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Edited Transcript of SIX earnings conference call or presentation 23-Oct-19 1:00pm GMT

Q3 2019 Six Flags Entertainment Corp Earnings Call

NEW YORK Oct 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Six Flags Entertainment Corp earnings conference call or presentation Wednesday, October 23, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James W. P. Reid-Anderson

Six Flags Entertainment Corporation - Chairman, President & CEO

* Marshall Barber

Six Flags Entertainment Corporation - Executive VP & CFO

* Stephen R. Purtell

Six Flags Entertainment Corporation - SVP of IR & Treasurer

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Conference Call Participants

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* Alexander Rocco Maroccia

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Christopher Prykull

Goldman Sachs Group Inc., Research Division - Equity Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* Ian Alton Zaffino

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* James Lloyd Hardiman

Wedbush Securities Inc., Research Division - MD of Equity Research

* Michael Arlington Swartz

SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst

* Steven Moyer Wieczynski

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst

* Timothy Andrew Conder

Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the Six Flags Third Quarter 2019 Earnings Conference Call. My name is Christie, and I will be your operator for today's call. (Operator Instructions) Thank you.

I will now turn the call over to Steve Purtell, Senior Vice President, Investor Relations.

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Stephen R. Purtell, Six Flags Entertainment Corporation - SVP of IR & Treasurer [2]

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Good morning. With me are Jim Reid-Anderson, Chairman, President and CEO of Six Flags; and Marshall Barber, 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, or other forms filed or furnished with the SEC.

At this time, I will turn the call over to Jim.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [3]

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Good morning, everyone, and welcome to our third quarter call. I am pleased to report the highest first 9 months attendance and revenue, and the highest third quarter Active Pass Base in company history as we drive towards our tenth consecutive record year of financial performance. We saw solid attendance, revenue growth and unique visitation across both our legacy parks and the parks we acquired last year. For the last several years, most of our revenue and profit growth has come in the fourth quarter, and we are optimistic that we will again deliver growth this year for several reasons.

First, we grew our Active Pass Base as of September 30 by 2% to a new record high, even as we increased ticket prices and converted more guests to our higher tiered memberships. Our average selling price of new memberships is substantially higher than season passes and our active membership base is also higher than prior year.

Second, we continue to grow our All-Season Dining Program, especially membership dining, increasing our penetration to record levels.

Third, post compulsory revenue for members that have passed their initial 12-month commitment period is higher than ever, spreading revenue into the first and fourth quarters.

Fourth, despite the downward pressure on deferred revenue from members who have been with us for more than a year, deferred revenue is up $5 million or 2% to our highest third quarter balance ever.

Finally, we continue to expand our world-class Fright Fest and Holiday in the Park offerings, adding new attractions and event days to accommodate growing demand.

We are making progress on our international development projects, which represent about 3% of our annual company revenue. Unfortunately, the Chinese market remains difficult, and we are likely to continue to recognize lumpy international agreements revenue until we see progress there from a macroeconomic, real estate and trade perspective. We are developing a sustainable business model that delivers consistent recurring revenue and cash flow, enhances customer loyalty and protects against both bad weather and an economic downturn.

Before I turn the call over to Marshall, I would like to update you on 2 other topics. Regarding the CEO transition process, our Board search committee has been proceeding at the anticipated pace, and there continues to be great interest in the role with an outstanding group of candidates. We are on track to make the CEO selection ahead of the February 2020 target date and our Board hopes to announce a final decision in the near future.

The second topic addresses the recent rumor about M&A discussions. We have the ability to independently grow above the industry average for years to come. Yet, we also believe there are attractive opportunities for industry consolidation, whether by acquiring stand-alone parks, as we have in the last 2 years, or by pursuing scale transactions. We believe it is always important for any management team and Board to remain open to possibilities that could benefit their shareholders. Our logic is that our differentiated capabilities can enhance the performance of any newly combined entity.

Our policy is not to comment on specific M&A, especially rumors, but we've long stated that we are always assessing opportunities for which there is a compelling rationale. Over the last few years, discussions have occurred with most regional players in the industry. And those discussions have taken place over many months, and in many cases, years.

We are very disciplined and thorough in our assessments and have strict guidelines concerning return on investment. We also work hard to understand the needs of the other side. So assessment of structure and associated considerations are a key part of our approach. We would never proceed without studying the situation and proposing something that works for both parties. At the end of the day, the only barrier that we have consistently self-imposed has been our discipline to not overpay for an asset. We will never do that.

So we are always looking at opportunities, but just in case there's any lack of clarity, we are not in the midst of any discussions or negotiations for an acquisition or merger of significant size. Clearly, over time, that could change. But at this time, we have one singular focus, driving continued success at Six Flags, beginning with achieving our tenth consecutive record breaking year in 2019, and continuing with initiatives that will help us deliver strong financial performance for many years to come.

I will now turn the call over to Marshall to review our third quarter and year-to-date financial results. Marshall?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [4]

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Thank you, Jim. In the third quarter, year-over-year guest spending revenue increased $11 million or 2% as a result of a 3% increase in attendance, partially offset by a 1% decrease in total guest spending per capita.

Total revenue growth was further offset by an expected $9 million or 26% decrease in sponsorship, international agreements and accommodations revenue. Guest spending per capita was down 1% to the prior year quarter with admissions per capita down $0.69 or 3%, partially offset by in par spending per capita, which was up $0.11 or 1%.

Guest spending per capita was adversely impacted by a higher mix of attendance from the Active Pass Base, which puts downward pressure on per caps, a higher mix of attendance at our new parks, which has significantly lower guest spending per capita, deferral of revenue into 2020 from new memberships sold in 2019, and strategy driven promotions for memberships such as waving transaction fees for a period of time, which served to stimulate interest in memberships and increased sales of all membership products.

Though the membership promotions put downward pressure on per caps in the near-term, we specifically implemented this strategy because memberships provide significant long-term economic upside for the business through increased guest loyalty and lifetime value.

