Six Flags(SIX) - 2023 Q1 - Quarterly Report

FORM 10-Q General Information This section provides the SEC filing details for Six Flags Entertainment Corporation's Form 10-Q, including its filer status and shares outstanding SEC Filing Details This section outlines the key filing specifics for Six Flags Entertainment Corporation's Form 10-Q, including its filer status and common stock outstanding - Filing Type: Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended April 3, 2022[2] - Registrant: Six Flags Entertainment Corporation[2] - Filer Status: Large Accelerated Filer[3] - Shares Outstanding: 86,443,033 shares of common stock as of May 9, 2022[3] Cautionary Note Regarding Forward-Looking Statements and General Disclosures This section provides a cautionary note on forward-looking statements, outlining key risks and uncertainties that could materially affect actual results Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to significant risks and uncertainties, including COVID-19 impacts and strategic execution challenges - Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions, and other factors beyond the company's control[6] - Key risk factors include COVID-19 pandemic disruptions, adequacy of cash flows, strategic plan timing and costs, capital plan implementation, geographical park diversity, regulatory compliance, ability to obtain financing, interest payments, accounting pronouncements, litigation outcomes, tax liability, and uncertain tax positions[6] - Additional risks include factors impacting attendance (e.g., local conditions, contagious diseases, global instability), product recalls, safety incidents, insurance availability, inability to achieve financial targets, adverse weather, economic conditions, changes in consumer tastes, competition, seasonal workforce dependence, labor disputes, and environmental/tax laws[7] Available Information This section details how to access Six Flags' SEC filings, available free on its investor relations website or via written request - SEC reports (10-K, 10-Q, 8-K) are available free on the company's investor relations website: investors.sixflags.com[10] - Physical copies of reports can be requested in writing from Six Flags Entertainment Corporation, Attn: Investor Relations[10] Definitions This section defines key terms like 'Company' and 'Holdings' as used throughout the report for clarity and precision - 'We,' 'our,' 'Company,' and 'Six Flags' refer to Six Flags Entertainment Corporation and its consolidated subsidiaries[11] - 'Holdings' refers specifically to Six Flags Entertainment Corporation, excluding its consolidated subsidiaries[11] PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, reflecting the company's seasonal business Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements, prepared under U.S. GAAP, highlighting the seasonal nature of the company's operations - The company operates 27 regional theme parks and waterparks, with 24 in the U.S., two in Mexico, and one in Canada, making it the largest regional theme park operator globally and largest waterpark operator in North America by park count[27] - The financial statements are unaudited and condensed, prepared in conformity with U.S. GAAP, with certain information and footnote disclosures condensed or omitted per SEC rules[28] - Results for the three months ended April 3, 2022, are not indicative of full-year results due to the highly seasonal nature of operations, with approximately 75% of attendance and revenues typically occurring in the second and third calendar quarters[31] - The COVID-19 pandemic continues to present material uncertainty and risk, impacting performance and financial results due to fluctuating infection rates, restrictions, and global supply chain/wage cost challenges[32] Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific reporting dates | Metric (Amounts in thousands) | April 3, 2022 | January 2, 2022 | April 4, 2021 | | :---------------------------- | :------------ | :-------------- | :------------ | | Cash and cash equivalents | $252,203 | $335,585 | $62,905 | | Total current assets | $433,279 | $516,035 | $217,548 | | Total assets | $2,884,032 | $2,968,590 | $2,673,965 | | Total current liabilities | $444,265 | $463,239 | $466,008 | | Long-term debt | $2,631,246 | $2,629,524 | $2,624,361 | | Total liabilities | $3,399,741 | $3,428,723 | $3,387,053 | | Total stockholders' deficit | $(1,037,776) | $(982,200) | $(1,236,464) | Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including revenues, expenses, and net loss for the reported periods | Metric (Amounts in thousands) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :---------------------------- | :------------------------------- | :------------------------------- | | Total revenues | $138,107 | $82,024 | | Operating expenses | $109,944 | $92,643 | | Selling, general and administrative expenses | $39,332 | $36,126 | | Interest expense | $37,857 | $38,460 | | Loss before income taxes | $(84,775) | $(127,709) | | Net loss | $(65,662) | $(95,839) | | Net loss per average common share outstanding - basic and diluted | $(0.76) | $(1.12) | Condensed Consolidated Statements of Comprehensive