Six Flags Entertainment's (SIX) CEO John Duffey on Q1 2016 Results - Earnings Call Transcript

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Six Flags Entertainment Corp (NYSE:SIX)

Q1 2016 Earnings Conference Call

April 27, 2016, 09:00 ET

Executives

Nancy Krejsa - SVP, IR & Corporate Communications

John Duffey - President & CEO

Marshall Barber - CFO

Analysts

Barton Crockett - FBR Capital Markets

Tim Conder - Wells Fargo Securities

Ben Chaiken - Credit Suisse

James Hardiman - Wedbush Securities

Afua Ahwoi - Goldman Sachs

Lee Giordano - Sterne, Agee & Leach

Joe Edelstein - Stephens

Operator

Welcome to the Six Flags Q1 2016 Earnings Results Conference Call. My name is Evelyn and I will be your conference operator today. [Operator Instructions]. Thank you. I will now turn the call over to Nancy Krejsa, Senior Vice President, Investor Relations and Corporate Communications for Six Flags.

Nancy Krejsa

Good morning and welcome to our first quarter call. With me today are John Duffey, our President and CEO of Six Flags and Marshall Barber, our Chief Financial Officer. We're going to start the call with prepared comments and then open the call to your questions. Our comments will include forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements and the Company undertakes no obligation to update or revise these statements. In addition, on the call we will discuss non-GAAP financial measures. Investors can find both a detailed discussion of business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the Company's annual reports, quarterly reports or other forms filed or furnished with the SEC.

At this time I'll turn the call over to John.

John Duffey

Thank you, Nancy. Good morning. I appreciate you joining our call today. This is my first earnings call as President and CEO of Six Flags and I just want to say how honored I am to be leading this great company. Every spring our senior leadership team visit our park and meets with our employees. This year is no different. I can tell you that our employees remain highly motivated and our business momentum remains strong. The 2016 season is off to an excellent start, with another record performance in Q1. Revenue was up $30 million or 36% and adjusted EBITDA grew $15 million or 39%. We saw steady growth throughout the quarter which benefited from a shift in our operating calendar. Some attendance moved from Q2 into Q1 due to Easter occurring in March this year.

Marshall will share more details on this topic in a few minutes. But even after you adjust for the Easter shift, our attendance was up a very healthy 24%. We believe the strong performance, even during what is traditionally a small quarter for us given most of our parks are not open, directly ties to excellent execution of our growth strategy, particularly as it relates to upselling guests to season passes and memberships. This strategy not only results in more overall revenue over the season, but also builds our recurring revenue stream and spreads revenue more evenly throughout the year because our season pass holders typically visit three to four times during the year.

During the quarter we announced a new international licensing partnership in Vietnam, where our partner intends to build a Six Flags theme park and a Six Flags water park. This is in addition to our other two partnerships in Dubai and China that are both progressing nicely. In fact, our Dubai partner recently initiated the process to raise funds for phase II of Dubai Parks and Resorts which includes Six Flags Dubai. We believe it will be one of the best Six Flags theme parks in the world. Our partners currently expect to begin construction on Six Flags Dubai late this year or early next year. Working with our Chinese partner, we continued to make very good progress on developing the Six Flags park located outside Shanghai in what we expect to be the first of many Six Flags branded theme parks throughout China.

Our international licensing business is still in its infancy, but it is steadily building momentum. We believe our international licensing opportunities represent a significant long term growth driver for the Company, as we have multiple ongoing discussions with high-quality potential partners to bring Six Flags thrills to many markets around the world. These deals are high margin for Six Flags and require no capital investment on our part. Earlier this year we also won a bid to operate a beautiful 60-acre water park in Oaxtepec, Mexico. This water park is approximately 50 miles southwest of Six Flags Mexico, so it nicely complements our existing business and also provides us the opportunity to sell more season passes, leverage our local cost infrastructure and utilize our talented management team.

I had the chance to visit and tour the water park earlier this month and the development plans are progressing nicely. We will open Six Flags Hurricane Harbor Mexico in early 2017 as our 19th park. In summary, it was a tremendous quarter and I believe we have great momentum as we head into the heart of the 2016 season.

