Brian Witherow - EVP and CFO
Janine Shelffo - UBS
Cedar Fair, L.P. (FUN) UBS Global Media and Communications Conference December 10, 2013 11:00 AM ET
Janine Shelffo - UBS
I think we are going to go ahead and get started, so thanks to everybody for joining us on this snowy morning. I would like to introduce Brian Witherow, the CFO of Cedar Fair. He is going to walk through a short presentation for us this morning and then we are going to go into Q&A. Brian?
Thanks Janine. Welcome everybody. Thanks for taking the time this morning. For those of you that aren’t as familiar with Cedar Fair, we are one of the world’s largest operators of regional amusement parks. We have 11 best in class amusement parks under ownership a 12th that we have a management contract on. We also own and operate three separate water parks, five hotels, five campgrounds and a couple of Mariner Inns. So in total we have a lot of different industries that we play in, the core of course is the amusement park, the 11 best in class amusement parks.
Across the properties we entertain more than 23 million guests a year and as we indicated on our last earnings call, the third quarter earnings call we are on pace to produce this year a north of $1.1 billion in revenue and EBITDA that would be at the high end of our 2013 guidance of $415 million to $425 million, so a fourth straight record year for the company coming out of the 2009 recession. In spite of what has been a challenging economy for us in a number of our markets, we’ve been able to put up four straight record years and done so not on the back of discounting the drive attendance but more so on a blend of modest attendance growth over that time and more per capita growth. On our space, the two key metrics for driving revenue, our attendance and guest spend at the properties or per capita and that has been the focus for us is to continue to push that per capita growth and we’ve done it so successfully over the last several years.
Our properties are geographically located throughout the country with a concentration in the east and the mid-west. Within the system the 11 parks, that you see on the map, on the board there, four represent what we call the big four. And that would be Cedar Point in Sandusky Ohio, Canada’s Wonderland in Toronto, Kings Island in Cincinnati and Knott's Berry Farm in Southern California, near; not too far from Disney Land. Those four parks within our system represent close to two thirds of our revenue and about 70% of the company’s EBITDA. So while we are very geographically diversified, which helps from an economic and weather perspective, we do have a concentration in those four properties what we consider our signature properties.
The growth though continues to be there for us as the last four years have shown. The operations remain strong at all of the properties. We recently went through a process of assessing each of our properties to determine if there were any non-core assets within the system and we liquidated two standalone water parks in the California market, one in Santiago and one in Palm Springs within the last 12 months and now we’re down to what we consider all of our core properties. We believe there are some significant growth opportunities going forward within the system; I mentioned the big four driving the lion’s share of the company’s EBITDA.
We do have three markets where based on our assessment we determine we are little bit underpenetrated and have seen growth over the last couple of years and believe there is more growth to be gotten and those three markets are The Great America Park in Santa Clara which is strategically located now, what will be next to the new San Francisco 49ers Stadium. So we see a lot of synergy opportunities there to partner and market that property. Our park in Minneapolis, Valleyfair, poses some unique opportunities for us but we are still working through. And probably the most significant of which and we’ve definitely seen growth in this market over the last couple of years is the park in the Charlotte’s market which is Carowinds. We’ve indicated on our last couple of conference calls, our desire to invest heavily in that property as the Charlotte market is one of the largest growing markets from a population base in the country. You will see us invest in each of those markets, I think on a pretty aggressive basis. But right now that focus is definitely with the Charlotte market.
As we think about the last four years, and the strength that we’ve seen in the record results as I indicated, it’s not been by coincidence. The fundamentals are strong. There is definitely a competitive advantage that we enjoy in this space and it’s not just Cedar Fair. I think, our peers Six Flags and Sea World would say the same thing as regional players. There is definitely strong barrier to the entry, the ability for a new competitor to come in the market is virtually impossible from the standpoint of the approvals that need to be gotten, the amount of money that needs to be invested and in fact that we all enjoy first mover advantage in the markets that we’ve landed in. We also have an extremely deep and talented bench. We believe that we’ve got the best managers in the industry and I think the results speak for themselves. While we differ from maybe Seas and Six in the back that we don’t have a national brand and that many of you would have heard of, we do have excellent regional brands that are well established within their markets. And it’s the strength of those regional brands that we lever off and play off of year-to-year as we invest in the property.