Just as one example. We estimate the lifetime value of a Diamond or Diamond Elite member to be 3x to 4x that of a season pass holder based on the average selling price of their pass, higher in-park spending and the number of years they spend in the program. Also, prior to the end of the season, our near-term active pass growth can be adversely affected by the shift to memberships. Unlike season pass holders who pay upfront and therefore cannot drop out until the season ends, a portion of new members do fall out before their initial commitment period is completed.

Our members pay more and have lower turnover than season pass holders after the season ends, which, over time, should result in higher retention and a larger Active Pass Base. In the past 8 years, we have grown from 13% of our unique visitors being in our Active Pass Base to 40% in 2018. This increase has been a major reason for our success growing revenue and profitability, and will continue to be a significant driver of our success as we go forward.

Turning to international licensing, we continue to suspend revenue recognition for Nanjing, our third location in China, yet discussions with the local government are ongoing and we are striving to obtain all necessary approvals that will allow us to begin recognizing revenue once again. In addition, the city of Chongqing has made the decision to open 1 park per year, which moved up the opening of our adventure park by 6 months and delayed the opening of our kids park by 15 months, resulting in a net reduction of revenue recognition in the quarter.

In Saudi Arabia, where our park is part of a massive complex requiring significant infrastructure investments, the opening of our park has moved back 5 months to May 2023 at this time, and consistent with the last update, though, as Jim noted earlier, the Chinese market continues to be very challenging for our partner.

On a year-to-date basis, total revenue was up $32 million or 3%, driven primarily by the 4% increase in attendance offset by a slight decrease in guest spending per capita and a 3% decrease in sponsorship, international agreements and accommodations revenue. The attendance gain was driven by growth across all of our parks, including our new parks, which were up significantly. Year-to-date guest spending per capita was down less than 1% or $0.29 to prior year due to previously mentioned factors.

In the quarter, we maintained a strong focus on controlling costs as year-over-year cash operating and SG&A costs were down 1%, despite pressure from mandated minimum wage increases in several markets and the incremental costs to operate and lease Magic Waters, our new water park in Rockford, Illinois.

Year-to-date, cash operating and SG&A costs were up approximately 5% over 2018, primarily as a result of incremental costs at our 5 new domestic parks in the first 5 months of the year, including lease expense and cost to operate, and rebrand the new parks and to a lesser extent, the cost associated with Magic Waters. As you will recall, we had not begun operating the 5 parks until June of last year, and we began operating Magic Waters on April 1 this year. Excluding these incremental costs, cash costs on a same-store basis were up less than inflation.

With a modified EBITDA margin of 40% and a modified EBITDA less CapEx margin of 30%, we are by far the most efficient company in the industry. We continue to generate robust cash flow, and we have further strengthened our balance sheet this year.

In the first 9 months of 2019, we generated $216 million of adjusted free cash flow and paid $209 million in dividends. Given the high recurring nature of our revenue, a strong cash flow and multiple strategic growth opportunities, we remain very confident in the level of our dividend.

As has been our long-standing policy, all excess cash flow remaining after funding all business investments, debt amortization and dividend payments will be used to repurchase shares. At the end of September, the remaining amount authorized for share repurchases was $232 million.

Net debt as of September 30 was $2.1 billion. Our net leverage ratio was 3.7x adjusted EBITDA with no borrowings under our revolver and $212 million of cash on hand.

Earlier this month, we took advantage of a favorable loan market and demand for our credit to reduce the borrowing rate on our term loan, saving approximately $2 million annually in interest costs. In August, we also availed ourselves of historically low rates by entering into a second interest rate swap for an additional $400 million of our $798 million variable-rate term loan.

Together with our fixed rate bonds, this makes 96% of our total debt fixed at an average interest rate of 4.5% for the next 5 years with no debt maturities until 2024. Our growth strategy help us evolve towards long-term stability for the business and a positive transformation of our business model.

As our membership, dining and international licensing programs continue to grow, a larger portion of our revenue base is recurring and spread more evenly throughout the calendar year. In addition, our expanded operating calendars and investments in our fall and winter events are shifting attendance and revenue patterns, but ultimately, these growth strategy will lead to higher growth of profitability and cash flow. This trend will continue and we remain confident in our set up for growth in the fourth quarter, full year 2020 and into the future.

Now I'll turn the call back over to Jim. Jim?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [5]

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Thanks, Marshall. As Marshall said, we are well positioned for long-term growth in 2020 and beyond. We have set very high aspirational goals for ourselves through our projects. This has helped us to drive innovation and growth and deliver exceptional value.

Our aspirational Project 750 goal has become a high bar for us to clear by 2021 and now requires a CAGR of 11%. Nevertheless, every employee at Six Flags is striving hard to achieve the best results possible and position the company for success, no matter which way the economic winds blow. And remember, most of our eligible employees own stock in the company and for that reason, they think and act as shareholders.

Our commitment to reinvesting in our parks and enhancing the guest experience continues to be one of our highest priorities. And next year, we will feature the best and biggest lineup of new rides ever. We are the innovation leader, inventing products and services that have been copied and adopted by others in the industry, such as our spectacular expanded Fright Fest and Holiday in the Park events, our All-Season Dining Programs, our membership program and our loyalty program.

We are consistently pushing the envelope for our guests by offering first of a kind world-class rides. And 2020 will be no different. At Great Adventure, we're introducing the Jersey Devil Coaster, the world's tallest, fastest and longest single rail coaster, inspired by New Jersey folklore. At Six Flags Over Texas, AQUAMAN: Power Wave, a first of its kind water coaster in North America, and the park's 15th coaster. At Great America, Tsunami Surge, the world's tallest water coaster. At Discovery Kingdom, we're introducing Sidewinder Safari, a unique combination family coaster and animal exhibit. We will be rebranding our new water parks in Oklahoma City, Oklahoma and Rockford, Illinois to Hurricane Harbors. And as we do every year, we will be investing sizable sums of money in our park infrastructure to ensure our parks are safe, clean and enjoyable for our guests.