At this time, I would like to turn the call over to Marshall, who will share a few more details on our first quarter financial results. Marshall?

Marshall Barber

Thank you, John and hello to everyone on the call. Although this is my first investor call as CFO of Six Flags, I'm not new to the Company. I've worked here for 20 years and can say that we really are better positioned for the future than at any other time in my career here. As John mentioned, we had a fantastic start to 2016. It was highlighted by strong growth in all of our key financial metrics; revenue, EBITDA and cash flow. Total revenue in the quarter increased $30 million or 36%, with ticket revenue up $18 million or 43%; in-park revenue up $10 million or 36%; and sponsorship and international licensing revenues up $3 million or 26%. Revenue was negatively impacted by foreign currency exchange rates driven by Six Flags Mexico.

On a constant currency basis, total revenue increased $33 million or 40%. A significant increase in revenue resulted primarily from strong attendance which was up 37% or 580,000 guests. The majority of the growth came from season pass holders and members and we also continued to see growth in unique visitors. As John noted earlier, Easter was in March this year versus April last year and the associated shift in school calendars and therefore our operating calendar accounted for approximately 200,000 of the 580,000 attendance growth in Q1. Adjusting for this calendar shift, attendance grew approximately 380,000 or 24%. The strong attendance growth was primarily driven by our continued success in selling season passes and membership.

As of March 31, our active pass base was up 24% and deferred revenue was up $31 million or 32%. Total guest spending per caps grew $1.02 or 2%, with admissions per capita increasing $1.18 or 5% over prior year and in-park spending per capita declined $0.16 or 1%. The increase in guest spending per caps resulted from modest price increases and post-12 month ongoing membership payments, offset by a higher mix of season pass and member attendance. As you know, the season passes and memberships are accretive to our annual revenue and cash flow, but depress our per cap calculations.

On a constant currency basis, Q1 admissions per capita increased $1.94 or 8% on a constant currency basis. In-park per capita spending increased $0.67 or 4%, primarily driven by increased penetration of our all-season dining program. As many of you know, we're laser focused on reaching a higher penetration on sales of our all-season dining pass and broadening out our culinary capabilities. We view this as another excellent opportunity for growth, especially given the growth in our active pass base, because season pass holders and members are committing in advance to eat at Six Flags. Moving to the cost side, cash operating and SG&A expenses increased $13 million or 11%, primarily driven by increased labor and other park operating costs due to the higher number of operating days and to a lesser degree incremental advertising spending which was primarily timing given the spring break shift into March.

Adjusted EBITDA improved $15 million or 39% in the quarter and was minimally impacted by currency rates. LTM free cash flow was $284 million and our LTM cash earnings per share was $3.05, an increase of $0.27 or 10%. We believe cash EPS is a better reflection of our earnings versus reported GAAP EPS due to our tax loss carry forwards. On an LTM basis, modified EBITDA grew to $534 million and modified EBITDA margin grew to a new industry high of 41.3%. LTM modified EBITDA less CapEx margin was 32%, in line with prior year and well ahead of any other regional or destination industry player. Return on invested capital on a trailing 12-month basis increased from 16.1% as of March 2015 to 18.8% as of March 2016.

Our ROIC and modified EBITDA less CapEx margins continued to improve each year because one, our revenue growth opportunities are all high-margin and two, we remain disciplined with our CapEx, investing a steady 9% of revenue each year. In 2016, in addition to our regular CapEx of 9% of sales, we will also have an additional expenditure of approximately $15 million to $18 million CapEx for upgrades to the Oaxtepec, Mexico water park prior to opening in early 2017. This spending is one-time in nature and will not recur and it will primarily occur in the last nine months of 2016. We're excited about the return potential of this park and believe it could generate a very quick payback on our capital investment.

Finally, from a balance sheet perspective we're in excellent shape, with industry low net leverage of 3.1 times and we expect our leverage will decline further as our earnings increase and as the Company generates higher levels of cash flow. Given the healthy and improving leverage profile, the improving yield of Six Flags debt and credit markets and our expectation that we will continue to grow EBITDA, the Management team and Board, as they have done in the past, will continue to evaluate potential increases in leverage in order to return additional capital to shareholders.

