Cedar Fair Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 9 speakers on the call.

Operator

You for standing by. My name is Sydney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cedar Fair Entertainment Company 2023 First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Followed by the number one on your telephone keypad. Thank you. Cedar Fair, you may begin your conference.

Speaker 1

Thank you, Sydney, and good morning to everyone. My name is Michael Russell, Corporate Director of Investor Relations for Cedar Fair. Welcome to today's earnings call to review our 2023 Q1 results for the period ended March 26. Earlier this morning, we distributed via wire service our earnings press release, a copy of which is available under the News tab of our Investors website at ir.cedarfair.com. On the call with me this morning are Richard Zimmerman, Cedar Fair President and CEO and Brian Withereau, our Executive Vice President and CFO.

Speaker 1

Before we begin, I need to remind you that comments made during this call will include forward looking statements within the meaning of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ from those described in such statements. For a more detailed discussion of these risks, you may refer to the company's filings with the SEC. In compliance with the SEC's Regulation FD, This webcast is being made available to the media and general public as well as analysts and investors. Because the webcast is open to all constituents and prior With that, I'd like to introduce our CEO, Richard Zimmerman.

Speaker 1

Richard? Thanks, Michael.

Speaker 2

Good morning and thanks to everyone for joining us today. Despite the adverse impact that the very unusual weather conditions have had on our results, we remain confident in what we will believe will be another strong year at Cedar Fair. I want to highlight a few specific factors regarding our business that reinforce my confidence in our ability to deliver for another robust performance, particularly as we approach full 7 day a week operations at all of our parks. First, our full year results are almost entirely driven by our performance in the second half of the year when we generate 2 thirds of full year attendance and net revenues and more than 80% of our adjusted EBITDA. Our first quarter typically accounts for 5% of our full year attendance and net revenues.

Speaker 2

2nd, consumers have showed no sign of slowing down their spending for high quality experiential entertainment as demonstrated through increasing levels of per capita spending last year and continuing in the early part of our 2023 season. 3rd, early season bookings within our group sales channel are increasing, especially among school and youth groups as our advanced bookings at our resort properties, both of which should create a solid tailwind for attendance through the remainder of the year. 4th, we are confident the new rides and attractions scheduled to debut this season will generate higher demand and more frequent visits among pass holders and single day visitors alike. And finally, although unit sales of season passes are down due to the impact of weather during the Q1 as well as last fall. The average season pass price is up 7% as we head into the busiest sales cycle of the season.

Speaker 2

Having watched our team successfully navigate the recovery from the pandemic to deliver record results in 2022, I have the highest confidence in our team's ability to effectively manage through early season challenges to build on the momentum we achieved last year. So let me address our Q1 from a macro level, then Brian can review our financial results in more detail. While our Q1 results did not meet expectations, the shortfalls are directly attributable to the worst period of weather we've experienced in several decades at our California parks. Cold, wet and even snowy days at Knott's Berry Farm, our park with the most meaningful first quarter operations, prevented the park from opening at all on 7 days And adverse weather conditions significantly disrupted operations on 30% of total planned operating days during the period, meaningfully impacting our top line. The impact was magnified by all season cost at several of our other parks as crews of maintenance personnel and seasonal associates will preparing for spring park openings.

Speaker 2

Given the slow start to the year, We have implemented additional initiatives to identify cost efficiencies throughout our system, while maintaining our ability to generate top line revenue growth and deliver the high quality guest experience for which our parks are known. This includes leveraging the expertise and purchasing power of our centralized procurement group to tightly manage non labor related operating costs and minimize the impact of inflation. Additionally, Through learnings and new tools, our park operators continue to improve our alignment between daily staffing levels and demand. Our advancements in workforce management truly came to fruition in last year's second half when we reduced seasonal labor hours operating day by 7% compared to 2019 and in an environment of high inflation reduced our average labor rate by 2% compared to the second half of twenty twenty one. We are looking forward to building upon that success this year.

Speaker 2

The actions we've taken over the last several years have also created a more resilient business model, which enables Cedar Fair to perform well regardless of the economic landscape. The strong business fundamentals and compelling collection of new attractions provide us with confidence in our ability to deliver stronger full year results even if a recession were to occur this year as some expect. Since the great recession some 15 years ago, We have significantly grown our recurring revenue streams with many of our most loyal guests purchasing tickets well in advance of their visits, using payment plans to package season passes with other all season products and taking advantage of our resorts and premium experiences to customize and enhance their park visits. For more than a decade, our team has refined its marketing outreach in two way dialogue with our guests through our CRM system that gets more robust and sophisticated with each season. Our enhanced capabilities to gather and analyze guest data, much of it in real time, has improved our effectiveness in key operational areas ranging from yield management and labor utilization to food services and guest safety.

