Six Flags Entertainment - Q3 2022
November 10, 2022
Transcript
Speaker 0
Good day, and welcome to the Third Quarter 2022 6 Flags Entertainment Corporate Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Steven Purtell, Senior Vice President of Investor Relations. Please go ahead.
Speaker 1
Good morning and welcome to our Q3 2022 call. With me is Celine Basile, 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.
And the company undertakes no obligation to update or revise these statements. In addition, on the call, we will discuss non GAAP financial measures. Investors can find both a detailed discussion of business risks And reconciliations of non GAAP financial measures to GAAP financial measures in the company's annual reports, quarterly reports and other forms filed or furnished with the SEC. At this time, I will turn the call over to Salim.
Speaker 2
Thank you, Steve, and thanks to all of you for joining us today. I want to begin by thanking the entire 6 Flags The most important thing we have done since I took over as CEO a year ago is to develop an agile culture of excellence, Urgency and results. Taking risks, challenging outdated ways of thinking And investing in people is how I have taken companies like Middleby to the next level. And in this challenging year of strategic transition, Our team worked tirelessly to elevate the experience of every guest and to lay the groundwork for sustainable profit growth In the future, their passion for our parks and serving our guests is inspiring, And I'm proud to be leading this exceptional team. We needed this cultural shift because we are making big bets as a company.
On today's call, I will discuss those bets, why we made them and the lessons we have learned. Then Gary will discuss our financial results. Finally, before opening the call to questions, I will return to discuss how we have applied those lessons learned and why we are so optimistic about the future. So what are the big bets we have made as a company? First, we bet that we could upgrade the park experience By investing in our infrastructure and employee friendliness and by lowering attendance to create an extraordinary value proposition that will allow us to grow revenue by raising prices in line with value we provide.
2nd, That we could add meaningful new experiences beyond just rides, attracting new consumers And multi generational families to create the best memories and earn the long term loyalty of our guests. 3rd, That we can deliver these improved experiences with a lower cost structure by investing in technology To become more productive, flattening our organization and developing a culture of empowerment and autonomy in our parks. These big bets can have big payoffs. And while the Q3 was disappointing from an attendance standpoint, The sustained improvements we are seeing in guest satisfaction and spending per capita and our improved October results Give me confidence we are moving in the right direction. Why have we made these bets?
Six Flags has a solid foundation with a beloved brand that is recognized around the world and a strong affinity in the areas our parks are located. We have an incredible consumer following in the markets we serve, With the level of social media reach, second only to Disney among all theme park companies in North America, Our assets are irreplaceable. We are a global leader in delivering thrills, home to 145 Roller coasters and a diverse collection of themed experiences, family events and nearly 1,000 rides curated across a network of regional parks that are located in the top 11 markets in the U. S, including some of the fastest growing markets in the country. Yet, our earnings have stagnated since 2018 for three key reasons.
1st, over the years, we overemphasized attendance growth, causing us to pursue tactics such as deep discounting and giving free tickets to guests who spend very little in our parks. In the last 2 years alone, we spent more than $100,000,000 marketing these discounts and conditioning our guests To expect them, we have now realized that focusing purely on attendance has historically resulted in low margins, Overcrowding in our parks, declining guest satisfaction and significant stress on our team members. So while attendance is an important metric, it was only one of several different variables that impact our bottom line. 2nd, we centralized decision making and built a large Bureaucratic organization with many silos. This had the effect of bloating our cost structure and pulling decision making away from our team members who are closest to our guests.
In addition, The overcrowding of our parks required us to increase our in park labor costs to keep up with demand. Finally, we failed to evolve our park experience at the same pace as our guests' expectations. Specifically, our guests expect a seamless experience that blends our thrill rides An attraction with special immersive events, upgraded food and beverage offerings, enhanced amenities and modern technology. What lessons have we learned through this transformation? This year, we weren't afraid to be bold was the changes that we made to our business model.
Some of these changes were well received and effective, others were not. The transformation of 6 Flags will take time and our results will not be linear. The result in the 3rd quarter reflects this, A quarter in which we also were faced with inclement weather, record inflation and sky high gas prices that negatively affected attendance. We have historically underinvested in basic amenities and key areas important to our guests. Our number one focus this year was to invest in areas that directly impact the guest experience, Such as ride efficiency, employee friendliness, park cleanliness, food variety and quality, Guest amenities and guest facing technology.
These improvements require time to implement and continue to be a work in progress And some parks have been more successful than others. I will talk about the tremendous progress we have made a little later in the call. Along with that, we knew the pricing approach that had been in place at Six Flags for more than a decade didn't appropriately value the experience our guests deserved. When one of our biggest hurdles was adjusting our pricing and product architecture. As we raised prices and scaled back benefits, we knew we made the difficult, but necessary decision to permanently lose a segment of our guests, particularly those who came on free or heavily discounted tickets.
Raising price is no easy task for a company that has conditioned its customers to expect discounts. And it is clear that a segment of our guests experienced sticker shock with our new pricing. This ticker shock was amplified by the time lag between our park improvement and our price increases. Additionally, research has now shown us that 6 Flags Gas had a more pessimistic about the economy at the time we were going into the peak summer season. There were other lessons along the way.