I would like to close by sharing that 2016 was the best launch of the season in our Company's history. Given our fantastic new capital introductions, our continued strength in season pass and membership sales, the growth in our all-season dining pass sales, the addition of Vietnam to our international licensing deals and our continued focus on cost management, I believe we're very well-positioned for yet another record in 2016.

Now I will turn the call back over to John.

John Duffey

Thank you, Marshall. Before opening the call up for questions, I want to make a couple of additional observations on our overall strategy and capital investment plans. First, I would like to start by saying that our strategy for the last six years will remain the same going forward. To grow our business, we will continue to introduce news in every park every year, implement modest price increases year by year, upsell guests to our high-value programs such as season passes, memberships and dining passes, expand our special event offerings such as Fright Fest and Holiday in the Park and finally license our brand to partners outside of North America who intend to develop Six Flags branded parks.

Next, I want to share a few thoughts on our capital plans. For the past six years the team has done an exceptional job of managing CapEx which is deployed on both maintenance of our parks and on new rides and attractions. I know that many investors and analysts hone in on EBITDA as an important gauge of theme park profitability. We also focus on EBITDA, but our team is even more focused on modified EBITDA less CapEx, because it is more accurate proxy for cash generation which is what ultimately drives shareholder value. Since our current Management team came aboard, Six Flags modified EBITDA less CapEx has grown 21% annually over the past six years, a growth rate double or triple others in the industry.

During this time period we have successfully grown revenue in attendance while maintaining CapEx at 9% of sales. And because of the discipline and thoughtfulness of the team on both CapEx and operating costs, we have expanded modified EBITDA less CapEx margins to 32%, consistently the best in the industry. Given our team's historical record on thoughtful deployment of capital expenditures, our strong growth trajectory and our growth in international licensing which doesn't require CapEx, we anticipate we will be able to slowly par back our 9% CapEx target beginning in 2017. In essence, we believe that we continue to grow the business with a slightly lower level of CapEx as a percent of total revenue which will obviously enhance our future cash generation and ROIC.

Finally, let me share some details on our new rides for the 2016 season. In the next four to six weeks we will be introducing our best and most innovative lineup ever. It includes a high thrill hybrid coaster at Six Flags Discovery Kingdom. This will be our seventh hybrid coaster and each has opened to rave reviews. Last year the two we opened at Six Flags Magic Mountain and Six Flags New England were nominated by U.S.A Today as two of the top new coasters in the industry. A 4D free fly coaster is coming to Six Flags Great Adventure. We opened the same record-breaking coaster at Fiesta Texas last year and received phenomenal responses from our guests. The Justice League Battle for Metropolis dark ride opened earlier this year at Six Flags Mexico and is coming to Six Flags Great America this spring.

Our industry association, IAAPA, named this exhilarating ride the industry's best new attraction in the world in 2015. We're also introducing Holiday in the Park at Six Flags America and Six Flags St. Louis this year and opening the world's first DC Comics children's area in Atlanta along with Bugs Bunny Boomtown. In fact, consistent with the past five years, we will have something new at every one of our parks in 2016. We purposely introduced a variety of rides in our parks that provide thrills to young and old guests alike. I think you know that approximately half of our guests are teens and the other half are families with children and we wanted to attract thrill seekers of all ages to come and enjoy a fun filled day at Six Flags.

Our strategy to introduce something new at every park every year has been core to our past success and it will continue to be a key component of our strategy going forward. In addition to our incredible lineup of new rides and attractions, we're very excited to be the first theme park company in North America to integrate virtual reality technology into our roller coasters. I want to take a second to describe this, because it is truly a one-of-a-kind experience that could be a game changer for our Company. After our guests board the roller coaster, they strap on a Samsung Gear VR headset powered by Oculus which blocks the guest's ability to see the real world. Immediately, they are transported into an incredibly detailed virtual world that makes them feel like they have entered a real-life video game.

