Six Flags announces fourth quarter and full year 2019 earnings

By | February 20, 2020

GRAND PRAIRIE, Texas — Six Flags Entertainment Corporation (NYSE: SIX), the world’s largest regional theme park company and the largest operator of waterparks in North America, announced today that 2019 revenue increased $24 million, or 2 percent, from 2018 to approximately $1.5 billion. The full-year revenue growth was primarily driven by a 2 percent increase in attendance, offset by a slight decline in guest spending per capita, and a 3 percent decline in sponsorship, international agreements, and accommodations revenue. Attendance at the company’s parks in 2019 grew by 788,000 to 32.8 million guests, primarily driven by the five domestic parks that the company began operating in June 2018, and the company’s new waterpark in Rockford, IL, that the company began operating in April 2019.

Guest spending per capita in 2019 was $42.37, a decrease of $0.21 compared to 2018, primarily due to lower guest spending per capita in the six parks the company began operating since 2018. These parks generated a large portion of the overall attendance and revenue growth in the year. Admissions per capita decreased $0.44 to $24.86, and in-park spending per capita increased $0.23 to $17.51.

Net income1 for the year ended December 31, 2019, was $179 million, a decrease of $97 million, or 35 percent, compared to the prior year. Diluted earnings per common share for 2019 was $2.11, a decrease of $1.12, or 35 percent, compared to 2018. The decrease in net income was primarily due to (i) higher stock-based compensation related to the reversal of expense in the prior year due to an unachieved performance award, (ii) a full year of operating expenses related to the five parks acquired in June 2018, (iii) charges of approximately $10 million related to the company’s China development agreements and certain unrelated litigation matters, and (iv) the recording of a valuation allowance related to foreign tax credits due to the termination of the company’s China development agreements. Adjusted EBITDA2 for 2019 was $527 million, a decline of $27 million, or 5 percent, compared to the prior year. Modified EBITDA3 for the year 2019 was $568 million, and the Modified EBITDA margin4 was 38.2 percent, a decrease of 238 basis points compared to 2018.

During 2019, the company’s partner in China defaulted on its payment obligations to the company. As a result, in February 2020 the company terminated the development agreements. It is unlikely that the company will recognize any revenue or income in 2020 related to the development of parks in China.

In addition, the company has faced challenges in its base business, which excludes international development and the six U.S. parks the company began operating since 2018. In 2019, attendance, guest spending per capita, and revenue from the base business were flat, while Cash Operating Costs5 increased 2 percent, causing the Modified EBITDA of the base business to decline by $14 million, or 3 percent. The Modified EBITDA margin of the base business declined by 107 basis points, as compared to the prior year.

“My first ninety days have only reinforced my belief that Six Flags is a beloved brand with loyal guests and dedicated employees. Our company has difficult to replicate assets that provide a unique experience in themed entertainment, and exciting potential for profitable growth,” said Mike Spanos, President and CEO. “I also believe that the company has the ability to improve its performance. We are working diligently to formulate a new strategic plan with the goal of restoring sustainable growth in attendance, revenue and profitability, and also to add directors with critical skills and experiences to our board. We will continue our consumer-centric approach, while focusing our organization on action, creativity, and relentless execution for the benefit of our guests, our employees, and our shareholders. I believe that Six Flags’ future is bright, and I am excited to take on this new chapter with our great team.”

Fourth quarter 2019 revenue of $261 million declined $9 million, or 3 percent, compared to the fourth quarter of 2018, primarily due to a 3 percent decrease in attendance and a 1 percent decrease in sponsorship, international agreements, and accommodations revenue. The six parks the company began operating since 2018 had a negligible impact on revenue comparisons to the prior year quarter. Guest spending per capita, for the fourth quarter decreased slightly, with admissions per capita decreasing $0.48, or 2 percent, and in-park spending per capita increasing $0.45, or 3 percent, relative to the same period in 2018.