Based on guest feedback, we realized that we lost attendance by letting go of our membership program and our all season dining program. We also lost attendance by not selling heavily discounted season passes in the fall. With the elimination of deep discounts during the periodic sales, we'll need to accommodate a new purchasing pattern for season passes within our marketing strategy. We had intentionally dialed back marketing this past year As we evaluated what mattered most to our target customers, but we realized we must be more vocal about the changes we are making to increase value at the parks. We also knew that we have underinvested in technology over the years, But realized we were further behind than we saw.
With a highly competitive market and a digitally engaged younger demographic, These technology investments are more crucial than ever to ensure we are attracting guests of all ages. We are investing significantly to catch up in this area, adding to the team and our capabilities in a way that will allow Frictionless guest experience online as well as in the park. Finally, we learned how to develop a lean Operating cost structure in line with our attendance levels. While we have made considerable progress on that front, We did not adjust our cost structure fast enough earlier in the year as we entered the peak summer season. We have learned a lot this year, allowing us to further refine our approach as we build a model Based on healthy attendance growth, sustainable per cap gains and an optimized cost structure, all of which Build an attractive bridge to enhance guest experiences and shareholder value.
I would now like to hand the call over to Gary, who will provide more details on our financial performance. Gary?
Speaker 3
Thank you, Selim, and good morning, everyone. Starting with results for the Q3, total attendance was 8,000,000 guests, which represented a 33% decrease from Q3 2021. The attendance trend in September was significantly down from July August for several reasons. First, we experienced poor weather over Labor Day and the 1st weekend of Fright Fest, which occurred at the end of the Q3 due to Hurricane Ian. 2nd, the adverse impact of a lower active pass base, which historically represents a higher than average proportion of visitation during September.
And 3rd, in August of last year, we provided a Renewal offer to existing passholders for season passes as low as $40 This price is not reflective of the value we provide and we decided not to hold the sale this year, resulting in fewer season passes sold in September. Because guests tend to visit shortly after purchasing a pass, this negatively impacted September attendance. Revenue for the Q3 was $505,000,000 a decrease of $133,000,000 or 21 Compared to the Q3 2021, largely driven by lower attendance, offset by higher per capita spending. Total guest spending per capita of $61 represented an increase of $9 or 17% versus Q3 2021. Admission spending per capita increased $6 or 22% and in park spending per capita increased $3 or 12%.
The increase in admissions spending per capita compared to 2021 was driven primarily by Higher realized ticket prices and a higher mix of single day tickets, while the increase in in park spending per capita compared to 2020 On the cost side, cash operating and SG and A expenses versus 2021 decreased by 68 $1,000,000 or 24%, driven primarily by full time headcount reductions, fewer variable labor hours, partially offset by inflation in the form of higher wages, insurance and utility. Adjusted EBITDA for the quarter was $226,000,000 compared to $279,000,000 in the Q3 of 2021. Moving to our year to date results. Since park operations were impacted during the first half of twenty twenty one by pandemic related closures and capacity limitations at some of our parks, We believe it is more instructive to compare our year to date results to 2019, which had a similar operating calendar to 2022. Relative to 2019, revenue for the 1st 9 months of 2022 decreased by $148,000,000 or 12%.
This includes a $46,000,000 reduction in sponsorship, International agreements and accommodations revenue. Adjusting for this reduction, revenue for the 1st 9 months was down $102,000,000 or 9% versus the 1st 9 months of 2019. Attendance declined $10,300,000 or 39 percent, offset by an increase in total guest spending per capita of $21 or 48%. Adjusting for free tickets, Attendance declined 35% versus 2019. On our last call, We noted approximately $90,000,000 of inflationary headwinds for 2022 relative to 2019.
Despite these inflationary pressures, our 1st 9 months of cash operating expenses and SG and A decreased by $41,000,000 or 7% versus 2019 due to our aggressive optimization of seasonal labor based on lower attendance levels, less dollars spent on advertising as well as a leaner corporate overhead structure. In addition, on our last call, we highlighted an increase in the annual minimum distribution to non controlling interest of our partnership parks. The distribution increases via CPI and in 2022 it increased by more than 7% to $45,000,000 Compared to 2019, this represents an increase of $4,000,000 for the 1st 9 months of 2022, which negatively impacts our adjusted EBITDA by the same amount. Adjusted EBITDA decreased by $89,000,000 versus the 1st 9 months of 2019, but the periods are not directly comparable because of the reduction in international agreements revenue from our terminated operations in China and Dubai. Adjusting for this impact, adjusted EBITDA for the 1st 9 months of 2022 versus the same period in 2019 decreased by $59,000,000 or 14%.
Turning to the active pass base and balance sheet metrics, I will make comparisons to 2021. Our Active Pass base as of October 2, 2022, was comprised of 4,300,000 passholders, a 44% decline relative to last year. Selim will talk more about this later in the call, but our most recent season pass sales trends have improved significantly and we Expect continued improvement moving forward. Deferred revenue as of October 2, 2022 was 100 And $27,000,000 down $98,000,000 or 44% compared to the Q3 2021. The decrease was primarily due to lower unit sales of season passes and memberships compared to 2021.