And lastly, the ability to generate returns has been there. As this is a fairly capital intensive business, we reinvest probably close to a $100 million a year in new what we call marketable capital lead share, and that’s the reinvestment in new rides, attractions, new food merchandise locations et cetera. And it’s those investments that drive these returns. And we hold the parks to a high standard when it come to justifying investments in the properties but we’ve been able to see based on strategic investments over the years, returns that justify those investments.
As we look back, what the business has done as an indicator of where we think we can go on in the future, it’s definitely the company has been able to generate stable and diversified cash flows over a long period of time. It tends to be a business that is fairly recession resilient. I wouldn’t by any means try and tell you that it’s recession proof, as 2009, in the financial crisis and the economic collapse definitely impacted our business as we saw on a 11% drop in EBITDA. But what we’ve seen over the last three decades, that three times our EBITDA has not grown from the year before in one of those recessionary periods or crisis, what we’ve seen is a quick recovery the following year.
So the 2009 decline of 11% was quickly recouped with the 13% pickup the next year. So it’s off of that, you know the historic strength that we feel very good about where we are going in the future. If we are able to put up four straight record years in this kind of economy we are confident that as the economy begins to recover, the upside is only that much greater. In January of 2012, we came out at that point in time with a new strategic plan. Management team had changed over our now retired CEO had stepped down after more than 25 years running the company and we got a new CEO in place and a fairly new board in place and we laid out a new program of growth what we called our FUNforward growth plan that carried the company through 2016.
And the target was $450 million of EBITDA. And that was coming off of 375 base at that point in time. And that represented about a 4% CAGR. I can tell you we’re well ahead of that pace at this point. We have, as I said we’ve indicated we will be at the high end of our 415 to 425 EBITDA guidance for this year, which would project at least a full year pull forward of that 450 million. So we will be earlier than 2016. And that growth has been accomplished through a number of strategic growth drivers or initiatives that we’ve successfully executed on.
I am not going to tell you that we’ve executed on everyone as well as the other, but each one has had some level of success and pose more future growth opportunity. We’ve been focused on enhancing the guest experience and that comes from not only the capital expenditures that we put into the program or into the procedure, and those programs that have added new rollercoaster, new family rides, new water attraction. It’s also been a focus on re-introducing new OpEx initiatives at the park, interactive entertainment on the mid-ways, the introduction of new shows et cetera.
We’ve also been extremely focused on improving our consumer messaging. Probably the biggest focus there has been the introduction of a new advertising agency a couple of years ago. And more importantly was in the last 12 months introduction of our first every CRM platform. Our ability to now communicate with our guests on a one-on-one basis going forward will be much greater. It was essentially non-existent up until this. Our way of communicating with the consumer prior to 2013 was through mass media and that works great as you are trying to attract the high-end consumer, the challenge becomes as you are going after the value-oriented consumer and the ability to communicate with he or she on a one-on-one basis.
We are not in the business of chasing attendance and we are not going to discount to chase attendance, and so in order to get that value oriented consumer we need to be able to communicate with them one-on-one. So we have gone through the initial steps and process of building that CRM database which is going to allow us and did allow us on a first-tier basis to start communicating with our consumers much more directly and we are very excited about where we think that can take us going forward. This industry, the regional amusement park industry has not historically applied some of the basic pricing principles that maybe some adjacent space industry, like the cruise lines, hotels, airlines et cetera have done; and particularly dynamic pricing revenue management.
We have begun to try and introduce that, and one of the challenges that we have is that we don’t have a limited inventory when it comes to attendance. We can entertain 60,000 people at a park or we can entertain 16,000 people at a park. There is really no cap on attendance. So that makes peer dynamic pricing a challenge but we have introduced within the company, our first revenue management function. We’re beginning to try and take some of those dynamic pricing principles, those of revenue management concepts and apply them in the space and I think '13 was the first year that we saw some progress in that regard. We’ve also done a very good job, I think, over the last two years of segmenting our markets. And the easiest way for us to do that was just start introducing some premium product.
