Six Flags Entertainment - Q4 2022

Transcript

Speaker 0

Morning, ladies and gentlemen. Welcome to the 6 Flags 4th Quarter and Full Year 2022 Earnings Conference Call. My name is Jason, and I will be your operator for today's call. During the presentation, all lines will be in listen only mode. After the speakers' remarks, we will conduct a question and answer session.

Thank you. I will now turn the call over to Steve Purtell, Senior Vice President of Corporate Communications, Investor Relations and Treasurer. Please go ahead.

Speaker 1

Good morning and welcome to our Q4 full year 2022 call. With me is Selim Bassoul, President and CEO of Six Flags and Gary Mick, our Chief Financial Officer. We will begin the call to 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 Six Flags team whose hard work, dedication and agility is helping to unlock The potential of Six Flags. On today's call, I will provide an update on the progress we've made on our transformation. Then Gary will discuss our financial results. Finally, before opening the call to questions, I will return to discuss Our long term strategic priorities.

We are fortunate to participate in an attractive and resilient industry. Regional theme parks Deliver uniquely thrilling entertainment. We deliver it in a live outdoor setting that cannot be replicated online And we deliver a highly compelling value to our guests. In addition to operating in an attractive industry, 6 Flags has a strong position within the industry, operating in all of the top 11 markets in the U. S, including some of the fastest Growing markets in the country.

Our parks collectively have 145 roller coasters, Including some of the most iconic coasters in the world and a diverse collection of themed experiences, Family events and nearly 1,000 rides. In addition, we are the largest operator of water parks in the U. S. And we have many areas for families with young children to enjoy. We have a broad entertainment offering With incredible IP through DC Comics and Looney Tunes, the largest safari operation outside of Africa And signature events such as Fryfest and Holiday in the Park, despite operating with a strong position in a favorable industry, Our core business began to stall prior to the pandemic.

When I accepted the position as CEO a little over a year ago, It was clear that our strategy and our organization needed to be reset in order to reach our full potential. The past year has been a difficult year of transition, but I'm very proud of our team for working tirelessly to elevate the experience of every guest And to lay the groundwork for sustainable profit growth for the future. After a challenging start to the year, We course corrected in the fall, and we are pleased to have delivered a record 4th quarter adjusted EBITDA, which provides evidence That our new strategy is beginning to bear fruit. It's also the direct result of our efforts To develop an agile culture of excellence, urgency and results, taking risks, Challenging outdated ways of thinking and investing in people. Our course correction in the fall Was focused largely on 4 key areas that I would like to highlight for you pricing, Events, marketing and cost controls.

First, on the pricing front, We simplified our product assortment and we scaled back our season pass price increases, which resulted in an improvement in our 4th quarter past sales trends. This also boosted our attendance as many of those guests visited our parks after making their purchase. 2nd, we amplified our efforts around seasonal events By creating 3 new events this fall, Kids Brewfest, Oktoberfest and Veterans Day. I am so proud of our team for moving so quickly to execute these events in weeks rather than the months it would have taken in the past. In addition, our investments in Fryfest paid off.

We added to and improved our Macy's Shows and Concerts. We also introduced a new line of retail items specifically designed for Fright Fest and we opened Several strategically located pop up stores within our parks, all of which helped to drive our merchandise sales in the quarter. 3rd, after scaling back our marketing earlier in the year, we launched several successful Media campaigns to support our 4th quarter events focused heavily on digital and television. And finally, We continue to stay focused on cost controls and drove significant margin improvement compared to Q4 prior year 2019. What gives me the most optimism about our future was our team's resiliency and ability to quickly course correct during this The success of our transformation depends on our people and I'm so proud that our team has risen to the challenge.

The Path towards progress never follows a straight line, but our vision for delivering an exceptional guest experience and sustainable profit growth remains our focus. Now I'll turn it over to Gary, who will provide more details on our financial performance. Gary?

Speaker 3

Thank you, Salim, and good morning, everyone. For the Q4 2022, total attendance was 4,000,000 guests, A 30% decrease from Q4 2021. This decrease includes 279,000 fewer guests this year Due to 6 parks that were open for a Holiday Innly Park or HIP in the prior year, but were not open this year during that same period. HIP at these northern parks has not historically been accretive to EBITDA. Adjusting for the reduced operating days Due to the elimination of certain HIP events in 2022, attendance decreased 26% in the 4th quarter.

While still well below 2021 2019, the improvement in our attendance trajectory between the Q3 and Q4 is encouraging. Our traditionally strong Fright Fest was augmented by 3 new events created and implemented by our nimble events teams throughout most of our parks. These events, Kids Boo Fest, Oktoberfest and Veterans Day, drove an uplift in attendance. Total revenue for the Q4 was $280,000,000 a decrease of $37,000,000 or 12% Compared to the Q4 2021, largely driven by lower attendance, offset by higher per capita spending. Total guest spending per capita of $65 represented an increase of $12 or 23% versus Q4 2021 and was 4th quarter record.