Total capital expenditures for the quarter, net of insurance recoveries, were $18,000,000 Year to date, total CapEx was $73,000,000 net of insurance recoveries. We expect our full year 2022 capital spend to be slightly lower than 2021 with a balanced approach between several exciting new water park attractions and theme park roller coasters with a continued emphasis on implementing guest facing technology and amenities in our parks. Our liquidity position as of October 2, 2022, was $292,000,000 This included $219,000,000 of available revolver capacity, net of $21,000,000 Letters of credit and $73,000,000 of cash. As of October 20 as of October 2, 2022. The outstanding balance on our revolver was $110,000,000 reflecting a $90,000,000 pay down during the 3rd Over the next 12 to 18 months, we plan to use our excess cash to pay down debt as we work towards our target net leverage ratio of 3 to 4 times net debt to adjusted EBITDA.
Our next debt maturity is 2024 and we will seek to opportunistically refinance the remaining balance as market conditions allow. Although it is likely that the interest rate on a portion of our debt will increase, we expect our total interest expense to decrease over time as we continue to pay down debt. Now I will turn the call back over to Suneet.
Speaker 2
Thank you, Gary. I would now like to discuss how we are applying the lessons we have learned over the last year to our new strategy. Our team is applying these lessons in 4 main areas. 1st, making further investments to the parks, Infrastructure, new rides and the guest experience, including marketing and technology initiatives to reach new consumers that are likely to enjoy the theme park experience. 2nd, fine tuning our product 3rd, establishing a strong autonomous culture with an emphasis on cost discipline and finally, Amplifying our seasonal events.
These initiatives will never be complete as we seek to continuously improve, but we are beginning See green shoots that this is the right path forward. Now let me tell you more about each and why we're excited about the future. Technology Initiatives. We are just beginning to reimagine our parks and to invest in innovative Guest facing technology. As guests visit us next year, we will better leverage a digital Ecosystem to pre sell items in a new manner.
Guests will encounter a park environment that is less crowded And be offered a variety of add ons that will both enhance their experience and increase spending. One thing I discovered in partnering with Domino's for so long at Middleby was that speed matters. And throughout the park, we're working on delivering better experiences at speed and a lot of that relies on technology. Can you believe that our guests cannot use Apple Pay in our parks? By improving simple things like wait time logistics and checkout speeds, we'll be able to improve the offering of And park infrastructure, prioritizing the comfort of our guests.
Improvements such as new front gates, Additional benches and shaded areas, cleaner bathrooms, upgraded restaurants, additional water park cabanas and overall Certification on parks with more flowers and greeneries have helped increase guest satisfaction. These types of improvements are crucially important for us to attract multi generational family visitation. While in park amenities and events are our primary focus in 2023, we'll continue to add new record breaking Coasters to our parks over time and we look forward to some exciting announcements on this front in the near future. We'll be pushing a renewed focus on marketing and making use of the digital capacities we have built out this far. As we draft up our 2020 three plans, they will include an optimized marketing budget to better highlight the improvements we have made in the parks and the value our passes deliver to guests.
We have already increased our advertising spend sequentially in October. We have seen success adding QR codes in our parks. We will be utilizing more of our digital capabilities With improvements to enhance the guest experience such as digital passes, mobile POS systems And increased mobile application ability, which should allow us to increase sales and decrease wait times for guests. We recently hired a new Chief Digital Officer and I have utmost confidence in his ability to scale to speed of our guest facing technology initiatives. Enhancing our guest facing technology and in particular, our mobile app is vital to ensuring an excellent park experience for our guests.
2nd way we are applying these lessons is by optimizing our product, architecture and pricing. We have heard from guests that our pricing has been complex and confusing. So we restructured and simplified our season pass program, lending on an approach to pricing that we believe optimally balances attendance and revenue. We also reintroduced a dining plan that is of great value for our guests, but still profitable for 6 Flags. Our leadership team Is hyper focused on being in touch with the communities we serve and we will continue to evolve our product architecture Based on data analytics and guest feedback, we are listening to our guests.
The 3rd way we are applying these lessons is by continuing to create a strong autonomous culture with an emphasis on cost discipline. Throughout the year, we have reduced layers of management and shifted decision making to the parks, Empowering regional management and decreasing full time headcount more than 25% relative to last year. We optimize our seasonal labor by adjusting our staffing models, optimizing park hours and improving Labor planning. You can see this in our reduction in costs despite the impact of inflation. We will further eliminate inefficiencies by rationalizing restaurants and stores, optimizing seasonal labor, Taking advantage of our purchasing power, stripping out costs that do not directly impact our guests, all while investing in areas that reward our guests.
As we grow attendance, we expect to grow revenues Ahead of costs. The final way we have applied these lessons is by amplifying our efforts around seasonal events. Recently, we brought to life a bigger and better Fryfest, creating a more immersive experience with more scare zones and haunted houses. We introduced 2 new events with Kids Boo Fest and Oktoberfest, which were very popular and gained momentum each week through word-of-mouth. Social media engagement was exceptional with reach more than 5,000,000 people highlighting the type of innovation and excitement we're delivering to consumers who have not recently visited our parks.
