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Text: In addition, on the call, we will discuss non-GAAP financial measures.
Investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the company's Annual Reports, quarterly reports and other forms filed or furnished with the SEC.
A few weeks ago, my wife and I spent a day at Six Flags Over Texas.
I wanted to get some firsthand feedback by chatting with employees and guests.
What really struck me on that visit though, was what I saw all around me.
It was something simple, but meaningful.
I saw people getting out in the fresh air, riding roller coasters, eating funnel cakes, and our other great food items, and having fun, while spending quality time together.
COVID has been a worldwide crisis.
But to many of us, it has also revealed what really matters.
And while COVID has obviously had a severe impact on our business, it has demonstrated just how important the work of Six Flags really is, having fun together is vital to our happiness and well-being.
You've helped families and friends connect.
You have lifted morale.
You have given someone a brighter day during a difficult time.
I've never been more proud of what we do or how we do it.
As usual, we will provide our quarterly results.
But in addition, we will also describe the outlines of our transformation plan, which is already well under way.
First, I will focus on the transformation plan.
Then Sandeep will discuss our quarterly financial results, including our cash outflow and liquidity.
He will also provide details on the financial implications of our transformation plan.
Finally, I will conclude with a few comments and why I'm so confident that Six Flags' future is bright.
Even though Six Flags offers a truly unique combination of thrills and fun for guests of all ages, our base attendance growth have slowed for several years prior to the pandemic, because we did not evolve at the same pace as our guest expectations.
Specifically, our guests expect a seamless and personalized experience that blends the heritage of our theme parks with the conveniences of modern technology.
People still want roller coasters and indulgent foods like our great funnel cakes, cakes.
They just want it to be an easier and faster experience.
In order to provide our guests with the value for their time and money that they have come to expect, we launched a transformation plan earlier this year to modernize our operations, and to improve the guest experience.
While the transformation work is ongoing, we have already developed a strategic framework, and are focusing on specific high value areas, that we believe will lead to significant revenue and earnings growth.
We engaged outside consultants to assist with facilitation and provide agility, capacity, and a fresh outside introspective.
However, it is our Six Flags team that is leading and completing the work.
We are also creating an internal office to take on this work, beginning in the second quarter of 2021.
Functionally, we have broken our transformation plan into two distinct components; cost efficiencies and revenue enhancements.
On the cost side, we need to make sure that we are operating efficiently at both the corporate and park level, and then we are eliminating any unnecessary costs within our operations.
On the revenue side, we need to ensure that we improve the guest experience from the moment our guests log-on to our website, to the moment they exit our park, in order to maximize our attendance and per capita spending.
Starting with the cost side, our three productivity initiatives are to, first, optimize our corporate overhead structure.
Second, reduced non-headcount operating costs; and third, optimize our park level labor expense.
On the corporate overhead piece, we have updated our organizational design to reduce the layers in our organization, so that we are leaner and more agile.
Lowering our total costs and improving our speed of decisionmaking.
I've installed a new senior leadership team, that is about 30% more affordable than 2019, but includes a dedicated guest experience team and a transformation team to focus on the guest experience, and ensure we operate more efficiently and effectively.
We will also be consolidating certain positions out of the parks into a new park support shared services center.
These positions are primarily back office functions such as finance, human resources and IT.
Moving some workflows in the functional shared service centers, allows us to become more efficient.
As previously announced, we reduced our full time headcount by 240 employees or about 10% of the workforce.
These have been very difficult decisions, as they affect many dedicated and talented team members, but we do believe this will improve our efficiency as an organization.
Despite these changes, one key element of our corporate overhead structure will remain the same, local leaders will continue to lead local markets.
Park leaders know their parks, communities, employees and markets best.
We want to enable them to provide the best guest experience for the unique demands of each local market.
Our second productivity initiative is to reduce non-headcount operating costs.
This essentially means that we are reviewing each operating cost with a fine toothcomb to eliminate excess.
For example, we are eliminating two of our satellite offices and modifying our T&E policies to lower our corporate expenditures.
A large portion of our non-headcount operating cost reductions will involve leveraging the scale of Six Flags as a whole, to centralize procurement, consolidate vendors and renegotiate contracts.
As we go through this process, we are leaving no stone unturned, examining light items, as small as our lettuce expense, which serves as an interesting example.
If we standardize that one order and by just one kind of lettuce, we will save $40,000 per year.
We have hundreds of goods, where this concept would apply, from napkins to paint, to chlorine, to uniforms.
In addition, optimizing our rides will save us enough capex to fund a new ride every single year.
Our park Presidents, engineers and maintenance teams have studied the performance of each and every ride, calculating the cost against the ride's throughput productivity.
