Cedar Fair, L.P. (FUN) Six Flags Mergers of Equals Conference (Transcript)

Cedar Fair, L.P. (NYSE:FUN) Six Flags Mergers of Equals Conference Call November 2, 2023 8:30 AM ET

Company Participants

Michael Russell – Corporate Director, Investor Relations

Selim Bassoul – Chief Executive Officer, Six Flags

Richard Zimmerman – Chief Executive Officer, Cedar Fair

Brain Witherow – Chief Financial Officer, Cedar Fair

Gary Mick – Chief Financial Officer, Six Flags

Conference Call Participants

Steven Wieczynski – Stifel

Thomas Yeh – Morgan Stanley

James Hardiman – Citigroup

Ian Zaffino – Oppenheimer

Chris Woronka – Deutsche Bank

Michael Swartz – Truist

Barton Crockett – Rosenblatt Securities

Paul Golding – Macquarie

Robert Aurand – KeyBanc Capital Markets

Operator

Hello, everyone and welcome to today’s Conference Call on Cedar Fair and Six Flags to combine in Merger of Equals creating a leading amusement park operator. My name is Seth and I will be the operator for your call today. [Operator Instructions] I will now hand over to the speakers’ team to begin the call.

Michael Russell

Thank you, Seth and good morning everyone. My name is Michael Russell, Corporate Director of Investor Relations for Cedar Fair. Welcome to today’s call to discuss this morning’s press release issued to the wire jointly by Cedar Fair and Six Flags announcing a proposed merger of equals between the two companies. Also, we will briefly touch on both company’s financial results for the third quarter of 2023 included in our press releases issued this morning to the wire services, which can be found on our respective Investor websites, ir.cedarfair.com and investors.sixflags.com.

Before we begin, I need to remind you the comments made during this call will include forward-looking statements within the meanings of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ from those described as such statements. For a more detailed discussion of these risks, you may refer to the periodic filings with the SEC by Cedar Fair and the Six Flags.

On the call with me this morning are Selim Bassoul, CEO of Six Flags; Richard Zimmerman, CEO of Cedar Fair; Brain Witherow, CFO of Cedar Fair; and Gary Mick, CFO of Six Flags. We have an action packed call today. So let me quickly run through the agenda. Brain and Gary are going to kick things off with a brief overview of each company’s third quarter results announced this morning. Then Selim and Richard will take you through a deep dive of this combination and the significant opportunities we expect to unlock together. We will then turn the call to Brian for a review of the compelling financial benefits. After that, Richard will wrap things up before we open the floor to Q&A.

With that, I’ll turn the call over to Brian.

Brain Witherow

Thanks, Michael and good morning, everyone. I think it’s truly an exciting day for Cedar Fair and Six Flags and we look forward to sharing more about the transaction. I’ll start off by reviewing Cedar Fair third quarter operating results before discussing preliminary results for the 5-week period ended October 29.

After weather and other factors contributed to a disappointing start, we had a twofold strategy for the second half of the year. First, generate higher demand levels with the goal of recapturing attendance disrupted by weather earlier in the year. And second, aggressively seize upon cost savings opportunities that will not only improve our near-term operating margins, but also put us on a path to return to pre-pandemic margin levels over time.

I am very pleased to report the net effect of these strategic efforts resulted in a 7% increase in third quarter adjusted EBITDA to a record $388 million and a 320 basis point increase in adjusted EBITDA margin to 46.1%. These outstanding results were driven by 100,000 visit increase in attendance and more importantly, by a more than $25 million reduction in adjusted EBITDA related operating cost and expenses in the quarter. Credit goes to our incredible team, who tackle this challenge during the season’s busiest and most intense stretch of the season.

During the quarter, we entertained 12.4 million guests and generated net revenues of $842 million compared with 12.3 million guests and net revenues of $843 million in the third quarter of 2022. The slight decrease in net revenues is primarily attributable to a 2% decrease in in-park per capita spending offset in part by a 1% increase in attendance and a 2% increase in out of park revenues.

During the quarter, we reduced operating expenses by $22 million, while also reducing cost of goods sold by $3 million. The decrease in operating expenses was driven by our new cost saving initiatives highlighted by a meaningful reduction in seasonal labor hours and in-park entertainment costs. Meanwhile, SG&A expense in the period increased $8 million primarily due to increased marketing efforts and initial cost associated with today’s announced transaction.

