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Cedar Fair, L.P. (NYSE:FUN)

Q3 2012 Earnings Call

November 6, 2012 10:00 AM ET

Executives

Stacy Frole - Director, Investor Relations

Matthew Ouimet - President and Chief Executive Officer

Brian Witherow - Executive Vice President and Chief Financial Officer

Richard Zimmerman - Chief Operating Officer

Analysts

Scott Hamann - KeyBanc Capital Markets

James Hardiman - Longbow Research

Tim Conder - Wells Fargo Securities

Jeffrey Thomison - Hilliard Lyons

Michael Needleman - Preservation Asset Management

Operator

Welcome to the Cedar Fair third quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Stacy Frole.

Stacy Frole

Good morning, and welcome to our third quarter earnings conference call. I'm Stacy Frole, Cedar Fair's Director of Investor Relations. This morning, we issued our 2012 third quarter earnings release and a copy of this 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. Richard Zimmerman, our Chief Operating Officer, is also with us today for the call.

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 will turn the call over to Matt Ouimet.

Matthew Ouimet

Thank you, Stacy. Good morning, everyone, and thank you for joining us on today's call. I am going to focus on three key areas in my prepared remarks this morning: first, our announced distribution increase; second, an update on the continued solid performance of our parks through October; and third, our short and long-term outlook for Cedar Fair. Brian will also provide additional details regarding our reported results through the third quarter and October, and then we'll answer any questions you may have.

Before we discuss our future distribution strategy, I'd like to briefly summarize our results through Halloween. As you can see from our earnings release this morning, the strong momentum we generated in our operations during the first half of the year, carried into our peak vacation months of July and August, as well as our important fall season.

We firmly believe our execution of the FUNforward initiatives we announced in January are responsible for the solid increases we achieved in our average in-park guest per capita spending, while maintaining our record attendance levels. This keeps us on track for a third record year of net revenues and adjusted EBITDA and it's just the tone for an equally promising 2013.

Through October 31, 2012, we have increased revenues by approximately $37 million or 4%. This is primarily the result of a 4% increase in average in-park guest per capita spending, while attendance in out-of-park revenues remained comparable with last year's record results.

Through October, we saw total revenues increased across the majority of our parks, led by Canada's Wonderland, Cedar Point, Knott's Berry Farm and Dorney Park. New rides and attractions, premium benefit offerings, our new eCommerce platform and improved consumer messaging were the primary contributors to the year-over-year increase. I'll speak to these items in more depth in just a little bit.

Based on these results and our expectations through the end of the year, we are confident in our ability to deliver a third consecutive year of record results with net revenues between $1.055 billion and $1.075 billion, and adjusted EBITDA between $385 million and $395 million. This remains consistent with the guidance we provided at the beginning of the season.

In recognition of our strong current year performance and our positive outlook, I'm extremely pleased with our board's decision to increase our 2013 cash distribution to an annualized rate of $2.50 per unit. This is more than a 50% increase over our 2012 annual distribution rate of $1.60 per unit.

Over the past year, we have spoken with many investors, who have enquired about our distribution philosophy and how we intend to sustain and grow the distribution in the future. In all of these conversations, we have stressed a quality distribution, referring not only to the annual amount, but the long-term sustainability as well.

When determining the 2013 distribution rate as well as looking at potential future distribution levels, the key factors considered by our board were: a strong balance sheet position and a cash generating capacity of our business; regular cash obligations such as cash for interest, taxes and new rides and attractions; the discretionary use of cash for items such as debt prepayments, strategic initiatives and incremental investments in our core assets; and finally, future cash obligations such as the increasing cash taxes current expected to occur in 2015, as we exhaust our tax NOLs.

Taking all of this into consideration, we are confident that we will have sufficient cash flow from our business and more than adequate liquidity will lift to sustain an annual $2.50 distribution per unit.

In addition, we expect the $2.50 per unit distribution not only to be sustainable, but also to grow in line with the growth of our business on an annual basis. The 2013 distribution will be our 27th consecutive year of paying a distribution to unitholders and it represents the highest distribution paid in the company's history. We are very proud of this fact, and look forward to producing the operating results that will allow us to increase this record amount, going forward.

I also want to assure you that we will continue to take a disciplined approach in balancing distribution growth with the financial flexibility provided by retaining cash flow to continue to de-lever, to modest the debt reductions, and to invest in the growth of our business. We believe retaining a portion of our cash flow to invest in the construction and our acquisition of new asset is an effective and accretive use of our capital.

Now, I'd like to provide some additional color on our results through October. As I mentioned earlier, our seasonal parks completed there operating seasoning, trending towards record revenues in 2012. We are pleased with our ability to steadily increase our average in-park guest per capita spending, while maintaining our record attendance trends from a year ago.