Speaker 2

These steady advancements have helped maximize operating leverage, especially when demand is at its historical peak in the months of July, August October. In short, We remain very excited about Cedar Fair's prospect for continued growth and value creation in 2023. Let me stop here and ask Brian to review the details of our results. Brian?

Speaker 3

Thanks, Richard, and good morning. I'll start by discussing our Q1 results before wrapping up my remarks with updates on our balance sheet and the current state of our long lead indicators. As Richard mentioned, due to the highly seasonal nature of our business, 1st quarter operations represent only 5% of full year attendance and net revenues. And as such, results in the period are not indicative of performance for the remainder of the year. With more than 80% of our adjusted EBITDA generated during the 3rd 4th quarters, Full year performance is much more dependent on attendance during the peak summer months and during our high demand events in the Q4, such as Fawns and WinterFest.

Speaker 3

For comparison purposes, operating days in the Q1 totaled 161 versus 130 days in the Q1 of 2022. The increase in operating days reflects the strategic initiative to expand the Q1 operating calendars at 3 of our seasonal parks, Heroines, Kings Dominion and California's Great America. These incremental operating days were offset in part by the effects of the highly unusual weather at our California parks, which led to park closures on multiple days during the period. During the Q1, we entertained $1,100,000 gas and generated net revenues of $85,000,000 compared with attendance of $1,500,000 gas and net revenues of $99,000,000 in the Q1 of 2022. The decreases in attendance and net revenues attributable to the weather challenges during the quarter, particularly at our California Parks, Knott's Berry Farm in California's Great America.

Speaker 3

Unseasonably cool temperatures and record precipitation impacted demand at our 2 California parks on 30% of planned operating days in the quarter, including 7 days when NOS was unable to open. The weather impacted days resulted in the direct loss of at least 225,000 visits, offsetting the incremental attendance produced by this year's expanded park operating calendars. The year over year attendance comparison was also negatively impacted by approximately 140,000 season pass visits at Knott's Berry Farm in last year's Q1, which were attributable to the extension of 2020 2021 season pass privileges into the 2022 season. While demand has been negatively impacted by weather, as Richard noted, early season trends in guest spending remains strong, reflecting the effectiveness of our pricing strategies and the stickiness of guest spending from year to year. For the Q1, in park per capita spending totaled $64.47 up 10% compared with Q1 last year.

Speaker 3

We are extremely pleased with the sustained momentum in PerCast, particularly coming off the step function growth we've delivered over the past 2 years. The improved per cap was driven by higher guest spending on admissions, Food and Beverage and Merchandise. The increase in admission spending up 9% year over year reflects the impact of our 2023 pricing strategies as well as a slight shift in the attendance mix away from season pass visits. Meanwhile, the higher guest spending on food and beverage and merchandise, both up more than 15% in the quarter was primarily driven by an increase in average transaction counts, reflecting our guests' continued willingness to spend on the high quality products and premium experiences our parks offer. AutoPark revenues for the quarter were also strong, totaling $19,000,000 up 17% when compared with the Q1 last year.

Speaker 3

Driving the increase in auto park revenues was the reopening of our Castaway Bay and Sawmill Creek Resorts at Cedar Point, 2 properties that were undergoing renovations at this time last year. The strong start to the year at these two resort properties was slightly offset by a small decrease in out of park revenues at Knott's due to the inclement weather. Moving on to the cost front, operating costs and expenses in the first quarter totaled $190,000,000 compared with $171,000,000 for the Q1 of 2022. The $19,000,000 increase reflected an increase in operating expenses of $13,000,000 and an increase in SG and A expenses of 6,000,000 Slightly offsetting these increases was a small decrease in cost of goods sold related to the lower attendance in the period. The increase in operating cost was largely attributable to anticipated cost increases, including $4,000,000 of incremental land lease and property tax expenses related to the sale leaseback of the land at California's Great America and $3,000,000 of higher employee benefit costs resulting from increased headcount.

Speaker 3

The increase in Q1 operating costs also reflects a $5,000,000 increase in preseason maintenance costs at several of our seasonal parks, the lion's share of which represents a timing difference. For the full year, we anticipate maintenance costs in 2023 will be in line with the amount incurred in 2022. The increase in 1st quarter SG and A expense reflects a $3,000,000 increase in full time wages and benefits, primarily related to higher headcount and a year over year increase in equity compensation expense and a $2,000,000 increase in advertising costs to support the expanded park operating calendars in the Q1. Incremental variable costs associated with the additional operating days in the quarter were offset by cost savings we were able to realize at Knott's Berry Farm as we tightly manage park operating costs in light of the weather challenges there. Turning to the balance sheet.