Turning our attention to preliminary results for this past Sunday, October 29 for the most recent 5 weeks, we have generated preliminary net revenues of $226 million, down less than 1% compared with net revenues for the comparable 5-week period a year ago. Our revenue performance in October reflects a 2% or 69,000 visit increase in attendance, consistent out-of-park revenues, and a 3% decrease in in-park per capita spending. In total, we entertained 3.3 million guests over the 5-week period. Based on our preliminary results for October through the first 10 months of 2023, we have now entertained 24.2 million guests and generated preliminary net revenues of $1.7 billion.

Lastly, I want to provide a quick update on early sales of our 2024 season passes and other advanced purchase products. As of the end of the third quarter, our deferred revenue balance total $208 million representing increase of $20 million, or 11% compared to deferred revenues at the end of the third quarter last year. The increase in deferred revenues has been driven by an outstanding start to fall sales of 2024 season passes and related all season products. Through this past week, combined sales are pacing up 24% or approximately $30 million over the same time last year. We are confident that our season pass strategy and outstanding start position us well for another strong season in 2024.

With that, let me turn the call over to Gary to review Six Flags third quarter results.

Gary Mick

Thank you, Brian. Six Flags also released our third quarter results today. So before we jump into the transaction, I’ll say a few words about the quarter. This was a quarter focused on investment. We made great strides in improving our guest experience by investing in our digital transformation events, shows, food and beverage and new entertainment. We made intentional and deliberate decisions to try new things, including introducing new shows designed to cater to a multi-generational audience, enhance fireworks displays and state-of-the-art grown shows, testing and promoting speedy gates, automated toll plazas, launching our first ever water park festival as well as introducing a water float parade in our Texas theme parks that experienced record breaking heat this summer.

Lastly, we initiated our FrightFest, BooFest and Oktoberfest events up to 3 weeks earlier than in previous years. We have identified what resonated with our visitors and what did not, which puts us in an advantageous position to make data-driven decisions moving forward. While these efforts drove a short-term increase in our operating expenses, they are integral to our long-term strategy of consistently enhancing visitor experiences and optimizing our park operations. We have also invested in media to drive season pass single day tickets in our do-it-all-in-a-day promotion. This resulted in increased attendance, revenue and pass sales in the third quarter versus prior year as well as a solid start on the sale of next year’s passes, which will largely benefit next year’s revenue. We also cultivated our sponsorship relationships resulting in additional revenues and cross-branding initiatives. That said, poor weather continued putting pressure on results in the third quarter with 8 weekends of rainfall in the Northeast and Mid-Atlantic regions beginning after Labor Day that coincided with the start of our fall festival lineup.

Now moving on to financial results. For the quarter, total attendance is 9.3 million guests, up 16% from third quarter of 2022. Revenue in the quarter increased $43 million or 8% to $547 million. This is primarily the result of higher attendance partially offset by a decrease in total guest spending per capita of $5 or 8% versus third quarter of 2022. Admission spending per capita decreased $4 or 12% and in-park spending per capita decreased $1 or 42%. A decrease in admission spending per capita was driven primarily by lower average season pass and single-day ticket prices versus 2023 as we have worked to optimize our pricing structure.

In-park spending per capita declined versus prior year as a result of a higher mix of season pass attendance versus prior year. We have seen strong growth in food and beverage sales both in units and total sales largely fueled by a revamped culinary assortment and events lineup, which partially offset in-park per capita decline driven by the season pass events. We expect to derive additional value going forward from our digital guest-facing innovations such as our self-service kiosks, SixPay wristbands and mobile food ordering.

On the cost side, in the third quarter, cash operating and SG&A expenses were up $43 million or 20%. Our costs grew the third quarter for the following reasons. First, our attendance growth in the quarter had the expected result of driving seasonal labor cost of sales and other variable costs. Second, we boosted our advertising for our 2024 fall season pass promotion. We are pleased with the success so far in our pass sales and this is expected to serve as a nice tailwind in 2024, but the expenses associated with this effort are reflected in the third quarter. Third, while we invested expense in earlier start to the fall events lineup, we did not yield the attendance list we are hoping for in the quarter due to poor weather on the weekends late in September. Lastly, as I mentioned earlier, we made significant investments in new entertainment events, shows and digital guest-facing innovations.