Given the uncertainty in the overall economy, I feel it's necessary to briefly address the modest decrease in attendance that we experienced during the month of October. We believe this decrease was due to less than favorable weather conditions, when compared with the same period a year ago, and was not a reflection of economic factors.

In fact, I'm pleased to say that we believe the first year implementation of several FUNforward initiatives, such as increased season pass sales and advanced purchase commitments, helped to ease the impact of the less than favorable fall weather.

As we have stated in the past, we believe the weather has impacted averages over the duration of an operating season, but it can impact comparisons when looking at short periods of time. Our focus is to operate our business by taking a long-term view without overreacting to short-term weather trends, either positively or negatively. Said more directly, you don't change your strategy, because you have a raining weekend.

We will continue to focus our efforts on increasing the advance purchase commitments of our customer base, and identifying ways to add greater value to our guest visit, to create urgency as well as adding a little bit of fun to there day at the park.

Increased season pass sales, expanded evening programs such as Luminosity, special events such as the Haunt or Halloweekends and premium benefit offerings are all items that created urgency and increased our guest commitment to visiting our parks this year, allowing us to maintain the record attendant level that we achieved over the past two years.

As I said to many of you there is always a temptation to chase attendants through aggressive discounting, particularly when weather or other uncontrollable factors have a negative impact. That being said, we continue to believe that a visit to our park provides great value to our guest that is important to maintain integrity in our pricing for the long-term success of our business.

Although, we will spend the next several months further analyzing our results from our this year, at this time we are optimistic about the consumer trends we were seeing in our properties, and believe we have strong momentum as we head into 2013.

I'd like to highlight a few of these items for you now. First, our dynamic pricing and advance purchase commitment initiatives contribute to our record guest spending trends. Through this past weekend, admission revenue per capita was up approximately 3% and other in-park per capita spending was up approximately 6%.

I'm particularly pleased with this growth when taking into consideration our record season pass sales, which typically place pressure on both the admissions and other in-park per capita spending. As part of this initiative, we partnered with Accesso, the premier provider of ticketing solutions for amusements parks, and rolled out a new eCommerce platform.

It was through this platform that we were able to introduce our guests to an installment payment program to purchase their season passes, resulting an incremental season pass sale at a higher price per unit sold. We were also able to offer our guest, the wider variety of options such as paying for parking or meals in advance to their visits.

In this complicated world, the easy way we can make it for our guest to budget for and plan their trips, the better experience they will have at our parks. This ultimately yields a higher return for our business as well as so that you get more return visits by our guest.

Going forward, we will continue to park and with Accesso to introduce more products and programs to benefit our guest. For the 2013 season, we have already introduced a six-month installment payment program for anyone who brought their 2013 season pass by October 31.

I'm pleased to say, our sales for 2013 are trending well ahead of the same time last year. However, I will caution you that it is too early to extrapolate these trends into full year of 2013 results.

Second, the introduction of new premium product offerings such as Fast Lane was a large contributor to the increase in our, in-park guest spend. This was a highly successful program for us this year. Our guest satisfaction feedbacks from individuals who purchased this particular item was extremely high and we believe in some cases resulted in an incremental visitations to our park.

This is a program we will thoroughly analyze during the off season, as we believe there are opportunities to grow revenues and increase the capacity of this program over time.

Third, capital and expense productivity is always important. Our top performing parks this year, in terms of year-over-year growth was Canada's Wonderland where we introduced Leviathan, 300-foot tall rollercoaster. This rollercoaster had our guests screaming, smiling and laughing all summer long. Given our higher repeat customer base, it is important for us to consistently invest in our parks and introduce new rides and attractions on a regular basis.

While we will always have something new to market in each in our parks, our capital strategy has and will continue to focus on placing our capital investments where we believe we can achieve the highest returns. This includes enhancing the industry-leading brands of our four properties, Cedar Point, Knott's Berry Farm, Canada's Wonderland, and Kings Island. We're continuing to look at ways to embellishing growth, our other distinctive regional properties.

We issued a news release last week summarizing our capital plans for 2013, so I will not go into detail in today's call. However, I must stand confident in our capital allocation for next year, including a record-breaking coaster at our flagships parks, Cedar Point.

Gate Keeper, a new winged coaster, records the longest drive and longest distance of any winged coaster in the world and will forever change the landscape of the Cedar Point Peninsula. This will be the 16th rollercoaster at Cedar Point and further solidify the parks position as both the rollercoaster capital of the world and the best amusement park in the world, a title Cedar Point has held for 15 years.