Admission spending per capita increased $7 or 24% and in park spending per capita Increased $6 or 22 percent. The increase in admission spending per capita compared to 2021 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 2021 Reflected our in park pricing initiatives and a strong assortment of retail products, food and beverage offerings, rentals and new events. On the cost side, cash operating and SG and A expenses versus 2021 decreased by $38,000,000 or 19%, driven primarily by full time salary reductions and fewer variable labor hours. These were partially offset by inflation in the form of higher wages, Adjusted EBITDA for the quarter was $99,000,000 compared to $95,000,000 in Q4 of 2021, which represents a 4th quarter record for Six Flags. Moving to full year results.

Since park operations were impacted during the first half of twenty twenty one by pandemic related closures and We believe it is more instructive to compare our full year results to 2019. Relative to 2019, revenue for the full year 2022 decreased by $129,000,000 or 9 This includes a $46,000,000 reduction in sponsorship, international agreements and accommodations revenue. Adjusting for this lower sponsorship international agreements and accommodations revenue, revenue for the full year was down $84,000,000 or 6% versus full year 2019. Attendance declined $12,400,000 or 38 percent offset by an increase And total guest spending per capita of $22 or 51%. In prior calls, We called out approximately $90,000,000 of inflationary headwinds in 2022 relative to 2019.

Despite these pressures, our full year cash operating expenses and SG and A decreased by $49,000,000 or 6% versus 2019 Due to our aggressive optimization of seasonal labor based on lower tenants levels, less dollars spent on advertising and In addition, we call that an increase in the annual minimum distribution to the 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 full year 2022, which negatively impacts our adjusted EBITDA by the same amount. The expected impact of CPI on the annual distribution in full year 2023 is a $3,000,000 increase versus full year Adjusted EBITDA decreased by $62,000,000 versus full year 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 full year 2022 versus the same period in 2019 decreased by $38,000,000 or 8%. Our active pass base As of January 1, 2023, was comprised of 5,000,000 passholders and legacy members, a 40% You may recall that due to the pandemic related park closures in March of 2020, We extended visitation privileges on all season passes purchased for the 2020 operating season through the end of 2021.

As a result, 2,000,000 passes were carried over from 2020 into 2021. Adjusting for the 2,000,000 pass carryover From 2020 to 2021, our active pass base is down 21%. Versus 2019, our active pass base Is down 35%. Deferred revenue as of January 1, 2023 was $129,000,000 down $49,000,000 Or 28% compared to Q4 2021. The decrease was primarily due to lower unit sales of season passes and memberships compared to 2021.

Versus 2019, deferred revenue was down $15,000,000 or 11%. Total capital expenditures for the year, net of insurance recoveries, were $112,000,000 We to increase our capital spending to $150,000,000 in 2023 with an increased emphasis on improving the amenities and infrastructure in our parks, Adding new and exciting rides, events and attractions and implementing guest facing technology. We plan to Further increase capital spending to a range of $150,000,000 to $200,000,000 in 2024 2025 As we look to add significant marketable attractions to most of our parks, we expect our CapEx to be between 9% 10% of revenue Our liquidity position as of January 1, 2023 was $309,000,000 This included $229,000,000 of available revolver capacity, net of $21,000,000 of letter of credit And $80,000,000 of cash. As of January 1, the outstanding balance on our revolver was $100,000,000 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 Our next debt maturity is in 2024 and we will continue to monitor the market for opportunities to refinance this debt. Although it is likely that the interest rate on a portion of our debt will increase, we expect total interest expense to decrease over time as we continue to pay down debt.

Finally, I'd like to briefly comment on our financial goals for 2023. We do not give formal guidance, But based on our Q4 performance and the early season trends, our goal is to deliver record adjusted EBITDA for our core North American park operations in 2023, which excludes international licensing revenue. For context, our Previous record was approximately $518,000,000 in 2018. We expect this to be driven by higher attendance year over year, Partially offset by lower per capita guest spending as our season pass mix increases from 2022. In addition, as our attendance rebounds, we will selectively add back costs that directly and positively impact Now I will pass the call over to Selim.

Speaker 2

Thank you, Gary. Looking forward, we view 2023 as the next step towards successfully implementing our long term strategy. Our strategy is focused on enhancing the guest experience and delivering long term profitable growth and it rests on the following 4 pillars: 1st, Our park experiences 2nd, pricing and products 3rd, organizational culture and 4th, Seasonal Events. Our first priority is to improve park experiences for both our guests and our employees. The investments we are making in 2023 prioritize guest comfort by focusing on areas that directly impact The time spent in the parks, including safety, cleanliness, food quality and variety, speed of service, Guest amenities and technology.

We are updating and modernizing our park infrastructure, including New VIP lounges, water park cabanas and new shaded water park seating, more shade structures and benches throughout our parks And in general, park beautification effort with more flowers and greenery. All of these changes will enable a more seamless and stress Free guest experience. On the technology front, we are in the process of integrating mobile Payment technologies such as Apple and Google Pay to make checkout speed significantly quicker And to reduce stress on our frontline team members. And we are excited to launch a new vastly improved mobile app This summer, which will help streamline our guest experiences at our parks. We're also investing heavily in our foodservice operations With new equipment, renovated facilities and staff training, we've already received great Guest feedback and we are committed to continuing to elevate the guest experience to meet their evolving expectations.