Adjusted EBITDA for the quarter was $220 million, a $5 million decrease or 2% compared to third quarter of 2022 with higher revenues offset by the cost investments previously mentioned. Our active pass base as of October 1, 2023 comprised 5.3 million pass holders, expect that to increase over the prior year. Deferred revenue as of October 1, 2023 was $148 million, up $21 million or 17% compared to third quarter 2022 primarily driven by our strong fall pass promotion.

Total capital expenditures for the quarter was $42 million, an increase of $24 million compared to third quarter 2022. Year-to-date capital expenditures $109 million. Our liquidity position as of October 1 is $457 million. This included $390 million of available revolver capacity, net of $21 million letters of credit plus $67 million in cash. And lastly, during the third quarter, we paid down $80 million in debt. We are excited about the future and the insights this summer has granted us. We are approaching 2024 with great strength and confidence.

Now, I will turn it over to Selim.

Selim Bassoul

Thanks, Gary. I am very excited about the strategic combination between Six Flags and Cedar Fair and the incredible opportunity it will unlock for both businesses. In fact, in my 25 years of leading companies through transactions, I have never been more excited about a combination as this one. First, I am excited because this combination starts and ends with the guests. If you have known me and look at my track record, I am customer obsessed. Thanks to the dedicated and resilient team at Six Flags, we have made incredible progress in the past 2 years. Our transformation has been grounded in instilling a guest obsessed culture and harnessing what makes our parks so special to deliver an exceptional guest experience. This transaction is all about our guests, the value it will create for them, the additional perks we will provide, and additional thrills we will create not only locally, but regionally.

Second is culturally. The fit between Six Flags and Cedar Fair culture is fully aligned. We think of Cedar Fair as outstanding operators. I saw this firsthand as I visited that box where we at Six Flags are very strong in that we are huge innovators. If you look again at my track record, admittedly, I disrupted the industry with innovation. And we have done that again here at Six Flags over the last 2 years and we are starting to unveil many of these innovations just now and continuing into 2024. We expect to take the next best practices of both businesses, the best operating team and the most innovative team and brings them together with the best parks in the industry.

Third, what I love about this combination is the value it will create for our shareholders. This starts with our expected annual synergies of $200 million, which have been fully affected. We are confident we can achieve these in the next 3 years and create significant value along the way. In addition, this combination derisks our businesses in many ways in terms of leverage, weather and the regional mix of our portfolio. We will operate an expanded and complementary portfolio of 42 amusement and water parks, 9 resort properties, and other entertainment experiences that our guests love. Our expanded footprint will reduce dependency on any one park or any one region, providing us more earnings stability and allowing us to offer more exciting options to guests. Our free cash flow generation will allow us to quickly delever, while also deploying capital strategically into our business to enhance performance. Importantly, this merger will also allow us to grow our new company into a global brand with our IP. Our combined system pass and loyalty programs will make this deal even sweeter for our most loyal guests, providing enhanced access and additional perks.

Finally, our employees. We would not have made this deal if we did not believe it would be good for our people. In the long run, we expect this to create new growth, giving employees more opportunities and the flexibility to put themselves in a position to succeed. This will also allow us to take the brightest, the smartest, and the most dedicated to work within a bigger company and within our parks. Together, we will create a vision of excellence and friendliness, ultimately elevating the experience – the guest experience even more and faster.

On a personal role, I have come to know Richard and Brian well as we work to reach today’s milestone. I could not think of better partners for this new chapter. Richard?

Richard Zimmerman

Thanks, Selim. I echo that sentiment. Working closely with you and the Six Flags team to get this announcement done has only reinforced my confidence and how complimentary our businesses are. Since the pandemic, our team has done tremendous work to create a more agile business. We have invested in the highest revenue opportunities, focused on new attractions and upgraded dining options to offer our guests a truly special experience. We have doubled down on technology and data analytics, providing us with deeper insights into our operations and our guests, while prudently managing variable costs, optimizing our cost structure, while driving incremental demand and guest spending. We have made incredible progress on all fronts. Attendance and guest satisfaction are at all time highs. In-park and out of the park spending continue to grow. And our company’s financial performance remains strong. The robust third quarter results we announced this morning reflect how far we have come. With that said we have more work to do as we continue to drive top line growth, optimize our cost structure and further improve operating margins.