We are also very excited to host our first ever Veterans Day weekend this week, honoring those Who have served in our armed forces and our digital marketing has been active in driving targeted awareness for weeks. Through our new culture, we have been able to deliver these events with speed and quality, executing in weeks what would have previously taken up to a year. Throughout 2023, we will be launching exciting new events and festivals such as Pardi Gras, Di Vala Fiesta, Bruised and Bites, Kids Fest and Coster Thorn celebration, giving our guests Reason to visit multiple times per season. I would encourage everyone on the call today to come to one of these new events. It's where you will see the type of excitement and newness that we want guests to experience all the time and is our best demonstration of what the new Six Flags is delivering.
Please check out our 2023 calendar on our website. Now, Let's turn to why we are so optimistic about the future. We implemented 3 significant changes to our business in October. One, we upgraded our seasonal events I just talked about, which have received very positive reviews And attracted new guests to our park. 2, we restructured and simplified our season pass program, lending on a price We feel good about and that we believe optimally balances attendance and revenue.
3, we increased our advertising spend sequentially in October. Our paid media spend year to date through the Q3 was 47% of 2019. In October, it was 17% higher than 2019. We are willing to invest in the right places and when we see the opportunity, We will hit the gas. As a result of these changes, we have seen an improvement in the trajectory of our results thus far in the Q1.
For example, our attendance relative to 2019 has improved from 61% through the Q3 to 85%. Our per capita spending trends continue to be robust. Year to date through September, our per capita spending has increased nearly 50% compared to 2019 And these trends have held in the Q4 even as attendance improved. Our season pass sales trends have improved significantly. Year to date through the end of Q3, our season pass unit sales indexed at 34% at 43% of 2019.
4th quarter to date, our season pass unit sales are running 89% to 2019. In light of these trends and our progress related to cost management, We are on track to deliver strong 4th quarter adjusted EBITDA. 1 month does not make a trend, But we are encouraged that the recent changes we've made to our business are having a positive impact on our financial results. Changing a business is never easy. It takes time and sometimes you have to take a step backward before taking 2 steps Forward.
But we remain confident in our approach to changing the culture here at 6 Flags, optimizing attendance and per caps and overhauling our cost structure. And this year, we discover a lot about how to drive guest satisfaction and how to optimally Price our tickets. We will continue to stay close to our guests and respond to their feedback during this transition. We are listening to our guests and we have transformed our business to quickly make changes that are important to them. I love visiting the parks.
I love mingling with our guests. And I was there throughout October, visiting many of our parks During FryFest, Oktoberfest, BooFest, and I watched and observed our guests enjoying themselves And smiling, I watched as multi generational families were there. I watched the strollers. I watch grandparents bring their children to the park. I watch our teenagers Enjoying the rides and having fun and mingling with their friends, It was beautiful to watch.
When I took over as a CEO nearly a year ago, I saw the key challenges facing our company. To invigorate long term earning growth, we have adopted a transformative strategy. The journey requires flexibility, learning and a relentless focus on our core values and culture. I want to close our prepared By once again thanking our team for their resiliency during this period of transition for our company. We owe a huge amount of gratitude to our team members In the parks, we are the ambassadors to our guests, we are not satisfied with our Q3 financial results, We believe that we are on the right path and we are encouraged by the improvements in our recent performance.
We have done much of the heavy lifting this year and my commitment to the company is stronger than ever. I see significant potential and opportunities in the years ahead. Operator, at this point, could you please open the call for any questions?
Speaker 0
We will now begin the question and answer session. The first question today comes from Ben Chaikin with Credit Suisse. Please go ahead.
Speaker 4
Hey, good morning. Thanks for taking my question. My question is on per caps. So your in park Spending per capita declined in 3Q sequentially versus 2Q and the pace of growth relative to 2019 also decelerated compared to your year to date pace. Selim, you mentioned several earnings in your prepared remarks and then your attendance in October, I think is down, if I called it correctly, down 15% Versus the down 40% or so experienced in 3Q, is it fair to assume that you're rethinking the strategy between Volume and price?
And then where do you think the right level is versus 2019? Thanks.
Speaker 2
Ben, good morning. I am now celebrating a year on the job. And I remember you were the first analyst that I spoke to a year ago. And today, a year later, there have been a lot of lessons learned. The first lesson that I've learned is we have historically been priced well below And we learned that we have much more room to grow our pricing to match our elevator experience.
Also, this year, In an inflationary environment, it's created unique opportunity to raise prices. And our objective is to make our parks Much less crowded. Now, we have moved away from the practice of opening offering deep discounts on seasons passes And specifically in the fall, which significantly lowered our average season pass yield. Now we have listened to our customers, recalibrated our pricing accordingly. I think we got it wrong at first and priced our season passes too high and our pricing Structure was confusing and complicated.
We eliminated we froze memberships. We added annual passes. We have too many configurations that it confused our customers. So what did we do in October? We simplified our pricing architecture much, much simpler and We basically reduced our seasons pass pricing to be much more the mix For our guests that allow us to reach our goal attendance level and factor in our guest sensitivity to increased admission.
However, we'll remain higher than 2019 2021 and we'll continue doing what I call dynamic pricing, Which I think we'll see in 2023 and we're very optimistic that we are now at a level where we feel comfortable with pricing. We might have To tweak a little bit, but we're very comfortable.
Speaker 4
That's very helpful. Thank you. And then just thinking about costs here for a moment, normally you have a deceleration in costs in kind of the shoulder periods 4Q, 1Q. Does that trend still apply just for modeling purposes, does that trend still apply given the lower top line that we have
Speaker 1
this year.