Another area that we are seeking to improve is our water parks. Historically, water parks have been viewed as an add on to our past products And have been integrated with the greater theme park experience. However, by changing the ticketing architecture And investing in the guest experience at Water Park as a standalone entity, we see great opportunity to grow in this area. We're investing in new water coasters, kid play structures, slides and food and beverage upgrades That we expect will help increase attendance and in park spend. We now have a dedicated team To evolve our strategy here, led by a newly created position of Vice President of Waterpark Operations.

And of course, as always, we are adding signature roller coasters and other rides and attractions to our parks. While our 2023 CapEx program is focused primarily on park infrastructure and beautification, We continue to add new and exciting rides in our parks. This season, we'll debut Aquaman, Power Wave at Chick Fil A's Over Texas, a first of its kind water coasters that will be the Park 14th coaster. We are adding some exciting rides for families, including Rookie Racer, a family coaster at Sick Flags Over St. Louis, Toolkit's racing coasters at Six Flags Over Georgia and at Six Flags Fiesta Texas and electric go karts at Magic Mountain To name just a few, we are committed to adding thrilling rides for all ages to our part and we'll continue to introduce new and exciting concept over the next few years.

Finally, I want to briefly mention an exciting new initiative we've been working on over the past year, e gaming. We will be launching our first e gaming venue this spring at Six Flags Fiesta Texas in San This has been a passion project of our Vice President of Design and Innovation for the past decade And we are excited to finally give him the reign to execute on his vision. I won't be divulging too many details today, But you should expect some exciting announcements in the days weeks to come. 2nd strategic priority is pricing and products. Historically, Six Flags pricing programs have been heavily focused on discounts.

In 2022, we eliminated many of the historical discounts, including free and ultra low priced tickets and we trialed several Iteration of new pricing program. Recently, we've taken our learnings and settled on an approach that balances attendance and revenue. Over time, our goal is to deliver a premium guest experience and to charge prices that are commensurate with the value we deliver to our guests. We believe we have pricing power, but only if we deliver an exceptional guest experience. In addition, we have restructured and simplified our season pass program, reducing this To 3 tiers with logical step ups between categories.

This streamlined product architecture Should alleviate stress on our guests and makes it easier for employees to service them in our parks. Going forward, we expect to maintain a simple lineup of single day and season pass offerings and we We will no longer be a heavy discounter. The 3rd strategic priority is changing our culture. We are developing an agile culture of autonomy, urgency and excellence. Last year, we significantly streamlined our organization, Reducing layers of management and empowering people who are closest to our guests.

To be clear, it's not just about cost cutting. This is about working efficiently and putting ourselves in a position to best serve our guests. In fact, we expect selectively add resources to our parks in area that affect the guest experience. Our new and streamlined organization Features a mix of internal and external talent. We have promoted and empowered rising stars within our organization, and We have recruited talented people from other industries.

Over the past year, we have appointed new heads of digital, marketing, water parks, Finance and Legal. We have also appointed many new Presidents, most of whom were internal promotions from within our organization. This powerful combination of internal theme park expertise and externally recruited talent with new skills And fresh perspectives will allow us to learn from our past, while creating a new future. Our team It's really starting to gel. And from my experience, there is nothing that brings people together like delivering record results.

Our 4th strategic priority is adding quality seasonal events. We saw great success with our festivals and events in the Q4, even though many were put together quickly and with limited budgets. In In 2023, we plan to amplify our focus on festivals and events, starting with our first ever Spring break at several of our parks this March April, where traditional spring break gets a little bit spooky. This summer, we'll be launching new events such as Flavor of the World, a food festival featuring Cuisines from across the globe and Viva La Fiesta, a huge party at our parks featuring Latin Street Food and Music. Not all events will occur in every part, and we'll be testing out additional events as well.

In the fall, we plan to invest heavily to ramp up the scares at our signature FryFest event, while significantly Boosting our investment in Oktoberfest Kids Boo Fest and Holiday in the Park. Not only do events and festival drive urgency to visit our But they also provide reasons to visit us multiple times throughout the year. It is an exciting initiative, and we are just getting started. To conclude, Our long term strategy is ultimately focused on one thing, delighting our guests. We want our guests to leave our parks With smiles on their faces and excited to come back again.

And if we can do that, then we are confident that we will delight our shareholders With that, I will turn it over to the operator to open the line for questions. Operator?

Speaker 0

Thank you. We will now begin the question and answer session. To one question. Our first question comes from Steven Wieczynski from Stifel. Please go ahead.

Speaker 4

Hey, guys. Good morning. So as we think about this year, just wondering if you can give any color around I know you're not going to give pure guidance, but your expectations for attendance growth over last year. And Gary You know, made a comment about higher attendance, which will obviously impact per caps, but just wondering, you know, maybe how you're thinking about growth this year there? And then, Salim, are you also still kind of targeting that $25,000,000 to $27,000,000 attendance level over time as kind of a normalized run rate?

Speaker 2

Let me start, 1st of all, to say thank you for being on the call with us this morning. And yes, I am still targeting we are still targeting the 25,000,000 to 27,000,000 attendance, which is what is our optimal Attendance that we are shooting for. And I will turn it over to Gary to answer the second part of your question.

Speaker 3

Yes. Thank you, Selim and thanks, Steve. Good question. We are definitely targeting double digit increases in our attendance for 'twenty three and we believe the per caps On the attendance side, we'll decrease slightly as we grow the attendance.

