Six Flags Entertainment Corporation
Q3 2013 Earnings Call Transcript

Published: 7 Nov 2013

[Operator:]

Ladies and gentlemen thank you for standing by. Welcome to the Cedar Fair Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). I will now turn the conference over to Ms. Stacy Frole, Vice President of Investor Relations. Please go ahead.

[Stacy Frole:]

Thank you, Ron. Good morning, and welcome to our third quarter earnings conference call. I’m Stacy Frole, Cedar Fair’s Vice President of Investor Relations and Corporate Communications. This morning we issued our 2013 third quarter earnings release. A copy of that release can be obtained on our corporate website at www.cedarfair.com, or by contacting our Investor Relations Offices at 419-627-2233. On the call this morning are, Matt Ouimet, our President and Chief Executive Officer; and Brian Witherow, our Executive Vice President and Chief Financial Officer. Before we begin, I need to caution 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 materially from those described in such statements. You may refer to filings by the company with the SEC for a more detailed discussion of these risks. In addition, in accordance with Regulation G, non-GAAP financial measures used on the conference call today are required to be reconciled to the most directly comparable GAAP measures. During today’s call, we will make reference to adjusted EBITDA, as defined in our earnings release. The required reconciliation of adjusted EBITDA is in the earnings release and is also available to investors on our website via the conference call access page. In compliance with SEC Regulation FD, this webcast is being made available to the media and the general public, as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed. Now I’ll turn the call over to Matt Ouimet.

[Matt Ouimet:]

Thank you, Stacy and good morning everyone. Let me start by saying how proud I am of our entire Cedar Fair team for their hard work throughout our core operating season. It is because of their dedication, the overall guest experience and their commitment to disciplined execution and we’re on track to achieve our fourth consecutive year of record operating results. We have an abundance of positive news to report. So in the interest of time we will focus our prepared remarks on three key areas this morning. Our record third quarter results and solid performance through October and update on our capital allocation strategy and our positive short and long term outlook for Cedar Fair. We will then answer any questions you may have. First, I would like to briefly summarize our results through this past Sunday November 3rd, with 97% of our operating days behind us, our net revenues are up 6% to $1.104 billion when compared with the same period a year ago. I am pleased to say we have experienced growth across all areas of our business, including a 6% increase in average in-park guest per capita spending, a 2% increase in comparable park attendance and a 7% increase in out of park revenues. Our strong performance today has resulted from the success of our fund for the long term growth initiatives, which we introduced in January of 2012. Many of these initiatives have gained traction much faster and to a greater degree than we have initially anticipated. Going forward we will continue to refine the implementation of these initiatives. With a particularly strong focus on protecting and enhancing the value of the guest experience to drive repeat visitation and provide us with enhanced pricing power. This year we have clearly benefited from investings in our eCommerce and CRM platforms, as they have been instrumental in increasing the yield and emission across all channels, including season pass group and individual sales. Going forward we will continue to utilize this platforms to allow for better segmentation of our guests giving everyone their own unique experience at an appropriate price. We will also leverage these systems to expand our installment payments programs and more efficiently administered group event options. Also contributing to our record results this year was our capital program as we invested to scale and placed increased emphasis on place making, striving to reinvigorate and reinvest the specific areas of our parks. GateKeeper, a world record breaking coaster at Cedar Point and the highlight of our 2013 capital program was highly successful. But more importantly, each and every product where we have added capital has reported a solid return on investment this year. Our 2013 core operating season also benefited from higher quality food offerings and reengineered menus. Consistent with our second quarter results prudent average revenues are up across all of our parks and our food merchandise and games margins through September 29th have improved by approximately 160 basis points year-over-year. Embedded within these results are the benefits of our newly consolidated beverage contact with coke that we entered into at the end of last year. We appreciate the strong partnership and believe we will be further progress in 2014. Finally, our premium product offering is continued to contribute to our record results. The awareness and demand for these products continues to increase allowing us to strategically introduce new products such as Fast Lane Plus and the Skeleton Key as specific parks and dynamic we take pricing as demand permits. With 97% of our operating days completed for 2013, we now expect to achieve full year net revenues between $1.125 billion and $1.135 billion. We also anticipate being at the high end of adjusted EBITDA guidance range of $415 million to $425 million. The solid performance of our parks this year combined with the sale of two standalone water parks has provided us with cash flow that has exceeded our expectation. As a result our management team and our Board of Directors are paced with the strategic decision of how best to maximize our value. Consistent with what we have said in the past, every decision we make is evaluated against our commitment to provide a high-quality and sustainable distribution to our unitholders that is poised to grow overtime. I'm pleased with the Board's decision to increase our quarter cash distribution to $0.70 per limited partnering unit in December of this year. We expect to maintain this rate into 2014 allowing for an annualized rate of $2.80 per limited partnering unit next year. This 12% distribution increase is reflective of growth slightly above the anticipated adjusted EBITDA growth of approximately 9% at the high end of our range. Over the next several years, we would expect the distribution to grow at least at the pace of our adjusted EBITDA growth. In addition to increasing distributions, we plan to invest further in our business. As I have mentioned in the past, under Richard Zimmerman's leadership, we have spent a significant amount of time analyzing our historical capital spend and identifying the rational as to why a rider attraction was or was not successful. These reviews have the Cedar more confident in the capital projects we currently have planned and the additional opportunities we have identified going forward. As we pursue the next-generation growth initiatives, we believe allotting a portion of our cash flow to invest in the construction and/or acquisition in new assets is an accretive use of our capital. Historically we've limited our annual capital expenditures to 9% of our net revenues. Over the past three years we've improved our financial flexibility and have taken a more analytical approach to our investments. We do not want to limit our growth potential based solely on historical metrics. Going forward I would anticipate you’ll see us invest at least 9% of our net revenues in marketable capital. We've planned to make additional short and long-term capital investments as we identify new growth opportunities. I would emphasize that we're looking for investments that directly leverage the installed asset base of our existing parks and are expected to produce specifically measurable long-term incremental revenue streams. For 2014 this will include an expansion of our popular cottage and cabins t two parks. These are assets that are complementary to our core business and lengthen the guest day, ultimately improving their experience and increasing guest spends. We will also invest in an in-park television network that will provide additional entertainment for our guests and support increased activity with our strategic alliance and marketing partners. With these new investments laid for 2014 and additional investments anticipated for 2015, we now expect to achieve our FUNforward long-term growth goal of $450 million in adjusted EBITDA earlier than our original target of 2016. And with that I will turn the call over to Brian to provide additional detail on our financial results.

