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Six Flags Q4 Earnings Warning - soft sales & China probems

Talk about anything that has to do with Six Flags Great America and Hurricane Harbor here.
Postby Sven18 on January 10th, 2020, 10:53 am
1)Expects Q4 revenue to be $8 million to $10 million less than a year ago, in which it reported revenue of $269.5 million. The outlook is a result of "softer-than-expected season pass and membership sales, primarily in the holiday sales period."

2)Six Flags' partner in China, Riverside Investment, to default on its payment obligations to Six Flags. The company said it will not realize any revenue from the China agreements, and expects a negative $1 million adjustment and a $10 million charge.“ The loss of all the China projects would result in no revenue for that market if Riverside does not cure the default and the company is not able to engage other partners to complete any of the projects,”

3)Stock fell as much as 19% from yesterday close. Hovering at about 17 to 18% down as of post.

The China hit was expected from the translated news articles on that, SF finally addressed that they were not paid in Q4. The developer had not been paying contractors at all or in full for about a yr, but were paying SF Q1 thru Q3.

Somewhat surprising is the soft holiday sales. Cedar Fair seemed to have done okay, as they did not extend their sales deadlines & instituted significant increases on Jan 6th. They would not likely raise prices, if they had missed their goals, would have extended sales.

The questions:
1)The foreign licensing deals keep falling thru. Vietnam, Dubai, China in major problems with the hint of cancellation. Is the strategy just good in theory, easy money if works, but finding stable partners has been hard. SF growth estimates goals for years out are based on this "easy money." Those will be paired back like the Q4 expectations. SF doesn't lose money directly since they put in no Capex, but the growth expectations reduce & they are already having domestic organic growth issues.

2)Are Q4 soft holiday sales a canary in the coal mine. Has SF converted most of the easy people from passes to memberships & they are having trouble getting substantial denovo pass holders/members. The membership push was b/c cheap pass holders had essentially maxed out, thus they needed to get more out of each person.
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Postby Sven18 on January 10th, 2020, 11:50 am
Interesting note on blaming soft holiday sales for Q4 lower expectations. According to SF on conf call membership revenue is claimed just like Season passes for the first 12months, which mean % of days in the quarter the park is open where it's bought over the 4 quarters. So new memberships sold in "holidays" would be claimed Q1 thru Q4 2020. Season passes sold in "holiday"would be the same. The only thing claimed immediately would be processing fees. The statement by SF seems not to make complete sense based on their outline previously on when revenue is claimed. After 12 months membership revenue is claimed monthly, so this Q4 down turn on revenue should be a lagging factor based on previous sales memberships beyond 12 months being claimed now monthly or 2019 season pass sales claiming Q4 revenue.
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Postby RaceBoarder on January 10th, 2020, 12:49 pm
Sven18 wrote:Interesting note on blaming soft holiday sales for Q4 lower expectations. According to SF on conf call membership revenue is claimed just like Season passes for the first 12months, which mean % of days in the quarter the park is open where it's bought over the 4 quarters. So new memberships sold in "holidays" would be claimed Q1 thru Q4 2020. Season passes sold in "holiday"would be the same. The only thing claimed immediately would be processing fees. The statement by SF seems not to make complete sense based on their outline previously on when revenue is claimed. After 12 months membership revenue is claimed monthly, so this Q4 down turn on revenue should be a lagging factor based on previous sales memberships beyond 12 months being claimed now monthly or 2019 season pass sales claiming Q4 revenue.


If revenue on memberships older than 12 months is claimed in each month, wouldn't a Q4 drop indicate a decrease in memberships that were sold during the initial membership Flash Sale in Sep. 2018?
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Postby Sven18 on January 10th, 2020, 1:15 pm
RaceBoarder wrote:
Sven18 wrote:Interesting note on blaming soft holiday sales for Q4 lower expectations. According to SF on conf call membership revenue is claimed just like Season passes for the first 12months, which mean % of days in the quarter the park is open where it's bought over the 4 quarters. So new memberships sold in "holidays" would be claimed Q1 thru Q4 2020. Season passes sold in "holiday"would be the same. The only thing claimed immediately would be processing fees. The statement by SF seems not to make complete sense based on their outline previously on when revenue is claimed. After 12 months membership revenue is claimed monthly, so this Q4 down turn on revenue should be a lagging factor based on previous sales memberships beyond 12 months being claimed now monthly or 2019 season pass sales claiming Q4 revenue.