Speaker 3

At the end of the Q1, Cedar Fair's balance was in solid financial condition with sufficient liquidity to fund future cash obligations and no near term debt maturities. We had total liquidity of approximately $144,000,000 including $34,000,000 of cash on hand and $110,000,000 of available borrowings under our revolving credit facility. And net debt at the end of the quarter totaled 2,400,000,000 While we have no near term debt maturities, we will continue

Speaker 2

to look for ways to

Speaker 3

improve our capital structure and enhance our financial flexibility. In early April, just after the Q1 closed, we exhausted our $250,000,000 unit repurchase program, buying back a total of 6,000,000 units since the program's inception or approximately 10% of total units outstanding at just inside an average price of $42 per unit. Regarding capital investments, during the Q1, we spent $55,000,000 on CapEx, which was in line with expectations for the 3 month period and consistent with our plans to invest between $180,000,000 $200,000,000 for the full year. This includes more than $135,000,000 of investments in new rides and attractions, upgraded and expanded food and beverage locations and other revenue generating projects for the 2023 seasons. Looking at long lead business indicators for a moment, We are encouraged by the strong start and solid long term booking trends we are seeing within our group sales channel and at our resort properties, both of which are pacing ahead of the same time last year.

Speaker 3

While it's still early in the year, both demand channels are trending well and showing no signs of slowing. As it relates to our other long lead indicator season passes. As Richard mentioned, due to the impact of weather through the end of the first quarter unit sales of season passes were down 7% or approximately 118,000 units when compared to last year's record pace. Sales of season passes are often aligned with a guest first visit and given the shortfall in early season attendance due to weather, sales of season passes have also lagged expectations. The slower start in unit sales was offset by an increase in the average season pass price, up 7% year over year and pacing in line with expectations.

Speaker 3

Also helping to offset the shortfall in past sales were sales of related all season add on products, which were up $5,000,000 collectively at the end of the first quarter on higher average pricing and increased unit sales. Our deferred revenue balance at the end of the Q1 totaled $208,000,000 This compares to $234,000,000 at the end of the Q1 last year, which included approximately $20,000,000 of COVID related product extensions and Knott's Berry Farm in Canada's Wonderland into 2022. Excluding the extension in the prior year quarter, Deferred revenues would have been down approximately $6,000,000 or 3% year over year. Of the $6,000,000 variance, half relates to the later timing of sponsorship revenue billings in the current year, while the balance reflects the shortfall in early season pass sales. With approximately half of our season pass sales occurring after the Q1, including the month of May June, which account for roughly 30% of full program sales.

Speaker 3

We remain laser focused on driving unit sales higher and recouping as much of the early season shortfall as is possible, while still maintaining the integrity of our season pass pricing structure. Finally, I want to remind everybody that in addition to not currently providing annual guidance, We have returned to our normal cadence of providing operating results on a quarterly basis only. As we mentioned on our last call, we will provide updates on our performance through July along with 2nd quarter earnings and an update on our performance through October with our Q3 earnings. However, we are no longer providing interim updates relative to Memorial Day, the 4th July or Labor Day as those updates proved unhelpful last year due to the cyclicality of our business model. With that, I'd like to turn the call back over to Richard.

Speaker 2

Thanks, Brian. Today, we announced 2 strategic authorized by our Board and consistent with our long term capital allocation strategy. First, We declared a quarterly cash distribution of $0.30 per unit to be paid in the 2nd quarter, continuing our focus of paying an attractive and sustainable distribution. 2nd, having recently exhausted our initial $250,000,000 unit repurchase program authorized last August, The Board has approved a new authorization to repurchase units in the open market or through privately negotiated transactions up to an additional $250,000,000 We believe units of Cedar Fair represent an attractive investment opportunity We will continue to be opportunistic with repurchases going forward. The new unit buyback authorization combined with quarterly distribution payments gives us increased flexibility in returning capital unitholders and driving sustainable value creation.