With that, I’ll get into the transaction. This is a Merger of Equals transaction, offering a tax efficient means for both Cedar Fair unitholders and Six Flags’ shareholders to participate in the significant value of the combined company. Cedar Fair unitholders will receive one share of stock in the new combined company for each Cedar Fair unit owned and Six Flags shareholders will receive 0.58 shares for each Six Flags share owned.

Additionally, immediately prior to close, Six Flags will issue a special dividend consisting of two parts. Part one is a fixed $1 per outstanding share. Part two is a per share amount equal to the aggregate distributions paid to Cedar Fair unitholders between today and the close of the transaction. Following the close of the transaction, Cedar Fair unitholders will own slightly more than 51% and Six Flags shareholders will own slightly less than 49% of the new company. Selim will serve as Executive Chair of the combined company, leading a board that will comprise 6 directors from each of the current Cedar Fair and Six Flags boards. Selim will also partner with me to achieve a full range of cost savings and revenue uplift opportunities we expect to unlock.

Meanwhile, Brian will serve as Chief Financial Officer of the new company and Gary will lead the integration efforts as Chief Integration Officer. New company will operate under the Six Flags name and trade under the ticker symbol FUN on the New York Stock Exchange. It will be structured as a C Corp, which both companies boards determined will unlock the most value for the new company’s shareholders. And finally, the new company will be headquartered in Charlotte, North Carolina.

Continuing with terms on Slide 6. We expect this transaction to unlock considerable upside opportunity for our shareholders. The transaction is expected to be EPS accretive to Cedar Fair unitholders, and Six Flags shareholders within 12 months of close. We also anticipate total annual synergies of $200 million comprised of $120 million in cost savings, which we expect to realize within 2 years of closing and $80 million of incremental EBITDA, which we expect to realize within 3 years.

Finally, we expect to utilize enhanced cash flow generation to delever down to our target ratio of 3.0x with additional flexibility to invest in our growth initiatives and drive shareholder returns. Brian will speak more to these and other financial benefits in a moment. In terms of path to completion, we expect the transaction to close in the first half of 2024.

Moving to Slide 7, I want to turn to our shared focus on the guest experience. Both Cedar Fair and Six Flags are built around a commitment to providing amazing experiences that create memories that last a lifetime. By doing so, we boost season pass sales, drive higher attendance and increase guest spending. As we just discussed, our combined company will offer a more diversified experience across live entertainment formats. Whether guests visit one of our amusement parks, water parks, resorts, safaris, or campgrounds, they can expect the same outstanding service and standard of excellence.

Inside our parks, we expect to leverage the capabilities of both companies to create a more engaging and immersive experience so that guests choose us from amid the wide array of options they have to spend their leisure time and leisure money. Investment in our parks has been a key focus at Cedar Fair over the last few years. And we are excited to leverage our experience and strategies across a broader portfolio. With our financial profile, we will have the flexibility to invest in new rides and attractions, broader food and beverage selections, additional in-park offerings, and cross-park initiatives.

For example, on Slide 8, you can see a snapshot of the incredible portfolio of IP that the new company will have, including Looney Tunes, DC Comics, and Peanuts. Our combined portfolio will open up new opportunities to develop engaging themed rides and guest offerings.

Turning to Slide 9, which gives a snapshot of our combined company. As I mentioned, we will operate a portfolio of 42 parks and 9 resort properties across the U.S., Canada and Mexico. Together, Cedar Fair and Six Flags entertain just under 50 million guests annually. As we saw from our results today, attendance numbers continue to grow and guest spending remains robust, as both companies have invested in their parks. Our strong attendance numbers and guest spending levels set the foundation for a much stronger combined financial profile. On a pro forma basis over the trailing 12 months ending with each company’s fiscal third quarter. The combined company would have generated $3.4 billion in revenue in $1.2 billion in adjusted EBITDA inclusive of our expected synergies, we will also have a healthy margin profile. With a pro forma modified EBITDA margin of 36%. The combined company would have generated $826 million in free cash flow and our net leverage would be 3.7x adjusted EBITDA reflecting expected synergies and enhanced cash flow generation, which we expect to reduce to approximately 3x within 2 years of close. With this strong financial profile, we look forward to advancing strategic investment throughout our parts to grow attendance, increased guest spending and improve profitability.