[Brian Witherow:]

Thanks, Matt and good morning to everyone on the call. As Matt mentioned we're extremely pleased with our record third quarter results and the positive momentum that we carried for October. For the third quarter of 2013 we reported an increase of $38.6 million in revenues or 7% to a record $592.1 million. This solid revenue growth was a direct result of a 7% or $2.83 increase in average in-park guest per capita spending to $45.73, as well as an 8% or $4.4 million increase in out of park revenues to $58.7 million and a 15,000 visit increase in attendance to 12 million guests. Excluding the two non-core standalone water parks sold in November of 2012 and August of 2013, attendance on a comparable park basis would have increased 2% or 207,000 visits to 11.9 million guests. It’s important to know that in-park guest per capita spending represents the amount spent per attendee to gain admission to our parks, plus all amounts spent while inside park gates. Out of park revenues primarily represents the sale of hotel rooms, food, merchandise and other complimentary activities outside the park gates and our excluded from our guest per capita figures. The solid growth in average in-park guest per capita spending during the third quarter came from a combination of strength in admissions per cap and pure in-park guest spending. Our admissions per cap increased 6% as our guests continue to see high value in our product offerings particularly in our season pass program in new rising attractions. Additionally we experienced an 8% increase in pure in-park guest spending driven by improved capita rates on food and beverage products at all parks and the second new momentum of our premium product offerings. We are extremely pleased with the solid per capita increases across all of our parks, particularly given our record season pass sales, which tend to place additional pressure on this metric. For the quarter, operating cost and expenses increased $11.3 million or 4% to $275 million from $263.7 million in the third quarter of 2012. The increased costs are largely attributable to higher staffing levels to support our additional revenue growth initiatives, investments in new customer relationship management and revenue management platforms and higher incentive compensation due to our strong current year performance. These cost increases were slightly offset by a decrease in cost of goods sold, the direct result of savings initiatives in our food and beverage program and continued focus on operating expense control. As a percent of net revenues cost and expenses decreased 120 basis points which was in line with our expectations coming into the year. Adjusted EBITDA which we believe is meaningful measure of our park level operating results increased to a record $318.4 million for the third quarter of 2013 from $292.3 million in 2012 reflecting a 9% increase in adjusted EBITDA for the quarter. The solid increase in adjusted EBITDA is a direct result of the strong revenue and attendance trends produced by our parks during the quarter combined with our ongoing focus of cost control. Our adjusted EBITDA margin for the quarter improved 100 basis points as compared to the third quarter of 2012. Moving on to our nine month results for a moment. For the first nine months for the year net revenues increased 6% to $995.5 million driven by a 6% or $2.40 increase in average in-park guest per capita spending to $44.24. 7% or $7.3 million increase in out of park revenues to $106.8 million and attendance which was comparable with the same period a year ago. Excluding sale of the two water parks comparable park attendance for the nine months period would have increased 1% or 195,000 visits to $20.5 million. Adjusted EBITDA for the nine month period increased 11% to a record $405.2 million, up $39.7 million from the same period a year ago. Switching the focus to more current results, our revenue trends for this past weekend remains solid, based on preliminary results, net revenues through November 3rd totaled $1.104 billion, up 6% or $65 million compared with $1.039 billion for the same period last year. The year-over-year increase was the result of the 6% or $2.31 improvement in average in-park guest per capita spending to a record $44.33 and 7% or $8 million increase out of park revenues to $117 million. Also contributing to the revenue growth was 100,000 visit increases in attendance compared with the same time last year. Again excluding the sale of the two water parks, attendance would have up 2% or 334,000 visits to a record $22.7 million visits on a comparable park basis. Now let me highlight few items on our balance