Our VR coasters currently immerse riders in one of two fascinating worlds. In one case you are a fighter pilot battling to save the Earth from an alien invasion and in the second virtual world you fly alongside Superman, soaring through the sky in metropolis to defeat Lex Luthor. Both are exhilarating and we expect to introduce more exciting content and enhanced VR features over time to ensure that Six Flags remains the VR coaster and innovation leader in the theme park sector. Our VR coasters have been touted as the perfect application of virtual reality technology because as opposed to a typical VR experience that occurs while someone is stationary, our guests are physically experiencing exactly what they are experiencing visually and at the same time. When the headset shows you an image of a fighter pilot swerving around a skyscraper, that matches the physical sensation and G forces that you are experiencing on the actual roller coaster.

Through the end of March we have launched VR coasters in three of our parks so it is still early, but we have already received positive guest feedback and a great deal of excellent media coverage. We received rave reviews from numerous mainstream media outlets ranging from U.S.A Today, CNN and the LA Times to respected industry publications and many more. We will be rolling VR coasters out to six additional parks in the second quarter and are evaluating the optimal timing to introduce it at our other four theme parks. We're really excited about VR coaster technology for several reasons. First, it offers a unique first of its kind experience that you can find nowhere else in the United States except at Six Flags and we believe this will help us sell more tickets and season passes.

Second, the virtual world can be easily interchanged to offer something new to guests during various times of the season. Third, as we utilize VR technology it improves ridership on some of our older rides, thereby creating more capacity in our parks similar to a newly built ride. And finally, it allows us to provide new thrills to guests at a very low cost, structurally increasing our cash flow and ROIC. Including all the new rides and VR coasters, the 2016 season will have more than double the number of rides and attractions than we introduced in 2015. In fact, 2016 is the best new capital lineup in the company's history.

As you can tell from my excitement, I believe this is a great time to be an investor in Six Flags. We have exceptional leadership, dedicated team members, the best new product lineup in our history and significant growth opportunities both domestically and internationally. In addition, we're the ultimate growth and yield stock. We have consistently delivered the highest growth rates in attendance, revenue, EBITDA, EBITDA minus CapEx and cash EPS and have significant high-margin future growth opportunities and a very attractive dividend yield of 4% which remains among the highest in the U.S. market. The 2016 season is off to a great start and we're laser focused on behalf of our shareholders and very well-positioned to deliver our seventh record year in a row.

At this time I'm going to ask Evelyn, our operator, to open the call up for questions. Evelyn?

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Barton Crockett with FBR Capital Markets.

Barton Crockett

When we look at this start to the year, I was wondering if you could shed a little context around this? Obviously it's very small seasonally. Obviously the growth numbers are tremendous, but can you parse for us a little bit more precisely what was driving that seasonal adjusted 24% growth in attendance? Was it just the visitation tied to season pass, was it excitement around new rides like virtual coasters? What do you think were the key drivers of that?

John Duffey

Barton, I would start off by saying that it was really driven by I think our success on our season pass and memberships. As you think about it our active base is up 24%. I think a lot of season pass and members came to our parks in the first quarter. Virtual reality was actually launched at the three parks late in March, so I would tell you that that probably had limited impact on our attendance growth. We believe that with the guest reaction that we've seen and the media coverage, I think that will be a big driver of our growth for the remaining part of the year. But it was not a big growth driver in the first quarter just because of the timing of when we launched the VR.

Barton Crockett

On the idea of spending less on CapEx as a percent of your revenues, I was wondering if you could describe a little bit more clearly what is driving your ability to do that? Is it that the technology to drive guest excitement is maybe getting cheaper? Maybe part of that is virtual reality factoring into your planning or is there some other dynamic at play?

John Duffey

I think, Barton, there is a number of reasons. First it starts with the fact that we're very thoughtful about how we spend our capital dollars. We've utilized a number of really innovative ideas in the past. For example, our hybrid coasters, where we take existing wooden coasters with steel tracks, we can do that at a fraction of the cost of what a brand-new coaster would cost.

We also will take new technology, so for example our dark ride, Battle for Metropolis, where we will put that in one park, test it. We saw a great reaction from our guests who love that ride, so we're able to take that and then duplicate that at a number of other parks.