As you can see, on Slide 10, we will have a much wider offering for guests who increasingly look for new and differentiated out of home leisure experiences. For guests who want to make a pit stop, on a day trip or plan a weekend away. The combined company will have offerings to meet every interest, whether they prefer cooking under the stars, or playing all-star athlete for the day. Roller coasters are lazy rivers. They will find one of these at one of our properties. We will also have significant – a significantly more diversified footprint.

Slide 11 highlights the complementary nature of our 42 parks across North America and illustrates a significant opportunity to attract more guests to our parks. This opportunity starts with season pass programs of both companies. Season pass holders account for more than half of the annual attendance mix for Cedar Fair and Six Flags. So the overlap between the two is minimal. And most guests only visit once two parks, we see an opportunity for the combined company to increase the opportunities for guests to choose an incremental visit to the Cedar Fair or Six Flags park in their region, rather than select another leisure option. Rollout of a combined company past will give our guests more choice and enhance value, making amusement park entertainment more accessible to more guests than ever before.

I’ll now turn it over to Brian to walk through the financial benefits in more detail.

Brain Witherow

Thanks, Richard. I’ll start by running through an overview of the compelling financial benefits this transaction creates for the combined company and shareholders on Slide 12. Before diving deeper on each new company, we will start from a position of financial strength with $1.2 billion an adjusted EBITDA on a trailing 12-month basis, inclusive of the $200 million and expected run rate synergies. We also expect the transaction to be accretive to earnings per share for both companies within the first 12 months close. Our diversified footprint will improve performance consistency with a broader scope of locations and offerings to mitigate weather related and seasonal earnings volatility. I’ll speak more to that in just a minute.

Moving down the list the new company will have a robust balance sheet with attractive free cash flow generation to reduce leverage, invest back in our portfolio and drive shareholder returns. Finally, one other important detail the transaction structure does not trigger change of control provisions for either company’s notes minimizing financing needs. The opportunity to enhance value was what brought Cedar Fair and Six Flags to the table to make this merger a reality. As you can see, the opportunity in front of us is significant. Given the depth of operational expertise we have, we are confident in our ability to capitalize on this potential for the benefit of our shareholders.

Slide 13, highlights our diversified footprint and the considerable earnings stability we will provide. Cedar Fair and Six Flags are each more heavily concentrated in different regions for Cedar Fair is the Midwest and for Six Flags is the South. By combining our footprints, we will have a more balanced presence, particularly in regions with extended operating seasons. As a result, no single geography will contribute greater than 30% of total park level EBITDA. Said another way currently, several of the largest parks account for majority of our respective earnings.

The combined company’s expanded and diverse portfolio addresses this imbalance with no single park contributing more than about 17% of the new companies’ park leveling EBITDA. Striking this balance is critical, as our businesses are currently prone to weather related and other macro factors out of our control. We expect our broader portfolio will mitigate the impact of these headwinds extend our operating calendars and limit earnings volatility. For me the synergies as noted earlier, we have identified $120 million of annual run rate cost savings that we expect to realize within 2 years of closing.

As you’ll see on Slide 14, these cost savings come from the areas you see in a combination, largely duplicative corporate functions, administrative efficiencies and other operational cost reductions. We believe all savings areas we’ve identified are highly achievable. We expect to realize roughly 65% of these cost savings in the first year, with the remaining to be realized in year 2. Both Cedar Fair and Six Flags have disciplined cost structures and strong track records of driving efficiencies, we will continue to look for additional cost savings opportunities as we work through our integration planning process. While we expect to drive significant cost savings, we are most excited about the revenue growth opportunity.