sheet. As you read in our news release this morning, our liquidity and cash flow remains strong and we ended the third quarter in solid financial position with $183.5 million in cash on our balance sheet. This compares to $96.1 million a year earlier. Our ability to achieve another year of record results combined with the proceeds from the sale of the two non-core water parks has contributed to our healthy liquidity reserve. At the end of the third quarter, our consolidated leverage ratio was 3.6 times which is down from 3.9 times a year ago. And our net leverage ratio stood at 3.1 times. Our current leverage position is well within our number range in the current credit market environment. For 2013 we expect our average cost of debt to be just over 6%. And we’ll continue to closely monitor credit markets and we’ll take advantage of opportunities to further optimize our capital structure. Commenting on our guest distribution for just a moment, taking into account our solid liquidity reserve and the strong operating results to-date along with positive momentum we have heading into 2014, we are confident in our capacity to increase the distribution to our unitholders at this time. As Matt mentioned earlier, the Board has declared a 12% increase in our fourth quarter distribution amount. The $0.70 per limited partner unit quarterly cash distribution is payable on December 16th to unitholders of record on December 4th. We also expect to maintain that distribution amount into 2014 resulting in an annualized distribution of $2.80 per limited partner unit. Going forward over the next several years, we expect the distribution to grow at least at the pace of the growth of our business. As you’ve heard us saying many times in the past and Matt reiterated today, we would focus on maintaining a quality distribution at a sustainable and growing in both the short and long-term. To summarize, we have entered our core operating season in very strong financial position. Our solid cash position along with existing credit facilities provide ample financial capacity to address our current working capital needs, paid growing partnership distributions and support growth through our capital expenditure programs and organic growth opportunities. Now I'll turn things back over to Matt.

[Matt Ouimet:]

Thank you, Brian. As you can tell from our prepared remarks today, we are evolving from a company that was primarily operationally driven and relied heavily on macro metrics particularly attendance and per capita spend to an inside driven organization where each individual guest and each transaction presents an opportunity to optimize our profitability. The returns from our investments and tools to drive insight such as our e-commerce, CRM and revenue management platforms have been impressive and will continue to grow. Equally impressive returns that come from the strategic choices we made in terms of improving the guest experience, most notably the new rising attractions. One competency underlying our capital investment decisions is the objective of delivering new experiences that will continue to be favorite attractions in the future decades. While we certainly are rewarded with the attendance that comes in the early years of the new attraction and its marketing campaign, if we are thoughtful, we also have increased the value of the guest experience for the long-term. We've always been a company that has introduced innovative new attractions with great success. The first 200, 300 and 400 foot taller roller-coasters were built at Cedar Point. Luminosity was the first seasoning entertainment -- in the Regional Amusement Park business. In 2014 we will launch Banshee, the longest inverted coaster in the world at Kings Island. We will also introduce the first addition to our Amusement Dark portfolio, The Guardian of Wonder Mountain at Canada’s Wonderland which combines the coaster track within interactive digital gaming system. The longest interactive screen in the world provides a compelling adventure in search of the Dragon’s Gold and as Halloween approaches, the adventure changes as zombies make their presence known. These are just two examples of the next generation of FUN's innovation. I am very proud of the success our team has had this year and I remained very confident in our business strategy going forward. Our parks with the exception of Knott’s Berry Farm, our only year-round park are now focused on 2014. As always we will continue to look for ways to add value for our guests, employees and ultimately our unitholders maximizing the near and long-term value of Cedar Fair. Now we will open the call for any questions you may have.