We were last movers in the space to introduce the Front-of-the-line pass concept, Disney’s had a three years as has Six Flags, Sea World, Universal, we were last movers to the space but the ability to offer the benefit oriented consumer the person who has the deep share of wallet wants to make that day the best day of his summer experience and is willing to pay for it is very much available to us and we have activated on that over the last two years very successfully. So, the continuation of introduction of more premium products awaits, we continued it to refine the existing products that we have but I think you’ll see us continue to push that as we continue to go after that benefit oriented consumer.
But one area that we probably have the least amount of success into this point was on the corporate alliance and strategic or corporate promotions and strategic alliance front sponsorships, if you will. That’s been a challenge for us I think for a couple of reasons. The regional brands make it a little bit challenging and we don’t have that national brand that’s, as I said, like someone like Six or Sea’s has. So, we’re starting a little bit behind on that. Although the fact that we entertain 23 million guests and they stay at our park on average of seven to eight hours a day means there is a lot of eyeballs and a lot of impressions that people want to pay for.
The challenge that we’ve had is that we haven’t had the platform within our system for companies to activate those sponsorship arrangements. We’re in the process of implementing for 2014 a TV network across our 11 properties that will give us that platform. So while this has been the slowest mover as far as from an initiative perspective, we do think that we’ve solved at least the initial concern there and we’ll have more success on this going forward.
As we think about 2014 and what we have in store for us, we think that the capital program we have in slate for next year is as compelling as the one we had in 2013. We’ve got a great new ride going in at two of our big four, two of our core properties longest inverted rollercoaster in the world will be introduced at our park in Cincinnati, Kings Island and we’ll be introducing a new interactive 4D dark ride at our park in Toronto, Canada’s Wonderland. It will feature the longest interactive screen in the world, and it will really be our first venture into bringing the digital experience within our parks.
One of the things that I think is always been a solid barrier and protected this space a little bit has been the fact that you can’t replicate a 350 foot rollercoaster in your living room, no matter how much you want to try and do that it’s just not going to be the same as being actually on that ride. That said, I don’t think we’ve done as good job of bringing the digital experience into the park this is going to be our first foray into it, and as the finance guy like the fact that it cost about half as much as a big new rollercoaster.
So as we think about the record results that we’ve had this past year and the forecast for our results we have going forward one of the biggest decisions we have to make every year is what to do with the excess cash flow. Our structure as a master element of partnership has us focused on the distribution at the forefront. It's a decision that we bounce every other decision off of, whether or not it’s reinvesting in new capital for organic growth whether it’s buying back shares, whether it’s paying down debt, everything gets bounce back up against that distribution.
Our distribution currently stands at $2.80, which represents a yield of about 6% based on today’s stock price. We believe that’s a very attractive yield in today’s market. We see growth in that distribution, it’s a sustainable distribution, that will grow as the business grows and we continue to remain focused on it. So, as we think about where we are here at ’13 and where we have to go over the next several years, we’re very confident in the growth, the organic growth, that exist within the company and what that can mean for the distribution going forward.
Janine Shelffo - UBS
Thanks Brian, that’s great. I mean this 2013 report card is fantastic I think you looking at a stock that was up 50% during the course of the year top line growth, up into the rate chart is spectacular but there is a notable upward acceleration in 2013. I guess, the real question for us is how do we think about numbers as high as 6% growth in in-park per-caps and 7% out of park, how much of that maybe is catch-up based on some of the initiatives you described where you guys had been late to the party around price discrimination, whether it’s fast pass equivalent or premium parking, et cetera? And how much of that is sustainable going forward?
Sure. So as we think about per-cap and you’re right Janine, I mean there is two sort of sides to per-cap growth there is the front gate admission-per-cap and then there is the everything that gets spent inside the park. On the front gate side, we saw admissions-per-cap up in the mid-single digits and that was happening because of targeted strategic price increases that we put in place at the park. In particular into two core channel; the season pass channel, which is an important channel for us as a segment of attendance season pass represents about 40% of our attendance and that’s grown from closer to 30%-32% three years ago. So that’s a growing channel it’s a high value product that the consumer sees a lot of value and benefit from and so they’re willing to pay for it.