Speaker 4

Okay. That's very helpful color. And then 2nd question, Celine, this is probably going to be for you and I'll try to ask it in a way you might give me some kind of answer. But just want to ask about your how you view Your land holdings, and there clearly has been a push out there by certain investors for you guys to look and analyze Your real estate holdings. So just wondering if you can give us kind of a high level update on how you're thinking about real estate over time and what that kind of ultimately means to you?

Speaker 2

I would say, 1st of all, I want to stay in saying that And the fact of dealing with land and building and that proposal, we are open to learn from everyone and anyone. And that's what we do every single day, try to have a learner's mind. And I think in the case of looking at Our real estate, we have a valued real estate. No doubt about it that it's a valued real estate. And we are always looking at opportunities to add value.

And my feeling today is The fact that the timing of us in the middle of the transformation, We believe that there are other opportunities to create value at this moment versus just splitting the real estate into OpCo and PropCo. And I could tell you, I want to give a reference to land and building. We are getting to know them over the past few months. They are good people. They mean well and definitely the proposal is valid and we are willing to listen to everything that adds value.

But at this time, I think we have other alternatives that brings value in line with our transformation.

Speaker 4

Okay, understood. Thanks for the color guys. Appreciate it.

Speaker 0

Our next question comes from David Katz from Jefferies. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking my question. Gary, in your commentary, you made some Reference to a historical level of, I believe it was 5.18 and I just want to make sure we're clear about So what's in there and what's not in there so that we're clear on what the basis is for contemplating 2023?

Speaker 3

Thank you, David, Doug. And the amounts that are not included deal with our international licensing, which in what we're forecasting out licensing, which in what we're forecasting out to 2023 is not significant. So we're talking probably the range of

Speaker 5

$4,000,000 Sorry, so the $4,000,000 is what you would earn this year or what you're taking out to get to 5.18.

Speaker 3

The 5.18 would be you'd add 4 to the 5.18 to give you 5.22.

Speaker 5

I see. And so that's a reasonable basis for us to think about where you might go in 2023, but your suggestion is Higher than

Speaker 3

that. No, that's our goal, David. The I'd

Speaker 6

like to

Speaker 5

do this.

Speaker 3

Yes. I like to look at it framed up against 2019 Q4, which gives us a good idea of the trends. When you look at attendance and we talked to I mentioned the HIV, we pulled that out of this year. So take the 279 out of attendance, Let's say from 2019, so we end up being down about 29% versus that's your tenant. Per caps versus 2019 are up 46% on the admissions, 84% up On the in park spending for a total guest spending increase versus 2019, I'm talking Q4 of 62%.

So that yields us revenue of 19,000,000 Increase our costs against that same quarter decreased by $8,000,000 which yielded us $27,000,000 of additional EBITDA We're 38%. So that kind of gives you an idea of the trajectory, but we have to be careful that as we go into 20 23, we don't get too far ahead of ourselves. We're seeing really good trends in our pass sales and the attendance for Q1, But it's still pretty small relative to the total year.

Speaker 5

Very helpful. Thank you.

Speaker 0

You bet. Our next question comes from Chris Woronka from Deutsche Bank. Please go ahead.

Speaker 4

Hey, good morning guys. Thanks for all the My question, we've covered some ground on kind of the top line. But My question would be, as you begin to bring margin bring some expenses back with attendance rebounding, Is there an expectation for margin this year or maybe it's a longer term target of where you can get to with this new optimal mix of Lower attendance versus 'nineteen, but much higher per cap. Is there any way to put some boundaries around that?

Speaker 3

Yes, absolutely. Our long term plan is to get into the 40s for adjusted EBITDA margins. North of that would be fantastic. We think that's going to take a 3 year climb, Chris.

Speaker 4

Okay. Very helpful. Thanks.

Speaker 0

Our next question comes from James Hardiman from Wedbush Securities. Please go ahead.

Speaker 7

Good morning and thanks for taking my call. Just to clarify that last point, so it sounds like if we piece this together, double digit increase in attendance, Per cap is down slightly at least in the ticket side, so I don't know maybe high single digit revenue growth. The margin comment Is sort of the idea that margins will take a step back in 2023 or do you still obviously, there's a sort of 3 year climb, But I'm just making sure I understand the margin commentary. Should we expect margins to be better or worse in 2023?

Speaker 3

Yes. So we're expecting the margins to be better, James, in 2023, we are still very aggressive on the cost side and we are gaining efficiencies. The park presidents, leadership at the parks, All of our staff are really running the show more efficiently and we expect margins to climb Meaningfully in 2023 2024.

Speaker 2

And James to just give a little bit more color to what Gary just said, We have done a lot of work on the cost discipline, but at the same time, we are still investing in the guest experience. So we want to make sure that it's a trade off where we want to make sure that our cost discipline, which was Very strong in 2022 and gives us a lot of benefit in 2023 will mean, BOS, probably a little bit balanced toward investing In areas where it affects directed the gas experience and I'm talking specifically about looking at A couple of items. We want to invest in technology and automation, which will most probably at the beginning be more OpEx on us, But we'll most probably end up in 2024, 2025 becoming a way of reducing operating expenses. But we'll still be ahead of margins, but we don't want to get ahead of ourselves too much. So I want to reinforce We believe that we can grow margin by the mid-40s range within the next 3 years.