Our 5 strategic growth areas provide a platform that will drive revenue and margin growth for years to come as we build momentum around our focused strategy. Each represents a substantial opportunity but we are not dependent on any one of them.

The first area is increasing memberships and season passes. We will continue pursuing a membership penetration strategy to drive our unique visitor penetration up from 40%. And we will focus on further increasing retention using technology to personalize data and customize messages for all of our guests, especially the more than 1 million and growing number of members who have enrolled in our loyalty system and program already.

The second area is increasing ticket yields. We have pricing power in all our markets, have taken ticket pricing up an average of 3% to 5%, and have just taken strategic price increases on new memberships and dining passes. Our value-for-the-money ratings continue to be strong.

The third area of growth is in-park sales, especially culinary revenue. We have continued to increase dining pass penetration and are introducing mobile dining in our parks. There has been a step change in our dining pass penetration and volume of culinary sales, some of our highest margin products, and we are really still only in about the third innings of the program.

The fourth growth area is our strategy to acquire parks nearby our existing North American theme parks. We have integrated 8 parks since beginning the strategy and we are pleased with the way these parks are performing. For little upfront investment, we can leverage our membership base and operational capabilities to double the profitability of the acquired parks over several years.

Finally, the fifth area of growth is international licensing. As the middle class grow by 1 billion people globally over the next 10 years, this strategy creates a high margin, diversified source of recurring revenue with no capital investment. We continue to press forward with the 12 parks under development, and we are having productive conversations in new markets. We look forward to announcing new deals over the upcoming months and years.

Our unique company culture has been the foundation of our success, and we are the only regional theme park company to achieve 9 consecutive years of record financial performance through 2018.

Our capital allocation policy remains a key component of our value offering to shareholders. Since 2010, we have returned over $3.7 billion in the form of dividends and share repurchases. And we will continue to return all excess cash flow into the future. Our dividend yield, which at greater than 6% is more than triple the S&P 500 makes our stock a compelling investment for both growth and income investors.

Christie, at this point, can we please open the call up for any questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Ian Zaffino of Oppenheimer.

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Ian Alton Zaffino, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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The question would be, Jim, on your comment about industry growth above industry average growth, what are you looking at as far as category growth, number one? What is that number you're kind of benchmarking yourself to? And how are you thinking about you outgrowing the industry? Is this on an attendance side? Is it on a revenue side? How do we think about that?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [3]

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So I think, Ian, thank you for that question. With regard to performance versus regional competitors, if you simply, as I described earlier, look at the last 9 years, no one comes close to us. We are the only company that has grown our performance consistently through the 9 years. And especially when you look at over the last 5 years or so, we've outperformed everybody. So it's not that, that means that the industry is not a good industry. It's a fantastic industry. And I have consistently said that this is an excellent industry to invest in.

When you look at performance, I think that people are looking at 3% to 4% type growth. We, obviously, want to be able to grow at a rate faster than that and do that consistently. Our focus is not so much on attendance on its own; it's nice to be able to get attendance growth, but we've also maintained that what we really try to do is to be able to deliver profitability growth, and very importantly, cash flow growth in order to drive our share price.

So if you look, if you go back to, when I originally started the company and look at the CAGR on the performance of the company, you're looking at 12% growth roughly. And our goal would be to continue to be able to get that sort of growth over the long term.

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Ian Alton Zaffino, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [4]

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Okay. So it sounds like it seems to be like an overall like revenue growth number that you're sort of keying into. Would that also assume deals in that? Or that's just kind of an organic number? I guess what I'm really trying to get at here is what's your underlying organic growth of the business? Just because you look at this past quarter, it was a pretty clean quarter from a perspective of organic growth year-over-year. And you also had very easy weather comps. And I'm just trying to gauge what the actual growth is, or at least how you see that growth.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [5]

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Yes. I think that's a good question. I think when you look at weather, and then I'll put that behind us, as we really, as you know, don't even like talking about weather, but every now and then, we have to. It was definitely a better weather quarter, although, as you know the year itself through June, that was the worst 12 months in North American history in terms of weather. So whilst the quarter was better, we did have specific issues in the quarter that affected us. And flooding in Houston meant that park was taken out. Texas had some issues. And we ended up closing some parks. But at the end of the day, it was a positive. Trying to actually break out how much that was is difficult. But what I would tell you is we grew attendance by 440,000 or 3% to 14 million guests, a pretty amazing number, an all-time high. And what I really loved about the quarter is that attendance, revenue and EBITDA grew at the legacy parks for the quarter and the first 9 months. So that was very strong. And then when you look year-to-date, we basically saw exactly the same performance. Those parks, whether legacy or new parks, all grew. And we improved the margins at the newer parks, although those margins are still below our historic margin.

So Ian, we never give guidance, you know that. So I'm not going to give you a number and say, here's the number. But we are striving very hard to outperform, to continue to be successful, and we'll do whatever we can to do that. We don't look at acquisitions in order to drive that growth, but they do help and they're one of the 4 -- one of the 5 key initiatives that I talked about.

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Ian Alton Zaffino, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [6]

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Okay. And then just talking about switching to M&A, since you mentioned that, how do you think about your balance sheet here, the dividend policy? Because it sounds like you kind of want to get a little bit bigger on the M&A side or a little bit deeper on the M&A side. So is there something along the lines of maybe trying to delever a little bit, you can free up some balance sheet capacity or something along those lines? Or maybe move to a little bit more of a flexible capital return policy, where maybe there'd be more buybacks as opposed to dividends, especially given where the shares are trading at this time?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [7]

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Yes. So I won't comment on M&A, Ian. You heard my comments earlier. And historically, we've said nothing. But given the rumors that were out there and all the different stories that were published by folks, I wanted to make sure we cleared the air, so it was absolutely crystal clear that we do not have any acquisition bid out there for anyone. We are always looking on an ongoing basis at small-, medium- and large-sized parks and families of parks to acquire. So that will never stop.