Loss This section details the company's comprehensive loss, including net loss and other comprehensive income or loss components | Metric (Amounts in thousands) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :---------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(65,662) | $(95,839) | | Other comprehensive income, net of tax | $5,565 | $2,209 | | Comprehensive loss | $(60,097) | $(93,630) | Condensed Consolidated Statements of Stockholders' Deficit This section presents changes in the company's stockholders' deficit, including common stock, capital in excess of par, and accumulated deficit | Metric (Amounts in thousands) | Balances at January 2, 2022 | Balances at April 3, 2022 | | :---------------------------- | :-------------------------- | :------------------------ | | Common stock, Shares issued | 86,162,879 | 86,248,545 | | Common stock, Amount | $2,154 | $2,156 | | Capital in excess of par value | $1,120,084 | $1,124,603 | | Accumulated deficit | $(2,023,251) | $(2,088,913) | | Accumulated other comprehensive loss | $(81,187) | $(75,622) | | Total stockholders' deficit | $(982,200) | $(1,037,776) | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the reported periods | Metric (Amounts in thousands) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :---------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(55,712) | $(80,398) | | Net cash used in investing activities | $(28,990) | $(23,100) | | Net cash provided by financing activities | $81 | $8,798 | | Net change in cash and cash equivalents | $(83,382) | $(94,855) | | Cash and cash equivalents at end of period | $252,203 | $62,905 | | Cash paid for interest | $52,157 | $63,937 | | Cash paid for income taxes | $885 | $268 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes on accounting policies, revenue recognition, debt, derivatives, and commitments, offering crucial context to the financial statements Note 1. General — Basis of Presentation This note details the basis of financial statement presentation, including consolidation policies, valuation allowances, and goodwill impairment testing - The company consolidates partnership parks (Six Flags Over Texas and Six Flags Over Georgia) as subsidiaries due to its power to direct their activities and absorb/receive significant economic impacts[34] - A valuation allowance of $107.8 million was recorded as of April 3, 2022, due to uncertainties in using certain state net operating loss and other tax carryforwards[35] - The company is a single reporting unit for goodwill impairment testing, and its market capitalization is considered the best indicator of fair value; no triggering events for impairment were identified as of April 3, 2022[38] - Diluted shares outstanding equaled basic shares outstanding for loss per common share due to net losses in both periods, excluding antidilutive stock options, restricted stock units, and performance stock units[40] - Stock-based compensation expense for the three months ended April 3, 2022, was $4.225 million, down from $6.637 million in the prior year[43] - An allowance for doubtful accounts of $5.7 million was recorded as of April 3, 2022, primarily for estimated payment defaults under the membership program[44] Note 2. Revenue This note explains the company's revenue recognition policies, disaggregating revenue by contract duration and detailing unearned revenue - Revenues are disaggregated by contract duration (long-term and short-term) Long-term contracts include season passes purchased in the preceding year, sponsorship contracts, and international agreements Short-term contracts primarily include current year season passes, memberships, and transactional sales[49][51][54] - Season pass and membership revenues are recognized over the estimated redemption rate, based on historical experience and other factors[55] - As of April 3, 2022, $59.0 million of unearned revenue for long-term contracts remained, with $75.9 million expected to be recognized in the remainder of 2022[52][53] | Revenue Type (Amounts in thousands) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Long-term contracts | $11,261 | $12,170 | | Short-term contracts and other | $126,846 | $69,854 | | Total revenues | $138,107 | $82,024 | Note 3. Long-Term Indebtedness This note details the company's long-term debt, including credit facilities, various notes, and interest rate swap agreements - The credit facility consists of a $481.0 million revolving credit loan (maturing April 2024) and a $479.0 million Tranche B Term Loan (maturing April 2026)[57][58][61] - As of April 3, 2022, no amounts were outstanding under the revolving loan (excluding letters of credit), and $479.0 million was outstanding under the Term Loan B[58][59] - The company has $949.5 million in 2024 Notes, $725.0 million in 2025 Notes, and $500.0 million in 2027 Notes outstanding[62] - The August 2019 interest rate swap agreements were terminated on March 24, 2022, making the Second Amended and Restated Term Loan B entirely floating rate debt[60][61] | Debt Type (Amounts in thousands) | April 3, 2022 | January 2, 2022 | April 4, 2021 | | :------------------------------- | :------------ | :-------------- | :------------ | | Second Amended and Restated Term Loan B | $479,000 | $479,000 | $479,000 | | 2024 Notes | $949,490 | $949,490 | $949,490 | | 2025 Notes | $725,000 | $725,000 | $725,000 | | 2027 Notes | $500,000 | $500,000 | $500,000 | | Total long-term debt | $2,631,246 | $2,629,524 | $2,624,361 | - Fair value of long-term debt was $2,660.5 million as of April 3, 2022, compared to $2,703.5 million on January 2, 2022, and $2,700.5 million on April 4, 2021[64] Note 4. Accumulated Other Comprehensive Loss This note provides a breakdown of accumulated other comprehensive loss components and reclassifications out of AOCI | Component (Amounts in thousands) | Balances at January 2, 2022 | Balances at April 3, 2022 | | :------------------------------- | :-------------------------- | :------------------------ | | Cumulative Translation Adjustment | $(31,970) | $(37,141) | | Cash Flow Hedges | $(4,985) | $7,672 | | Defined Benefit Plans | $(44,093) | $(43,864) | | Income Taxes | $(139) | $(2,289) | | Accumulated Other Comprehensive Loss | $(81,187) | $(75,622) | - Reclassifications out of AOCI for the three months ended April 3, 2022, totaled $1.008 million, primarily from amortization of loss on interest rate hedges and deferred actuarial loss[66] Note 5. Derivative Financial Instruments This note describes the company's use of interest rate swap agreements for risk management and their impact on financial statements - The company uses interest rate swap agreements to mitigate LIBOR rate increase risk on the Term Loan B, solely for risk management, not speculation[67] - The August 2019 Swap Agreements were terminated on March 24, 2022, for $7.4 million net cash proceeds, with the $7.7 million settlement recorded in AOCI to be amortized through September 2024[69] - Derivative assets as of April 3, 2022, were $3.996 million (non-current interest rate swaps), while derivative liabilities were $11.762 million (current and non-current interest rate swaps not designated as hedges)[70] - Net losses of $3.3 million currently in AOCI are expected to be reclassified into 'Interest expense, net' within the next twelve months[71] Note 6. Commitments and Contingencies This note outlines the company's various commitments, including partnership park guarantees, unit purchase obligations, and ongoing legal proceedings - The company guarantees minimum annual distributions ($80.5 million in 2022) and capital expenditures (6.0% of revenues) for the Partnership Parks (SFOT, SFOG)[72] - The maximum unit purchase obligation for Partnership Park units in 2022 is approximately $522.1 million, with a minimum price floor set due to COVID-19 impacts[73] - Capital expenditures at Partnership Parks were $25.5 million in 2021 and are projected at $19.8 million for 2022, exceeding minimum requirements[74] - Redeemable noncontrolling interests for SFOG and SFOT partnerships were $280.2 million and $241.9 million, respectively, as of April 3, 2022[76] - The company is involved in various legal actions, including securities class action lawsuits (appeal pending), stockholder derivative lawsuits (dismissed or stayed), and wage and hour class action lawsuits (some settled for immaterial amounts, others pending)[79][81][82][85][88][89][90][91][92][93] - A multidistrict personal injury litigation is pending regarding a chemical vapor release at Six Flags Splashtown, which the company intends to vigorously defend[94] Note 7. Business Segments This note identifies the company's single reportable segment (parks) and provides disaggregated financial information by geographic region - The company operates as a single reportable segment: parks, with most owned/managed parks in the U.S., two in Mexico, and one in Montreal, Canada[97] | Metric (Amounts in thousands) | April 3, 2022 | January 2, 2022 | April 4, 2021 | | :---------------------------- | :------------ | :-------------- | :------------ | | Domestic Goodwill & Long-Lived Assets | $2,321,053 | $2,324,420 | $2,312,048 | | Foreign Goodwill & Long-Lived Assets | $114,556 | $117,066 | $131,207 | | Total Goodwill & Long-Lived Assets | $2,435,609 | $2,441,486 | $2,443,255 | | Metric (Amounts in thousands) | Domestic (2022) | Foreign (2022) | Total (2022) | Domestic (2021) | Foreign (2021) | Total (2021) | | :---------------------------- | :-------------- | :------------- | :----------- | :-------------- | :------------- | :----------- | | Revenues | $125,903 | $12,204 | $138,107 | $78,673 | $3,351 | $82,024 | | Loss before income taxes | $(83,048) | $(1,727) | $(84,775) | $(121,192) | $(6,517) | $(127,709) | Note 8. Pension Benefits This note details the company's frozen pension plan, including net periodic benefit costs and contribution information - The pension plan was frozen in 2006, and participants stopped earning future benefits in 2009[99] | Pension Costs (Amounts in thousands) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Service cost | $300 | $275 | | Interest cost | $1,384 | $1,275 | | Expected return on plan assets | $(3,059) | $(3,069) | | Amortization of net actuarial loss | $229 | $340 | | Total net periodic benefit | $(1,146) | $(1,179) | - No pension contributions were made during