If revenue on memberships older than 12 months is claimed in each month, wouldn't a Q4 drop indicate a decrease in memberships that were sold during the initial membership Flash Sale in Sep. 2018?


Or cancellation of memberships from the fall 2018 sales as they went beyond 12 months & would have been claimed monthly in Q4 2019.
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Postby Sven18 on January 10th, 2020, 1:57 pm
SEC 8 -k Filings gives slight clarification over news articles:

"North America parks experienced lower attendance in the fourth quarter of 2019 versus the same period in 2018 due to softer than expected season pass and membership sales, primarily during the holiday sales periods. As a result, the Company expects total revenue in the fourth quarter of 2019 to be less than prior year by $8-$10 million."

Analysis:
Attendance was down in Q4 2019 compared to 2018. So it appears even though SF would not have been claiming pass or membership revenue, as described in earlier post, lower sales caused lower attendance & thus the lower attendance meant lower in park revenue from food, merchandise, etc... That's the explanation that makes more sense b/c the pass/membership admission revenue is delayed till 2020. Not that we can find out where the lagging parks were. However, we do know SFMM had a some ridiculous busy days around West Coast racer opening & reached capacity during their BFF around the 31st.
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Postby JackGlass on January 11th, 2020, 2:10 pm
It almost certainly won't happen. But it would be ironic if Cedar Fair made an offer to buy out Six Flags, now that their stock has tanked. lol
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Postby Sven18 on January 11th, 2020, 5:39 pm
JackGlass wrote:It almost certainly won't happen. But it would be ironic if Cedar Fair made an offer to buy out Six Flags, now that their stock has tanked. lol


CF would not be interested in all SF chain. The parks that they might have the most interest in would be the Texas parks to have synergy with their 2019 Schlitterbahn purchase. CF is seeking some more geographic diversity. Also, the fact is SF doesn't need to sell anything, as of now. They are still profitable just not growing organically for over about 18 mnths, leverage is only 4x. etc.. Stock pressure for 18 mths on low growth, expectations/projections will be decreased for FY 2020 and 2021 from 750 EBIDTA goal, but far from losing money like in 2000's.

SF eill have to cut the dividend, which will cause more selling, so stock dip a bit more. The dividend in 2018 was 96% of free cash flow, thru Q3 2019 they were on pace for about 105% of free cash flow. They could cut the dividend by 20% and still have a dividend among the best of any company. The cut would save them around $70M which they could use. The continued notion of returning all excess cash to shareholders via dividends and/or stock buy backs was never long term sustainable. SF has 100's of millions in buybacks pre approved, which they may need to execute to provide support for the stock, especially after more selling when they have to reduce the dividend. The stock buy backs also need to be eventually cut back. Of course the rub is SF BOD/majority holders are private equity people, thus the overly generous dividends and massive stock buy backs strategy since bankruptcy.

SF Q4 call is going to be very important.
1)They need to portray to Wall Street they have a plan to produce growth.
2)Assuage fears that Q4 soft sales was a fluke and not push back on the higher price memberships.
3)Assuage fears on Q4 attendance down. High attendance is core to SF, with their lower prices vs competitors
4)Convey some hope on the foreign deals or at least show they have some idea on a new growth initiative long term to replace the foreign deals. Doubling down on foreign deals may not go well. That suppose easy revenue was built into projections & it may be gone completely, at best delayed. The thing is from SF's Q2 & Q3 comments they were hinting very heavily at announcing more foreign deals and were waiting for the finalization.
Last edited by Sven18 on January 11th, 2020, 8:11 pm, edited 1 time in total.
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Postby staticshadows on January 11th, 2020, 7:10 pm
Sven18 wrote:4)Convey some hope on the foreign deals or at least show they have some idea on a new growth initiative long term to replace the foreign deals. Doubling down on foreign deals may not go well. That suppose easy revenue was built into projections & it may be gone completely, at best delayed. The thing is from SF's Q2 & Q3 comments they were hinting very heavily at announcing more foreign deals and were waiting for the finalization.

Six Flags has wanted a park near Monterrey, Mexico for some time, but they haven't been able to find a development partner with $400-500 million to get the project off the ground.

They are currently looking at La Feria de Chapultepec in Mexico City. This would be an operating lease and would probably be structured like the Oaxtepec deal with a large upfront investment in the park being required to make it operational again.