We also believe improved consumer messaging contributed to our results. Our new Thrills Connect campaign created by Cramer-Krasselt or CK as we call them, one of the largest independent advertising agencies in U.S. combined the excitement of Thrills with the fun of creating new memories together.

The combination of brand and retail messaging helps the consumer to appreciate the strong value proposition, apart visit provides. Additionally, with the help of CK and our new marketing team, we focused on migrating, our medium next to those channels that are most effective today. We are proud of what we accomplished this year and we look forward to rolling out the second generation of our Thrills Connect campaign in 2013.

Lastly, I'd like to highlight the recent accomplishment of our strategic alliance team led by Bob Wagner including the recent announcement of Coca Cola as exclusive refreshment beverage for Cedar Fair. The consolidation of our beverage relationship with the single-provider helps us achieve improved cost efficiencies, best practice application, and promotional leverage.

We look forward to the future as we create an expand relationships with additional iconic brands and leverage our park network to provide an enhanced guest experience, a mutually beneficial arrangements with other partners.

At this point, I'm going to turn the call over to Brian who will speak to our financial results in more detail.

Brian Witherow

Thanks Matt, and good morning to everyone on the call. Before we began, I want to remind everyone that our 2012 fiscal results are not directly comparable to the prior year as the current year third quarter results include a shift in the operating weeks. And our fiscal nine months include an additional week, due to the timing of the fiscal third quarter close.

Since material differences in our statements of operations, or partly due to the calendar shift, resulting in a 76 fewer park operating days at all of our parks combined to the current quarter and 30 more park operating days for the current fiscal nine months. I'll also discuss operating results based on comparable 14 week and nine-month periods, end of September 30, 2012 and October 2, 2011.

As Matt mentioned at the beginning of the call, we're extremely pleased with our results for the third quarter as well as October. Through the third quarter of 2012, we reported an increase of $55.6 million in revenues to a record $939.2 million. On a comparable week basis, revenues increased approximately $41 million or 5%.

The solid revenue growth on a comparable week basis was a direct result of 4% or $1.67 increase in average in-park guest per capita spending, a 1% or 222,000 visit increase in attendance and out-of-park revenues that were comparable with the prior year. It's important to note that in-park per capita spending represents the amount spend for attendee to gain admission to our parks, plus all amount spend well inside the park gates.

Out-of-park revenues primarily represent the sale of hotel rooms, food, merchandize, and other complementary activities outside the park gates and are excluded from our guest per capita figures. The strong growth in average in-park guest per capita spending through the third quarter came from a 6% increase in pure in-park guest spending combined with a 3% increase in admissions revenue per capita.

As Matt mentioned earlier, we're extremely pleased with the gains in both areas, particularly given the success of our season pass initiatives, which would tend to put pressure on average in-park guest per capita spending as season pass holders typically spend less with each incremental visit.

Operating costs and expenses through the third quarter of 2012 were $580.2 million, up from $541.7 million for the third quarter of 2011. On a comparable number of operating weeks, operating costs and expenses for the first nine months of 2012 would have increased approximately $ 28 million or 5%. The largely anticipated year-over-year increase in costs and expenses was the result of incremental cost to support the launch of company's FUNforward growth initiatives, including our new eCommerce platform and technology infrastructure improvements.

During this time, we also saw an increase in employment-related costs which was largely due to an increase in wage expenses related to equity-based compensation plans, along with planned increases in seasonal labor to support some of our premium benefit offerings and normal merit based increases for full-time employees.

The increase in wage expense related to our equity-based compensation plans which was approximately $3 million, resulted from a significant increase in the market price of our units through the first nine months of the year.

As we've also discussed on past calls, we accelerated some off-seasons maintenance projects into the first half of the year, resulting in year-over-year maintenance expense increasing by approximately $4 million. We expect a meaningful portion of this increase to reverse in the fourth quarter of this year. These operating cost increases were partially offset by a reduction in legal and related professional costs in 2012.

I'd also like to note that as a result of our quarterly impairment taxing of the operating and non-operating components our Wildwater Kingdom waterpark. We recognized a $25 million non-cash charge for the partial impairment of that park's fixed assets during the third quarter of 2012. Based on the parks 2012 operating results through the quarter and updated forecast, we felt a review of the carrying value of this long-lived assets was warranted.

After performing us review, we determined that a portion of the parks fixed assets were impaired. It's important to note that this is a legacy from the 2007 exit of the amusement park operations of Geauga Lake, and is a non-cash accounting charge with no impact on current or future year cash flows.