We've done that in the past and it has been very successful and as we continue to do that we can do that on a more cost effective basis. I think the other is really as you think about our future growth opportunities and particularly around international which doesn't require any CapEx, I think that will really give us the ability to scale it back as a percentage of overall revenue.

Barton Crockett

And then one final question here, switching gears to your equity comp, you have this award of 2.4 million shares I think it is if you hit your $600 million EBITDA target by 2017. The question I have is with your stock performing really well that $2.4 million equity comp is becoming a bigger and bigger number. I was wondering if you could remind us on the argument for why you believe that that is an appropriate allocation of shareholder capitals, giving people that many shares for this level of EBITDA growth and if there could be any consideration to capping the cost exposure that you would face if your stock continues to grow up in value?

John Duffey

Barton, I would take you back to the history. Obviously we've had other projects in the past, the 350, 500. I believe that those are a big driver of our success, because it motivates our leaders in the Company to really drive to a goal. Those goals have - you think back to where this Company started back in 2010, those goals were fairly aggressive. Because of that we created a lot of shareholder value over the years.

And as you think about going from where we're at today to getting to that $600 million level, that will create tremendous shareholder value. We think that this is an appropriate compensation package and really a driver for all of our folks to drive aggressively towards this goal. In addition, it covers a lot of individuals at the Company, approximately 180 which represents about 10% of our overall full-time employees. So there is a lot of people in the Company that are motivated to hit those targets and ultimately drive shareholder value.

Operator

Our next question comes from the line of Tim Conder from Wells Fargo Securities.

Tim Conder

A couple of things here. Could you give us any color on the incremental year-over-year portion that we saw from the international business that was recognized here in Q1? Secondly, Marshall, you called out that the important part of the revenue driver was the new group, so to speak that anniversaried from your membership program that from an accounting recognition standpoint you are picking up that revenue in Q1. Can you quantify that amount? And thirdly, as it relates to compensation, just maybe give us a summary of how, John, the compensation package has changed here on the Project 600 for Jim, for yourself and Marshall given the change in titles and duties?

Marshall Barber

Okay. Tim, on the international revenue we booked about $6 million in the first quarter this year. We did book a little bit from our new deal in Vietnam. On the membership revenue question, we're not going to break out the per cap, but Q1 was benefited by the members who had completed their 12-month commitment period. John?

John Duffey

Yes, just on the incremental international, as Marshall said there was a portion of that that represented Vietnam, but the bulk really was Dubai and China. On the membership point, Tim, as Marshall said we don't really break that out in terms of how much of our active base is members versus season pass or breakout our impacts on per caps. What I would tell you though is and what we have said in the past is that obviously the membership, particularly as they get to that 13 plus, we recognize that revenue on a monthly basis.

You do see a more positive impact to per caps in quarters like the first quarter were there was a lower attendance amount. Obviously the membership was a driver of per cap growth in the first quarter. And then your last question on compensation, there was a reallocation of some of the equity within the existing programs after the Management change, but it was basically a reallocation of that equity.

Tim Conder

Okay. And gentlemen, I guess on the international part, thanks Marshall for the absolute number. What was the comparable? And then on the membership anniversary contribution, I'm just maybe looking for an incremental number, because clearly that has grown since you instituted it in February of 2013. It makes modeling more challenging.

Granted, smoothing of the revenues is great, smoothing of the cash flows is great, we totally get that. But a little bit of additional color from a modeling perspective might help avoid some - in this quarter it's good volatility, other quarters it might not be so good volatility as that is smoothed out. So anything there, gentlemen, would be helpful.

John Duffey

Yes, I think Tim, you're looking for just the incremental year-over-year amount?

Tim Conder

Right. Different contributions on the incremental amount year over year.

John Duffey

It was $2 million with incremental.

Nancy Krejsa

On international.

John Duffey

On international Q1 versus - it was about $2.5 million Q1 this year versus last year.

Tim Conder

And then the incremental also on the membership contribution to revenue year-over-year that's related to that anniversarying of that?

John Duffey

Obviously we continued to do very well on memberships. And as you look at the growth in our active base, that came from both season pass and members. Obviously the contribution that we're getting from that recurring revenue stream once we go past that 13th month is also increasing. But Tim, we do not break that amount out.