Six Flags was looking at Hopi Hari near Sao Paulo, Brazil in early 2018, but there is a legal mess between the "owners" and creditors that needs to be resolved.
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Postby rmceagle2021 on January 13th, 2020, 9:50 am
Also, Great America will have to raise wage rates with the new minimum wage in Illinois.
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Postby Sven18 on January 13th, 2020, 12:22 pm
rmceagle2021 wrote:Also, Great America will have to raise wage rates with the new minimum wage in Illinois.


Six Flags across the country already had a plan for wage pressure which they started implementing last year. The plan is simple, cut operational hours. There was a reason SFGAm closed at 9pm weekdays instead of 10pm like previous years. All the SF parks in mid June changed ops hours from the original calendar posted. Every SF park except GAdv & MM cut hours by 30min to 1 hr day during prime season on weekdays. GAdv stayed open till 10pm last year, but guess what? They are scheduled for 930pm this year. The operational hours cuts are on top of the fact SF parks already always open at 1030am, while other operators like SEAS, Cedar Fair, Hershey, etc... open at 10am & some offer early entry to pass holders. Also, even though labor day isn't till Sept 7th, the latest it can be, SFGAm is stopping weekday ops Fri Aug 22nd. Cedar Point staying day ops till Labor day, even though it's late this year. With Memorial Day being the earliest it can be & Labor Day the latest possible it's the longest possible span between the traditional theme park season...Memorial to Labor Day.
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Postby Sven18 on January 14th, 2020, 1:16 pm
staticshadows wrote:Six Flags has wanted a park near Monterrey, Mexico for some time, but they haven't been able to find a development partner with $400-500 million to get the project off the ground.

They are currently looking at La Feria de Chapultepec in Mexico City. This would be an operating lease and would probably be structured like the Oaxtepec deal with a large upfront investment in the park being required to make it operational again.

Six Flags was looking at Hopi Hari near Sao Paulo, Brazil in early 2018, but there is a legal mess between the "owners" and creditors that needs to be resolved.


Don't think more operating leases are going to help much. SF's problem is organic growth, they tried to paper over that with the 5 new operating leases in 2018, which is inorganic growth. It didn't throw people off the trail in 2018, it however showed 5 new lease parks increased attendance by 2M, but those parks were producing more than 2M under EPR, So the legacy parks were down, but SF refused to acknowledge it.

Another problem with op lease parks by SF's own reports they produce "substantially lower par caps" than legacy parks. SF has the lowest per caps of the chain parks(SEAS, CF, etc..) already. So these op lease parks producing even less than their chain's low standard is not that helpful. SF needs to come up with a new pillar to add to their 5 b/c those aren't working very well,
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Postby staticshadows on January 16th, 2020, 2:39 pm
https://seekingalpha.com/news/3532467-six-flags-rallies-on-activist-action
Six Flags rallies on activist action
Jan. 16, 2020 12:52 PM ET|About: Six Flags Entertainment C... (SIX)|By: Clark Schultz, SA News Editor

Activist investor H Partners Management says it has engaged with the Six Flags Entertainment (SIX +5.7%) board after closely monitoring the recent developments with the theme park operator.

H Partners says the talks included the potential of a board rep.

H Partners holds a stake of 6.5% in Six Flags.

SEC Form 13Dhttps://seekingalpha.com/filing/4772497
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Postby Sven18 on January 16th, 2020, 5:53 pm
staticshadows wrote:https://seekingalpha.com/news/3532467-six-flags-rallies-on-activist-action
Six Flags rallies on activist action
Jan. 16, 2020 12:52 PM ET|About: Six Flags Entertainment C... (SIX)|By: Clark Schultz, SA News Editor

Activist investor H Partners Management says it has engaged with the Six Flags Entertainment (SIX +5.7%) board after closely monitoring the recent developments with the theme park operator.

H Partners says the talks included the potential of a board rep.

H Partners holds a stake of 6.5% in Six Flags.

SEC Form 13Dhttps://seekingalpha.com/filing/4772497


This is literally an about time story. Stock had gone from $72 June 2018 to as low as $40 after Q3 report in October. Thought investors would have gotten involved back in the fall. When your stock takes a hit quarter after quarter on earnings report you thought they would have lost patience before. The "street" haven't been buying SF's spin on look record revenue for over a year b/c there is no organic growth. Q4 results is going to bad, it's just go to be about how they spin the conf call & if they have a believable plan forward. If they sound credible the stock may not get hit a lot b/c so much was taken off on the pre announcement of Q4 down revenue. Could see a rally of the stock till earnings just b/c the P/E makes it cheap with a now 9% dividend(from 7%) if they hold current payout levels.
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