[Operator:]

Thank you. Ladies and gentlemen we’ll now conduct the question-and-answer session. (Operator Instructions). Your first question comes from James Hardiman from Longbow Research. Please go ahead.

[James Hardiman:]

Hey, thanks for taking my call and congrats on a great first nine months of the year, couple of quickies here. We should be able to back into this, but sometimes with rounding it’s a little bit tougher. Can you just give us the isolated October numbers between attendance and per cap?

[Brian Witherow:]

James, we typically don’t break out the month of October in that level of detail, I can tell you though it, the month of October was a record month for us in terms of attendance revenue.

[James Hardiman:]

Okay. And do you think, I mean, obviously, I know you guys talked about last year the weather was unfavorable during the Halloweekends period, I know at least here in the Midwest, it was sort of all over the place, you had some really nice weather than some really wet weather. How more so as we think about looking to next year was this you think an average Halloweekends period from a weather perspective obviously that has big swings?

[Matt Ouimet:]

James, this is Matt. Good morning. I think with the exception of one general manager who lives north at the border, I think we would say, we had overall for the course of the year what you would expected very normal year on average and for the policies and I would say that over the course of September to the end of October probably average not to be about the same as it usually is.

[James Hardiman:]

Got it. And then sort of going back to the statement you made with regards to the FUNforward initiatives coming in much faster into a greater degree, I think I asked this question pretty much every call, but if you could pull apart how much was much faster and how much was to a greater degree? I guess another way of asking that, what inning do we think we’re in terms of some of these pricing initiatives, where we would fast past, where we would with fast pay and some of these other initiatives?

[Matt Ouimet:]

So I am in Boston James, I am happy to talk (inaudible) James. Look the way I look at it, this is my third operating season, but really is more the second and even the first to some degree like for Kelley Semmelroth after CMO, operating season that have had this management team together executing against the FUNforward initiative and now adding to the FUNforward initiative. So there are certain things that are bigger and faster and I would say the Fast Lane product is probably in the latter innings but there is no doubt that our continued leverage of the successful ecommerce platform, what we’ve setup in terms of CRM are greater understanding inside into the season passholder particularly, those things are still in the very early innings. So I think we’ve got a lot of running room and I tell people that the more I go around and talk about these initiatives, the more I feel that we haven’t quite figured out how much upside is left.

[James Hardiman:]

Got it. And then just last question, obviously you guys have done a great job on the top-line this year, but the margin I would argue has been even more impressive, certainly relative to, I think how the street was looking at it and I thought how maybe you guys were looking at it coming into the year, the better margin, that’s just a function of better sales and holding cost with the incremental sales flowing through. And I guess as we look forward, any tips on how we should think about that flow through between sales and EBITDA or operating income?

[Brian Witherow:]

Yeah, James, this is Brian. As far as the margin goes, I will tell you we came into the year with a number of initiatives, specifically year mark towards improving margins and I was imagine on the call in particular the food and beverage products where we reengineered our menus and really took a hard look at those costs. And as I said on the call we hit on those initiatives. I will tell you just to give you some look forward towards the end of the year and we look back in 2012 much of our costs were very frontloaded as far as the year was concerned. So some of the off season costs (inaudible), some of the what we call the downtime expenses for those parts that aren’t be around properties. This year those costs were more disciplinedly spread throughout the year. So we’ll see a little bit of margin compression in the fourth quarter at some of those projects that we get at, at the first quarter as well, are going to hitting the fourth quarter but we shift and we will see margins expansion by the end of the year.

[James Hardiman:]

Got it. And just I don’t know how much you can tell us on 2014, it would be pretty hard to match the margin expansion at least that we’ve seen through the first three quarters of the year next year. Any bit you want to give us in terms of how we should think about cost discipline next year, potential margin expansion, maybe some offset in terms of incremental dollar investments, how should we think about next year?

[Matt Ouimet:]

So James I will take that. I think a little bit is, we just closed the books on most of our operating season for this year. So Brian and I and the rest of the team got our sleeves rolled up to think about. We don’t know the discipline will have in place next year. We’ve always had great cost discipline so that I don’t think anything new to this audience particularly. What I will tell you though is I want to make sure that we continue to deliver great value to the consumer. So our cost discipline needs to be around those things that don’t have good value with consumer. And then there is change for them, we need to invest some other backend to make sure we can continue to drive the repeat visitation and the pricing that we want to drive. So it will be good cost [standards], I just don’t want to do it on the back of the consumer.

[James Hardiman:]

Excellent. Thanks guys.

[Operator:]

Your next question comes from Scott Hamann with KeyBanc Capital Markets. Please go ahead.