Speaker 3
Hi, Ben. This is Gary. We are really very disciplined on our cost side and fully intend to drive the Cost saving initiatives that we implemented in Q3 into Q4 as well as continuing it into Q1 2023 as much as is practical.
Speaker 4
That's helpful. Thank you.
Speaker 3
You bet.
Speaker 0
The next question comes from Paul Golding with Macquarie. Please go ahead.
Speaker 5
Thanks so much for the question. I wanted to ask how you're thinking about extra charge products in the context of this new attendance level and with Frontgate pricing up. Have you seen any change in uptake there or maybe How your strategy has changed in terms of pricing those extra charge products? Thanks.
Speaker 2
Paul, I can address that. In general, with the attendance going down, we have basically seen our Like flash passes has been down. It's been down. However, we've seen some other things that have People have been spending more time in our parks, and they are spending more on food. Retail is way up for us, and we feel very good.
And of course, the events, The events have been additional the new events we introduced of high quality that we introduced in October like Oktoberfest, BooFest And now Veterans Day celebration coming up this weekend have increased the spend and the time people are enjoying in our parks.
Speaker 3
I will add also, Paul, that we have been very successful with monetizing areas of our Parks with Cabanas, Bemones and other rentals that our guests really appreciate and That is added to our IPS revenue.
Speaker 5
Great. Thanks. And then on ad spend, you noted that You're investing incrementally here and sequentially in October in shoring up the ad spend relative To the consumer here, I was wondering if you could speak to how you might see Scale in that cost line, especially in the context of your increased digitization and potential efficiencies in advertising through those channels? Thanks.
Speaker 2
So I have to say, we did claw back marketing on purpose this year. We were still doing the beautification of our parks. We wanted to make sure that when we Promote the brand. We will promote them in line of making sure that When people come up, they see the experience. So we had a lag between our marketing and advertising and We spent almost in 20 nineteen-twenty 21, we spent almost $100,000,000 between the 3 years Advertising discounts, as low as 70%, as low as $29.99 Our approach to marketing As we go forward, it's all about branding.
It's all about events and the quality of our events. It's all about reaching Social media influencers to spread the message. It's about reaching new guests and followers that have affinity to our parks. So it's complete different strategy, trying to target the Hispanic community through channels that are very targeted and focused on that Hispanic community going to go up and focus on our neighborhood communities that are right there, the more affluent communities Come to our part. And most important, go on and have social media that targets our teenagers.
We want to stay connected with our teenagers and let them know about all our new rights. So it's all about branding versus message of discounting and we will be increasing our Marketing expense in 2023.
Speaker 3
I will follow-up that too as well Selim for you Paul that We have I love the phrase you said we hit the gas. And as we have dialed in Noted what really works and this has worked also in October and we find in events, we find season pass, We find these things that we want to promote, we will not hesitate to spend on advertising and marketing.
Speaker 1
Great. Thanks so much.
Speaker 0
The next question comes from Steve Wieczynski with Stifel. Please go ahead.
Speaker 6
Yes. Hey, guys. Good morning. So Salim, you've noted before that you thought the optimal Attendance level over time would be, let's call it, 25,000,000 to 27,000,000 guests. And obviously, based on what's your run rating today, I mean, You're really still pretty far off from that range.
So I guess, I'm wondering how should we think about the well, first of all, is that range Still fair. And then second of all, what kind of time should we think about in terms of how long it potentially could take you guys to get somewhere close to that range?
Speaker 2
I would say, Steve, I will answer one is we are still Very comfortable with 25,000,000 to 27,000,000 guests per year. I think we will not go back to the 30,000,000 that we've seen before or 33,000,000 we saw In 2019. And the reason is literally is we need to make sure that our parks are not overcrowded And we've seen this this year. There is a true correlation between our customer being able to be not Lining up in retail stores, lining up in restaurants, lining up everywhere And their spend in the park, a very strong correlation. When they are comfortable in the park, they spend more and we've seen that in our Spend per guest in park spending our guests.
2nd, I truly believe that we have To target and invest with customers potential customers who have an affinity for parks And we have identified those. They represent around 16,000,000 People who have affinities to parks and we are looking at them and making sure that a portion of those Welcome to our part by focusing and talking on them. Now where do we stand on the timing of reaching the 25 27,000,000 guests per year. I think we always say that it's a 3 year process. We feel that within the next 3 years, we'll reach that target.
Speaker 6
Okay. Just to be clear, that's 3 years from the start of when this process started or 3 years from today? Just want to be clear there.
Speaker 2
I think that's looking at it, I think from today. Lorraine, we've learned the lesson that is going to be from today.
Speaker 6
Okay, got you. And then second question, wondering maybe how we should think about CapEx spend for next year. It's clear that probably a lot of your parks still aren't where you want them to be in order to attract this higher quality guest. Should we expect a material increase in CapEx spend next year or will CapEx be similar to what we're We'll be kind of seeing this year, but allocated more towards those certain parks out there that maybe might need more help.
Speaker 3
Steve, this is Gary. We will be reverting essentially our beautification CapEx
Speaker 2
And we
Speaker 3
will be reverting it over to attractions and rides. And yes, we will be increasing CapEx in the next couple of years. We are looking forward to making an announcement in the spring towards that effect. And we definitely will be investing And the attractions and rides that our customers really appreciate and have been asking for.