With regard to our capital allocation policy, a strong sustainable dividend has always been a part, a really important part of the value proposition for our shareholders. We remain absolutely committed to it and will continue to meet with our Board as we do on a quarterly basis to talk about the balance between dividends and share buybacks and there's no reason why we would not continue to do that. We feel very confident about the ability to do that.

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Operator [8]

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And your next question is from Michael Swartz of SunTrust.

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Michael Arlington Swartz, SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst [9]

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Just trying to get more color on maybe the -- how the quarter played out. I think back when we talked to you in late July, you had kind of signaled that July had started soft and you ended the quarter with 3% attendance growth. So I guess that would necessarily mean that August and September were much better. So maybe you can give us a little more color on just how you saw that play out.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [10]

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Marshall, would you like to take this?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [11]

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Sure. The -- we did have rainfall, elevated rainfall in early July, as you mentioned. In September, we also had some weather. We had flooding in Houston associated with the tropical storm Imelda, which impacted Texas and actually forced us to close the Houston park earlier than was scheduled. Year-to-date, the weather has been mixed, slightly better than last year. But that's pretty much how it played out from a weather perspective.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [12]

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But I think you're right, Michael, at the end of the day, it started rougher and then improved. And we ended up, up 3%, which was I think a nice boost.

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Michael Arlington Swartz, SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst [13]

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Okay. Great. And I think, Jim, in your prepared remarks, you had mentioned that you have begun to see, I guess, unique visitors grow at some of your recently acquired parks. Can you maybe flesh that out a little bit for us as well?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [14]

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I think the simplest way to do it is, people do ask us, are you growing unique visitors, and I think what we've really seen both in the quarter and year-to-date, and I won't give specific numbers, but it's very nice growth at both. In other words, we're not seeing the new parks grow stronger than the legacy parks; both are growing. And they're growing attendance, they're growing revenue and they are growing EBITDA.

But one of the challenges that I think Marshall talked to this in his remarks, but at a higher level, when you look at the performance -- the organic performance of the business, it was extremely good. The reason it's maybe a little bit masked, is that we had 5 months of expenses for those new parks that were not in our P&L last year. That's significant. And also, as noted by many of your colleagues, the international numbers were, obviously, not as expected by The Street. But those 2 items pulled down the overall results. When you strip those out and you look at the success of the organic growth in the business, it's very strong.

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Operator [15]

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And your next question is from Steve Wieczynski at Stifel.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [16]

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So first question would be around the targeted promotional spending you guys or Marshall talked a good bit about in order to drive membership penetration. And I guess what I'm getting at here is if we look out over the next couple of quarters, is it fair to assume the admission per caps will continue to whether that's run negative or be flattish, given these promotions, and some of the other headwind you guys called out in your prepared remarks?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [17]

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No. I don't know if that's -- we won't give guidance on what's going to happen in the next few quarters. But a lot of these memberships, and really, just the reason we did this membership promotions, as you know, promotions are an important feature of the theme park business. We do know that memberships have the highest margins and the best lifetime value for our guests and so aggressive penetration does make sense. We did -- we tested a variety of promotions. And we really did it during the sales windows for season passes and memberships and single-day tickets when -- because memberships are more expensive, they tend to be less attractive.

An example: waiving fees -- sign-up fees, offering various credits, we've provided giveaways such as drink bottles, many of these impacted the quarter but don't have a long-term effect. If you think about the fees, the sign-up fees, we booked that revenue in the quarter, so we get the higher revenue going forward but we did take a per cap hit this quarter. Our results were exceptionally positive with these promotions and we continue to grow the membership program as we desired. And going forward, we'll use promotions, the promotions that had the biggest impact of the lowest cost of acquisition. But I don't think I would say that what we did in the quarter is indicative of what we're going to be doing in Q4 and beyond.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [18]

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So what you're saying is that should start to slow down moving forward?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [19]

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That's right. That should -- those promotions were mostly an impact to the quarter.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [20]

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Okay. Got you. Second question, Jim. I know you talked about in your prepared remarks, the $750 million aspirational goal by 2021. I know you guys still say that's aspirational. But I guess what I'm getting at here is, why still have that target out there? I mean if we look at the last 5, 6, 7 years, I don't know if I can see a year where you grew kind of double digits and that modified EBITDA. So I guess the question is, should we just almost ignore that target or are we missing something? And you still think that is a real aspirational goal?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [21]

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Well, I think it is an aspirational goal for the team at the company. And we're measured on achieving that goal. And there are people who will be rewarded on achievement of that goal, so we will never give up on it. Whilst it is, as you point out, a stretch to get there, it is still something that we look at and consider and look at ways that we can get there. But it will be very hard to get there, definitively, Steve, there's no doubt about that.

Whilst you commented on the performance, you look at our CAGR, if you look at what we've done, it's 12% growth since 2010. So the reality is the company has done very, very well. It will require a lot of work to get there. But we've got several things going in our favor. I talked about the 5 key initiatives, the membership program that we're ramping up and we should see accelerated growth in 2020 and '21, but 11% CAGR is a big number.

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Operator [22]

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And your next question is from James Hardiman of Wedbush Securities.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [23]

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So I wanted to continue along some of the same lines as Steve there, in hopes of maybe unpacking this per cap issue. I think that was at least organically probably the biggest disappointment for The Street. And it seems like based on comments you guys have made previously, the hope was that membership 2.0 would add to per cap this year and they're down sharply. So maybe as you talked about 4 different items that hurt per caps, were those sort of in order of magnitude? You talked about the higher mix of active pass, the higher mix of new parks, deferred revenues and then the strategy-driven promos. Maybe talk about sort of the relative size of those. And which, if any, were sort of not contemplated earlier in the year, were not part of your plan previously?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [24]

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So, yes. So the answer to that is yes. They were in order of importance. The promotions that we did were -- they did have an impact, but they were not the most important impact. The biggest impact really were the 2, the Active Pass Base mix, which was higher in the quarter and year-to-date and as well as the mix of new parks that do have significantly lower per caps. Now we did increase those per caps for the newer parks, but it's still significantly lower than the average of the legacy parks.