Operator

Your next question is from the line of Ben Chaiken with Credit Suisse.

Ben Chaiken

Regarding international, have you found that having a few deals already under contract fuels some incoming demand? And also can you talk about how these deals are sourced?

John Duffey

Yes, in terms of the deals, we do think that absolutely the more deals that we announce, the more exposure and other people come to us and see us as really a true value in partnering with in different areas of the world. Yes, absolutely we do think that helps. In terms of how they are sourced, Ben, it really starts with the fact that people know our brand outside the United States. We did a study when we were looking at our original Dubai deal.

We did a study of the brand awareness outside the United States and our brand ranked right below Disney on brand awareness, well above others in the industry. Our brand is widely known, so I think it starts with that. It also is the fact that they recognize that we're known for having the expertise to not only design and build parks but ultimately run parks effectively. As people within these various countries see the opportunity for entertainment options and areas that have rising demographic trends, whether it be population or disposable income or lack of entertainment options, they look at Six Flags as a perfect partner.

Ben Chaiken

Regarding VR, I know there is not a lot of history here, but can you tell thus far is this a new customer or is it driving incremental demand from existing?

John Duffey

I'm sorry, that was for the--?

Ben Chaiken

For virtual reality. Is this a new customer that is drawing in or is it incremental demand from existing?

John Duffey

I think it is a combination of both. Because as with any of our new capital, I think it draws excitement. People that may not have visited our park for a few years want to come back and experience this. I also think it is driving incremental visitation from people that regularly visit us. I think one other big driver is it is just another reason why people want to buy a season pass because as you think about this, our goal obviously is to migrate people from one-day tickets to a season pass.

It's all about showing them that they get a value of a season pass around multiple visits. To the extent that we can introduce VR in the spring, introduce our other new capital in the summer and then further enhance Fright Fest, enhance Holiday in the Park and add it to even more parks, giving people more reasons to come to the park multiple times during the year is really what is driving the season pass penetration.

Ben Chaiken

One last one; can you give us any color on the like-for-like pricing? I think in the past we've talked about a 3% to 5% range. I'm just wondering where you are on that in terms of organic price increases?

Marshall Barber

The 3% to 5% is still the number. It's all tickets, season passes and one-day tickets.

John Duffey

So it's in every ticket category we have raised prices.

Operator

The next question comes from the line of James Hardiman with Wedbush.

James Hardiman

It's a little bit of follow up from Barton's initial question at the top of the Q&A. Obviously you are pretty bullish about the opportunity for 2016 here, but I'm guessing that at the same time you don't want everybody to ratchet up their numbers dramatically for the year. So I guess maybe start with weather. Do you think that was an incremental positive?

I think you said that more season pass holders and membership holders came to your parks in the first quarter. Was maybe weather a part of that? You don't have any parks open in the really seasonal climates, but do you think that was a factor and were there may be some other one-time factors at play here? I guess I'm asking you to talk me out of increasing my numbers pretty significantly for the year.

John Duffey

James, as I mentioned before obviously our increase in our pass base has helped drive incremental tenants. Also I think it is a fair point as you think about from a weather standpoint, I would say Q1 of this year was a much more normal weather quarter. We did see some adverse weather last year in 2015 in the first quarter, particularly around in the spring break of our two Texas parks which did obviously impact our attendance last year. This year we did have much better weather at those two locations. So I think weather did play a part in some of that attendance gain.

James Hardiman

Okay. I was hoping you could dig in a little deeper on the economics surrounding the virtual reality rides and maybe even the dark rides. I'm assuming that or I'm hoping the impact could potentially be a pretty nice lift to your ROI fee going forward. Maybe talk about not only the expenses associated with building those rides, but Samsung for example, are they getting certain licensing fees as part of this? Are there software development costs? How should we think through some of the ins and outs of that type of a ride relative to a traditional roller coaster?

John Duffey

James, I can't get into the specifics around the deals that we have signed with let's say Samsung and VR coasters, but what I would tell you though is as you think about VR, it has very low CapEx associated with it. Much lower than what you would typically see if you were to be building a brand new ride. Once we actually put VR in place, we're able to replicate that at a fairly low cost at other parks. The ultimate goal as you think about VR, this is one of the reasons why we're so excited with virtual reality, there are so many applications for VR and right now we have launched it on three of our rides.