As shown on Slide 15. We’ve already identified additional revenue uplift opportunities, implying an approximately $80 million of incremental EBITDA that we expect capture within 3 years of close as we invest in our parks and improve the guest experience. Half of that $80 million comes from the implementing – from implementing and enhance combined season pass program, and fully optimizing our Flash Pass and Fast Lane program opportunities. These are popular offerings that represent great value for our guests among all their leisure options. The other half will come from the expected improvement in in-park spending, particularly at Six Flags parks, as a result of results of investments in our food and beverage and merchandise offerings. This is one that we can take from the Cedar Fair playbook. Having seen the results and investment in these areas firsthand and as Richard mentioned, combining our IP portfolios creates an opportunity to bolster merchandise sales, and roll out new themed offerings that all of our parts.

Together we will create a more agile and consistent growth model while also delivering an enhanced and more immersive experience for our guests, both of which contributes to the inherent value creation for shareholders. Our ability to invest in these growth opportunities will be underpinned by a strong balance sheet and cash flow generation profile. We expect to have a combined leverage ratio of approximately 3.7x reflecting expected synergies and enhanced cash flow generation. But we have outlined a clear path to reduce – to reduce that to approximately 3x within the first 2 years.

Following the close of the transaction, we will prioritize delevering to hit our target leverage ratio and ensure we are maintaining a robust capital structure. Well, this is our first priority. The combined company is committed to allocating capital to maximize shareholder return once we achieve this targeted leverage.

As you can see on the right side of Slide 16, we expect free cash flow just below $800 million, a 66% conversion rate, which is a 4 percentage point improvement on Six Flags’ current conversion rate and a 9 percentage point improvement on Cedar Fair. We’re confident that our substantial free cash flow generation will provide us with ample flexibility to be-lever, while increasing investments in our parks to grow attendance, increased guest spending and improved profitability, all while enhancing guest value and experience across the portfolio.

With that, I’ll pass it back to Richard to close the call.

Richard Zimmerman

Thanks, Brian. On Slide 17, we’ve outlined the key milestones from today until the close of the transaction. One of the first steps we’re taking is completing commitments for our new revolver and bond backstop. We’re also already starting to assemble our integration planning team, which will be led by Gary Mick and includes leaders from both companies. A thoughtful and comprehensive integration plan is critical to setting up our combined company for long-term success, and this effort will be our highest priority. Six Flags will hold the shareholder vote at the right time, and we are confident that we can tick through the other required approvals and closing conditions in the first half of the year.

Before we turn to Q&A, I want to reiterate how thrilled I am to reached this milestone. This transaction will allow us to take a massive step forward as we bring together two iconic park portfolios to unlock new and exciting opportunities for our guests, our teams and our combined shareholders. Together we will have an expanded and diversified footprint of 42 beloved parks and 9 resort properties. Our complimentary footprints will provide us with significant stability and mitigate the impact of anomalous weather conditions like those we experienced earlier this year. We will also have a robust financial profile with strong balance sheet, enhanced and diversified cash flow generation, and $200 million have identified and achievable cost savings and revenue uplift opportunities. All of this will allow us to build on what makes our businesses and our parks so special, and deliver an even more entertaining experience for our guests.

Moreover, we will be able to leverage our complimentary operating capabilities and technology platforms to make our parks more immersive and increase investments to broaden our offerings. As we do so, we will build on our businesses strong track records of profitable growth and value creation. All of these opportunities are only possible because of the great work of the Cedar Fair and Six Flags teams. I know I can speak for myself Selim, Brian and Gary, when I say we are so excited about the road ahead for our combined business. On behalf of the Cedar Fair and Six Flags teams, thanks for listening in today.

With that, we can now begin Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question today comes from Steven Wieczynski from Stifel. Please go ahead.

Steven Wieczynski

Yes. Hi, guys. Good morning and congratulations, on the deal here. So, Richard and Selim, I want to ask about just maybe the general philosophy of the combined company moving forward. And what I mean by that is, Cedar Fair has always talked about moderate price increases, moderate attendance growth, while Six Flags under you, Selim has been pushing for much, higher pricing while trying to, limit attendance growth. So just, you’re just wondering how we should think about the combined company moving forward, in which I guess which operating strategy will ultimately be utilized going forward?