Speaker 6
Okay, understood. Thanks guys. Appreciate it.
Speaker 2
Thank
Speaker 0
you. The next question comes from Ian Zaffino with Oppenheimer. Please go ahead.
Speaker 7
Hi, great. Thank you very much. Hey, Shlomo, I just wanted to ask you on you mentioned gas prices and I guess we've never really heard that from 6 Flags before about gas prices impacting attendance. Can you maybe give us a little bit more color there? And then also, did you notice any kind of degradation in park spend because of that, just having less disposable income?
And kind of how do you square that with the comments about an inflationary environment being beneficial to you guys? Thanks.
Speaker 2
So I'll start about what we've seen. And we have a survey, a research The financial tightening would affect them. And what happened is literally that happens with Started seeing that in mid June through July and then on through the summer. I think definitely our guests Started feeling the pinch on gasoline prices, on utility prices, on food in the grocery store. And I think it might impact us because somehow, somewhere we have the research shows that our guests were sensitive to those To the inflation that they had on their disposable income.
And Literally, we have also seen that those gas some of those gas came back when gasoline prices went down In the fall, I assume there is somewhat of a correlation as they came back and we saw the return to a little bit more normalized attendance In October November.
Speaker 7
Okay. Thank you. And then just building on October November, you maybe talk about some of the products that you've reintroduced, all season dining, payment plans? How is the Take rate going there. And is that what's helping drive a lot of the improvement in attendance?
Or is it the marketing like you had talked about? If you could talk about that, that would be great. Thank you.
Speaker 2
I think it was many things that happened To make this again from the lessons we've learned, we've learned that quality events That are done well, implemented, executed well in our parks Have tremendous appeal to our guests, especially our season passes. We have also learned that Concerts and shows that are also high quality are an appeal to our season pass And single day ticket in that case. So we invested in BU Fest, which was new. We invested in October Fest, which is new. And what is amazing about that, it's not like we did some, they were all simultaneously with an improved and much, much better fryfest.
We elevated the fryfest. So now we have in the park, you come in, parents, adults who wanted to enjoy and not go to a haunted house Could have their kids and teenagers and enjoy the haunted houses and Fryfest and they will be enjoying our October 1st. Kids Parents with small kids who don't want to go to a fry fest with all those teenagers, we created the boo fest for them where there was a trick or treat in the afternoon Those were very successful. So this is on the events. On the shows, we had significant improvement in Investment in characters that are tied to our IPs.
We had also parades, concerts And unique shows that were implemented. Those were also part of the premiumization. Finally, I would say our marketing was a lot more targeted. We did a lot of online posting with content driven by those shows, by those events. So we had something new and newness to share of why you need to come back to the park.
Speaker 7
Okay. Thank you very much. That's very helpful.
Speaker 0
The next question comes from Jamie Hardiman with Citi. Please go ahead.
Speaker 8
Hey, good morning. Thanks for taking my question. So I just wanted to start off and You've given us some breadcrumbs here, but just can you maybe walk us through the attendance trends over the course of the quarter and into I think what we were supposed to conclude coming off of the last call was that July was maybe down high 30s versus 2019. I don't know where August was, but it sounds like what you're saying is September was meaningfully worse than that run rate and then October maybe down 15 versus 19. So maybe give us whatever quantification you could there?
Speaker 3
Yes. Good question, Jamie, and good morning. The months the 1st preceding months, right, we're looking at July August, trended very similar in the range of what I mentioned, which is 30 5% down versus 2019. And September was the month that disappointed us the most. And it has to do with timing of season pass sales and a really big discounted effort we put forth in 20 21.
So in and around the Labor Day weekend, we held a sale with very aggressive pricing, which we mentioned was about $40 average. And we sold between 5,600,000 passes at that sale. People tend to go to the park once they And that drove September's attendance up in 2021, whereas we chose not to have such a discounted sale And have moved our season pass efforts more towards the October and Fright Fest timeframes.
Speaker 8
That's helpful. And then maybe as we think about this October number, it seems like You think there's a pretty strong causal relationship between some of the efforts that you guys put And the much better month of October. Obviously, we did see an improvement really across the industry in October and maybe there are some Sort of secular trends at play there or maybe the consumer is just feeling better. I guess ultimately what I'm trying to figure out is You had a down 40% plus in the 3rd quarter, you had it down 15% again versus 2019 in Tobar, how do we think about the go forward rate? Clearly, you don't think that sort of the down 15% is sustainable given the Sort of attendance commentary and how long it's going to take you to get back to that optimal level, but how do we digest 2 such disparate data points between the Q3 October.
Speaker 3
Yes. So when you look at the deferred revenue being down 44% on our balance sheet, You certainly understand and correlate that as well. And I'm looking at the same kind of commentary regarding September, Jamie, which the timing of the season pass sales will affect that effort. We We are looking to have a strong Q4 and that is the language I believe that Salim used as we go forth. Something to keep in mind is that, HIP Holiday in the Park is an event that happens beginning after Thanksgiving.
And this year, we are not doing it in approximately 5 of our parks. So it is not EBITDA accretive In those parks and so we made the decision not to do it, but that will negatively affect the tenants in the latter part of the 4th quarter, but not EBITDA. So just want to make that clear.