Adjusted EBITDA, which we believe is a meaningful measure of our park level operating results increased to a record $365.5 million through the fiscal third quarter of 2012 from $346.4 million in 2011. On a comparable week basis, adjusted EBITDA for the first nine months of the year would have been up approximately $50 million or 4%, which is in line with our targeted growth rate for adjusted EBITDA.

The increase in adjusted EBITDA is a direct result of the strong revenue and attendance trends produced by our parks through September. These gains were partially offset by the higher park level operating cost during the period. On a trailing 12 month basis, our adjusted EBITDA margin was comparable with a year ago at 36.3%.

Speaking to more current results for just a moment, our revenue trends through the month of October remained solid. Based on preliminary results, revenues through October 31, 2012, were approximately $1.036 billion compared with approximately $999 million for the same period a year ago.

This is the result for 4% increase in average in-park guest per capita spending to $42 and attendance of 22.7 million visits, which is comparable with last year's record results. Out-of-park revenues of approximately $108 million through October were also comparable with this time last year.

As Matt mentioned earlier, we do not believe the decrease in attendance in month of October is representative of any short-term or long-term shift in regional economic trends. We are up against record attendance at our parks during the month of October last year, and we had less than favorable weather during the month of October in 2012.

Now, let me highlight a few items on our balance sheet. As stated in our news release this morning, our liquidity and cash flow remain strong. Our improved year-over-year performance compared with last year's record results has allowed us to further proactively reduce our leverage this year by $25 million as planned, and we anticipate additional measured debt reduction in the future. As a result of this prepayment program, we now have no scheduled debt payments due before 2015.

At the end of the third quarter of 2012, our consolidated leverage ratio was 3.9 times, which is down from 4.3 times a year ago, and we have no outstanding borrowings under our revolving credit facility. By prudently managing our cash flows, we're able to maximize our financial flexibility and our ability to create value for unitholders in both the short-term and long-term through debt reduction, capital investments and cash distributions.

Our nearest debt maturity is our revolving credit facility in 2015. Taking this into consideration along with a low interest rate environment and our unsecured notes, which are currently trading at attractive rates and are callable in 2014, it's likely that we would look to opportunistically refinance our debt within next two years. We'll continue to closely monitor the credit markets and look to advantage of opportunities to improve our average cost of debt as well as the terms and provisions of our credit agreement.

Commenting on our cash distributions for just a moment. With our strong 2012 operating results and positive outlook heading into 2013, we've announced our plans to increase the 2013 distribution rate by more than 50% to $2.50 per limited partner unit. You've heard us say numerous times this past year and Matt reiterated again today, our focus is not just on the amount of the distribution we're paying, but also on the quality of the distribution, ensuring that it's sustainable and growing as our business grows.

Since we've not yet provided guidance for our 2013 operating season, I'll use our 2012 adjusted EBITDA guidance as a conservative base to walk you through our use of estimated annual cash flow. Using our current 2012 adjusted EBITDA guidance of $385 million to $395 million; and after taking into consideration, cash used per capital expenditures of roughly $90 million to $100 million; interest of $100 million; and taxes of $10 million. We were approximately $175 million to $195 million of cash flow remaining for discretionary use.

Remember, this is before any additional operating growth in our business going forward. We believe this amount is more than sufficient to cover the 2013 distribution of $2.50 per unit or approximately $140 million in aggregate, with the remaining cash flow available for item such as additional debt reductions similar to the $25 million prepayment made this year, and additional strategic investments in our business, which Matt will discuss in just a moment.

In conclusion, we finished the core operating season in sound financial condition. Our cash position together with the existing lines of credit, provide sufficient flexibility to meet working capital needs and partnership distributions as well as support growth through our capital expenditures program.

Now, I'll turn the call back over to Matt.

Matthew Ouimet

Thank you, Brian. Before we take questions, I'd like to briefly comment on our strategy going forward. Our primary focus is to further solidify and optimize the core business growth opportunities and profitability. This includes prioritizing marketable capital to our largest contributors of adjusted EBITDA as well as continued investment in the infrastructure of our parks.

The news release we issued last week already addressed our marketable capital we'll spend in 2013. However, there are few areas we intend to spend additional capital over the next several years outside of 9% of revenues that we've already identified. We expect this additional investment to be between $15 million and $20 million on an annual basis for the next three years. The foremost investment will be a refreshment of our hotel properties at Cedar Point.

We have approximately 800 hotel rooms that sit on prime lakefront property unlike Erie, adjacent to the best amusement park in the world. We believe there is an opportunity to enhance the resort guest experience and provide room inventory that supports a good, better, best, segmented pricing strategy. This is a multi-year investment that will help extend the length of stay of our guests, reinforce the super regional draw at Cedar Point as well as protect the performance of our most profitable park.