Richard Zimmerman

Steve, good morning. Great question. Thanks for that. Let me jump in and say, we really believe the opportunity ahead for us to create significant value for everybody involved, our guests, our employees, our shareholders, really rest and are being able to take the best of both companies and combine them. We’re going to work through as Brian and I did when Cedar Fair acquired Paramount Parks, looking at both sides of the portfolio, there are things that we each do extremely well, that, as I said, my prepared remarks are very complimentary. And we have an opportunity to really step back, have an open mind, and really take a look at how we can best create value. Selim?

Selim Bassoul

I believe, Steve that it really does not stop the work we have done at Six Flags. It basically enhances. As I visited and toured Cedar Fair parks, I was very impressed by literally the premiumization data, whether it’s in food service, or in the landscaping, the way that basically seeing the rise, I think there is opportunities for both of us to still improve pricing, or purchase to make margins. But I can tell you, this is not about only prices. It’s mostly about how do you create values and additional perks for our guests. And I believe that is critical. We have both millions of guests. And I think that – I think about a simple example. We have a membership and they don’t have a membership. I would love to have our members be able to take their membership and then dining meal plan and go to see Cedar Fair parks and be able to enjoy more parks. I would love also to have what they have done where they have guests that spend camp hires on us and be able to come and spend in our retail stores and in our food service. It’s a fantastic complementary business here.

Richard Zimmerman

So, Steve, it’s all about price value equation and listen creating more value for guests. Next question?

Steven Wieczynski

Yes, sure. So thanks for that guys. I appreciate that. And then second question, probably for Brain or Gary, but when we think about the synergy number that you guys have laid out here the all in $200 million number. Listening to Brian’s prepared remarks, it sounds like that $200 million number might just actually be a starting point and there could be more, potentially behind that am I thinking about that right or am I reading too much into that and if there is, if there is potential upside to that $200 million, do you think it would come more from the revenue side or more from the cost side?

Brain Witherow

Yes, Steve, it’s Brian. I’ll let Gary jump in. Gary and I are going to spend a lot of time focused on this, right. As we said in our prepared remarks, the cost side of this is front and center. We believe we can realize those cost savings, synergies over the next 2 years. We’re not going to stop it what we’ve identified today, I think as we get deeper into this transaction and into the integration process, we may uncover other things. But certainly, I think where there is probably more upside is on the revenue. That’s something we’re really excited about, but as you know, this takes a little bit longer, sometimes get to those revenue synergies. There’s a lot of system integration that has to happen. So I think that may be where there’s more upside longer-term. But right now our immediate focus is building out that integration plan as Richard said, and mining those cost synergies as quickly as we possibly can.

Gary Mick

Yes, I echo that, and thank you, Brain. What we have on the table so far is what we’ve identified and if there’s more, we certainly will execute to that at this stage. That’s what we have founded.

Steven Wieczynski

Okay. Great. Thanks, guys. Appreciate it. Congratulations.

Richard Zimmerman

Thanks, again.

Operator

Our next question comes from Thomas Yeh from Morgan Stanley. Please go ahead.

Thomas Yeh

Thanks so much. Good morning and congratulations. Yes, as we think about holding the portfolio together, what’s the right way to think about the long-term capital intensity of the business? It sounds like you expect to take advantage of some of the synergies to drive higher investments to close. And Selim, you’ve recently given long-term CapEx guidance based on some of the incremental opportunities that you’ve seen. Does that go up further now? I think Brain you mentioned that primarily there is some opportunities in driving more in-park, food and bev investments. Just wondering what you are seeing as incremental opportunities on half of that?

Brain Witherow

Hey, Thomas. It’s Brain. I think on the CapEx front, one of the things that we will be spending a lot of time together working on is how quickly can we get to some of those synergies, particularly the revenue synergies as we mentioned, in Richard’s prepared remarks, it will take some capital to activate some of the synergies of revenue energies, the expanded guest spending opportunities, as Selim noted premium experiences. We have backstopped that with a lot of capital investment, particularly in areas like food and beverage. So, we don’t have a specific number as to where that will end up. We will be spending a lot of time collectively as a management team and working with our new Board on where we want that to be. But their – capital is going to be a key part of mining those opportunities for growth.

Richard Zimmerman

And the key point from my perspective, Thomas is as we deliver this company and generate significant cash flow, we will have the resources invest behind the highest ROI projects and get to that growth quickly.