We now know which rides to redeploy across parks, which rides need to be refurbished, and which can be removed entirely.
We are eliminating 15 underperforming rides this year, reducing maintenance costs, and freeing up significant capex resources.
Our third and final productivity initiative, is to optimize park level labor.
We have developed a system that enables us to model more narrow attendance bands by park, by time of day, and by guest location, in order to better forecast our labor needs, better data analysis will allow us to align labor with guest demand by season, by day, and by hour.
Better staffing will also increase guest transaction opportunities and decrease wait times.
So we expect a revenue benefit from this initiative as well.
Moving to the revenue side, our five revenue initiatives are to optimize the following areas; first overall guest experience in our parks.
Second, website and search engine optimization.
Third, pricing and promotions.
And fifth, our culinary and retail offerings.
Let's start with the most important initiative, modernizing the overall guest experience.
We have already begun to implement systems like advanced reservation systems, prepaid parking, mobile ordering, contactless security and cash to debit card kiosks, to provide a contactless experience on purchase transactions.
All these improvements allow guests to spend more time having fun, and less time waiting.
We also started testing virtual queuing, in order to learn how we can enable our guests to better plan, when they can ride their favorite roller coasters and reduce waiting in line.
Our second revenue initiative, redesigning the website and improving search engine optimization, can be a significant revenue driver, and we have already witnessed it's powerful impact through higher conversion rates.
We launched our new website at one of our parks in August, and realized improved conversion of website traffic to sales by a double digit percentage.
More than half of our revenue was derived from our website, so this is a very encouraging sign.
We launched the new website across all of our parks in mid-October.
We've also seen how our third initiative, optimizing pricing and promotions can drive attendance and revenue growth.
Before the pandemic, we began to change our pricing and outreach to target more single-day guests.
In the first quarter, prior to shutting the seven parks that were open during that timeframe.
We sold 38% more paid single-day tickets compared to the previous year, with total attendance up 19%.
The fourth revenue initiative is to optimize media spending.
Our marketing team and media partners began using a new customized artificial intelligence tool, to analyze the return on our media spending by park and by media channel.
We've tested this new tool and found that a highly targeted media spend has a clear and demonstrable impact on our attendance growth.
So in addition to improving the efficacy of our media spend by using our new analytical tool, we intend to increase our marketing spend to 4% to 5% of revenue versus the historical 3% to 4%, based on observed returns of increased investments to drive incremental EBITDA dollars.
Our fifth revenue initiative, is to optimize our culinary and retail offerings.
Food and beverage consistently rates as our lowest score in terms of guest satisfaction.
We know that our guests expect more from us, and we intend to focus on providing a greater breadth of higher quality options, including healthy, indulgent and premium food and beverage choices.
We have tested several enhanced food and beverage concepts, and are pleased with the initial uptick in our sales.
This is a very big opportunity for us, since more than a third of our revenue comes from in-park spending and the majority of that is food and beverage.
While we will take time to fully implement all of our initiatives, we are already starting to see the impact on our results and look forward to updating you on our continued progress in the months ahead.
My first 90 days on the job have only reinforced my belief, that this is a great business.
Six Flags has an exceptional brand and the largest portfolio of thrill rides, that have been providing lasting memories to our guests for generations.
I'm thrilled to help drive the transformation efforts that are already under way.
Results for the third quarter were not comparable to prior year, because we suspended the operations at nine of our 26 parks for almost the entire quarter, and had attendance limitations at our other parks, that were open.
The parks that were open, represented slightly more than 50% of our 2019 attendance, and invested approximately 35% of prior levels in the quarter.
We have been pleased with the sequential improvement in our attendance trends, since we began reopening our parks.
Upon our initial reopening in the second quarter, attendance at our open parks averaged 20% to 25% of prior levels.
That grew through the third quarter from 27% in July to 43% in September.
In October, so far, we are indexing more than 30% [Phonetic] of prior year, with the number of parks beating prior attendance on several operating days.
Our guests, government officials, and health authorities, have given us high marks for our safety standards and procedures, and we expect that we will continue to see improvement in our attendance trends.
Currently, we are operating a modified Halloween event called HALLOWFEST at seven of our theme parks, and we plan to keep these parks open for Holiday in the Park in November and December.
In addition, we reopened our water park in Mexico on September 12th; our theme park in Mexico City on October 23; and we plan to open a holiday walkthrough experience at our Great America Park, outside of Chicago in late November through December.
We are pleased to reopen our parks in Mexico, as they are able to operate year round, given the favorable climate conditions.
Total attendance for the quarter was 2.6 million guests.
371,000 of which came from our Drive-Through Safari at our park in New Jersey.
As a result of the 81% decline in attendance, revenue in the quarter was down $495 million or 80% to $126 million.