Speaker 7

Got it. That's really helpful. And then, hopefully this question doesn't end up being too complicated, but it seems like there's some complicated factors That impacted your per caps in the Q4 and I'm hoping you can unpack some of that. Obviously, there There's some accounting stuff with the way the memberships work and shoulder seasons, right, recognized revenues and on fewer visits in the winter I'm maybe quantify that. I think mix played a big role, right?

You got rid of Parks that were less margin accretive, I'm assuming they were also lower per caps. So maybe tease that out. And then I think it sounds like the season pass prices came in some at some point over the course of the 4th Quarter. So I guess at the end of the day, I'm trying to figure out how much of that sort of flows through into 2023. And so any help on sort of the apples to apples numbers based on the current season pass sort of setup and a normal mix Would be helpful.

So any help there would be great.

Speaker 3

Thanks, James. It's It's always interesting to especially in my position to learn the ebbs and flows of our per caps. So, excuse me, guys. What I'm getting at here is that we have a $3 Per cap increase in Q4 that relates to the accounting issues around grounding memberships. We have Memberships, as we go as they grow into after their 1st 12 months, they become what we call here 13 plus members And the revenue is charged directly as it's received.

So it's amplified in Q4 when you have lower attendance. That's $3 of the increase. Then the rest of it is actually driven by success through the initiatives that we launched in Q4. We really pick up a lot Per cap with Fright Fest, our Honda House attractions are very successful. Boo Fest And Oktoberfest all lifted IPS quite a bit.

So all of this plays into that Q4 lift.

Speaker 7

But I guess and if I may sort of follow-up here, I mean, it sounds like Even ex that $3 accounting benefit, right, I mean per caps are up pretty meaningfully and You're sort of guiding them to be down somewhat in 2023. So help us bridge those 2 things.

Speaker 3

Yes, absolutely. And again, the Q4, the per caps tend to be Because of the Fright Fest upside. When let's take a look at like 'twenty three, right? We pushed pricing a bit too hard in 'twenty two. And so In terms of looking ahead to 2023, we're going to reel that back a little bit.

And again, the goal is to raise attendance by double digits. So what we've done and I feel really confident about this is we have gotten our past product correct, our 3 tiers that Selim talked about. They are priced really right in the sweet spot and it is higher than 'twenty one in 'nineteen, right? So we're going to have a lift Relative to those prior years. So the product is right, the pricing is right and we've launched media as well in this Q1 and It's really starting to have a nice impact.

Speaker 7

Okay. That's really helpful. Appreciate it guys and good luck.

Speaker 3

Thank you. Thank you.

Speaker 0

Our next question comes from Michael Swartz from Truist. Please go ahead.

Speaker 8

Hey guys, good morning. I just Wanted to dig into the 4th quarter attendance trends a little more in-depth. I think you said back in November on the Q3 call that your October Attendance was down 15%, if I remember that correctly versus the same period in 2019. And then I'm just doing the math, it looks Like November, December may have been down 60 some percent on the same basis, but understanding you took out Six parks from holiday or 6 parks for the Holiday in the Park event. I know there's probably some weather impact, but is there a way to think about maybe what you saw on a per Operating day basis in those final 2 months of the year?

Speaker 3

Thank you, Michael. The Attendance question, we certainly we don't frequently talk about weather, but we certainly were hit in the last couple of weeks of December. I can't remember a period of cold weather and snow. I even got stuck at an airport for a couple of days and couldn't get out. It was a very southern event, which I think most of us remember Southwest Airlines really struggled because their airports are primarily based in the South So that certainly impacted our attendance.

But I think the thing to take away is the trend trajectory change. We were down 43% versus 2019 in Q3, But only 29% in Q4. So there's just a really tremendous climb and we're seeing that trend continue into the first

Speaker 8

Okay. And then I think you had mentioned that the inflation cost headwind That you faced in 2022 was about $90,000,000 versus 'nineteen. Any way of thinking or Wondering what that looks like as we move into 2023. Are there any incremental inflationary cost headwinds? Are you seeing any kind of deflation in your cost base?

Speaker 3

Yes, absolutely. We're estimating inflation is going to run us between 5% and 6% in 2023.

Speaker 8

Versus 2022?

Speaker 3

Correct.

Speaker 8

Okay, wonderful. Thank you.

Speaker 0

Our next question comes from Ian Zaffino from Oppenheimer. Please go ahead.

Speaker 6

Hi, great. Thank you. Yes, Salim, thank you

Speaker 2

for all the CapEx

Speaker 6

color. It seems like

Speaker 2

this is a little bit of

Speaker 6

a change. I think initially when you came in, you were talking more about Should the CapEx to maybe more IT, other kind of items as opposed to rides. But now it seems that the emphasis is back on the rides, which is sort of what the previous CapEx cadence was a couple of years ago. Is that a proper characteristic or characterization of what's going on here? Just trying to understand how you're thinking about the

Speaker 3

Ian, it's a great question. I'm going to take that one based on what Salim has approved for 2023. He is You are just jazz, aren't you boss about what we're doing? I am very excited. What we're doing.