Our success there has been aided by the fact that we introduced a new ecommerce platform that allowed for the first time people to buy season passes over a payment plan. So we have season pass holders to pay for their season pass over a six month-nine month period. The growth in pricing or admission-per-cap that wasn’t just in season pass, it was also in the other channel. Our non-season pass admission per-cap was up 5% to 6%, so we’re getting it at the front gate through a number of different ways, less pricing on the non-season pass probably better yield management taking out some of the discounting or being more targeted in our discounting. Inside the park, we’ve gotten growth across a multitude of channels, no doubt that the introduction of the Fast Lane has fueled a big portion of that growth, but our food per capita were up across all of our properties this past year and be it per-caps as well as our games per-cap so initiatives in those areas and I think those are areas that we can continue to see growth.
Inside the park, it’s less about pricing and is more about capture rate. We have to find ways to get the consumer to activate either through improved quality. The introduction of new products like Fast Lane helps preferred parking premium dining experiences but it’s less about pricing much like other industries major league baseball is an example. The challenges that they’re seeing getting consumers to spend inside the stadium versus buying the ticket, we have those same kind of challenges. People see a lot of value in the ticket. They struggle with the pricing of products in the parks so we have to improve the quality to continue to drive that.
Janine Shelffo - UBS
That’s helpful. What about in terms of attendance growth, you’ve talked a lot, we’ve heard Matt talk your historically about the idea that attendance growth really is not too many people should focus on that too often to achieve attendance growth, people are comprising on some of the pricing or per-cap metric, how do you guys think about attendance growth? Is there a scenario where no attendance growth still make for great business and potentially a better business?
So when we came out with our FUNforward plan, we were very upfront with the street that we thought that a sustained attendance growth of any meaningful level in this economy was going to be challenging that it was going to be more episodic and driven by capital investment, so at a park that we put into big new coaster like GateKeeper, Cedar Point or Banshee next to your Kings Island, we would expect meaningful attendance growth. At other parks, we’re maybe at the second year of that right you would expect the attendance to decline a little bit. So our model was not based on attendance growth. We could attendance growth tomorrow if we wanted to chase it. The problem that we see with that is, is once you chase it and one year you got to chase it every year and so we are more focused on driving per capita growth and allowing attendance to follow along provided we’re getting pricing and get spending that we would expect, so I’ll use the last year as a good example.
Within our model, we had assumed that we thought we could get about a percent or so of attendant growth 3% to 4% per capita growth would get us to where we wanted to go over the long term. In 2013, we’ve seen 2% attendance growth and 6% per capita growth, so we doubled those targets. So attendance growth can begin but we’re not going to chase it. I think one of the things the people often think about we get asked question about as what kind of capacity do you have? Can’t you get more attendance because your parks aren’t maxed out? And I would tell you that from an attendance perspective we got some parks that are and you see Cedar Point our flagship park is an example.
It is several 100,000 people below, it is all-time attendance level. But we migrated to such a higher per capita spend those aren’t going to come back, we’re migrated away from that lower economic base and quite frankly near to your question, we don’t necessarily want them back. We like the number where it’s at right now. We like to see some attendance growth but there is definitely we’ve migrated to a much higher consumer.
Janine Shelffo - UBS
See you’ve talked about the water park divestitures during the course of the year are water parks not part of the strategy? Do they make sense with any of the parks because just those parks right way they think about it?
The water parks we still do have three standalone water parks. The water park model doesn’t have quite the high barriers entry that the theme park or the amusement park industry has, right. It’s a lot easier for people to open up a small water park or add some water elements to maybe a community pool that can replicate a little bit of what we do, not quite on the same scale but enough that can sort of disrupt business, so what we find water parks working very well as when they set adjacent to or very close to one of our existing amusement parks. So we do have two of our three standalone water parks set adjacent to one next to Cedar Point and one next to Knott's Berry Farm.
And we’re able to lever the installed fixed cost base of those theme parks or amusement parks to offset the cost of the water parks and we’re also able to lever multiday tickets between those two properties. I will tell you the two water parks that we sold were profitable properties. They were not on the market for the sake of getting rid of them because they were losing money but from a prioritization standpoint one of the challenges we had was when it came time to put capital into parks, the returns that we could get on capital investment and even at one of our small amusement parks far outweighed what we could get at the water parks, so when we had a couple of opportunist sale offers we took them and now what we’re looking to do is looking to redeploy that capital.