In terms of breaking out, I would say, I'm not going to get into a lot of detail. But the first 2 are the biggest 2. I think the growth that we saw in the quarter as it relates to shifting money into 2020, we had a fairly aggressive conversion from season pass into memberships and that in the third quarter has an impact. I think that may be the one thing in the quarter. But ultimately, what we've done is going to raise per cap going forward.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [25]

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So let me add to that James by just giving some specifics and you know we don't give guidance. We won't say here's the per cap, this is it. But our goal has been and will continue to be to further increase per caps as we grow the membership base and the dining pass penetration. And we have the ability to continue to apply proven revenue synergies to new parks. That's to come.

So some of the initiatives that are being implemented or have already been implemented are strategic price increases on new memberships, which will help grow admissions per cap. We've done something similar with regard to dining programs. And then with promotions, we learned a lot which promotions work and don't, which are more expensive than others. And the ones that are more expensive are not going to be used again, in very simple terms. So it really is specific to the quarter.

The other area that we're working on very actively is membership has defaults, just like it does in any other system. And so we're working on lowering that. And then overall ticket price, we're looking at 3% to 5% increases. So all of those will help, but when you're growing as we are, and you're growing the membership and season pass base, you will see a movement in per cap, pressure on that per cap downwards, as we have through our history as a company. And yet, we still registered record revenue, record profitability. So whilst 1 quarter may be down, overall, we're looking to drive higher revenue, higher profit, higher cash flow. So the membership program itself is very good for long-term revenue and profitability, but there may be near-term volatility, okay? Sorry, James. I cut you off there.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [26]

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No. That's okay. But bottom line is for maybe membership 2.0, I think the thesis among a lot of people that own your stock, at least as of 24 hours ago, was that, that would be -- that would drive per cap nicely higher this year. Do you think that was fundamentally an incorrect assumption? Do you think that 2020 will see a bigger impact for membership 2.0 actually falling through to the bottom line or at least the per cap line? Where do you think the disconnect was there?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [27]

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Well, let me be crystal clear once again, James, to say that our goal is to drive revenue and profitability, and therefore, cash flow. So that's always been the goal, even if it meant lower attendance or per caps being slightly lower. That is something that can happen as long as we are driving the overall business to higher cash generation.

So what do I think will happen? Again, I'm not going predict specific numbers, but I believe with the membership strategy, with the higher tiers that we have, the higher pricing and our success in penetrating at the Diamond and Diamond Elite level, we will ultimately see per caps increase. I do believe that and I think it will come in 2020 and 2021. But more importantly, I believe we'll see bottom line profit and cash flow improve.

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [28]

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We're in a big -- James, we're in a big transition period here. Much like when we were transitioning into season passes. And so we're growing these memberships pretty dramatically year-over-year. And we know we're charging more, and we know the people are staying longer. And those 2 metrics haven't changed since we started membership 2.0. So ultimately, these will drive the per caps up. It's just as long as we're transitioning and growing the active member base by 25%, it's a big transition and it will have an impact in the short term.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [29]

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Okay. That's helpful. And then maybe just one clarification. You talked about Chongqing, the changing of timing of when those parks are going to open and how that impacted revenue. Can you just -- I guess maybe, A, talk about how that impacted the quarter; and then sort of how to think about that on a go-forward basis versus where we were 3 months ago?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [30]

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So yes -- we will -- I'm not going to break out individual revenue per park or per market. The biggest impact, obviously, for the quarter was the fact that we don't have Dubai, which we had last year and we also don't have Nanjing, which we were recording last year. There was an impact for both Chongqing, which was fairly minor, and Saudi Arabia, which was also fairly minor. And together, they were a small part of the difference.

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Operator [31]

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And your next question is from Tyler Batory of Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [32]

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The first one for me, you mentioned a portion of new members falling out of the base. Can you talk a little bit more about that? And discuss the churn in the membership program?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [33]

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Sure. I think you look at other businesses. Any business that has members has defaults. It's just the way it is, so why don't you talk about it, Marshall? Go ahead.

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [34]

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Sure. We're not -- we haven't given out the default rate. But as we look across other industries, it is -- it's within the industry norms. The revenue impact is actually less than the default rate because most people make it part way or most through the year. Members who are in default are not included in the Active Pass Base. So initially, more Active -- more of the Active Pass Base can fall out and slow the growth of the Active Pass Base within the year. However, the churn rate after the season ends is far lower than that as the season passes, even after the defaults.

I will say the default rate is -- has been improving since the introduction of the new membership program. We have more affordable membership dining as well as we're now selling monthly payments and membership payments to people who don't need a payment plan. So they're more able to pay. But ultimately, this should lead to active -- higher Active Base. And again, we're going through a transformational period here. And within the year, there is going to be people -- members can drop out and so...

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [35]

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Yes, but in simple terms, Tyler, you think about the season pass program, basically, all of that revenue gets recognized in 1 year. A member can start halfway through the year, 3 quarters through the year, and you're really only recognizing that partially through the year. So there is a period of time in the year when you acquire members, in essence when some of that revenue would end up in another year, the following year. That is part of the challenge here. It shifts revenue from one year to the other. But there is no doubt that we are gaining members. And in that process, some of them were converting -- our season pass holders, who would have paid in 2019 and all the revenue would have been recognized, and instead, we're having some of that revenue recognized this year and some will be recognized next year. Now we will move to a point where we're going to get them past 12 months and we're going to be recognizing monthly. And you'll really see a smoothing of the revenue, the cash flow and the cash generation for the company.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [36]

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Okay. That makes sense. And just as a follow-up, more of a high-level question just on the competitive environment. Can you talk a little bit more about what exactly you consider to be your competition? And do you think that there's maybe new entertainment options out there, that potentially some of your guests are looking at? And how do you think your pricing stacks up to some of those other possible entertainment options that are out there for folks?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [37]

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Yes. I think that -- it's funny because we talked about this before, Tyler, right? There are lots of options for entertainment and it's not that our other regional companies are competitors for us. There really aren't, except in a couple of markets. They're part of the same industry, but we don't compete generally. So it's not theme parks per se that are competition. It's more around other alternatives for the way people spend time. So it will -- it could be as simple as going to the movies, going to play golf somewhere and other activities that we all read about and all hear about.

