I want to thank you for joining us today and wish you a pleasant day. Everyone may now disconnect.