We talked about the fact that we're going to do it on six more rides in the second quarter. But ultimately, the goal would be to - a guest will go on a ride and be able to pick what experience they want on that ride. They may be able to choose from three, four or five different experiences. You can add those at a very, very low cost. Secondly, I think the applications for VR in areas like Fright Fest, where we'll be able to utilize that in our mazes, will be more like augmented reality where our guest would be able to go through a maze, see what is in front of them, but there will be a number of things coming at them which ultimately should reduce our labor costs at a lot of our mazes and our haunted attractions.

And then HIP, Holiday in the Park, where we can utilize VR say for our train ride to basically transform what would be a typical train experience into a winter wonderland. There is a lot of applications for VR and they are all at a relatively low cost respectively. And so yes, you're absolutely right, that should provide a nice lift on our ROIC.

James Hardiman

Okay, just so I understand, lower CapEx, is there an offset in terms of expenses incurred on your income statement or is there going to be an increase of OpEx? Or is that pretty immaterial?

John Duffey

There will be an impact on OpEx because clearly we need to add more labor as you think about the labor associated with getting the people queued up, getting the headsets on. And then obviously we have people that clean every single headset in between use. So there is some labor that's associated with that, but I would tell you it is fairly minimal. And if you combine both the CapEx and the OpEx, it is much, much lower than having to invest millions of dollars in new rides.

James Hardiman

Last question for me, obviously you are very limited in terms of what you - how you want to address the questions on the international expansion, but I think on a previous call maybe two or three quarters ago you talked about $5 million to $10 million in EBITDA before a park opens and $10 million to $20 million after it opens. Are those ranges still valid for Vietnam?

And I guess given that that's a smaller market, should we be thinking about that as maybe a smaller contribution, maybe towards the low end of that versus China or Dubai that's closer to the high end? Help us think about that. Obviously you're not going to give us actual numbers, but any help you can give us on that would be great.

John Duffey

I would say that range applies to Vietnam as well. James, one of the reasons why we have the range is because not all parks are the same size. It may be a smaller park, it might need to be towards the lower end of that range. Some larger parks may be at the upper end. But we make sure that we don't compromise any of our economics when we sign these deals. All of our deals will fall within these ranges.

James Hardiman

Along those lines, any indication of where Vietnam in terms of size of park, where that would fall relative to a China or a Dubai?

Marshall Barber

There are two parks in Vietnam, a theme park and a water park. Because the water park is smaller it will be less, but if you think about the two parks together, it will be at the higher end of that range.

Operator

Your next question is from the line of Afua Ahwoi with Goldman Sachs.

Afua Ahwoi

Just a few questions for me. First on the CapEx moving lower, I think you've mentioned this in the past before, but is there any number you can give us to have a sense to how low it can go? The second one is on your tax status with the NOLs expiring, can you just maybe give us the latest update on where that stands? Thanks.

John Duffey

Sure. I will start with the CapEx, then I will let Marshall talk about the REIT, the ruling. Again, as we think about CapEx, I talked previously about how we're very efficient and creative in terms of how we invest our capital dollars and very disciplined to make sure that we keep to a certain percentage of revenue. I think our ability to continue to grow revenue, particularly the international which doesn't require any CapEx, allows us to think about taking that down. Afua, I'm not going to say specifically in terms of how low we think that we can get that.

Obviously as we see what translates into our international growth going forward and really what we can do, because VR is still in the infancy stage here, what we can do around VR, it's a little bit too soon to tell. But I think what we're trying to say is that because of the growth drivers and some of the things that we have that require either no CapEx or minimal amounts of CapEx, I think we continue to take that down. I don't think we're right now in a place where we can say exactly what that number is.

Marshall Barber

In terms of the NOLs, we have about $400 million still in our NOLs. We anticipate paying minimal taxes through 2018. Did that answer your question?