I like to think of it as Yes. I take the CapEx and I break it down into marketable and things that the guest feels and sees. And so if we're going to spend $150,000,000 let's say in 2023, a chunk of that goes to maintenance, But most 70% is something the guest sees, feels, touches and improves the guest experience. And I would argue The maintenance because when we renovate a ride, it performs to the top of its ability and we're always finding ways to reduce downtime, Which is something that is one of Salim's primary initiatives. So assume out of that $150,000,000 70% is going to marketable, Going to excitement, it's going to events, attractions, rides, guest facing technology.

EGaming. EGaming, beautifications, Absolutely. And then when we lift it to possibly $200,000,000 the percentage grows 80% of that is going to marketable capital and we have a slate of rides that and attractions and more e gaming that is coming in 'twenty four And 25. We're actually in many of our parks, we're looking for the long term tenure plan, where it takes a long time to, let's If you have you want to change your pathways in the park and that's disruptive because your parks open and people are So that takes a long time to do, but we're very excited about the ride capital, the

Speaker 2

So let me add a few more color on this. So We have started in 2022 when our CapEx program was mostly focused on park infrastructure And beautification. Now we're back to adding new and exciting rides in our parks. So I'm very excited about Aquaman at Six Flags Over Texas and it's really a first of its kind Water coaster that will be our park's 14th coaster at Six Flags Over Texas. Then We are very excited about the rights for families and we talked about that that we're trying to be very inclusive Company and want to attract anyone who is excited and interested in our unique thrills and to deliver Fun for people of all ages.

And from that, we are adding exciting rides for families. Rookie Coaster, A family coaster at St. Louis took its racing coaster at Six Flags Over Georgia and Fiesta, Texas. We are going to Tremendous electric go karts at Magic Mountain. That's in 2023.

So in addition to adding new routes for all ages, we are also adding new exciting concepts that will attract Young people like fantastic spring break that's happening at spring break. It's a first of its event For teenagers and college graduates to have a great fun, an amazing fun. It's a disruptive Event that we're putting together in our parks in the next few weeks. Then I will talk about the other type of CapEx we're doing, Making it easier for our guests to come to our park and that's where a lot of CapEx is going in, which is guest facing technology, Mobile app, we're improving our app tremendously and it will be kicking off At the beginning of the summer season, we'll have a completely new app that's interactive maps, very exciting of how you can Orza, with the mobile app, we want to improve our mobile ordering dining and make it much easier to do that. I want to be able to look at Our mobile ordering system to look like the kiosk at the McDonald's, I love going there and I'd be able to Customize my food, my burger and do it right at the click of my phone.

2nd, we have implemented mobile payment technology. I talked about it in the past. We did not even have Apple Pay and now we have gone into Apple Pay for our parks and it's been a tremendous ease to do business And Google Pay and Digital Pay, let's put it this way. We have continued to improve our contactless Screening, security screening. So we're reducing our wait lines and the back search to enter our parks.

So now you walk seamlessly through our contactless security system. We're going to website redesign, A much better redesign that taking place in the next few weeks will be we've gone to QR code flash path That has been a tremendous ease of skipping the line, including one chart. We have basically done the one chart. In addition, We have a lot of interesting ways to improve guest facing technology. I can't tell you there are almost another 20 items right there on our list, But it's exciting.

It's exciting. So we've come from a 2022, which was a total strategy change and a cultural change To today truly being there to start propelling the growth of our business in a complete new way.

Speaker 6

Okay, great. That's great color. And

Speaker 2

just as

Speaker 6

a follow-up, I guess you guys know you can't dangle anything in front of us without Ortiz in front of us without asking you a follow-up. On the iGaming side, how are we supposed to be thinking about this? Is this going to be a profit center? Is it going to be more like a ride as far as engagement wise? How do we think about this?

And I know it's early. I know it's going to take probably several years to roll out, but how do we actually get our head around this And think about maybe the direction where you're going to take it. Thanks.

Speaker 3

Yes. Thanks, Ian. We're very excited about our E6 gaming initiative. We issued a press release yesterday and that's the limit that we're going to communicate at this stage. It's a 5000 Square Feet State of the Art Arena and Campus with 50 Custom Build Gaming PC Stations, etcetera.

It is going to be revenue accretive. We're very excited about how it can improve our overall performance of our business. At this stage, it's very early and we're also being relatively close to the best on how we're doing it.

Speaker 6

Okay. Thank you very much.

Speaker 0

Our next question comes from Paul Golding from Macquarie. Please go ahead. Thanks so much. I wanted

Speaker 9

to touch on the higher mix of single day. Could you give us some background on how you're effectuating that? Is that just coming From the monthly membership being gone and how are you thinking about this going forward and balancing it with past visits? And then Secondly, on the op days removed intentionally in Q4, I was wondering if there is more opportunity for that that you're looking Now as we lap the year and are still in a winter Q1 season and how we should think about that as we look at 2023? Thanks.

Speaker 3

Thanks, Paul. I'll take the first part of your question. The single day ticket has a fair amount to do with our water parks. We have not, in our opinion, done a good enough job monetizing our water parks. And we're going to be implementing Very effective ticket pricing at the waterpark level, which will drive our single day ticket up as a mix.