[Scott Hamann:]

Just in terms of the incremental investments that you’ve talked about Matt, is this above the $15 million to $20 million that you had talked about before, is that just expanding in spite of that $15 million to $20 million over the next couple of years?

[Matt Ouimet:]

Yeah, it is in addition to the way we have thought about it Scott is, as you remember or may remember we went adequate and did a discipline assessment of our portfolio and we had a couple nine core water parks that we’re going to grow. So this next year where we are deploying that capital in the cabins or camp grounds in the park TV networks. I said something in my prepared remarks, which I think is important, these have very identifiable and measurable income streams associated with them and so the commitments from Brian and I back from the operators as well, with Richard Zimmerman is to make sure that these produced the results we anticipate they will. If that is the case and we will continue to make similar investments going forward though we've got cash from the water parks to put into this, we think these are very logical high return investments. And in our past, we stopped, we have avoided some of this growth, because we have been little too disciplined around the 9% of marketable capital. So, it's a little bit of a run-on sentence there, I apologize, but this is additive, but the return should be additive as well.

[Scott Hamann:]

Is the magnitude similar to the $15 million to $20 million or it's going to?

[Matt Ouimet:]

Essentially, it's a little less than we got from the water parks.

[Scott Hamann:]

Okay, perfect. And then just a follow-up on season pass, I know that you have been outselling season passes, I know it's early, any indication on where some of those maybe trending? And then also just some of the new programs in terms of instalment plans that you may have in half this year versus what they had last year?

[Brian Witherow:]

Sure, Scott. This is Brian. So as we talked about we are very pleased with the expansion of the season pass programs the last two years, it's been an area of significant growth for us as we head into the ‘14 season and you are right we are just really tapping into that with the fall renewal program that just wrapped up. We did introduce a nine month instalment program this year, we did not have that last year, we had a six month program last year. So the fall renewal that just wrapped was under a nine month instalment. We did see lifts so we’re up in units again in price. It's very early, it’s too early to really take that and extrapolate at anywhere but it’s definitely encouraging that the momentum continues.

[Scott Hamann:]

All right, thank you.

[Operator:]

Your next question comes from Tim Conder with Wells Fargo Securities. Please go ahead.

[Tim Conder:]

Thank you. Congrats Brian to you and the whole team just a phenomenal execution great performance. A couple of things here I wanted to get a little bit more details just to wrap up of Scott’s question. Given that you do have 97% of your operating days behind you now, what does it look like at this point that season passes represent as a percentage of attendance for ‘13?

[Matt Ouimet:]

It will be a little north of 40% and the way to think about that too is to remember that’s direct and then we have an influence factor on top of that which we don’t specifically disclose which is the number of tickets they buy for families and friends. So I would say, the way we generally think about is somewhere around 50% of our attendance due to the directly or indirectly influence by the season pass holders.

[Tim Conder:]

Okay. And then on the new initiatives you've outlined some of those most intriguing here a little bit all of it’s very interesting, but one of the things on the margin here seems very interesting is what you described, what the right there in Toronto. I guess how do you see that potentially being applied to other parks on a go forward basis?

[Matt Ouimet:]

Yeah. Our hope, I will give you the specific answer, now I'll take one step back, our hope is that we're able to create something that is relatively affordable, highly repeatable and has the ability to change software, I mean, both the seasonal basis and from year-to-year and you can read it that into some of the information that I put in the prepared remarks or we put in our press release. When we take a step back and we've been challenged by our Board to do this, this is an industry that has been so hardware focused for decades and really has not as the world has become much more saturated with digital content and software, it really hasn’t played out very much in our business. And that's to some degree that's great as you can’t replicate the roller coaster from the couch, but when you think there is an opportunity to do much more with this type of product and we’re excited about our new relationship with these guys, Brain and I were just up in Montreal in a warehouse playing ghostbusters essentially. And you know what we won’t get it perfect, but over time it’s going to fun, it’s going to be interactive and it’s going to be affordable and those are -- that should help us in so many different ways as you can appreciate.

[Tim Conder:]

Right, okay. A couple things a little bit zooming out and a little bit on the bigger picture here, the distribution increase you alluded that obviously it’s a 280 annualized here distribution now. You do have those bonds that are callable and all gets to ’14. And Brian you mentioned that you are always looking, could there be opportunities maybe to do something earlier rather than waiting till then, but obviously you will do what most accretive here? But when you get that done, would it be within the realm of reason to say that there could be the potential for supplement, let’s call it to the dividend or to the distribution excuse me, once that's done? And then also I think you had talked earlier this year about you would also balance looking at return of capital from maybe repurchasing of units, just maybe give us an update on that also?