Speaker 2

Our quarterly cash distribution and renewed repurchase authorization underscore the Board's confidence in the company's long term growth prospects and the resiliency of our business model, which has generated significant free cash flow over a long period of time. These actions also reflect the Board's recognition of the steady measurable progress we are making towards reducing net leverage to our target of 3 to 4 times adjusted EBITDA, while fulfilling our objective of consistently investing in our properties in order to generate incremental organic growth. Near term, our strategic goals are simple. 1, drive annual attendance back closer to pre pandemic levels with a specific near term focus on restoring demand within the group channel. 2, continue to grow guest spending through a combination of pricing, premiumization and technology enhancement designed to extend length of stay, increase transaction counts per guest and improve average transaction values.

Speaker 2

3, create a sense of urgency to visit among our guests through targeted messaging that increases consumer awareness about our parks' broad collection of rides, attractions and entertainment offerings, our unique food and beverage offerings and their limited duration events. And 4, improved margin performance through disciplined management of operating costs, including seasonal labor without undermining the overall guest experience. As I mentioned earlier, this is an exciting time of year for us as most of our parks are just weeks away from ramping up to full 7 day a week operations. This includes Cedar Point, which tomorrow will kick off its 154th season. When the park opens, We will be debuting its newest expansion, The Boardwalk, a completely renovated area designed to pay homage to Cedar Point's beginnings in the late 19th century.

Speaker 2

Anchoring the Boardwalk is the park's newest roller coaster, The Wild Mouse, as well as the Grand Pavilion, a modern day version of the original landmark that served as the park's bustling centerpiece for entertainment. Serving culinary creations not found anywhere else in the park, Grand Pavilion is a dual level restaurant and waterfront bar with outdoor terraces overlooking the park and Cedar Point's beautiful shoreline. Certain to be one of the industry's finest dining venues, the majestic Grand Pavilion will stand as a Cedar Point centerpiece once more. At our other properties, Fiesta Village at Knott's Berry Farm is being completely revitalized for the 2023 season, while Carowind celebrates its 50th anniversary. As part of Carowind's celebration this year, the park is introducing the all new and exciting Aeronautica Landing.

Speaker 2

This new aviation themed area features new rides and attractions, themed food and beverage locations and reimagined classic carnival games. Meanwhile, guests this summer at Canada's Wonderland are set for a thrilling adventure with the addition of Tundra Twister, a giant 360 degree spinning swing ride, the only one of its kind in the world and Snoopy's Racing Railway, an exciting launch coaster for children and families in the park's Planet Snoopy area. Also celebrating a golden anniversary this year is Worlds of Fun. Throughout the season, the park will entertain guests with special events and activities to commemorate its 1st 50 years, along with welcoming back Zambezi Zinger, one of the park's original roller coasters, which has been reimagined and is sure to delight our guests and associates alike. These are just a few examples from our capital program that we are confident will deliver another outstanding year for Cedar Fair in 2023 and entertain guests at our parks for seasons to come.

Speaker 2

I hope you have an opportunity to visit 1 of our parks and all they have to offer sometime this summer. Sydney, that concludes our prepared remarks. Please open the call for questions.

Operator

Thank you. Your first question comes from James Hardiman from Citi.

Speaker 4

Hey, good morning. Thanks for taking my question. So I think the weakness in the Q1, I mean, it was just a brutal run of weather that you guys had. I think it's pretty well understood. I know you're sort of easing back from post quarter update to a degree, but is there anything you can tell us about April?

Speaker 4

Did weather get any better during the month of April? And did you see any sort of commensurate pickup in visitation that tells Help base is a question that I think everybody is trying to figure out, which is excluding the weather impact, Is the consumer ultimately going to show up this year?

Speaker 2

So James, good morning. Thanks for the question. Yes, I think The weather on the West Coast in particular was well telegraphed. I agree with you. In April, I would tell you that California dried out.

Speaker 2

The East Coast got a little wetter, but what we did see during April is that return of the start of the return of the group channel and in particular, the youth group. We saw youth come back in April. Largely the trends remain the same. We continue to see strong per caps. We continue to see mid high single digit increase in our season pass sales price.

Speaker 2

And in particular, what I'm pleased with Brian mentioned in his remarks, the add on products continue to strengthen in all season dining in particular within the add on channel. So Brian, anything you want to add?

Speaker 3

Just some additional color, James, on April. As Richard said, trends largely the same from Q1, Not only the positive trends Richard noted, but weather still was a factor as he mentioned, less in California, now more in the Midwest and the East. And In total, I would tell you again about a third of our operating days were impacted by weather in April. What remains, I think the most important thing The fact that even after April, you're still looking at probably a little more than 90% of full year attendance and revenues is in front of us. So nobody would like to get off to a slow start, but it's really what we're going to do over the balance of the year that's going to drive the full year results.