Speaker 8
That's helpful. Thank you.
Speaker 2
Thank you, James.
Speaker 0
The next question comes from David Katz with Jefferies. Please go ahead.
Speaker 9
Hi, good morning everyone. Thanks for taking my questions and appreciate all of the detail so far. I just want to go back to One detail from the very first question, where we're looking at cash OpEx in the Q3, which It was down, if Matt is correct, around $23,000,000 or 10% versus 2019, and that's been a progressively Bigger reduction through the course of the year. How should we how specific can you be in helping us Model that for 4Q and 1Q before we get into the high season next year. And then I have a
Speaker 3
couple of other details as well. Yes. Good morning, David. I think you can model the consistency of Q3's reduction into Q4 on a relative basis, I think that's reasonable. Our reductions are in Corporate headcount, they're in full time headcount at the parks.
They're also in seasonal labor. And those are the costs that we've seen that's some of that is in SG and A. And on the OpEx side, we have Fair amount of reduction related to other expenses in our parks that we have been optimizing Through our initiation cost reduction initiatives at the park level. And that should also continue through Q4.
Speaker 9
Excellent. And just 2 other details. Number 1, Salim, in your comments, you Made some reference to, I believe it was some positive qualifier for 1Q EBITDA. And I was hoping you could just go back and sort of repeat or qualify that a little bit and sort of what you meant by that. And then second, For perhaps both, I mean, we're seemingly very, very focused on attendance levels And what the ramp in those are.
And I see that the per caps here in this quarter are starting to reach Those of a competitor, right? You're in that low 60s all in level. Is it fair to assume that you expect to push Those per caps considerably higher than where your peers are. And so while it may take 3 years to get to that Aspirational attendance level, the EBITDA can grow along the way to some of the aspirational levels that have been discussed in prior periods.
Speaker 3
Got it. Great question, David. We have 3 really important metrics that we use and guest satisfaction, yield and Ultimately EBITDA. These are the 3 that we are using today. And of course, there's many more that go into those functions and yield is Attendance, of course, is a part of the yield equation.
And yes, we intend to grow And our aspirations are to grow per caps to those levels, as you mentioned. And we have these ambitious goals here. We are also, although cognizant that We're going to take a more measured approach to our increases in our passes and in our single day tickets and And all our ancillary events, so that our customers that I believe experienced some sticker shock this year do not have that Same feeling in subsequent years.
Speaker 9
Can I sneak one more detail in there that may be instructive Gary, I think in your commentary, you talked about CapEx Being slightly lower than 'twenty one? And then if I listen to all of the commentary, including Salim's, there's Kind of a lot to do digitally and experientially in terms of spending. Are you sure that that down Slightly versus 'twenty one is enough.
Speaker 3
And David, I'm going to refer to 'twenty two first and say, yes, It is enough regarding 'twenty two's CapEx spend. 'twenty three, we need to increase it and we plan to. We've mentioned in previous calls approximately $130,000,000 of CapEx spend on a go forward basis. We intend to increase that for 'twenty three and 'twenty four, pending some announcements that we plan to make in the spring.
Speaker 9
Increased versus $130,000,000 Correct. Noted. Thank you very much.
Speaker 2
Thank you.
Speaker 0
The next question comes from Michael Short with Stuis. Please go ahead.
Speaker 10
Hey, good morning, guys. Just maybe a clarification follow-up on one of James' questions earlier just around the cadence of 4th quarter. And I think You had mentioned that you'll have fewer operating days, probably in November December. Maybe can you give us any kind of quantification or Context on how to think about how many fewer operating days we will see over the balance of the quarter?
Speaker 1
We are really focused on operating days because they are so different. Having a night event is so different from opening on a weekend, but There's about 5 of our parks that are not doing the Holiday Inn Park and they are open typically on weekends or over Thanksgiving and Christmas. So it's not A big amount of attendance. I think it does affect the growth rate for that part of the quarter. But overall, They were not EBITDA accretive, so we feel like this move is going to help us with the quarter overall in that profitability.
Speaker 10
Okay, got you. And Salim, I mean, one of the goals of this kind of strategy that you have is improving The guest experience, I think you've mentioned a number of headcount reductions in the parks. So I guess how do you balance Some of the costs you're removing from the parks with you're trying to maintain or actually improve the guest experience?
Speaker 2
That's very good, Mike. I would have to tell you this is a very balanced approach. This year was a year of Totally building back our culture, building our new in a sense, What you want the amenities to be in the park elevating the experience. So from that perspective, there was 3 elements Through that strategy, element number 1 was stop the heavy discounting that has happened, Which does not reflect truly the value that we provide. We were priced too low and We have seen the stagnation of our EBITDA over the years and that's had to be And second, we found that we had underinvested in our park when it comes to The beautification, the landscaping, the flowers, the cleanliness, the benches, the amenities, the food.
Number 3, we have also not made it easy for our customers from a technology standpoint. We want to be easier to do business with, Onboarding you in the park, be able to book tickets. So you look at technology, you look at the in park experience And look at the pricing. I think those three elements most probably were done all at a certain time. We most probably I did a lot of them in a very difficult environment, which is very inflationary environment on our guests, but we did them.
