Wednesday, October 28, 2020

Heard On... Six Flags Entertainment's Q3 2020 Earnings Call

© Six Flags Entertainment

Today was Six Flags Entertainment's earnings call for the 3rd quarter of 2020.  The company sent out a full press release detailing their results, available here.  No one expected the numbers to be great during these pandemic times, but there are still some very interesting takeaways from both the release and the call that they had today.  Here are some notes.

• In the third quarter attendance was 2.6 million guests, down 11.4 million from the same quarter of 2019.  Total revenue was $116 million, down $495 million from last year.  This resulted in a net loss of $116 million, with an EBITDA loss of $54 million.  The company spent $82 million in cash during the quarter, or around $27 million per month.


© Six Flags

• Nine of the company's parks remained closed during the 3rd quarter, out of 26 total.  Attendance at the operating parks started at around 20-25% of prior year totals, increasing to 35% in the 3rd quarter.  They also had a $22 million decline in park licensing agreements, mostly from the cancelled parks in China.  There was also a $9 million write off of park ride assets, more on that in a bit.

• The company's active pass base at the end of the quarter was down 49%, to a total of 1.9 million compared to 2.6 million at the end of the 3rd quarter 2019.  There is another 1.9 million regular season pass holders as well.

• At quarter end Six Flags Entertainment had $673 in liquidity (cash they have or can borrow).  They continue to reduce operating expenses, including deferring or eliminating capital discretionary capital projects for 2020 and 2021.  They still feel that even if all parks close they could sustain the company through the end of 2021.

© Six Flags

• Company leaders have a Transformation Plan underway to change some aspect of the company, utilizing technology to find cost savings and increase revenue.  They've spent just under $30 million year to date on the plan, including consultant fees, costs associated with layoffs and ride retirement write offs.  They expect the Transformation Plan to create $80 to $110 in new EBITDA per year when complete.

• The Plan will modernize park operations and improve the guest experience.  The effort is so large that a new office will house employees dedicated to it starting in Q2 2021.  


• For costs, they will optimize the corporate structure, reduce non-labor expenses, and optimize labor costs at the parks.  This includes reducing layers in the corporate structure (see recent layoffs) and creating a shared services area that will do certain jobs for the parks centrally - like finance, human resources and information technology.  They are also eliminating two satellite offices the company had and changing travel and expense policies to reduce costs.  They will also centralize purchasing, so each property isn't buying the same items at different costs; for example they said buying the same lettuce for all parks will save $40k a year.

• More on costs.  They are also looking at ride maintenance budgets and by optimizing ride offerings they can save enough to build one new ride per year (not at each park, just one new ride).  However, this means that they've found 15 rides that are currently being removed from the parks.  To do this they looked at operating costs versus rider throughput... so expensive to operate, low capacity rides are on the way out.  They has let them see what rides are great for each park, what ones need to be refurbished and which ones will be eliminated.  No word on what the 15 rides are... but you can be sure we all want to know.  They also used the term "redeploy" with regard to some rides, saying they can be "redeployed to other parks in lieu of actually spending new marketable capital."  So it sounds like the old Six Flags ride relocation program may be coming back.

© Six Flags

• As for increasing revenues from the Transformation Plan.  This will be done through improved guest experience, improved websites, pricing and promotions, media spending and culinary offerings.  The guest improvements include reservations, prepaid parking, mobile ordering, contactless transactions etc.  They tested a new website in August and saw double digit increases in online sales, and have since rolled out the new website for all parks.  They're using targeted advertising and increasing spending on ads by one additional percent of revenue.  Finally, they are aware that food scores on satisfaction are low, so they are working to offer a better product that will make guests happy and increase revenue.

• Attendance in October has been hitting 50% and higher of prior year attendance, in some places even beating prior year attendance.  During the quarter attendance at the drive through safari in New Jersey was 371,000.

• In order to breakeven and have 0 EBITDA instead of a loss, they estimate they need 45% to 55% of 2019's attendance.  In order to have a breakeven of cash flow, they think they would need 65% to 75% of 2019 attendance.  For cash, those percentages would cover interest payments and partnership park distributions. 


• When asked about capital expenditures for 2021 leaders stated they're still doing analysis and due to ever changing market conditions related to the pandemic, it's too early to forecast what they'll spend.  So no real update on if the 2020 rides will open in 2021, or if their will be additional ones too.  They said they will updated again on the next call, which would be in January.