We have several projects in play for ’14 that will redeploy about 80% of the proceeds we received on those two capital projects and allow us to chase incremental revenue and EBITDA streams at and again lever off of the installed assets and attendance base that we have at the existing amusement parks.
Janine Shelffo - UBS
Obviously one of the trusts of the new management team has been all around CRM and e-Commerce platforms that you referred to and I think one of the things we’ve been sort of excited to see as how the data and analytics side of this business can become more sophisticated bringing talent in from other industries where it kind of yield the optimization was our core focus. Are there any sort of surprising learnings that have come out the data that you’ve seen so far or is it just been an aid in helping better segment your audience?
You’re right. I mean, we have become -- and part of that as a function of a new management team and new management philosophy, but we’ve become much more analytically driven. And I think the industry has to become more analytically driven. The old -- the results and the ability to build that may come sort of the feel of dream days of the 90s are a little bit behind us. The growth now is a lot more challenging to get. And so we are, between the CRM programs, introduction of POS systems across all of our properties, which surprisingly we tell investors two years ago we didn’t have POS systems at all of our property. So the ability for us to learn at the point of sale what a consumer is doing and how our season pass holders, so as an example are behaving they’re all surprised by that.
But the fact of the matter is it was 130 day operating season decisions often get made that you can’t afford a lot of technology luxuries at least that was the old thinking. I think today we’re realizing we need to do that. So as we begin to bring more analytics and put into systems like CRM or use our POS systems to track the behavior of our season pass holders, there are a lot of things that sort of pop-up. One of the little anecdote I’ll give you that sort of came about when we were tracking season pass, we expected we gave our season pass holders’ discounts at the properties to get them to swipe their season pass so we can follow their behavior and their spending patterns within the properties.
We thought well we will get a penetration rate or usage rate of X and that itself and then we’ll be able to -- if it’s at least that will be able to justify the data, if you will. Well, the numbers we were seeing were much lower and we were struggling with more season pass holders using it, it’s a 15% or a 10% discount, it doesn’t make any sense. Well then we sort of backed to the fact that well this four season passes or five season passes and a household, only one person is making the buying not a transaction. And so we had to start then going back and looking at a more of a household. So something we probably should have figured out right after shoot (Ph) but it took a little bit of diving into the analytics to sort of go how we’re looking at this around way.
Janine Shelffo - UBS
What about the future end use of in-park apps, which are sort of one of the things that I think across the industry have become much more prevalent. Are they -- and incredibly useful of you are navigating around the park with your kids. Is there data that will eventually come back from those apps and how people are using those apps that help fine tuners that relate today just a value added service for your customers?
Yes, so each of our parks has in-park app. However, I would say that to this point that app has been more ecommerce driven than really an in-park app, if you will. And so, that’s been the genesis of the developments where we are today. So our -- we get huge adoption from our guests for downloading the app and they use it when they’re outside the park very much when they’re buying tickets, whether buying parking, whether buying foods fast lane tickets whatever, we need to do a better job of developing and we’re in the process of starting to pull together the team to start to develop that app in the park. Because there is a lot of applications, the ability to put on there, find a friend you view wait line or wait times online for the big rides, et cetera. Those are things where we can enhance the guest experience interact with the consumer with our guest a lot more, we’re not all the way there yet as far as that is concerned.
Janine Shelffo - UBS
I mean a hint to me a little bit to broader theme that I think we’re going to hear lot about in this room today. Because we’ve got a number of different companies that have some elements of live events or live experiences. And figuring out exactly what on the digital side perhaps the other days in the year where they’re not at an event or in the park, what that proposition might be? Is there, obviously, to-date your platform has been primarily ecommerce and it’s been very successful in driving season passes. But is there a scenario where over-time it becomes a more important link for consumers beyond?
And I will just throw off for those of you who haven’t had the pleasure as I have of riding GateKeeper last year’s or this year’s amazing ride. I was one of those million people in the first three months of the ride. We actually might have spent -- in hours spent time doing the virtual ride on your website. So are there things over-time that you can do to tie into that customer loyalty and kind of reliving the experience?