Speaker 4

Got it. And then secondly, as we think about pricing, maybe if you could just take a few seconds. There's a lot of chatter about price reduction at Cedar Point, the walk up pricing, which I know is a minuscule piece of the mix. But maybe just contextualize that for us. And more broadly, it sounds like single day ticket pricing is up Mid plus season passes are up mid to high.

Speaker 4

It seems like this is setting up for a year where per caps will be up nicely. I know what we oftentimes can't see are the impacts of mix, right? A number of different types of mix, but maybe walk us through how to think about mix. And is there anything that would prevent what appears to be significant pricing increases in the individual types of tickets that would prevent that from meaningful per cap growth for the year. Thanks.

Speaker 2

Thanks, James. Let me jump in here and say, I'll let Brian comment on the specifics, but very broadly, we've encouraged our business intelligence team to really lean into dynamic pricing. So they're trying things all the time. We move prices and we encourage them to move prices 100 if not 1000 of times during the year across our 13 sites. So part of what you're seeing is the testing of where the edge of how we can drive as much as possible.

Speaker 2

And As we've shown in the recovery of the pandemic, our ability to really drive pricing and yield that into per capita gains along with increase in attendance, weather excluded, has been the key to our driving top line revenue growth.

Speaker 3

Yes, James, just maybe on some more specific level, to your question about Cedar Point, the park did pull back its front gate Price from $85 to $80 as you noted very small less than 2% of Cedar Point's tickets are sold through that. And the move was done more from a marketing and promotional perspective to get to A cleaner price for some of the promotions that we typically run-in the spring time. We do a lot of Cross promoting between the sister parks, Michigan's Adventure to the North, Kings Island to the South and the $80 price fit a little bit better for that. So it's not An effort to pull back pricing. In fact, as you noted, we're leaning in on pricing.

Speaker 3

And as Richard mentioned, dynamically pricing the web price and that's where the majority of tickets are sold. So I think to your comment on mix that always plays out and specifically what we've seen so far year to date, as we've commented season pass is up 7%. But if you look at the individual park level, You're going to see increases that are probably closer to double digits. It's just right now with not being a little slow, that's one of our higher price passes in the system. So that's dragging that average down, but we're really pleased with what we're seeing out of the market's reaction to the price increases in each one of the markets.

Speaker 4

Got it. Just to clarify, is there any reason to think that there would be a significant shift either in the direction of season passes or in the direction of single day ticket as we think about 2023. It's way too early to know for sure, but anything that you're pushing in one direction or the other?

Speaker 3

No, I would say that our approach on pricing is very consistent with what we had last year in both of those. Some of the single day ticket increase that we were able to generate last year was the outcome of Unplugging some of the discount channels that we had in place. That's gone now. So now we're looking at really pure increases. I wouldn't say there's anything that's a demonstrative shift.

Speaker 3

Ultimately, at the end of the day, as you know, the percent of Season pass of the overall attendance can play a bit into that admissions per cap. But as you noted, it's way too early in the season to know where that's going to land. We've got a window of time here still in front of us where we tell a lot of season passes. And so we're focused on that 1st and foremost.

Speaker 4

Makes sense. Thanks guys and good luck.

Speaker 2

Thanks James.

Operator

Your next question comes from Thomas

Speaker 5

Thanks so much. I wanted to dig a little bit into the record per caps this quarter and follow-up on James' question on pricing. It sounds like, Brian, from your last comment that weather or not only impacted the season pass unit sales, but the mix of pass pricing Because California trends higher, could you maybe just put into context how any of the new initiatives around past years that you've introduced, How that is seeing adoption and what we're seeing there in terms of the early changes on potential per cap uplift from there?

Speaker 3

Yes, sure. So you're correct, Thomas. As I just mentioned to James' question, When we talk about things at the monolith level and we talk about these averages, some of the underlying truths get a little bit lost. And what we're pleased with The push in each one of our markets to get high single digit increase in season pass pricing Is being received well as are some of the other evolving changes in season past, which would be things like the new prestige pass, very limited. It's only in 3 of our properties right now, but the guest reaction And reception to that new product has been very strong.

Speaker 3

What pulls down, as I mentioned, not only Knott's Berry Farm being soft, one of our highest pass prices. But Canada's Wonderland is having a fantastic year to start in terms of season pass sales. And it's one it would sit towards the lower end of the past spectrum. And so that's impacting the average price a bit. But the recovery in terms of units, we're very pleased with what we're seeing out of Canada in their response to past sales.

Speaker 2

And just to clarify Brian's comment, Canada's Wonderland gets translated in foreign exchange. So in U. S. Dollars, it lowers the mix even though they're functional card. In Canadian dollars, they're priced appropriately and similar to our U.