[Brian Witherow:]

Yes, Jim, so from a bond perspective, we do continue to monitor the markets, and we’ll look to take those [9.8] cost bonds out as soon as it makes financial and economic sense. Right now the call premium is still little bit too high but there is no doubt and we said this publicly before that that event provides us with another opportunity to look at and consider a step function in the distribution. So as we think about the timing of that August of ‘14 is when the call premium gets down closer to $16 million, $18 million which is a much more reasonable and manageable number, we’ll continue to look before then. I don’t know that you would see us do a onetime distribution, I don’t think we see a lot of value on that, but more so I think about step function opportunity much like you saw a year ago.

[Tim Conder:]

Okay, thank you on that. And lastly Matt you said you are nicely on track to achieve your 450 million adjusted EBITDA goal earlier than your 2016 time period. Any thoughts at this point maybe what a new 2016 goal would be? And then can we infer that that 450s should 2015 would likely that should be achieved?

[Matt Ouimet:]

Tim, we are as I said just trying to roll up our sleeves and look at exactly what have we benefited from so far to get to where we are. So our plan currently is to give guidance. Typically we give next year’s guidance when we do our first quarter earnings call for next year which is around the May timeframe at that point in time is probably one will give you more insight under the longer term goals outside of the 450.

[Tim Conder:]

Okay, okay. Look forward to seeing you at our conference next Wednesday. Thanks.

[Matt Ouimet:]

That would be great. Look forward to it.

[Operator:]

Your next question comes from Afua Ahwoi with Goldman Sachs. Please go ahead.

[Afua Ahwoi:]

Hey thank you, good morning. So two questions; first on the cost of goods sold line. I think mentioned that you have some initiatives there versus our estimate that was actually where on a lot of the deep came from. So anything you can go into specifics of some of the initiative you have there? And how early are you in that and how far and that continue to benefit that line item? And then separately broadly on sort of your trend, I mean on the other consumer spaces, we have seen some weakness and there were some talk of weakness whether it’s regional consumer or rental cars and hotels, but that means that parks sector appears to be sort of back in the trend. I was just wondering any feedback from your consumer or is there anything different about on the spending patterns versus the others that you can point out? Thanks.

[Matt Ouimet:]

So let me take that second one then I will kick the other one over Brian. The whole key here is to make sure that the consumer feels like they are getting value to their money. And I will tell you the industry is healthy and appears to be doing that broadly, not only regional parks but in the destination parks as well. So I think the secret is make sure you tell off a lot of attention to making sure people have farther in any given day, and so part of that seems to be working. And I agree you, it seems to be backing some of the other trends. But that is where I get some confidence about our ability to continue to price -- we are doing this well in this economy, that would be an opportunity to continue to push that fair pricing if you well for the consumer and for our unitholders.

[Brian Witherow:]

Afua, this is Brian. As far as the cost of goods sold question, the initiatives we had were really across the broad spectrum of our revenue channels, but we are probably most concentrated or most impactful from the F&B side. As I mentioned on the call, everything from reengineering our food menus which benefitted cost of goods sold to the new relationship with Coke that Matt mentioned and the first year impact of that and I think we still got room to run and both of those fronts, we will continue to push that, but only to the extent that it doesn't impact as Matt said the guest experience and the value perception so.

[Operator:]

Your next question coming from the line of Ray Cheesman from Anfield Capital. Please go ahead

[Ray Cheesman:]

A follow up or just a quick question. First I want to say, thank you very much for fabulous summer. I wanted to follow up on your pricing comment a second ago. What industries do you look at for, I don't necessarily want to say leadership, but kind of confirmation that you are going the right direction as the analysts just formerly said that, if we look at quick served food, they have been pressured, if we look at the movies, they have reasonable summer, but it's mostly price, not attendance. How do you think about pricing as you look forward? And I know you said you just rolled up your sleeves. But are there other parts of the economy look to for information about how much pricing flexibility you might have.

[Matt Ouimet:]

Yeah. And so Ray a fair question and I will elaborate a little bit which is our sleeves have been rolled up on revenue management for about two years. And so we have done an enormous amount of work. And it is less about benchmarking their alternatives, because their real alternatives could cost you nothing; you could go to the lake that day, you could go to the park that day. The issue for us is the right price to the right consumer at the right time. So the industries we look at are the industries that do us specific, particularly good job with the revenue management discipline. So our woman that heads up revenue management is very strong executive, we hired up in the cruise industry. The hotel background is what we post some of other talent from et cetera. And so, I think the biggest inside in that regard is and I'm sorry I'm not going to give you more elaboration, because some of that I consider about is proprietary. But look the best thing we have been able to do over the last couple of years is segment our audiences more specifically and be able to put pricing targeted towards those segments so our group business pricing is much more targeted depending on the nature of the group, certainly our season pass and the related benefits et cetera. But we don’t really price against something else that is out there. We try to make sure that they committed to us at a fair price and then the biggest lever to a great degree also has been getting them to commit earlier, because once you get them to commit earlier the other alternatives become much relevant. And I am sorry I don’t think I exactly answered your question but we really don’t look at movie ticket prices as an example.