We also believe it's important for all of our parks to have solid technology infrastructure in place, and that includes point of sale systems to support data driven insights and dynamic pricing effectiveness. Four of our parks still do not have this technology, and we intend to accelerate the implementation of these systems in 2013.

We expect these systems to reduce cost and drive revenue growth over time. Linkage between our marketing, our CRM platform and actual guest behavior in parks, will improve both the guest experience and Cedar Fair's profitability. In addition, we will look to relocate and modernize our employee dormitories at Cedar Point, freeing up highly valuable space on the peninsula for future development. These are all investments that protect our core assets and ultimately impact our guest favorable perception of our parks.

Fundamentally, our strategy will continue to focus on providing a compelling guest experience and extracting additional value from our $23 million-plus attendance base. This was the focus of our FUNforward initiatives we announced at the beginning of the year and remains our focus going forward. We have been successful with its first year implementation and expect this momentum to continue as we head into 2013.

Finally, we will look to pursue the next generation of growth initiatives at a reasonable cost and an attractive return of invested capital. This may include expanding group business distribution channels, expanding our marketing initiatives into outer market and installing infrastructure investments to support increased activity with our strategic alliance partners.

It may also include making additional growth investments in mid-tier parks as we look to further diversify our adjusted EBITDA base, both financially and geographically. Potential theme here is growing our existing properties, generating greater productivity from our installed asset base.

As I mentioned in the past, disciplined execution that delivers a best day to your experience for families and friends is the foundation, not only for us, but for our industry. Safety, service, cleanliness and courtesy are and will continue to be our cornerstones. It is important that we have the combination of new product, compelling consumer messaging and targeted offers to drive our topline growth, while developing the necessary systems and competencies to support new initiatives. This in turn drives our free cash flow.

For our unitholders we will continue to generate a significant amount of free cash flow going forward. We will prudently manage these cash flows to ensure quality distribution that our unit holders can depend on year-after-year.

Our 2012 operating performance and future expectations have enabled us to significantly increase the distribution for 2013, while reducing our debt and investing in our business. Cedar Fair has a solid long-term business model and we will continue to make every effort to maximize the near and long term value potential of Cedar Fair.

Now, we will open up the calls for any questions or comments you may have.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Scott Hamann with KeyBanc Capital Markets.

Scott Hamann - KeyBanc Capital Markets

In terms of the distribution policy going forward, what metric should we kind of be looking at, to kind of, assess the potential for additional growth in the future years. And I know you've quite already pin down on a payout ratio or some kind of CAGR, but kind ofm how do you and the board thinking about that over the next several years?

Brian Witherow

The distribution remains our top priority as we said. And as Matt indicated on the call, the quality of the distribution is front and center for us. And that speaks to not only of sustainability, but its ability to grow. So our intend is to see that distribution grow as the business grows, but at this point we're not in a position or willing to put out any specific parameters around that.

Scott Hamann - KeyBanc Capital Markets

And the just in terms of some of the historical attendance trends you've seen, I guess, maybe specifically it's your point in the wake of a new major ride, maybe with Maverick last time around or some of the other rides, can you maybe qualitatively talk about, what you see there?

Matthew Ouimet

Obviously a new rider attraction, of the scale of Gate Keeper has a meaningful impact on attendants and we saw that this year particularly in Canada's Wonderland with the introduction of Leviathan. So we would expect a very good year, next year at Cedar Point.

Scott Hamann - KeyBanc Capital Markets

And can you talk about some of the pricing actions that you might have taken here on the fall, like you typically do in preparation for next year, kind of, on a system-wide basis, maybe?

Matthew Ouimet

The best examples, and Brian, I and Richard, who are sitting at the other side of table, spending enormous amount of time on this, looking at our pricing strategies from this point, all the way through the next summer, and then aligning those pricing strategies with our marketing messages. So I think, we're as well prepared proactively as we've ever been in terms of understanding where we expect to drive both attendance and pricing for next year.

Operator

Our next question comes from the line of James Hardiman with Longbow Research.

James Hardiman - Longbow Research

Want to thank you on the increased disclosure around sort of how you're thinking about numbers for next year. If I'm doing this math right, just based on the EBITDA numbers for this year, you're going to have $35 million to $55 million of additional capital. You've talked I believe $15 million to $20 million of incremental investment.

A, do I have all those numbers right? And, b; it sounds like over and above that is debt pay down going to be the primary use of that incremental capital. Should we expect cash balances to basically be flat this year to next? And as I look forward to next year, the idea that EBITDA growth, call it mid-single digit range like you guys have guided, are we really seeing that the cash distribution, if that's the rate that we're looking at going forward?