Yes, I think one of the things that working on the ride now is building a portal for our season pass holders. So when you look at our attendance across the Board and then breaking into the segments of the channels, season pass, as I said before, is the largest single channel or segment at 40%. So it’s a very important channel for us from an attendance and a revenue perspective. It comes with the most advanced purchase commitment. They are often times buying their pass in February or October seven and eight months before they’re going to use it. So, what we’re working on right now is trying to build some of that kind of connectivity directly with that group specifically.
Inside the park, I think, as I said earlier, we realize we need to bring the digital experience more so inside the park, not to take the place of the rides themselves. I mean, you’re not going to replicate the rides whether it’s GateKeeper or whether it’s a water slide or a kids’ attraction where it’s the first time they’ve towing up to ride such in such ride. But we need to do it to enhance the experience. So I think -- that's where the TV network is a part of that. When we think about the apps or the use of smart devices within the property we’re looking at things like augmented reality and ability for folks to go around using their smartphone and holding it up against GateKeeper and getting all the statistics maybe a video overlay as far as what it’s like to ride it from the front seat point of view, so those are all those kinds of things that we're working on we’re looking at and it's just going to take us a couple of years to get everything rolled out.
Janine Shelffo - UBS
Touch a little bit about the sponsorship side of the equation you said that was the one where you still thought you were lagging a little bit, but the Coco-Cola transaction announcement recently and certainly an indication of maybe things to come. Can you talk to us about that in particular and then sort of how broad you see the opportunity beyond that.
Prior to 2013 and this was a function of legacy contracts that were in place at the old legacy Cedar Fair parks and then the five Paramount parks that we acquired in 2006 from CBS. We have both Pepsi and Coke within our parks from a sponsorship perspective and we were interacting with both and things were good but we had timed both contracts had terminated at the same time, they terminated at the end of 2012 giving us the opportunity to go out for a bid between the two firms, we ended up with up Coke, Pepsi was a great partner but Coke has really got foot hold on our space, they are at Disney, Universal, Six Flags, Sea World, Cedar Fair, they pretty much have stronghold on this space. And with that comes a lot of market insights, where when Coke tells us they think at this park we should be doing x percent more in leverage per cap it comes with a lot of credibility because they are basically the beverage supplier and they see the per caps the beverage per caps for just about everybody in the space.
So that's probably the single largest not probably it is the single largest and it represents a lion’s share of our sponsorship, our corporate alliance dollars in relationship to date. As they said earlier one of the challenges that we have had is the lack of that platform, we have had a lot of people that have told us they are very interested in becoming sponsors or advertising to our 23 million guests on an annual basis. The challenge has just been we don't have the platform for them to activate and they don't have the budget to spend dollar for dollar to build that activation within our system.
So that's the genesis behind investing the TV network for '14 to allow us to activate more in park advertising out-of-home advertising for those third party companies, but one of the things that we’re trying to keep in mind is any sponsorship deal we want the net arrangement to be not only profitable to Cedar Fair but the kind of sponsorship that our consumer would embrace. We don't want it to become minor league ball field where there is just signs plastered everywhere; it needs to be a little bit more engaging.
So I think you will see us to be pretty discreet the beverage sponsorships are natural, there is probably some other natural sponsorships along those types of lines but you won't see us just splashing anything up or having the official beef, turkey of Cedar Point or anything like that.
Janine Shelffo - UBS
What about some of the other efforts to extend the season or do new events around the parks, obviously Halloween has been a big focus in recent years? Have we seen the upside there is to capture there or are there more opportunities to do things like that?
Well we’re constantly looking for ways to take the season. Other than Knott’s Berry Farm the balance of our properties are open for roughly 130 to 140 days a year and so I can look back to when I started with the company in the mid 90s we had two weekends of operation that went after Labor Day and that was really just a place holder in case you had a rainy third weekend in August, it helped you make up a little bit of a ground.
The introduction of the Halloween events and that was really something that Knott’s Berry Farm started it all more than 40 years ago in the industry what they call The Haunt or Knott’s Scary Farm. And so when we acquired Knott’s in 1997 we basically we were year two or three into just dipping our toes into it, we acquired a huge amount of experience and they were already well into development of that product. And so we brought that expertise across all of our parks over time.
There is still opportunity to grow that product I think as some of our parks more in the infancy or maybe in the first few innings of the ball game as far as developing the product. The ability to take it further has been challenging for us, we have toyed with and dabbled with the Christmas season, we do a great job at Knott’s Berry Farm but its year around.