Afua Ahwoi

To John's point, you had to either talk about going REIT or maybe find a way to extend the life of the existing NOLs just to keep on benefiting from lower taxes. I was just wondering if there was any update on those two items in particular?

John Duffey

There really is no update, Afua. I think as we talked about before, we have a ruling request into the IRS on the REIT and think it would probably be inappropriate for us to comment on either the outcome or the timing of that.

Afua Ahwoi

And one last question. Have you seen any impact on your Texas parks from some of the flooding we're seeing in Houston? I think last time it didn't have much of an impact, so I was just curious this time around.

John Duffey

We have not seen any impact whatsoever.

Operator

The next question comes from Lee Giordano with Sterne Agee.

Lee Giordano

John, in terms of strategy you have been very successful over the past three to five years here. And you have talked in the past about opening up communication between the parks and increasingly using data to manage and help find efficiencies. I was wondering if you could update us on that strategy and how you are using data today to help improve your performance and if there is still at upside to that strategy, that would be helpful. Thanks.

John Duffey

I would say that there continues to be a lot of opportunities around data and utilizing that data. I think we've talked before about a few years ago that we hired a very strong research person that was well known in the industry. He's built a team around him, so we're able to do a lot more today than we ever have been able to do in the past. We do millions of guest surveys. We utilize that data to not only enhance our capital, but also enhanced our in-park offerings, for example we're working on adding sports bars to our parks.

We've done that at a couple of locations. It has gone over very well. More healthy food offerings, our all-season dining plan; all of this has come from really a lot of the research that was done and what guests are looking for when they come to our park. We're also able to do a lot more price testing to see what pricing we can actually take across all of our ticket types which has been extremely valuable for us.

We utilize the data around not only more dynamic type pricing, but also targeting our specific guests. For example, maybe a guest may not have - has got a season pass hasn't come to the park in three months, we target them with a specific email to encourage them to come back to the park because obviously we want our season pass holders to come multiple times during the year. We've been working on that. I think that there is still tremendous opportunities as we think about all that data, particularly that data that comes from the surveys and the research that we do.

Operator

[Operator Instructions]. The next question is from the line of Joe Edelstein with Stephens.

Joe Edelstein

I was hoping that you could speak to the success that you're having in growing the dining passes, just other pass offerings aside from the memberships and the actual ticket season pass? I don't believe you break out those components, but certainly it does seem that you are having very good success with the active pass base growing as quickly as it is. So I'm curious about the attachment rates to the other products?

John Duffey

We're actually very excited about our all-season dining pass. The reason being is that we have seen very good penetration to date. I'll tell you that it's still relatively low because we're in the early innings of that product. But as you think about how many - we have millions of season pass holders and members.

If we were to get a specific penetration around our all-season dining pass, think about that with millions of those pass holders at $70 to $90 which is what our all-season dining passes run, you got X percent of your season pass holders to buy that. That is a tremendous amount of growth in your revenue base. We're extremely excited about it. We continue to see a nice tick up in the overall penetration, but honestly, Joe, we think we still have a lot of legs around that product.

Joe Edelstein

Maybe just a tack on a little bit from Lee's question. It does sound like using direct email, other means to talk with and communicate with the pass holders, but can you talk to the marketing programs, just how you are going out and educating consumers, making sure that they are fully aware of all the different products that you have today that you wouldn't have had just even a few years ago?

Marshall Barber

In terms of using data for all-season dining, we're using the data similarly to how we do the season passes. We're using the same kind of approach and it is a data-intensive approach. We know when people buy, when they come, when they eat and all of that really helps us determine when to communicate and how to communicate to our guests.

John Duffey

And Joe, as you think about all of this data, particularly around the marketing is, we now have very specific data. So we can actually see season pass purchases. We can see where all of those people that are buying season passes are from, what zip code. How many people are buying from X amount of miles from the park? How many are more in the outer areas? We can specifically target those people and can aggressively go after in certain areas that we may not have good penetration on season passes in the past.

Operator

There are no further questions.

John Duffey

Great. I appreciate everyone joining the call and in closing I would like to thank everyone. I believe we're going to have a great season ahead of us and I hope you have the opportunity to come out and visit one of our parks this season. Take care.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

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