Speaker 2

S. Parks. But at $0.74 on the dollar, we just get less credit for it when we factor it in.

Speaker 5

Got it. Makes sense. And then just to drill down a little bit more on the season pass revenues, I think you cited that There's been an increase in revenue recognition per season pass visit this quarter. Is that driven purely by the pricing? Is it safe to assume?

Speaker 5

Or Is there anything changing around the assumption you're making about the attendance for those pass holders through the rest of the season?

Speaker 3

No, it's a bit we're always moving and making the appropriate adjustments The draws on season passes and the related all season products. So it is tied to both price, but also anticipated visitation pattern. So based on what we saw last year at each one of the parks, we will adjust from time to time, but nothing significant, Thomas.

Speaker 5

Okay, great. And if I could just squeeze one more on costs. On the planned higher headcount this quarter, I think we start to lap some of those increases in 2Q. Any color around expectations for just staffing levels compared to last year? It sounds like consumer health is still there.

Speaker 5

As we get into kind of the full operating season, how should we think about maybe as the operating days normalize, how we should expect the wage piece to kind of fit in.

Speaker 3

Yes, I'll break it into 2 pieces. Our comments on the call about Some of the cost increase in Q1 related to anticipated increase And some headcount or the benefits related to that. To your point, that's sort of a year over year Q1 incomparability that we'll Last year, if

Speaker 4

we flash back to where

Speaker 3

we were a year ago and we were bringing back some of the positions, a great example of group sales, right. While group sales was unplugged during 2020 2021 and there wasn't much business, we saw a lot of attrition and a decline in Those staffs across our system, we began bringing those folks back onto the team, filling those open positions during the first half of twenty twenty two to be prepared for going into 2023 and what we thought was going to be a very strong bounce back here for group. So we're seeing that start to lap. The first half of the year still has some incomparability, but we'll see more of an apples to apples comparison as we get into the second half of the year for the that is an example of some of the full time pressure. As it relates to seasonal, as we said on the call, Very pleased with what our teams in the field have been able to do in terms of reducing hours on a per operating day.

Speaker 3

We continue to look for efficiencies. I thought we got much better at that over the course of the 2022 season as our teams got used to the new tools and just got smarter, right? I mean as the season went on. As we go into 2023, we feel very confident in terms of where we're at from an early season staffing model. The pipeline for new hires and filling those seasonal positions has been very strong.

Speaker 3

We're going to continue to try and use that to our advantage to manage and keep rate average rate down. As we noted 2% down in the second half of twenty twenty two versus 2021. We'll see how the rest of this year develops, but we feel really good about where we're at on a seasonal staffing basis both from the pipeline, But also our ability to manage the hours and the rate associated with seasonal labor.

Speaker 5

Thank you so much.

Operator

Your next question is from Mike Swartz.

Speaker 4

Hey guys, good morning.

Speaker 6

Hi Mike. Maybe just to Point on that last question as we think about hours, I guess just in terms of labor costs, how we think about Hours in the system versus average wage rates for this year. Is there any general parameters to think about? And I know some of this hit in the Q1 harder because The extended calendars at certain parks, but just on an annualized basis, how should we think about it?

Speaker 3

Yes. So I'll take a step back for a second and I want to hit a point that you referenced there. Q1 is a little bit of an odd quarter for us. Yes, while we look at our business and the operating cost structure is very is variable and we have the ability to adjust Labor up and down, as I was just mentioning in response to Thomas' question, particularly seasonal labor up and down to better meet or marry with the demand levels that we're seeing on a daily basis. Q1 is very different.

Speaker 3

Q1 is much more of a fixed cost structure for most of our parks. At Knott's Berry Farm aside where we did, as we mentioned on the call, carve out a lot of variable costs as we weren't seeing the demand levels that we would normally have Most of the other properties are preparing to open. So all of those costs are fixed. The maintenance labor, the seasonal labor, the kids in the park, Cleaning the parks, getting ready to open. There's very little

Speaker 2

that you can pull out

Speaker 3

of that without putting at risk your ability to open. So Q1 is a challenging quarter from the standpoint When revenue isn't there at a park like Knott's Berry Farm, there's little that we can do at the other properties to help offset that. As we look at the rest of the year, Mike, and when we think about labor, again, I'll just emphasize, we feel really good about where we're at from the flow of applicants and our hiring process that that's going to allow us we believe to keep average rate really tight to where it was in 2022. We will if we have to flex up in some markets to fill hard to fill positions like security or lifeguards to name a couple, We'll do what we have to with rates very surgically and specific job classifications, but we feel really good where we're at from a rate perspective. And then any hour pressure is going to be associated with more days in the system like we saw in the Q1, right?