At several other parks we have tried to do something in the Christmas timeframe or on the holidays, we have just not been successful in getting the critical mass, so lot of our parks been located in the East and the North; it gets pretty chilly out there. So wondering on amusement park is a necessarily high on peoples list.
Janine Shelffo - UBS
Case in point to that.
So we'll continue to look, we're trying to bring -- create some sort of event around the spring but the natural drive of Halloween being the second largest commercial holiday in the United States next to Christmas, just made it natural.
Janine Shelffo - UBS
What about in particular from the audience that may not be as familiar, can you talk just a little bit about how you think about CapEx, you obviously pointed to big attraction coming up this year. But I think in particular the relationship between CapEx and attendants and how often parks need to be refreshed with the big new attraction?
There is no doubt this is a very CapEx intensive business, as I said earlier we invest probably on power about 100, $110 million a year in CapEx we call marketable new attraction, whether that be a ride a water park attraction, family ride et cetera.
That equates to about 9% of our revenue and I think you hear that in the industry Six Flags speaks for that number, Sea World speaks to a number very similar to that. As far as the discipline to try and keep, because the wish list if we ask our general managers, the wish was as quite long they all love our brand new roller coaster like GateKeeper every year but unfortunately you got to pay for that $25 million roller coaster and not everybody can do that every year, so we tend to operate off of a cadence (Ph) of it the big parks get a big new ride like that about every four years. One of the things that we've learned and met, we met our CEO Richard Zimmerman, our CEO and I spent good chunk of 2013 going back and look at our capital spend for the last seven years and reviewed every capital program that we put in at each of the parks and asked ourselves, and held ourselves to a tough standard as to what would we do again, what wouldn't we do and what were the failures, and if there weren't any failures then we were either not being honest with ourselves or we weren't trying hard enough and we came up with a lot of things that we said we wouldn't do again. But we also learned, we got a little bit more insight into the business and that is and this is where maybe we differentiate from some in the space, is that we learned that trying to spread our $100 million sort of evenly across all the properties might feel good and every general manager would love that because they'd all get something but it really didn’t have the right kind of returns. What we found was when we concentrated capital and that doesn't mean that one park gets everything but it meant when we put in GateKeeper last year as an example at Cedar Point we could have put that ride in for $20 million, $22 million, but we said you know what, we want this to be the longest wind coaster, the tallest, have more elements, make up the best experience and so we took the thing from 20-22 up to $25 million and then we went even a little further and said, we're going to redo the whole front gate plaza for coming in the park as part of this, this is going to be experiential so that even if you're not a rider you're still experiencing it, and it took the project up by several million dollars but that concentration of capital makes that ride a better ride long term, it becomes something that people will coming back for, they’ll get off and get back on and that's something that you'll see us continue to do is concentrate that capital where we may have to forego one of our mid tier parks for a year where they're getting any cap ex. They're going to have to find, maybe a new op ex, introduce a new show or something or celebrate an anniversary at the park like King's Dominion this year is going to celebrate its 40th anniversary. Not much capital around it, but they're going to be a lot of events during the summer so we'll give them something to market but they’re going to get capital dollars necessarily.
Janine Shelffo - UBS
Maybe here we'll turn to the audience and see if anybody's got questions,
Yes it is.
That's a good question, you know as far as if we could pick areas of the country where we'd like to get footprint, we'd love to move into the Southwest, we'd love to get down into Florida where weather is less of an impediment or the seasons can be essentially a bit longer like we have in Southern California with the year around park, you know couple of things though, I think they're important to note, there hasn’t been a successful Greenfield park built in the United States, outside of you can take the Orlando and the Southern California, where Disney and Universal have the ability to build something there, but outside of that a successful regional amusement park hasn’t been built in the United States in more than 30 years. The last wave of amusement parks that were built were in the early to mid 70s, the last one that was tried was the Hard Rock park in Myrtle Beach and it collapsed and failed within 12 months and its doors never reopened, so it’s challenging to go into a market for all the reasons I alluded to earlier, the various entry are real, the other issue that you run into is just about every major metropolitan area has already got first mover advantage so if you're going to go into a market to invest you're not going to go into one that you're $600 million is already chasing second place, and so that's one of the challenges that we have so which is why we’ve never been one to build the Greenfield, our success has been more rooted in finding a standalone park or group of parks like the [indiscernible] parks going in and taking and applying our model our investment strategy and growing them from where they're at. So we'd love to get into those markets, it would have to basically through an acquisition not through a Greenfield project.
