After taking one of its parks to a 365-day schedule at the beginning of the year, Six Flags Entertainment may try more of the same.
The Texas-based regional theme park operator has 20 parks across North America, and most operate seasonally. Even those in warmer climates that are open during the winter are typically closed on weekdays.
But Six Flags Magic Mountain in California started opening daily on Jan. 1 in a bid to capture more of the competitive region’s theme park visitors. So far, said CEO Jim Reid-Anderson, he has an “extremely positive” view of the decision.
“Our guests love it, our employees love it, and as a result, I’m very optimistic for this year,” he said Tuesday during an earnings call with analysts.
“I would add that, just using the strategy, if you think about it bigger picture, it enables us to leverage our assets…and we don’t add anything incremental in capital,” Reid-Anderson said. “As we assess how Magic does and this initial optimism that we have, we would look at other warm-weather parks and potentially adding them as we move forward. But no decisions have been made on that front yet.”
Reid-Anderson said the company would need to be sure it would make financial sense to open parks on less-busy days.
“We really are not seeing days where you wouldn’t be way past that break-even point, and very comfortable in terms of the revenue and profitability that’s being generated,” he said of the Magic Mountain park. “If we see that success for a year, we would then look at other warm-weather parks and come to a conclusion as to whether we’d want to do that as well.”
Six Flags has been working on other ways to extend its operating days, including by adding events around Halloween and winter holidays. In the fourth quarter, those events were popular, but could not offset the impact of natural disasters and extreme weather.
Wildfires in California, extreme cold in the Northeast and other parts of the U.S., and the lingering impact of earthquakes in Mexico all contributed to a 3 percent dip in attendance during the three months that ended Dec. 31.
“While these events impacted our parks in the short-term, they do not affect the underlying progress and our growth initiatives, and we are encouraged by the fact that our fourth- quarter attendance grew meaningfully on non-weather impacted days,” said Chief Financial Officer Marshall Barber.
Revenue in the quarter grew 7 percent to $257 million, while profit grew from about $1.9 million during the same time a year earlier to $98 million. Of that increase, $81 million was attributable to a tax benefit.
For the full year, revenue increased 3 percent to $1.4 billion and profit jumped from $156 million in 2016 to $313 million last year. That increase was driven by a drop in stock-based compensation expense and an $85 million benefit as a result of the tax reform law.
Barber said the tax law would be “very good news for our company and our shareholders.” He suggested it would be good for business in other ways too.
“First, we believe the lower tax rates will benefit our guests and provide more disposal income to spend in our parks,” he said.
After racking up years of losses, the company won’t have to pay much in federal taxes until 2020. Due to the tax law, Barber said Six Flags anticipates cash taxes starting that year to be about $40-$50 million lower — savings he expects to grow over time.
“Our goal is, as you know, to return all excess cash to shareholders through dividends and stock buybacks,” he said.
The company will continue to spend about 9 percent of revenue on capital.
“We won’t be increasing that because that’s the appropriate amount,” Barber said. “So we’ll end up giving all that money back to shareholders.”
The company’s fourth-quarter revenue increase was due in large part to a $9 million jump in international licensing revenue. Executives said international deals generated $38 million in revenue last year and $91 million since 2014, when the initiative started.
There are eight projects in development, all of which are expected to be open by the end of 2020.
The licensing deals have suffered some hiccups. On Tuesday, Barber said the company’s partner in Dubai, DXB Entertainments, was “in arrears on payments due to us.”
He called the situation “unfortunate” but said he expects a resolution and does not anticipate a delay in construction.
“All parties believe that opening a Six Flags park is a key to the success of the overall complex in Dubai and then the satisfactory resolution will be achieved,” Barber said. “I was there last week and progress in building the park is excellent and the site looks beautiful.”
Dubai Parks & Resorts, a complex that opened in 2016, has failed to attract as many visitors as expected. Barber said the parent company has “gone through a full financial and operational restructuring.”
A deal with a partner in Vietnam also ran into trouble, the company said last year. Reid-Anderson said work is continuing in Vietnam and other markets on “a number of high potential partnership deals.” He said he expected to announce new international developments this year.
“Because the parks require no direct investment from Six Flags, our future international park openings are limited only by our ability to find new partners and suitable sites,” he said.