Speaker 3

We added days at those 3 seasonal parks, But with added cost comes added attendance and added revenue. And so when we're adding hours, it's going to be specifically to generate more revenue and not just adding hours for the sake

Speaker 6

Okay, great. And maybe this is splitting hairs, but if we kind of Look at the operating days in the Q1 where weather was cooperative. Is there any way to think about how attendance trended during those days?

Speaker 3

Yes. I will say that what we've seen The start of this year in the Q1 is that when weather has been good, demand has been solid. We were very pleased with the expanded operating calendars Yes, the 3 parks this year and when weather was good, the demand was there. What does happen sometimes and we've seen this definitely in Knott's Berry Farm, long or prolonged bad weather Sometimes takes more than just 1 or 2 days of nice weather to sort of overcome, right? People have seen it raining for the last 3 or 4 days.

Speaker 3

You finally get a couple of or 3 or 4 weeks, You finally get a couple of nice days. We might not be the first thing they're going to come and do. So you really need a stretch of some nice weather to start seeing a new trend. But what I would tell you is when weather has been good, demand has been very solid. Yes, Mike, it's Richard.

Speaker 3

I'd go back to take you back to on that point When

Speaker 2

we added the days for WinterFest started in 2016, 2017, 2018, it does take a while for us to train the markets that were back open. January, February is not a time that a park like Charlotte or Richmond was open. So we're really pleased with the solid performance on the decent weather days And think that this is sort of a tradition and as we get season pass holders and others to understand that we'll be open. One of the encouraging things I thought was that we saw a nice mix for the park between season pass and demand tickets Even in January February and that tells me that both people knew, but that season pass holders are bringing their friends and that's a good thing for us in January February in those markets.

Speaker 4

Thank you.

Operator

The next question comes from Riccardo Chinchilla.

Speaker 3

Hey guys, thanks for taking the question. I was wondering if you could comment on your strategy towards The refinance of the 1st lien notes that is currently outstanding and maybe some commentary to know how you guys are envisioning the capital structure going forward. Yes, Ricardo, it's Brian. Yes. What I would say and as we said on the during the call, I mean we're pleased with where the balance sheet stands right now and where the capital structure sits.

Speaker 3

There's no near term maturities. The 2025 note that you referenced, those are on our radar and we are going to look to be But we have runway. There's still 2 more years on those. So we're not going to there isn't a sense of urgency that we have to do something right now. We want to remain opportunistic when the market conditions are right to address those.

Speaker 3

I would say, as Richard mentioned, The goal continues to be to work leverage down back into that 3 to 4 times adjusted EBITDA range. We think we're on the path towards that as we showed at the end of 'twenty Finishing the year with net leverage right around the high end of that, we want to continue to see that work its way south below 4 times. That will probably be done through a combination of both growth in the business and potentially taking out some more debt. But from a capital structure perspective, we feel good where we're at Right now, the cost of debt is at least on a relative basis is inexpensive compared to where the market is today. And so we're going to enjoy that while we can.

Speaker 5

Thank you so much for answering my question.

Speaker 2

Welcome.

Operator

The next question comes from Eric Wald.

Speaker 7

Thank you. Good morning. B. Riley Securities. So I guess, a follow-up question kind of on pricing.

Speaker 7

It doesn't from your conference around Average pricing on season pass is kind of running up double digits ex not. It doesn't sound like park pricing in the whole is really A concern for consumers, but maybe as you've done some of these revenue management both in and outside the park, are there any points where you've found Yes, it's a bit pushback or adverse reactions or maybe certain items or areas where consumers may be hitting They're a limit or hitting the wall on pricing or you don't think you're there really anywhere in the parks and still have room to go if need be to take prices higher?

Speaker 2

Eric, good morning, it's Richard. Regarding the health of the consumer and certainly we've gotten those questions lots over the last I would tell you that those who are coming are spending healthily. We obviously got impacted by weather, but once they get to the park, We've seen no slowdown in what they want to spend and what they want to spend on. It's broad based. If we are highly concentrated One area and saw others trailing off.

Speaker 2

We certainly would make adjustments, but our revenue management team is watching both parking inside Park pricing inside the park, but also with admission. So, we're watching it closely. But again, I'll go back to One point I mentioned before, we continue to see strength and this is year over year strength for several years in the All season dining in particular, that's been a really solid program for us. It just shows that I think the consumer right now has a deep share of wallet. Our target customer again is mom with young children.