[Ray Cheesman:]

I also wanted to follow-up. You said you’re in early innings on the CRM and the season pass data, but are there any things that the customers communicated through the increasing relationship with you guys either over the monthly payment periods or from customer surveys you probably take in the parks all the time. What are they telling you that they did like or didn’t like about this year?

[Matt Ouimet:]

The number one thing and as you’ll hear in my closing comments is we have to remember the having fun should be fun. And so can you make the lines a little shorter, can you make the [prays] a little happier can you open up for a few more hours, those type of things and we've done it. And so as ordinary projection as it sounds a lot of the initiatives our general managers are taking are just to make sure that they look at that consumer as if they would for their own family or friends. And our guest satisfaction metrics are telling us we're doing a good job on that but we're not perfect. And so let’s just make sure, Ray, there are more smiles more laughs and a lot of that is just make sure the lines are less, make sure the prays are better et cetera and we're working on all that. And then let’s say that a new rider attraction such as Banshee or Guardian those are the things that bring back repeat guests and I feel very good about what we've got in our pipeline for ‘14.

[Ray Cheesman:]

And as a follow-up I just wanted to ask, obviously your capital investment last year, you’ve indicated was a big help this year, as you look forward and you are going to possibly spend even more as a percentage of revenues, I am wondering how do you protect yourself? And this probably a bad example because it’s kind of the pour opposite, but we've all read stories of $100 million ride that never work properly, be it the big Florida parks or big parks in California, how do you kind of protect yourself from going over the edge of knowing what's fun and let’s face it, these $100 million rides were supposed to be fun, but when it takes five years to make it work, it doesn’t end up being a very good rate of return.

[Matt Ouimet:]

Yeah. Fortunately or unfortunately we can’t afford $100 million to start with. But the magnitude, the year could be just as great for us depending on it. Look I’ve got a management team that committed their careers to this industry. And so I worry less about the tragic taking the wrong $30 million ride or $25 million ride, I actually think what's happening is based on our review of every ride we put in over the last eight years in every park, our filter now is very, very productive. So obviously building something and haven’t been knocked it down or not have guests enjoyed would not be fun. But I don’t worry too much about that.

[Ray Cheesman:]

Again, thanks very much because I had a lot of fun owning your shares this year.

[Matt Ouimet:]

Glad to hear that, Ray.

[Operator:]

Your next question comes from John Maxwell with Jefferies. Please go ahead.

[John Maxwell:]

Hi good morning. Most of my questions have been asked and answered. But just turning to the attendance side of the equation a little bit; is there any thought that you may have to expand your lodging amenities more so than maybe you were thinking in the past bringing people in from a wider distance? I know you had mentioned in the press release you are adding more to the cottages and cabins. But I am just wondering are you getting to a point where maybe you just need to expand the radius a little bit and to do that you need to offer more overnight accommodations?

[Brian Witherow:]

Hey John, this is Brian. As we’ve thought about the accommodation side of things we’ve got a couple of parks in Cedar Point Knott’s Berry Farm that are a little bit broader reaching parks than your typical regional amusement park not because of its location in Southern California and Cedar Point because it’s just a share size and offering of the property. As we think of the accommodations expansion, Matt alluded to that that we’re going to undertake for next year with expanding some of the cottage and cabins offerings at two of the properties. That’s more about as much as anything trying to extend the length of stay for the visitor and get that advance purchase commitment when the decision to visit is [married] up with an overnight stay the [community] becomes that much firmer and locked in. So it’s more about that than there is no doubt that it will open it up to I think having those overnight accommodations will open up to a broader audience and we can extend the radius. But I really think that core markets alone can support this and it’s more about an extended stay.

[John Maxwell:]

Okay. Alright perfect. And I apologize I think you’ve touched on it Brian, but -- that are callable in August of next year did I hear you say right now it’s too cost prohibitive to take it out you kind of just kind of waiting till they get closer to the call date?

[Brian Witherow:]

Yeah John, right now the call premium is just a little bit too rich. I think when we get into the first quarter of ‘14 it will start to maybe get a little bit more closer to reality we’re checking it out make sense, but right now it’s a little too rich.