When we look at our business, our goal is to make people happy. We want to make sure we're relevant and that we provide an experience that's really different from what anyone else can do and we are finding more and more that people want that special experience with their friends, with their family in our park, and hence, the growing attendance success that we've had. It clearly shows that people are coming to the parks in big numbers.

So we do look at all sorts of different alternatives. We make sure that our pricing is right and I think, as I described earlier, we have intense research that looks at every aspect of every single one of our parks and one of the measures there is value perception and value perception has been very strong even with the price increases that we've taken, Tyler.

So we're looking externally, internally. We look also at our regional competitors for pricing. We make sure that we're not too high or too low. And every now and then, we might get it wrong, but we'll course correct and make sure that we get on track. But I feel very good about pricing where we sit, and I feel very good about the potential to continue to increase price.

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Operator [38]

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And your next question is from Alex Maroccia of Berenberg.

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Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [39]

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So the first one is on Holiday in the Park. I'm trying to think about the next few months performance, and I'm wondering what's going to be new this year for that program. And then how much do you expect Great America and Frontier City to benefit from their second year of Holiday in the Park?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [40]

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So in terms of what's different, we've invested both in Fright Fest and in Holiday in the Park again this year. I think as we've said, it really is a building year-over-year-over-year. So the first 3 years, there is significant growth. But as we continue to invest in Holiday in the Park, we continue to grow. Texas has had Holiday in the Park since the '80s, and last year, they had a great year. And we expect -- we'll expect them to have a great year this year as well.

It really becomes a tradition for people. And that tradition year in and year out, if families want to do something over the holidays when they're together and there's really no better place to go or thing to do than to go enjoy the park and make some s'mores and ride some rides.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [41]

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So we have 15 parks doing Fright Fest, 13 doing Holiday in the Park. People are very excited about it. We have added some days, targeted days over prior year that we weren't open in certain parks just to make sure that we capture all of the revenue that we can. We've updated many mazes, pretty much in every park whether it's in Fright Fest and the same for some of the attractions and shows at Holiday in the Park. And our teams are very excited about this.

Honestly, Alex, this for many people is the best time of the year because guests love the experience, especially the Holiday in the Park experience. And they want to be there with their families, and as Marshall said, it's growing.

So there's differentiated offerings, both in terms of the attractions, but also I must say in terms of the food, the culinary side, beverages, even alcoholic beverages, doing quite a lot with blood bags, believe it or not. You know about our Coffin Challenge for Fright Fest. So every event we have, we try to target to the local market. And we make it special and they tend to be quite successful. So we're excited about the season, certainly, something we're looking forward to and we think it's going to be very strong.

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Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [42]

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Okay. That makes sense. And then just one more. I saw your segment on CNBC last night, Jim. And you were talking about a tough EPS comp due a state tax benefit in Q3 '18. Can you just explain the impact of that benefit as I don't believe it was discussed last year?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [43]

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Yes. I think maybe Marshall will take that. That's one of the major changes there. So Marshall, you want to handle that one?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [44]

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Sure. Yes. We have excess tax benefits and they go in and out every quarter. It really had nothing to do with cash taxes but really, just the tax expense and EPS. But basically, there was a tax change in New Jersey. We had a credit last year; we don't have any credit this year. Going forward, our tax rate will be in the low to mid-20s in terms of tax spend.

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Operator [45]

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And your next question comes from Tim Conder of Wells Fargo.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [46]

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A couple of things here. On the memberships, given that you did some promotions there, what's been your -- on a year-to-date basis here, what's your year-to-date membership growth? Or are you seeing that -- Marshall, I thought you may have alluded to maybe 25% earlier in the call or maybe I misheard something there, but just wanted to check that number?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [47]

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Yes. Tim, it's been in line with what it has been this year. It was up about 25%, the active member base.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [48]

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It grew -- memberships grew 25% year-over-year? Or it's 25% of your Active Base?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [49]

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No. No, the membership base grew 25% year-over-year.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [50]

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Okay. Okay. Okay. And then again, sorry to keep on this, but I know there's a lot of discussion among the investors and it had already been talked about a little bit here. But especially the Q3 admissions here, we understand that the memberships are smoothing things over time. And this year appeared, as already has been talked about, to be the year that you -- that we'd start to see that especially after Q2. But given the weather in general was better, given that Houston, you only have a small water park. You've taken pricing. You saw very anemic admissions growth here in Q3, and then we're not that far into the new tiered membership program, and yet, we're seeing some pretty aggressive things to do to try to continue to drive that. And we get the long-term value, but it just seems like some of the things that it's hard to bring into that revenue line. Just I don't think there's any additional commentary that you haven't already given that you can talk about that, just given the dynamics here that kind of all fit into the Q3 on the admission side?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [51]

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Yes. Tim. So I think, first of all, we didn't do aggressive discounting, we did some testing of promotions. And I think the other thing to consider is, if you look at over the last 5 years, 7 years, we used to have -- we used to get 75% of our attendance from the summer months. That's now less than 50%. So there -- the membership program, first the season pass, and now the membership program even more has pushed attendance, while growing attendance has pushed attendance into the shoulder periods.