Speaker 2

Mom has the wallet and we continue to focus on the quality and making sure we're The experience that gets them to the park that's appealing. But then once they get there, give them plenty of opportunity to enjoy what they've told us they're willing to spend money on. So I think all in all, I would go back to the resiliency of our business model at a high level. I think that's what we're proving out once again.

Speaker 4

Got it. And then just

Speaker 7

a follow-up, other than labor, I know that

Speaker 4

I touched on earlier, any parts of

Speaker 7

the park or the operations you're still seeing The inflationary pressures continue to move higher this year that you may need to kind of address or things starting to kind of level out versus last year Thanks, labor.

Speaker 3

Yes, Brian. I would say that there's still inflationary pressure across Much of the business, but much like we are seeing with seasonal labor that pressure is moderating from where it was. So whether you're talking about something like utility costs or insurance costs, there still is some inflationary pressure, but not nearly as much as it was in 2020 or 2021.

Speaker 4

Got it. Thank you.

Operator

Your next question comes from Bartow Crockett.

Speaker 8

Hi, it's Barton Crockett from Rosenblatt. And thanks for taking the question. I was curious, just given This whole that you're starting in with, the season pass sale units, if there's ever historical kind of precedent for season pass sales starting off unit wise down like this and attendance able to shrug that off and Susan Pastel is able to shrug that off and end up positive for the year. Is there any example of that happening?

Speaker 2

Yes, Barton, it's Richard. Good morning. Thanks for the question. Yes, we've got Lots of history that would tell us that once you get into the meat of the season, you've got a ability to make this up. I'll go back to last year even in Q4.

Speaker 2

Now we had a spectacular weather October, but when we drove, We drove both demand tickets and season pass sales in that window. We were hurt, I'll remind you, in 2022 by a rainy Labor Day, which where we lost a few season pass sales. But to your question, we've got lots of examples of having slow starts and then really coming on strong during the mid of the summer. This is where our cyclicality and the seasonality of our calendar is very different than maybe others in the space. We really are, as we Keith reiterating a back half company and with some dry weather, we believe we can generate the momentum We need to really carry the day through the rest of the year.

Speaker 2

The other thing that when I look at history, we're recovering in the group channel to a significant degree. We were able to recover in history with same store sales on the group side being similar year over year. So I do think that the comeback of group It's a great tailwind for us right now.

Speaker 8

Okay. And then it seems likely that You guys would have a meaningful opportunity to kind of sell more season passes as the attendance ramps up for the Memorial Day holiday weekend. Just wanted to confirm, I mean, does that look like a next really big shot on goal for you guys? And do you expect all your parks to be up and fully operating for that

Speaker 4

Yes.

Speaker 3

In terms of opening Barton, I mean all the parks are as Richard noted in our prepared remarks on pace to get to those 7 day a week operations over the next few weeks. Your point is a really good one, right? I mean, as I said on call. We're going to do close to a third of our full program sales around season pass in the months of May June for the exact reason you just As mentioned, season pass holders often are buying in advance of that first visit. And so what's been challenging is And one of the frustrations quite honestly is while not so struggled weather wise, we haven't had many of our Parts in operation to start making those sales and having those first visits.

Speaker 3

And so that all starts to change over the next couple of weeks. Cedar Point opens tomorrow, as Richard noted. Canada's Wonderland, which has had a couple of weekends of private events. It will be opening to the general public. So there's a lot of excitement and energy as we're Going into May and our marketing teams are laser focused on selling as many passes as possible over the course of the over the next say 8 weeks.

Speaker 8

Okay, great. Thank you very much.

Speaker 3

Thanks Barton.

Operator

There are no further questions at this time. I now turn the call back over to Richard Zimmerman for closing.

Speaker 2

Thanks to everybody for joining us and for your continued interest in Cedar Fair. This is an exciting time of year for our team as we look forward to welcoming back our guests for another fun filled season. For the analyst community, in early June, we will be participating in 2 conferences, Morgan Stanley Inaugural Travel and Leisure Conference on June 5 in New York and SIFIL's Cross Sector Insight Conference June 6 June 7 in Boston. If you are attending either of these events, we look forward to seeing you there. Michael?

Speaker 1

Thanks again everybody. Please feel free to contact our Investor Relations department at 419-627 2,233. And our next call will be in August after we release our 2023 second quarter results. Sydney, that concludes our call today. Thanks everyone.

Operator

Thank you. You may now disconnect.

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Earnings Conference Call
Cedar Fair Q1 2023
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