Brian Witherow

So James, let me break it into individual pieces, if I can. I'm not sure I understood your first math. Our marketable capital for next year will be in the $90 million to $100 million range, and on top of that we'll have $15 million to $20 million that I refer to that starts the hotel refreshment program as well as the POS systems. So to make sure we're talking the same numbers, I'll start there.

James Hardiman - Longbow Research

I was more referring to the tick in EBITDA guidance for this year and then just backing out the interest in taxes and the entire capital spending program excluding the incremental piece, I've sort of got to $33 million to $35 million, basically comparing the $175 million to $195 million versus the $140 million in the distribution?

Matthew Ouimet

The nice thing about our business, I think from your standpoint, it looks too easy to model. So I think off the top of my head, I'd say your numbers are clearly in the range.

I think one of the most important things to think about the distribution. As you would expect Brian and I spend a considerable time with the board, stress testing various scenarios going forward, was it relates to distribution, the alternative uses of cash.

We are comfortable obviously at $250 million and ability to grow that as our business grows. I would expect that you'll continue to see as we've said, a modest pay down in debt. Obviously the biggest thing on horizon, kind of 2014 timeframe, is the refinancing which at this point in time, we would expect to be in the favorable position relative to that. And then we'll build up a little bit of liquidity for our rainy day fund, which I guess, is well described in this business.

And then probably, the next milestone of significance beyond the operating season, which is really the essence of what we do, is the refinancing in the 2014 window. And after that I'm sure the board will regroup and decide what's appropriate going forward.

James Hardiman - Longbow Research

And then just, a question or I guess two, real quick on the Funforward initiatives. We originally laid out all these different initiatives the general perception was that 2013 was going to be the bigger beneficiary of per capita spending increases. The 2012 numbers have been. Should I take that to mean that you got more of the benefit earlier or does 2013 still shape up to be even bigger beneficiary of those initiatives in 2012?

Matthew Ouimet

So in a public forma, let's just say, we weren't as smart as we'd like to be, but the reality is that lot of initiatives worked very well this year. And some got more traction than others. But in every case we have had significant learning that I think provide upside going forward.

And as clearly Fast Lane got early traction, but there is still opportunity there. Our eCommerce platform, as recent as weeks ago we introduced new installment payment plan, but we have our sales force now staffed with the people we want, going forward and I think we've got some key initiatives there.

So James, the good news is it helped us and every one of us was helped by the way. In a year when weather probably could have been better, but there is still upside on every one of those initiatives.

James Hardiman - Longbow Research

And then just last question here, on the cost side of the business, can you talk about your ability to maybe get some margin as we move forward. You touched on couple of costs that might now be here next year, incentive comp being one, maybe some of the Funforward initiative investments to, does some of those go away as we move forward or those just layered on costs there going be with you indefinitely?

Brian Witherow

As we've historically said, this won't change cost control, operating margin remain top priorities for us. Managing those are a first priority for Richard, Matt and myself as well as the general managers. Now, that said, we went into the 2012 season with a focus on improving the guest experience with the Funforward initiatives in mind, and along with ramp up of all of those efforts, came increased cost that were planned and expected and those increased cost are right in line.

The ones that you mentioned that have been a little out of the expectation, the equity-based cost, those are ones that, good problem to have like the enterprise increase have this year has had a negative effect, a little bit on that cost front. So I don't know where that's going to go next year. Hopefully that's another type of problem to have. But we have new initiatives, as Matt mentioned like the CRM, the second phase of some of the Funforward initiatives that will be incremental cost for next year, but we'll continue to remain focused on managing those costs and driving operating margin improvement.

Richard Zimmerman

And if I could, we are very focused on margins, I will tell you this. And for our seasonal parks performance, the best margins in the industry there were no surprises in that margin this year. And I think we talked all of you along the way, saying that we didn't expect to grow margins this year as we invest in the platforms for growth.

So I would hope that on a long term basis, some of that does get to flow through the bottom line, but I'll also tell you it's important to continue to invest in the guest experience, if we want to continue to drive price. And so that's one of things we balanced out.

James Hardiman - Longbow Research

And so just to unclear that long term potential margin enhancement, long-term I'm assuming does not start in 2013 or how should I think about what's long term?

Matthew Ouimet

I would capture that outside 2013.

Operator

(Operator Instructions) Our next question comes from the line of Tim Conder with Wells Fargo Securities.

Tim Conder - Wells Fargo Securities

Matt, when you called the $15 million to $20 million of investment, you outlined what that was for. How many years are we looking of that incremental layer of investment? Do you see that, you said a couple of years, so are we looking at two years, three years?