As we invest in Fright Fest, Jim mentioned how great Fright Fest is, and how great Holiday in the Park have been doing, you look at our growth in the fourth quarter, people enjoy those times. They're going to come 3 to 4 times. And so as we expand the calendars, people are just enjoying the park a little differently than they have in the past. So I hope that helps a little bit on the third quarter.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [52]

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So Tim, we feel very strongly that the third quarter was impacted by these items, many of which were onetime in nature and we will see an offset to that going forward. But we're not -- as I said earlier, we're not going to give guidance on what it will be, but we look at membership over a period of time as being a very positive boost for our overall pricing, which will translate through to higher revenue and higher cash flow growth. That is our primary focus not on the average per cap. We want that to go up, but it may well be with visitation that it doesn't or it's flat. As long as we're driving revenue, profitability and cash flow up, then that is our measure for success.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [53]

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Totally agree. And then as part of that, as you've already talked about unique visitors, so totally agree those are the key metrics. Okay. Moving on to the international side, just, Marshall, can you give us the third quarter international revenue, what was recognized in that sponsorship in international line? And then if you want expectations for 2019? And as it relates to that, other than the comments that you made on the park in Chongqing, and sort of the acceleration of one delay or the other, has there been any material change in the time line of China over the last 90 days?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [54]

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So I'll start with the housekeeping. The Q3 revenue was $8.3 million. In terms of 2020, I heard you chuckle when you said we're not going to give you guidance other than to say, the parks that we're currently recording revenue on now, we expect to continue. Our hope is that we get the Nanjing approvals that we need and we can start recording that revenue as well. And then what was the other part of the question?

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [55]

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I guess other than the comments that you made about the kids park delay and the one other small park being accelerated, has there been any changes in the China time line? I know you're just being a little cautious, Jim. I think you talked about the overall of course macro environment and so forth. But has the time line changed in any material way other than the Chongqing commentary?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [56]

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No. I think Marshall talked about Chongqing. He talked about also Saudi Arabia. And I think the way to think about this, Tim, honestly is to understand that these developments are not just building a theme park. In the case of China, they're building cities basically with a theme park in the city. And the same is true of Saudi Arabia when you think of Qiddiya, they're building a massive entertainment complex that has a theme park in it, but has a Formula 1 track, it's got all sorts of other activities that are going on around it. So it's actually hard to be able to say this is the exact date. We use our best estimates at any point in time as to when parks open. But if a local government, let's say in Riyadh or in Chongqing or wherever else, says that we need an extra year to be able to put the infrastructure in to support this whole area, that affects our ability to open a park. So I think that's really the most important thing for people to understand. Part of it is our partner, part of it is the economy, part of it is the local government saying here is when we can have everything ready for you in order to be able to open a park.

So I would say right now there's a very high likelihood going forward that we will see changes in the timing of park openings. I just think it's unrealistic to think it's going to be exactly as we've outlined, only because we know that these are part of much bigger developments and are likely to shift. But what we've described to you right now, as Marshall went through those specifics, those are the -- that's what we know as of today. If anything changes, on any of our quarterly calls, we will update you.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [57]

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Okay. And lastly, Jim, more I guess on a personal question here. As your -- as you said, the search is going on for CEO. Can you -- again, personal and personal is in the nature here, what are your plans for your ownership stake in Six Flags post your retirement? Or will you be exiting share ownership, all the positions upon retirement?

And then in relation to that, has -- you talked about the rumors that were out in the market regarding a large M&A acquisition. To the flipside of that, has the company been approached? Can you make any commentary from that perspective?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [58]

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Tim, it's sort of stunning to actually hear you even ask that question. To my knowledge, the company has not been approached. Even if it had been approached, why would we talk about it on an analyst call? It just doesn't make sense to do that. So the answer is no. But in general, we will not talk about M&A.

Obviously, if at some point someone was interested in talking to us we see it as our fiduciary duty to be able to talk to people, if that's the case, but we are not in that position right now.

With regard to my situation, I feel extremely confident about our future. I believe the best is yet to come. You know and I think this is why you've asked the question that I remain one of the company's largest shareholders and it's only because of my strong belief that the company is so well positioned to execute on our strategy that I feel that it is the right time by February of 2020 to step down. And we have all these great initiatives, membership will show the growth potential. You will see it coming, it's a function of time, and we'll end up with a CEO who is excellent, right? So our Board, the same people that selected me are the people who are leading the process to select the new CEO. So I feel very confident about that and obviously, as soon as we know, I will make sure that we communicate that to everybody, to the public.

The final question that you had was about my situation. I am one of the biggest shareholders and I will continue to be one of the biggest shareholders. Obviously, we're talking about a change that hasn't happened yet, but my belief in the company is very strong -- in the future of the company. Okay, Tim, do you have any other questions?

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [59]

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No, Jim. Thank you, sir.

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Operator [60]

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And your next question is from David Katz of Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [61]

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Covered quite a bit of ground. I just wanted to go back to some of the earlier commentary about prospective growth deals or a pipeline of deals that are out there that may be coming sooner or later. And I wanted to know, are those opportunities that you would consider to be potentially impacting your ability to reach the long-term target that you've put out there? Are there things out there that we don't know about that could factor in to you getting there?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [62]

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I'm not sure I understand the question, David. I'm sorry. Marshall? Maybe you could -- maybe just ask it one more time. I apologize.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [63]

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Sure. So the notional EBITDA target of $750 million, right? Does that -- should we be contemplating or are you contemplating any unannounced growth opportunities in that number that we don't know about?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [64]

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Oh, no. Let me be clear about that. The $750 million did assume that we would be able to execute on all 5 of our key imperatives, the 5 growth areas. One of those growth areas is this process that we had of purchasing smaller water parks, and so -- or theme parks. But if there was a material change, some sort of major deal or bigger deal, then we would obviously adjust a target to reflect that. We've been very careful about making sure that we always take our goals up, if there's some sort of material change.

When we made the acquisition, the Premier Parks, the net price on that I think was just over $20 million, it was relatively small. And we had included that as one of our key imperatives. But if it's a major move that would be significant, then that would be something we'd adjust out and take the target up. Does that help, David?