the three months ended April 3, 2022, or April 4, 2021[101] Note 9. Stock Repurchase Plans This note describes the company's stock repurchase plan, available authorization, and the temporary suspension of repurchases and dividends - The Board approved a $500.0 million stock repurchase plan in March 2017 As of April 3, 2022, $231.7 million remained available[102] - Stock repurchases and dividend payments were suspended until the earlier of December 31, 2022, or when incremental revolving credit commitments are reduced by $131 million, due to COVID-19 impacts and credit facility amendments[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section offers management's analysis of financial condition and results, covering business overview, critical accounting policies, revenue and expense analysis, and liquidity - Six Flags is the world's largest regional theme park operator and North America's largest waterpark operator, with 27 parks offering diverse entertainment experiences[107] - Revenue is primarily from ticket sales (53-54% of total revenue), in-park sales (food, merchandise, games), and sponsorship/international agreements[109] - Principal costs include salaries, employee benefits, advertising, third-party services, repairs, utilities, rent, and insurance, with a large portion being relatively fixed[110] Overview This section provides a high-level summary of the company's business and financial performance, emphasizing seasonality and key drivers - The first quarter results are not indicative of the full year due to seasonality, with over half of annual revenue typically generated between Memorial Day and Labor Day[108] - Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by $30 million in Q1 2022 compared to the prior year, driven by higher attendance and guest spending per capita due to more parks being open[109] Critical Accounting Policies and Estimates This section discusses the significant accounting policies and estimates that require management judgment and affect reported financial amounts - Financial statements require management to make estimates and assumptions affecting reported amounts, which are evaluated continuously using historical experience and current economic conditions[112][113] - No material developments or changes to critical accounting policies and estimates have occurred since the 2021 Annual Report[113] Recent Events This section highlights significant recent corporate events, including changes in executive leadership - Sandeep Reddy resigned as EVP and CFO effective March 27, 2022, with Stephen Purtell assuming the role of interim CFO while a search for a permanent replacement is underway[114] Results of Operations This section provides a detailed analysis of the company's revenues, expenses, and profitability for the reported periods | Metric (Amounts in thousands, except per capita) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | Percentage Change (%) | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | | Total revenue | $138,107 | $82,024 | 68% | | Operating expenses | $109,944 | $92,643 | 19% | | Selling, general and administrative expenses | $39,332 | $36,126 | 9% | | Cost of products sold | $10,115 | $7,215 | 40% | | Depreciation and amortization | $29,049 | $28,833 | 1% | | (Gain) loss on disposal of assets | $(2,100) | $520 | N/M | | Interest expense, net | $37,530 | $38,420 | (2)% | | Loss before income taxes | $(84,775) | $(127,709) | (34)% | | Net loss | $(65,662) | $(95,839) | (31)% | | Attendance (in thousands) | 1,686 | 1,346 | 25% | | Total guest spending per capita | $75.46 | $56.16 | 34% | - Revenue increased by $56.1 million (68%) due to a 25% increase in attendance and a 34% increase in total guest spending per capita, primarily from more operating days in 2022 compared to pandemic-impacted 2021[118] - Total guest spending per capita rose by $19.30 to $75.46, driven by a 31% increase in admissions revenue per capita and a 39% increase in in-park spending per capita, reflecting higher ticket pricing, membership revenue recognition, and premiumization strategies[119] - Operating expenses increased by $17.3 million (19%) due to increased operating days at California and Mexico parks, which were closed in Q1 2021[120] - Selling, general and administrative expenses increased by $3.2 million (9%) due to a centralization initiative shifting costs from operating expenses[121] - Cost of products sold increased by $2.9 million (40%) due to higher attendance, but as a percentage of in-park revenue, it slightly decreased due to retail price increases, revenue mix, and reduced membership discounts[122] - A $2.1 million gain on disposal of assets was recognized in Q1 2022, compared to a $0.5 million loss in Q1 2021, primarily from insurance proceeds for prior year losses[124] - Net interest expense decreased by $0.9 million (2%) due to lower interest rates on the unhedged portion of the Term Loan B[125] - Income tax benefit decreased by $12.8 million due to a lower pre-tax loss, with effective tax rates of 23.0% in 2022 and 24.9% in 2021[126] - Adjusted EBITDA minus capex increased by $28.7 million, driven by higher revenue from resumed operations, partially