Janine Shelffo - UBS
Was there another question over here?
Your current debt I guess in July or August I think one of the bonds are callable and I guess based on where rates are today should significantly help interest expense. As part of that if you guys were to refinance, would you guys reevaluate the dividend then or again just kind of an annual basis like you guys have done currently.
Yes, so our most expensive cost of debt is some 2018 bonds that are [indiscernible], they are callable today, but the call premium's pretty pricey at north of 40 million, that steps down over several step functions by August of 14 to around 18 million, so someplace between now and then I think you'll see us look to take those out based on the current market, credit markets if we continue to stay as attractive, no doubt they're going to be more attractive than [indiscernible] so that we will take them out, as far as the distribution's concerned, that will allow us to have another opportunity to assess is there another step function in the distribution, I think from a timing perspective though you should still expect that we’ll wait for the 14 season to develop and the next time we would talk about an increase and the distribution would be with our third quarter results which would be around early November timeframe.
I think that’s the new cadence that feels right to us now, part of where we came from with the distribution to go back to 2009, the three quarters when it was suspended and we’ve drawn back. Now that we’re up to sort of the normal cadence, I think that feels better that with third quarter we’ve got visibility for the full year and then not only announcing but declaring it just feels like the right cadence.
Couple of questions, pricing outlook for the next year assume are you very sensitive to cost oil and energy, is there any sensitivity analysis to that is that helping you with -- what about spending on safety?
I’ll take the first part on pricing, as far as oil and gas prices we’re asked that question a lot; over the years the price of gas has not been anything that has necessarily had a direct impact on attendance. Again, been a regional amusement park operator the lion’s share of our customers at most of the park Cedar Point and Knott’s Berry Farm maybe slight outliers so there is because there are little more regional destinations. But most of our parks 90% to 95% of attendance come from about 120, 150 mile. So, the decision to come isn’t impacted as much by that where it has the potential is share of wallet so if mom or dad has to through 50 bucks into car before they come to the park that may influence their spending at the park. So, what we’ve done to try and come back that is with the ecommerce platform is put as much of the buying decision in advance of the visit as we can. So, and only so in ticket selling, parking selling, fast lane selling, mile plans, our vouchers, wrist bands for all they drinks. Sell those things in advance; get advance purchase commitment which creates spending elasticity when they get to the park. So, if mom and dad doesn’t have to pay the 12 bucks for parking as soon as they show up, their buying decisions once get inside the park has made that much easier.
So, that’s one of the ways we’re trying to come back that may have had slight influence on spending though if you look back over the last 20, 30 years in the park but not on attendance. As far as safety in our space and this is everybody in the industry, its number one priority, the consumer needs to know that the rides are safe and we all have children of our own, we put on these ride so spending on safety is a top priority. It’s one of the things that I do love about the industry as we share when it comes to safety we share news, we share information, while we are competitors on a lot of levels when it comes to things like safety or ride maintenance those are areas where we share opening with one another. And, so I think this industry is extremely safe.
Are you doing anything [indiscernible]?
I wish we had a billion dollars to spend on something like that but I’m not green lighting that anytime soon and I don’t think my boss is going to either. But we are trying to do something a little bit as I mentioned earlier, we are trying to learn the behavior patterns of our season past holders through the use of tracking season pass discounts and how they spend in the park. One of the things that we introduced this past year on pilot basis at our park, not too far from here Allentown, Pennsylvania Dorney Park was reintroduced in RFID wrist band and the origin of that was really more so about getting the consumer to have the ability to spend when they are in the water park more easily.
Dorney Parks, at the water park attendance draw and so one of the challenges we had is our per-capita spending in water parks is significantly lower than the amusement park in large part because you don’t have your wallet with you, its stuck away in a locker somewhere, its back in the car and so we’re testing this RFID wrist band loading it with money, it does give us some tracking ability but we’re not to the point of trying to track necessarily at the Disneyesque level.
Janine Shelffo - UBS
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