Sponsorship, international and accommodations revenue declined by $22 million, due to the following three things.
Number one; the termination of the company's international contracts in China, resulting in no revenue from those contracts in 2020.
Number two, the deferral of most sponsorship revenue, while many of our parks were not operating.
And number three, the suspension of a majority of our accommodations operations.
Guest spending per capita in the quarter increased 10%, driven by an 11% increase in admissions per capita, and a 9% increase in in-park spending per capita.
The increase in admissions per capita spend, was primarily driven by recurring monthly membership revenue from members who retained their memberships, after their initial 12-month commitment period ended.
Excluding the impact of membership revenue, admissions per capita spending was approximately flat.
The increase in in-park spending per capita, was primarily driven by higher mix of single day guest, who tend to spend more on a per-visit basis.
In addition, recurring monthly all season membership products such as all-season dining pass, contributed to the increase.
On the cost side, cash operating and SG&A expenses decreased by $94 million or 39%, primarily due to the following; first, cost-saving measures, primarily related to salaries and wages, especially at the parks, that were not operating.
Second, lower advertising costs.
And third, savings and utilities and other costs related to many of our parks not operating.
While we have taken measures to reduce our variable costs, we have decided to retain the balance of our full-time members and maintain their benefits, in order to position ourselves to reopen safely and quickly, as soon as we receive authorization from government authorities.
Employees at closed parks are on a 25% salary reduction, as are our senior leadership team and other corporate executives.
We will continue to evaluate all options in the future, given the fluidity of the situation.
Adjusted EBITDA for the quarter was a loss of $54 million, compared to income of $307 million in the prior year period.
Deferred revenue of $199 million was up $1 million or less than 1% to prior year, driven by suspension of operations at our parks and extension of the 2020 season passes to the 2021 operating season.
This was mostly offset by fewer membership and season pass sales.
We are making significant efforts to ensure the continued loyalty of our active pass base.
We recently extended the use privileges for all 2020 season passes through the end of 2021.
For our members, we added an additional month to the membership for every month they paid, when their home park was closed.
All members have the option to pause their membership payments at any time until the spring of next year, but we have offered a menu of benefits, including upgrades to higher membership tiers, if they elect to continue on their normal payment schedule.
We also are rolling out a gift card program that members can choose to use in our parks, in lieu of adding the initial months to their membership.
We are very pleased with the loyalty and retention of our very large active pass base of 3.7 million, which included 1.9 million members and 1.9 million season pass holders at the end of the third quarter.
In fact, our active pass base is close to flat versus the end of the second quarter of this year, when we had 2.1 million members and 1.7 million season pass holders.
Although the active pass base at the end of the third quarter is down 49% compared to the same time last year, this is primarily due to substantially lower sales of new season passes and memberships, due to the short-term impact on demand from the pandemic.
To-date, 14% of current members have chosen to pause their membership and we anticipate that most of these paused members will return to active paying members, once we reopen our remaining parks.
In the first nine months of 2020, we spent $90 million on capital expenditures, net of property insurance recoveries, but expect to spend minimal capital in the fourth quarter.
Our liquidity position as a September 30th, was $673 million.
This included $459 million of available revolver capacity, net of $22 million of letters of credit, and $214 million of cash.
This compares to a pro forma liquidity position of $756 million as of June 30, 2020, a reduction of $83 million, representing approximately $27 million per month of net cash outflows, in line with our prior estimates.
We estimate that our net cash outflows will continue to average $25 million to $30 million per month through the end of 2020, including partnership park distributions that represents an average run rate of $7 million per month for the last three months of the year.
The operating environment is quite fluid, and changes almost daily.
So it is difficult to project more than three months into the future.
However, the first quarter has historically consumed more cash than the rest of the year, when we have been in a normal operating environment.
We expect this to be the case next year as well, but will have better visibility into the operating environment, by the time we report our fourth quarter results next year.
Now, let me take a minute to talk about breakeven levels for the company, on an annual basis.
There are three levels of breakeven that we calculate.
First, park breakeven levels.
All parks that are operating are generating positive cash flow on a variable basis.
We wouldn't operate them otherwise.
Second, breakeven EBITDA levels for the company.
This level is definitely mix driven, but we estimate breakeven EBITDA levels in an attendance range of 45% to 55% of 2019.
Third, free cash flow breakeven levels for the company.
This level is also mix driven, but would cover our cash interest and partnership park distributions.
We estimate breakeven free cash flows at an attendance range of 65% to 75% of 2019.
We believe we have adequate liquidity through the end of 2021, even if we need to close our parks.
In August, we further amended our credit facility to extend the covenant waiver period by one year, from the fourth quarter of 2020, to the fourth quarter of 2021, and the covenant modification period by one year, to the end of 2022.