Matthew Ouimet

Tim, we're looking at three years. And I think what I would say just to embellish a little bit is, look you can't grow a business and so you first protect the base. And the refreshment of our hotels at Cedar Point is a combination of protecting the base and providing to growth through some segment, as room inventory. And so I think it's a very valuable investment for us, again, particularly since we're protecting our most profitable asset.

Tim Conder - Wells Fargo Securities

And then another clarification question, if I may, the investment in mid-tier parks, were you talking about existing parks that you owned or acquisitions or all the above.

Matthew Ouimet

No I was talking about parks we own. And we think there are at least a couple of parks worthy of consideration to maybe get us a step function of growth, but that's a longer term evaluation that Brian and I and Rich will go complete over next year.

Tim Conder - Wells Fargo Securities

The POS systems as part of that $15 million to $20 million, can you outline, are they in the mid-tier parks or couple of year larger parks where you don't have those? And if you could comment how you feel where you do have them already, how is that performing. And do you see some incremental upside to whether those are already in place?

Brian Witherow

I'll tell you, the four parks that are on the docket for next year are Knott's Berry Farm, Valleyfair, Worlds of Fun and Great America. So you've got one of the larger properties and then three of the mid-tier properties in there. The POS systems that we've implemented over the last couple of years have generated very solid returns, per cap improvement at the parks.

Cedar Point was a great example several years ago, when we rolled out the POS system there. So we're expecting good things at these properties as well. They're not four of the big parks, three of them mid-tiers in there. So there is opportunity for per cap improvement as well as some efficiencies on the cost side, as well as Matt said on the call.

Matthew Ouimet

And you know, Tim, what that lets do with those system is monitor activity on a centralized basis, so we can apply best practices across the system. So that the comparability of the data, particularly for small parks, where they have less resources to do the analytics themselves, I think we'll see value out of that.

Tim Conder - Wells Fargo Securities

And again, I apologize, Brian if you covered this or Matt. In your distribution thought framework going forward, I know a couple of earlier questions were asking about a payout ratio, but you talked about debt pay down, you outlined the CapEx. You talked I think also before about having a cushion, that if you would have a 10% or whatever the number is, drop in EBITDA, as a cushion to give you room to consistently maintain and gradually grow that distribution. Can you just go through that and anything else that may go into your framework, as to how you formulate, what could be a considerable reasonable range of what you could pay in the distribution, just the components, not necessarily the numbers, but whatever you can share with us from that perspective?

Matthew Ouimet

Tim, maybe I didn't answer it exactly, but Brian touched on it, when he was talking. So as you would expect we ran multiple scenarios, including a 2009 type scenario, slower growth, faster growth, et cetera. And in all of those instances felt comfortable that 230 was both sustainable and had an ability to grow going forward. Also in that is an implied level of liquidity, I'm not going to get into the specific level, that keep some powder dry if there are other opportunities for us to pursue. That's probably about as far as I can go to date.

Tim Conder - Wells Fargo Securities

And again, I think the EBITDA dropped 11% back in that period of time?

Matthew Ouimet

We ran scenarios like that. It was 11% drop and recovered 13% the following year, so your memory is good.

Tim Conder - Wells Fargo Securities

So that type of range has built in and is that roll-forward off of the current year that type of drop or is that off of a prior type of base scenario?

Matthew Ouimet

Tim, I think I could redirect you a little bit. I think we did that only to make ourselves comfortable, because obviously that's not the circumstance we're under today. Again, I think as I said earlier on this call and you may have missed it, but appreciate you join us on the road. I think that we're pretty even model out there, and Stacy and her team are happy to help you guys to sort through those specifics.

Operator

Our next question comes from the line of Jeffrey Thomison with Hilliard Lyons.

Jeffrey Thomison - Hilliard Lyons

I may have missed some of your earlier comments, so I apologize. But I wanted to step away from year-to-date metrics and just look at the quarter for a bit, seeking more info on the third quarter revenue and EBITDA declines as it relates to the number of operating days. So could you give a little color on that including the operating day comps to the year-ago period and what was actually going on there?

Brian Witherow

Jeff, as we said at the beginning of the call, the variance in the quarter as well as the nine months, the reported number is largely driven by the change in the fiscal calendar, when you back that out, revenues for the quarter, what I call a comparable number of operating weeks, would have been up 4%. So in line with the year-to-date numbers, that we've spoken about, as well as, the target of the guidance that we spoke about as well, and a same level of growth at the EBITDA level of 4%.

Operator

Our next question comes from the line of Michael Needleman with Preservation Asset Management.