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [65]

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Very helpful. And one last quick one, if I may. Just beat this one last time. At some point, the per capitas have to inflect, right or -- and/or accelerate. And it does sound as though you're expecting that to occur at some point in the future. Is that a fair statement?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [66]

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We do believe that. Although, I do want to come back to what I said earlier, not to confuse matters too much, but we have seen that with our members there and remember, we're still at a relatively small percentage of the overall total of our Active Pass Base, but members seem to like to visit even more. So that in itself will put pressure on per cap over a period of time but the price points are significantly higher. So that will help per cap. So our view is that per cap will improve, but again, the thing that I'm focused on is driving revenue, profit and cash flow and whatever per cap will be, it will be.

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Operator [67]

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And your next question is from Chris Prykull of Goldman Sachs.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [68]

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Just a follow-up question to an earlier one on competition, but maybe a little bit more specific. It looks like this American dream project is potentially going to open this Friday or at least Phase 1. How are you thinking about any potential impact to Great Adventure, if any? Have you looked into that at all?

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [69]

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We have looked into it. Chris, you probably were not involved at that time. About 2 years ago, there were questions along these lines around American dream. And Marshall is just chomping at the bit to answer this question. Marshall, do you want to take it?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [70]

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Sure. I -- so Chris, the -- there's over 20 amusement parks in New Jersey. Many of them have a scale much bigger. I hope these guys do well, this American dream project. But we're talking about an 8.5 acre indoor amusement park. Great Adventure is 1,400 acres with the safari. I hope the best for these guys, but it's not really something that we worry about from a competition standpoint.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [71]

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Okay. That's good to hear. And then I just want to go back to the per caps, again, I apologize. But did the attendance at the Premier Parks, the 5 new parks materially outpace the rest of the portfolio this quarter? And is that why there was pressure from those on the per cap? I only ask because those parks have been in there for over a year now without similar type of pressure on the per cap.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [72]

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I think the right way, and Marshall can jump with this, the right way to think about it, is we've been obviously taking the Six Flags approach and applying it to these parks and so the performance was very good. We saw an improvement in attendance. We also saw an improvement in their per cap and their performance. So yes, it was a material move, which will affect the per cap. So that will push per cap down on its own. Correct, Marshall?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [73]

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That's right. I think actually, the reason where we had this growth initiative is because it opens us up to markets that are surrounding our core markets like Houston and Oklahoma City so we can increase our unique visitations. And also, we know we can run these smaller parks better than they're being run, and this year proves it. And so we did get -- we did have very good growth at all of our new properties, the Premier acquisitions as well the ones we had just prior to that. So yes, so your supposition is right, it -- they did grow faster than the legacy parks.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [74]

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Got it. And then your cost of products sold line item, I think it's up to about 7% year-to-date, year-over-year, it grew 10% last year. It seems like it's just consistently outpacing revenue growth. What's the primary driver there? Is that All-Season Dining having an impact and should that continue?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [75]

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So yes. So actually what it is, it's -- if you look within the in-park revenue line, the growth is coming from food and beverage from the All-Season Dining. If you look at the cost of goods sold on just food and beverage, it's been relatively consistent with prior year. But because we're getting sales there that's -- that are higher than the parking revenues, which have no cost of sales or attractions which have no cost of sales or very little cost of sales, that's driving the cost of goods up. But really, if you look at it on a specific department, it's relatively consistent to the prior year.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [76]

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Okay. Helpful. And then just one last one, if I could squeeze it in. But just wanted to talk about the -- your expectation for the dividend from here. And maybe how are you thinking about it from a growth perspective? If I look at free cash flow year-to-date on your numbers of about $216 million, I think last year in the fourth quarter, you generated about $53 million, so that gets you to $270 million versus a dividend requirement of almost $280 million. It sounds like you are planning to make that gap up in the fourth quarter. A, I guess is that accurate? And then, B, how are you thinking about next year?

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Marshall Barber, Six Flags Entertainment Corporation - Executive VP & CFO [77]

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So in terms of our dividend strategy, Jim mentioned, we do return all cash flow to shareholders through sustainable dividends and share repurchases. Last year, we grew the dividend by 17%. So in the near term, we're focusing most of our excess cash flow on dividends until the EBITDA could -- grows out of it. We're also funding some working capital needed for the growth of our membership programs because they do come with a working capital investment. So as we look -- we have the Board meetings coming up and we make all of our key decisions with respect to capital allocations at those meetings. In terms of your math, I mean that -- your math is correct. Certainly correct.

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James W. P. Reid-Anderson, Six Flags Entertainment Corporation - Chairman, President & CEO [78]

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Yes. But we're in a position where we're funding all cash needs organically. We're funding investment in the business at the 9% level on top of everything else that we invest in. And I think we're in a very good place from a balance sheet perspective sitting on a fair amount of cash, a multiple of 3.7 debt-to-EBITDA and feeling very good about the ability to continue to both support the dividend and to be able to invest in buying back shares over a period of time.

I think that may be the end of our questions. And our operator may have gone off for a minute. So let me make my closing remarks. The regional theme park sector remains very compelling to investors sitting in the sweet spot of a broader consumer trend that favors unique experiences. The industry has high barriers to entry and demonstrated resiliency in a downturn.

Six Flags is the best company operating in this industry. We have the strongest brand and the biggest portfolio of attractions with parks serving the top 10 DMAs. We also have the best employees in the industry and many of them are shareholders. We have an excellent track record of consistent earnings growth, operating with the highest margins in the industry and high degree of recurring revenue secured by contracts, which is building with our membership program. Our opportunities are greater than ever before and we remain laser-focused on our 5 key growth areas.

Thank you very much for joining us today, and I hope you have the opportunity to visit one of our parks in the near future. Take care. Christie, that concludes our call.

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Operator [79]

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And thank you all, again, for joining us today. This concludes today's conference. You may now disconnect.