Between our current liquidity and our recent covenant modifications, we have given ourselves significant runway to navigate through this challenging period.
I would now like to turn to the financial impact of our transformation plan.
Executing the transformation will require one-time cost of approximately $69 million through 2021.
$60 million of which is expected to be cash and $9 million of non-cash write-offs.
So far, $29 million has been incurred through the end of the third quarter of 2020, $6 million of which was incurred in the second quarter and $23 million of which was incurred in the third quarter.
We anticipate that we will incur approximately $5 million in charges in the fourth quarter of 2020, including the $3 million in employee termination costs related to our full time headcount reduction, previously discussed.
The remainder of the $69 million in costs are expected to be incurred by the end of 2021, approximately two-thirds of which will be technology investments.
Financially, we expect the transformation to unlock $80 million to $110 million in incremental annual run rate EBITDA, once fully executed.
Taking the midpoint of our pre-pandemic 2020 adjusted EBITDA guidance of $450 million, this implies a new earnings baseline of at least $530 million to $560 million, once the transformation plan is completed, and we are operating in a normal business environment.
Of the $80 million to $110 million in transformation value, roughly half the value is expected to be realized through a reduction of fixed costs, that is independent of attendance levels and is fully in our control.
The other half is expected to be realized from incremental revenue initiatives and lower variable costs from better labor optimization.
These estimates are based on historical data, tested at operating parks before and during COVID-19 and through the validation of our teams.
From our revenue initiatives, we expect to deliver $30 million to $40 million of EBITDA.
For our three cost productivity initiatives, we expect to deliver $50 million to $70 million in EBITDA.
Of this, $40 million to $55 million will be realized through a reduction of fixed costs that is independent of attendance levels.
We expect to deliver $30 million to $35 million in EBITDA in 2021, from the reduction of the fixed costs.
We expect to deliver the full $40 million to $55 million in EBITDA by 2022, independent of attendance levels, with incremental benefits to be realized from revenue, and variable labor initiatives, depending on overall attendance in both 2021 and 2022.
Our capital allocation strategy will be focused on growing the base business and paying down debt to return our net leverage ratio, to between three and four times adjusted EBITDA over time.
We have suspended our dividend and share repurchases for the foreseeable future, to allow us to focus on these two objectives.
In summary, despite the challenges our entire industry is facing, we have adapted our operations in response to the crisis, and have not let these difficulties slow down our efforts to transform our business.
We are very excited about the value creation opportunity for the company, that comes from implementing our transformation plan.
Now, I will pass the call back over to Mike.
Despite a challenging operating environment, I am very optimistic about Six Flags' future, for the following reasons.
First, we have an incredible portfolio of regional theme parks, serving all of the top 10 DMAs in the U.S., as well as major metropolitan areas in Mexico and Canada.
Our parks provide a unique live experience for families and teens, that cannot be replicated by other forms of entertainment.
They are outdoors and spread over hundreds of acres, making them naturally conducive to social distancing, and our guests continue to visit our parks and engage with our brand, despite the sub-optimal operating environment.
Second, our recent surveys of several thousand consumers reveal that 93% of them would visit a theme park, if they were guaranteed a COVID free environment by rapid testing.
In addition, 87% of consumers say they would visit a theme park after vaccine becomes available.
So while the current environment is tough, we are confident that our guests will return, once the pandemic subsides.
Third, our transformational agenda will provide what our customers want and it is readily achievable from a business perspective.
I have overseen three distinct transformational agendas over my career, and I am confident that we can execute on our goals.
Finally, we have an exceptional team of dedicated people working at our company.
They love Six Flags and are excited to up our game and deliver an outstanding guest experience.
We're also fortunate to be aided by two new exceptional board members.
Esi Eggleston Bracey and Enrique Ramirez Mena, are highly accomplished business leaders who bring complementary, diverse skills and experiences to our organization.
Skills that are specially critical, as we focus on getting closer to our customers and on operating more effectively and efficiently.
In the coming months, we will remain focused on modernizing the guest experience, making it easier for our guests to enjoy Six Flags, as the thrill rides destination of the world.
We want to provide our guests a memorable experience, and an excellent value for both their time and their money.
We remain intently focused on executing our transformational plan, to achieve our earnings baseline of at least $530 million to $560 million, once we are operating in a normal business environment.
I look forward to updating you on our continued progress in the months ahead.
Operator, at this point, could you please open the call for any questions?

user
q3 revenue $126 million versus refinitiv ibes estimate of $142.7 million.
six flags entertainment - believes it has sufficient liquidity to meet its cash obligations through end of 2021 even if open parks are forced to close.

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