Michael Needleman - Preservation Asset Management

Just a follow-up on the POS question that was asked. How many systems now or will be in place at the end of next year?

Richard Zimmerman

We will have completed 10 of our 11 parks.

Brian Witherow

The only park, Michael, we wouldn't have the POS systems is our smallest property, Michigan's Adventure, in which we just got some technological things we have to work through, before we get that rolled out there.

Michael Needleman - Preservation Asset Management

And if I can ask in a different way, basically now that you're in this process, what do you think the POS systems have done in terms of the flexibility to be able to see the improvements of the revenue in-parks that are going to continue to somewhat hopefully accelerate. Were you've been able to learn, how you've been able to utilize that information and be able to kind of raise the price or the consumer spend more money there?

Brian Witherow

Well, one thing I would say Michael is that even prior to having the POS in place, we had some legacy systems that wouldn't be considered, point-of-sales systems, but gave us a lot of visibility on how we were doing at the per cap level all the way down to a food stand or a location.

And so there has always been a very heavy focus on the operation side, towards managing of those efforts that's at a location-by-location basis. And that is the case that the parks that have had POS as well as those that haven't had. With the POS systems, I think when we have rolled those out, have provided for us, as Matt said, earlier is the ability to essentially look at things a little bit quicker, to do a little bit more benchmarking.

I think one of the opportunities that lies in front of us is the ability to start benchmarking our mid-tier properties against one another our larger properties against one and another, and give us some more flexibility on that front. There is some definitely some opportunities, but it isn't like we've been without any visibility up to this point. We've got a lot of very robust systems, albeit more on the back side as opposed to real-time upfront POS reporting.

Matthew Ouimet

The other thing Mike I would build on what Brian said, is we are in the process of building and refining our CRM database. And the ability to track consumer spending and then tie that back to who they are is going to be extremely valuable to us and you can't do it without POS.

Michael Needleman - Preservation Asset Management

And is this allowing you to have more of a loyalty type of program?

Matthew Ouimet

We would actually expect that to happen over the course of the year. We test to the loyalty program last year at Kings Island and we're going to evaluate those results. But as you know, royalty programs take many different forms. And I want to make sure, before we go down to certain path, but fundamental to that, is obviously understanding which consumers are doing which behaviors and back to the POS that's what required.

Michael Needleman - Preservation Asset Management

Just in terms of the hotel, I don't know whether or not you mentioned it, what did you say that you were going to add as far as the room you're concerned or is that upgrading of rooms?

Brian Witherow

The key here and what we're off doing is deciding the 800 rooms here at Cedar Point that are on the lake is how to do a classic good, better, best segmentation strategy in terms of product and then obviously translating into pricing. So stepping back and making sure, we're aligning with the value-oriented consumer, who just wants a basic rooms and two days here at the park, as compared to a benedictory and a consumer which is willing to take higher end suite.

And probably when they travel is used to a different type of amenity package. And so it's really breaking our inventory down to more align with the consumers and making sure that we've been able to get value for the value of consumer and additional profits for us out of people who maybe want to spend more money.

Michael Needleman - Preservation Asset Management

Aren't you starting that process now as far as the upgrading rooms?

Brian Witherow

This year it's primarily the evaluation of the masterplan, because I'll give one shot at this if you will, and we want to make sure that we're doing this right. So we've already started the consultants and others that you would expect in this process to test, where we will go and part of that is a deep dive with our consumers. We're going to do the, classic focus group and other things to make sure, it isn't just the board room table that's making that decision, its the consumers.

Michael Needleman - Preservation Asset Management

What was your price increase if all things else being equal year-over-year?

Brian Witherow

What flowed through the Front Gate was the 3% increase admission per cap. It's very significantly across the parks and across the programs.

Operator

Thank you. I am showing no further questions in the queue at this time, I'd like to turn the conference back to management for any final remarks.

Matthew Ouimet

Thank you very much. So first of all, thank you for your questions this morning and your ongoing interest in Cedar Fair. As you would expect we're confident in the plan we have in place, and our ability to successfully execute the plan. We're pleased with our results to date and remain committed to the opportunities before us in the long term success of this company.

With one full operating season behind us, as a leadership team, I'm even more convinced today than when I first started of the quality of our business model. We have impressive, well-maintained parks and our employees are the best in the industry at providing our guests with the best stay-of-the-year experience. These characteristics, while our guests continue to return year-after-year, allowing us to consistently produce record results. We will also continue to actively engage both existing and new investors and I look forward to updating you on our progress over the course of the next year.

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. We look forward to speaking with you again in about three months to discuss our fourth quarter and yearend results.

Operator

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation, you may now disconnect.

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