Net loss for the fourth quarter of 2019 was $11 million compared to net income for the fourth quarter of 2018 of $79 million, a decrease of $91 million. The decrease in net income was due to (i) higher stock-based compensation expense related to the prior year reversal of expense related to an unachieved performance award, (ii) the revenue decrease related to soft attendance, (iii) charges of approximately $10 million related to the company’s China agreements and certain unrelated litigation matters, and (iv) the recording of a valuation allowance related to foreign tax credits due to the termination of the China development agreements. Adjusted EBITDA of $72 million represented a decrease of $24 million, or 25 percent, compared to the fourth quarter of 2018, primarily due to the revenue decrease and charges discussed above.

Deferred revenue of $144 million at year-end 2019 decreased by $2 million, or 1 percent, compared to December 31, 2018, primarily due to a reduction in season pass unit sales. The Active Pass Base, which represents the total number of guests who are enrolled in the company’s membership program or have a season pass, decreased 3 percent year-over-year to 7.7 million guests as a result of softer than expected sales over the fourth-quarter holiday periods. The number of guests who are enrolled in the company’s membership program increased 18 percent to 2.6 million, and the proportion of attendance that came from the Active Pass Base remained at 63 percent of total attendance.

In 2019, the company generated $246 million of Adjusted Free Cash Flow6. The company invested $140 million in new capital projects, net of insurance proceeds, and paid $279 million in dividends, or $3.29 per share of common stock for the year. The authorized amount available for additional share repurchases as of December 31, 2019, was $232 million and there was $329 million available under the company’s revolving credit facility. Net Debt as of December 31, 2019, calculated as total reported debt of $2,275 million less cash and cash equivalents of $174 million, was $2,101 million, representing a net leverage ratio of 4.0 times Adjusted EBITDA.

2020 Financial Guidance
For the full year 2020, the company expects Adjusted EBITDA will be in the range of $435 million to $465 million 7. The guidance assumes the following: (i) significantly lower revenue contribution from the company’s international development agreements, (ii) organic revenue growth trends consistent with 2019, and (iii) operating cost headwinds, including higher wages and increased investment in the parks to improve the guest experience.

The company is facing challenges related to its base business. Soft organic revenue trends, and increasing operating cost headwinds, primarily related to higher minimum and market wages, will be difficult to overcome in 2020. Therefore, the board of directors and management team have concluded that the company needs to make incremental investments in the base business to enhance the guest experience.

The management team is working diligently to develop a new strategic plan to determine how best to improve the company’s trajectory and deliver sustained earnings growth over both the short- and long-term.

The company will host an investor day on May 28, 2020, to share the new strategic plan.

Dividend Announcement
In consideration of the factors discussed above, and the related substantial impact on earnings and cash flow, the company’s board of directors has decided to declare a reduced first quarter cash dividend of $0.25 per share of common stock, payable on March 11, 2020 to shareholders of record as of March 4, 2020.

“Our board’s decision to reduce the dividend was not taken lightly,” said Richard Roedel, Chairman of the Board. “We believe this decision is in the best long-term interests of the company and our shareholders. Our new quarterly payout ensures sufficient free cash flow to cover the dividend, preserves financial flexibility to maintain a healthy balance sheet, and provides the ability to invest in our business.”

Chief Financial Officer Retirement

The company announced today that Marshall Barber, executive vice president and chief financial officer, plans to retire from the company, effective August 31, 2020. He will serve as chief financial officer through February 24, 2020, and will remain with the company until his retirement date, leading strategic projects and assisting with the transition of the new chief financial officer. Leonard Russ, Senior Vice President of Strategic Planning and Analysis, will assume the role of interim chief financial officer effective upon Mr. Barber stepping down from that position. Mr. Russ will participate on the conference call scheduled later today.

“We are deeply appreciative to Marshall for his dedicated leadership and service to Six Flags, and the valuable contributions he has made during his more than two-decade career,” said Mike Spanos, President and CEO. “He has been instrumental in building a strong finance team, and has played a major role in the company’s transformation since 2010. We wish him the very best in his retirement.”

“I am honored to have served Six Flags alongside the talented Six Flags’ team, especially through such an important time in our evolution,” said Barber. “I am committed to ensuring a smooth transition, and I have all of the confidence in the finance team to continue their excellent work.”

The process to identify the company’s next chief financial officer will begin immediately.

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