But it is also one of the Drags, as I mentioned earlier, on attendance as to I'm sorry, not attendance, the average pricing average admission pricing for 2023. Can you repeat your second question? Paul, I'm sorry.

Speaker 9

Sure, Gary. Yes, sure. The opt is that were removed In Q4 that were not accretive from earnings perspective, as we lap the start of another year and we're still in this winter season And Q1, how should we think about the opportunity for you to take out more potentially dilutive Op Days as we think about 2023 as

Speaker 1

So, Paul, I think what you're asking is what does the operating calendar look like in 2023 since 2020?

Speaker 9

Essentially, Right. And if there if we might expect to see more of these opportunistic reductions in non accretive op days?

Speaker 3

Yes, Paul. Absolutely. We're definitely looking at that and you'll notice our Magic Mountain in California It's not open during mid week as an example. And so yes, we're analyzing at a great level what is EBITDA accretive and what is not on a daily basis. And if it doesn't make sense to run our park, we definitely will not do that.

So the number of days should be down. Now We are increasing our hours. So it's something that's very important. Again, on the same on the in parks spending side is The number of hours we operate our parks during the day. So we're going to increase our op hours, but reduce our op days.

Speaker 9

Great. Thanks for that.

Speaker 0

Our next question comes from Ryan Sundby from William Blair. Please go ahead.

Speaker 5

Hey, thanks for the question. Can you drill in on the double digit increase in attendance next year? Is that mostly a function of the pricing structure change Or is that coming from the new rides and events you have planned? And then as we think about rebuilding attendance next year, how much of that Is it dependent on bringing new guests into the park versus maybe recapturing some of the guests that didn't come this year? Thanks.

Speaker 3

Ryan, that's a harder question to answer as we look at the future of 'twenty three. I will say that Pricing has certainly something to do with it. Our product pricing and offering that we have right now on our website It's proving to be very effective and really matches the product offering that we currently have and this being very much appreciated by our guests. So then definitely the rides and the events, Salim talked about he is bringing on flavors of the world, he is Bringing on Viva La Fiesta. Viva La Fiesta.

We have Rock the Block, which is fine. And so these events are definitely an appeal. And As we launch them and announce them on our website, the guests get more excited and start purchasing their season pass.

Speaker 2

I would add, Ryan, a couple more color on this. First of all, we have We are building on three things. I think we build on the fact that our attendance was most probably the lowest we've We're coming from a base that came where we've had an attendance that's pre Hello. And we're starting from a lower attendance and rebuilding that company. So you asked about, are we seeing people that We've lost come back.

Yes, we've seen it's a mix of a lot of new cast guests coming in and some of them who when we froze the membership Are starting to start coming back because they wondered if we're going to reopen the membership or not and now they are starting to become regular season pass holder results. I would also say that many of the single day tickets that were single day ticket last year are starting to come back as season pass holder. We've seen a little bit of this coming through, but the most important is the fact that finally the online posting of our guests and our guest Factors have trended upwards and now people realize that all the efforts we've put in, in beautification, in Creating those even those three events that were put in, in a very quick time, Limited budget, Oktoberfest, BooFest, Veterans Day celebration brought a lot of great people in the Q4 and so the way how we improved And I give full credit to our new culture and our new team that stepped up and got it done. So I think now we published also all those seasonal events and the park experience has been a lot better.

I get notes and notes about people telling me how we have become a lot easier to do business with, friendlier to work with, Cleaner parts, shades, foodservice has gotten much, much better in terms of flows. I think a lot of it is bringing a lot of momentum. We're feeling very good About going forward for 2023.

Speaker 5

That's good to hear. Thanks.

Speaker 0

Our next question comes from Eric Wold from B. Riley Securities. Please go ahead.

Speaker 4

Thank you and good morning. Just got

Speaker 6

a follow-up question on a

Speaker 4

bunch of the parts from prior questions. If we think about the outlook of getting into the 40% plus margin level in the next 3 years along with kind of the goal of getting to that still at 25,000,000 to 27,000,000 Optimal tenants, can

Speaker 0

you maybe talk about kind of

Speaker 4

the pricing strategy with both season passes and single day tickets kind of embedded within that outlook given What you learned last year when you first took them up and took them back down, how should we think about how you think about pricing each of those Two cohorts over that 3 year period?

Speaker 3

Yes. Good question, Eric. As I look forward to 2023, the pricing structure As we mentioned earlier, it comes down a bit because of our aggressive we arguably pushed too hard in 'twenty two. And so relative The pricing comes back a bit. But we are no longer going to be a discounter.

And when even we do a promotion, We will consider offering, let's say, one pass, like if it's gold, we might offer the platinum at the gold price level. We always want the customer To be able to level up, right? And so that's the approach that we're taking. We also reduced our pricing on the highest level diamond pass. As for some of you remember, we got up to I think north of $300,000,000 in $22,000,000 and that's at $150,000,000 And it's also proven to be a very effective price point when you can attend all of our parks and all of the parks that we're offering with that pass.

So these elements really, really feed into we feeling pretty good about the pricing structure in And then when you go on beyond 'twenty three and in 'twenty four and 'twenty five, this year is I think The reset year, so to speak, on pricing. And again, it's minimal and it's only on the admission side. And it grows from here on out. All these investments That Salim just mentioned as they go into the park, dollars 150,000,000 $180,000,000 $200,000,000 whatever we end up spending in our CapEx To drive the growth at all of our parks, this will enable us to consistently increase our admission value.