And in that reflection, we most probably, as Gary said, might have affected some of our guests' Ability to come to our park this year. But as we look forward, we're seeing that the improvement we've done Have been well recognized. I've been in the park every weekend, this past few Mingling with our guests, mingling with our members, mingling with our teenagers, and they would stop me. I'm well recognized in the parts. And they tell me that the experience have gotten much, much better.
And it was worthwhile, the wait. And in fact, I have several guests who told me it's now worthwhile the price increase that they are willing to pay for the experience. So that's the way we feel.
Speaker 1
Okay. Thanks, Dave. Maybe if
Speaker 10
I can just fit one more in. I think You had mentioned that there were some impact from Hurricane Ian at the end of Q3. I guess I'm trying to figure Understand which parks were actually impacted and maybe how much attendance you lost due to that?
Speaker 3
Great question, Mike. Hurricane Ian came up the East Coast at the end of Our quarter and impacted nearly all of our parks on the East Coast. Total attendance loss approximately $150,000 nearly $10,000,000 in revenue.
Speaker 0
The next question comes from Barton Crockett with Rosenblatt Securities. Please go ahead.
Speaker 11
Okay. Thank you. I wanted to see if I can understand a little bit better what you're saying about the change in October, I think you said that attendance was down 15% versus 2019. But I don't think I heard a commentary, maybe I missed it on revenues, Given your per cap trend that would suggest that maybe revenues were up a lot in October and I was wondering unless the per cap trend changed then. And so I was wondering if you could address that to begin with?
Speaker 3
Yes, Martin. Per caps are staying very consistent In October, and the attendance, of course, has been driven by all of our events that the team has put forth at our parks Okay.
Speaker 11
So it's fair so you're not going to give us a revenue number, but it's not crazy to think you had some decent growth in October?
Speaker 3
Yes, that's correct.
Speaker 11
Okay. All right. And Turning to the liquidity, dollars 2.62 I think you said, and the deferred revenue balance It's less because of the season pass change. And we're coming into a capital consumptive period where Commonly in the Q1, you guys would use $100,000,000 or so of cash. How should we think about the liquidity puts and takes from here?
And in the past, you guys had $150,000,000 liquidity covenant. And I'm just wondering where the covenant kind of positioning sits at this point?
Speaker 1
Hey, Barton, this is Steve. We don't have any covenant around with minimal liquidity any longer. We only have a secured leverage ratio, which we are currently within and We have plenty of liquidity as you go into the off season. Although we are spending Capital during that time and our parcel closed, we have an ample revolver capacity well above our historical needs and a lot of cushion. So we feel really good about our liquidity.
Speaker 11
Okay. All right. We'll follow-up more offline. Thank you.
Speaker 3
Thank you, Barton.
Speaker 0
This concludes our question and answer session. I would like to turn the conference back over to Celine Dafoul for any closing remarks.
Speaker 2
Thank you very much. I would like to do a closing remarks, if possible. First, I want to thank Thank you, everyone of you for being on that call today with us. I would like to also talk a little bit about Our improving the experience of our millions of loyal existing customers, while also attracting first time guests As our priority, it is central to our plan to improve the company's financial performance over time. I'd like to take a minute to empathize with our shareholders and investors as we've made the turnaround that The value creation will happen over time and we are very positive about the evidence that is showing up in October November that the strategy is working and progress has been made.
Pursuing a strategy aimed at improving guest experience and delivering value is ongoing. In the meantime, our attendance and pass base has been lower and will be lower than 2021. This is a transitionary period for our company. We are confident in our ability to transform Six Flags that has been underperforming relative to its peers and the leadership team that is guiding this new chapter He is very confident in our ability to become best in class. Higher per caps And guest satisfaction reflect improved product offerings and in part revenue management.
It is sticking. Creating fun Through employee friendliness, lower crowds create a better experience for guests and employees and as I said earlier, more spending in our parks. To this, I want to say kudos to our frontline and ambassadors in the parks For delivering an amazing experience and it shows in our guest satisfaction the interviews and surveys we've seen where they are commending you for your French for your courtesy, For your friendliness, the cleanness of the park and the ability to enjoy their time with you while they
Speaker 3
are visiting
Speaker 2
us. Empower our parks resulting in quicker execution and improving social media sentiment and guest satisfaction scores have been, as Gary said, a top objective of ours. We have to invest Directly in our guest experience, meaning our guest facing technology Want to have also ample ride capacity. And most important, our next Capital collection priority is to reduce our debt. With our new strategy underway, we expect to see more investment and more CapEx In marketing, digital outreach and mobile application, as well as in rights, We have taken our fixed cost and we are scaling our variable cost for the new attendance levels.
We have still More room to optimize further, and we are confident that we will be Optimizing our inefficiencies in 2023. We are a great Industry. And I salute our other peers because we have been resilient to inflation And we are hard to replicate. Out of home, outdoor, safe, regional entertainment experience Close to our guests and in our case, close to 11 fast growing markets that Six Flags serve. On this, I would like to thank you for your continued support, both as shareholders, as analysts and as our guests.
We hope to see you all at the park this weekend for our first ever Veterans Day weekend celebration, celebrating those who have served And in the coming weeks for our magical Holiday in the Park event as we kick off the holiday season. Please also, as we said in our earnings script, please check out all our 2023