[John Maxwell:]

Okay. I appreciate it. Thank you.

[Operator:]

(Operator Instructions) Next we have a follow-up question from James Hardiman with Longbow Research. Please go ahead.

[James Hardiman:]

Hey thanks for taking a couple of follow-ups here, seems like there is a lot of [meat] here someone do dive a little bit deeper. The distribution I think not only was it more than most people expected, but it’s a little bit earlier, your pattern in the last couple of years sort of announced the distribution for the following year, this one we’re going to see the increase in December. Sort of what’s the thought there, is that just higher confidence is it sort of you have this extra cash from some of the park sales. As I look to next year, should this patterning continue seems significant, how should I think about that?

[Brian Witherow:]

I think in normal circumstances, this probably is the pattern going forward. I won’t commit to that 100%, but we had a good operating season, we sold some parks our confidence in the growth in next year and beyond is increasing as we approach it, so all of the above contributed to that. And the other thing we realize is investors don’t really adapt by with the distribution. Even if we announce that now and we paid it in March, they don’t really identify whether it’s broadly until it actually gets declared and gets up on the screen, so all of that contributed to the timing of this.

[James Hardiman:]

Got it. And then the in-park TV network seems like an interesting idea, what’s the impact on financials, is it all about advertising type income or is it actually an impact maybe in I don’t know, attendance or per capita. How should we think about how that affects your business?

[Brian Witherow:]

Yeah, there are three components; I give Richard Zimmerman enormous credit for doing the due diligence on this. One is there is an income stream from advertising, much like it is for all of their outcome channels and we last the platform for that quite honestly and this an acknowledgment of that. But the challenge to the team is make it additive to the guest experience. And so we think there is per cap opportunities as we are able to do daily, different offers during different times of the day, we think that are show attendance will go up as we are able to show and basically advertise the in-park entertainment that's available. And then we also think there is some social networking aspect that this will play out with overtime. So I do not want us turn our queues into commercial factories, I need to make sure that in the end you are happy to be looking at these televisions, while you are waiting to write top dealt register.

[James Hardiman:]

Got it. And then on length of stay, you guys have mentioned that a number of times, any stats you could share with us on that. It seems like that's a big driver behind the per capita increases, any way to quantify what’s changed there?

[Matt Ouimet:]

Yeah. I don't want to give you the specifics, but what we have done and to encourage you to stay across this, there is a number of initiatives some of them that you would laugh at, at being too simplistic, if I told you what they were. But this is something we are going to continue to focus on, because there is no doubt, there is value for us and the consumer received greater value when they spend more time with us.

[James Hardiman:]

Got it. And then last question just the balance between pricing and attendance, you’re sitting here at about 2% attendance increase, 6% per cap, I guess two things there. Is that how you envision this coming into this year, I don't know if you called any order balls as we got into the spring and the weather was pretty crummy? And secondly, forgetting about the magnitude for a minute, is that sort of mix of revenue growth that we should think about as we move forward? Thanks.

[Matt Ouimet:]

So the one thing you have to remember in this industry is the easiest thing to get addicted to is attendance because it's the easiest metric to get on almost a quarterly hourly basis. But attendance alone without pricing at the appropriate level, makes the guest experience worst and you don't actually make more money. So yeah, I think when we ended up we are very pleased with it to be honest with you. And I have always said that if we could get 1% to 2% attendance growth each year and get the balance of our growth through pricing, I would see that as a very favorable circumstance. And so this year James I think we ended up a little higher than where I would have expected to be with attendance given our pricing, but that speak some of the other programs we've run.

[James Hardiman:]

Very helpful. Thanks guys.

[Operator:]

There are no further questions at this time, please continue.

[Matt Ouimet:]

So thank you for the questions everyone this morning and for your ongoing interest in Cedar Fair. We've covered a lot of ground in today’s call, but I want to make sure that I close with two plans of our management philosophy that are essential to our decision making process and our success today. The first is protecting and enhancing the value of the guest experience is the key lever that drives repeat visitation and enhance pricing. We simply must continue to make the experience in our parks more valuable to our guests. And second we are committed to both near-term and long-term value creation. The decisions we make are grounded in our desire to ensure we are still proud to those decisions 10 years from now. Stacy?

[Stacy Frole:]

Thank you everyone for joining us on the call today. Should you have any follow-up questions, please feel free to contact me at 419-627-2227 or Lisa Broussard at 419-609-5929. And we look forward to speaking with you again in about three months, December fourth quarter and year-end results.

[Operator:]

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.