Speaker 2

I also would like to add more color to this. I think what we've learned, the lesson we've learned in 20 We came in and we raised prices aggressively and we took away perks. We put in lockout dates. We most probably also took away the meal dining plan, dining meal I think we've learned and we have to course correct in September to realize that literally We needed to most probably create the experience before charging The aggressiveness you've done and I think people need to see the value of our pricing. And I'm comfortable right now that We have created a fantastic balance between the value we're delivering and the pricing we're delivering.

On the other hand, I want to continue Reminding everybody that our pricing today is still higher than 2021 and 2019. Our single day tickets remain Much higher too. We have not played and we're seeing the trends to work so far even though it's a very Still low season for us. We are very encouraged by what you're seeing in the past 8 weeks. But still, I don't we don't want to take a celebratory lapse here.

We still have a lot of work to do in 2023 to be positioned. So we're not out of the woods yet.

Speaker 0

Our next question is a follow-up from Ben Chaikin from Credit Suisse. Please go ahead.

Speaker 10

Hey, how's it going? Just two quick ones for me. Hey, good morning. And I may have missed it, so I apologize. But Saleem, you mentioned there was other opportunities outside of OpCoPropCo.

Are you suggesting just kind of traditional blocking and tackling Driving organic growth or are you suggesting other strategic alternatives? And then just one quick follow-up.

Speaker 2

I think there are other first of all, I'm going to tell you what I'm looking at it right now. When I think about our business Long term, Ben, I think there are opportunity in hospitality. Let's put it this way. I think we should be in the hotel business At one point down the road. I'm not talking in 2023, but down the road, I see that opportunity of us.

Our guests ask us that all day long. They say, I wish you had a property. It's easier for us if you had a property on in the park and we have That's the base to do that. So we look at opportunity in what I call hospitality. We have a very little issue hotels that we manage And they do well.

They do well. And they are not in the best part of the country and they still do well. And What I'm not saying, best part of the question is, they are not in the fast growing area of the country. I don't want to say they are amazing, beautiful places. I don't want to beautiful places, but they don't have the Support of the population.

Do you imagine if we did something in New Jersey, in Magic Mountain, here in Dallas, Texas, in Fiesta, in San Antonio, where you have this population that Support those hotels. I think number 2, I would say the second thing is we always will look at M and A I think there is opportunities M and A down the road and that would be a huge opportunities. As you see Our background into this is, we have come from M and A at Middleby and I think M and A has been a big propeller of value for us for 20 plus years and I think there is a way to increase. We have opportunity of investing in the e gaming. I believe e gaming is a game changer for us down the road.

It's too early for us to tell where it's going to go. But if you look at the prospect of e gaming and if we do it right, this should be a big opportunity for us going

Speaker 10

forward. Understood. Thank you. And then one quick follow-up on the margin commentary when you're talking about greater than 40% And then mid-40s in a few years. Just to be totally clear, that's adjusted EBITDA and not modified EBITDA?

Yes.

Speaker 3

Yes. Thanks. Thanks. And I would characterize it in the 42% range at 25 I

Speaker 1

think it would be modified to be in the mid-40s.

Speaker 10

Modify? Okay. Just pause for a second. So is it greater than 40% for adjusted? Yes.

Speaker 1

So if you look at what's happening over the next few years, we'll We have our partnership units are coming have a call option in 'twenty seven and 'twenty eight and likely we'll be owning those parks in So we'll be coming into a period where there is no difference between modified and adjusted EBITDA.

Speaker 10

Okay. Okay, I guess we

Speaker 1

can catch up offline. Thanks.

Speaker 0

Our next question is a follow-up from David Katz from Jefferies. Please go ahead.

Speaker 5

Hi. Thank you. Just wanted to touch I think you have a maturity out there. Gary, can you just give us a quick thought How you might be sort of dealing with the balance sheet next year or so? Thanks.

Speaker 3

I'm sorry, David, one more time.

Speaker 5

I think you may have a maturity out there for 2024. I was asking how you're thinking about Approaching that strategy and timing and any other sort of balance sheet initiatives you might be focused on?

Speaker 3

Yes. Thanks, David. I'm going to turn that over to Steve.

Speaker 1

Hey, David. So the 24 maturity to grow current in July, We'll be looking at the market and be opportunistic about refinancing those when the time is right. We also have a revolver To renew coming up. So both of those items we're looking at over the next few months and we'll

Speaker 5

When does your revolver mature?

Speaker 1

April it goes current in April.

Speaker 5

And it goes current in April. Okay. Perfect. Thank you very much.

Speaker 3

Yes. And guys, I want to just clarify the difference between modified and adjusted EBITDA. This is the partnership part share, which is roughly 50,000,000 And when I'm talking, it's low 40s. That's what I've been indicating on this call. And if you Go back to modified EBITDA, it's mid-40s.

So we're both correct. I just want to make sure that we both understand it in terms of those two differences. Does that answer that question? Any other questions?

Speaker 0

No. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Celine Basoul for any closing remarks.

Speaker 2

I want to thank everybody for their continued support. We are very excited to enter a new season and look forward

Speaker 0

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