offset by increased operating and SG&A expenses, and a $5.4 million increase in capital expenditures[133] | Non-GAAP Metrics (Amounts in thousands) | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(65,662) | $(95,839) | | Modified EBITDA | $(15,608) | $(45,680) | | Adjusted EBITDA | $(15,608) | $(45,680) | | Capital expenditures, net of property insurance recovery | $(28,990) | $(23,133) | | Adjusted EBITDA minus capex | $(44,598) | $(68,813) | Liquidity, Capital Commitments and Resources This section discusses the company's sources and uses of liquidity, capital commitments, and available financial resources - Principal liquidity sources are cash from operations, borrowings, and existing cash; uses include working capital, debt service, park investments, and payments to Partnership Parks[134] - Stock repurchases and dividend payments are suspended until at least December 31, 2022, or until specific credit facility conditions are met[135] - The company expects cash flow from operations, available cash, and credit facility amounts to be adequate for liquidity needs for the next twelve months, including capital expenditures and debt service[136] - Federal net operating loss carryforwards are expected to offset approximately $32.5 million of taxable income annually for 2022-2024, with 2020 NOLs carrying forward indefinitely[136] - Total indebtedness, net of discount and deferred financing costs, was approximately $2,631.2 million as of April 3, 2022[141] - Anticipated annual cash interest payments are approximately $150 million for 2022 and $155 million for 2023[141] - As of April 3, 2022, the company had $252.2 million in unrestricted cash and $460.0 million available under the revolving loan[142] - Net cash used in operating activities decreased to $55.7 million in Q1 2022 from $80.4 million in Q1 2021, driven by increased net income[145] - Net cash used in investing activities increased to $29.0 million in Q1 2022 from $23.1 million in Q1 2021, due to delayed capital budget spending in the prior year[145] - The Russia-Ukraine war is increasing global economic challenges, including inflation and supply-chain disruption, which the company continues to monitor for impacts on consumer demand, suppliers, cybersecurity, and liquidity[147] Contractual Obligations This section addresses the company's contractual obligations, noting any material changes since the last reporting period - No material changes to contractual obligations have occurred since January 2, 2022, outside the ordinary course of business[148] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes to the company's market risk exposure since the 2021 Annual Report disclosure - No material changes in market risk exposure from that disclosed in the 2021 Annual Report as of April 3, 2022[149] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated as effective as of April 3, 2022, ensuring timely and accurate information disclosure[150] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended April 3, 2022[151] PART II. OTHER INFORMATION This section covers additional information not included in the financial statements, such as legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section outlines the company's involvement in routine legal actions and refers to Note 6 for details on significant ongoing proceedings - The company is exposed to claims by guests for injuries in the normal course of business, and while adequately insured, certain damages (e.g., punitive) could have a material adverse effect[154] - Further details on legal proceedings are provided in Note 6, 'Commitments and Contingencies,' of the unaudited condensed consolidated financial statements[155] Item 1A. Risk Factors This section confirms no material changes to the principal risk factors affecting the company's business and financial condition since the 2021 Annual Report - No material changes to the principal risk factors have occurred since the 2021 Annual Report[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no stock repurchases during the quarter and details the suspension of repurchases and dividends due to credit facility amendments - No stock repurchases were made during the three months ended April 3, 2022[157] - As of May 9, 2022, $231.7 million remained available under the $500.0 million March 2017 Stock Repurchase Plan[157] - Stock repurchases and dividend payments are suspended until the earlier of December 31, 2022, or when specific conditions related to the credit facility are met[158] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and financial statement formats - Exhibits include certifications (CEO, CFO) under Sarbanes-Oxley Act, Form of Performance Stock Unit Agreement, and financial statements formatted in Inline XBRL[159][161][162] Signatures This section contains the official signatures of the company's authorized officers, certifying the submission of the report Signatures of Authorized Officers This section provides the official signatures of the President and CEO and the Interim CFO, certifying the report's submission - Report signed by Selim Bassoul (President and CEO) and Stephen Purtell (SVP and Interim CFO) on May 12, 2022[165]