Thomas Yeh

Okay, makes sense and then just as a follow-up, Richard, you mentioned the increased value proposition for season pass holders across the larger footprint, just curious about dimensionalizing the appropriate TAM of pass holders that could visit multiple parks. Any sense of an overlap benefit in areas like California for example? Thank you.

Richard Zimmerman

If you look at the growth both companies have had over the last decade in season passes, it’s clear that our customers see tremendous value in this program. It’s driven our growth. It’s been the core part of our enhanced CRM program, we know a lot about our season pass holders as Six Flags does, we think there’s an opportunity to look at the two programs, meld them together overtime in a way that that will increase the opportunity for guests to visit but also acknowledge the value of the expanded portfolio. So we’re both excited on both sides of the companies to take a look at how we create something that our guests really want and that they place tremendous value in. Not only that, but I’ll speak – it’s as we’ve gotten to know each other and look at the data our highest NPS scores come from respectively, our season pass holders. It’s clear there are more loyal customers and fans and they’ll be really interested in the value you can bring to the communities.

Thomas Yeh

Thanks so much.

Richard Zimmerman

Thanks Thomas.

Operator

Our next question is from James Hardiman of Citigroup. Please go ahead.

James Hardiman

Hey, good morning. I echo what’s been said. Congratulations on the merger. I am sure there was a lot of work that went into this, but it does seem like you guys are potentially creating some value here. I was hoping you could dig in it sounds like I’m sure there were some earlier discussions about the best form. That the new company could take, why the C Corp, Richard and Brain, we’ve talked a lot over the years about on the one hand you’ve got some nice tax benefits. On the other, I think investors see the MLP is maybe a less sort of liquid vehicle. So why the C Corp – and maybe walk us through sort of the tax consequences here for MLP owners if you can?

Richard Zimmerman

James, good morning. Thanks for the question, when we look at the MLP structure, which historically has made sense for Cedar Fair, our Board determined that the C Corp structure will best position the combined company unlock the most value for our unit holders going for – for our unit holders and shareholders going forward. As a C Corp will have significantly more access to capital and appeal to a much broader investor base than we would have as a MLP, this structure also enhanced the liquidity of our shares providing a lot more flexibility to the combined shares holders. This decision also reflects the feedback we’ve received from unit holders over the last several years, many of whom have suggested that a C Corp structure makes far more sense for where the business is today. In terms of the tax structure. Let me throw that one to Brain.

Brain Witherow

Yes. I mean this transaction, as Richard just noted, we feel going forward the C Corp structure certainly is the create the most value for our unit holders and the Six shareholders and we’ve tried to structure this in the most efficient way for exiting the MLP.

James Hardiman

Got it, that’s helpful. But just to be clear, the MLP units will be converted to C Corp shares, right, which is effectively – there will be a tax event for unit holders, I’m assuming is that how this is ultimately going to work?

Richard Zimmerman

The answer to the first part is yes, James, we will be converting to C Corp shares in terms of the implications to the investors. As you know every one of our MLP investors has a different tax basis and there’s different tax implications that answers a lot more complicated and will depend on the individual investor.

James Hardiman

Okay, got it. That’s helpful. And then just maybe a follow-up to the question on the synergies and the joint path is one that I’m sure is going to get a lot of focus right the combined season pass? I think both companies over the years have had something where you could go to but most if not all the parks and it didn’t seem like that many customers took you up on that, what’s different here is it just more locations maybe Southern Cal, no Cal, DC area that might make that more of a value proposition for a consumer, how do we think about that and what’s different?

Richard Zimmerman

Yes. James, no. Yes, I’d say the way you characterize it, it is largely accurate. As we know, our parks are regional in nature. We’re not destination for the most part of that. We have some that mimic those characteristics we generate as the Six Flags, most of our tenants within the 2, 2.5 mile drive – 2, 2.5 hour drive time. So by definition being regional, it’s all close to the park as you think about it. It’s been a very small percentage that’s visited multiple parks more than one or two, but it’s a very appealing guest segment for us, even though it’s small, they have – they really value that opportunity and see the value. So as we think about how to customize our season pass program, which we’ve been doing. We’ve evolved it over the last 10 years, as Six Flags as. We think there’s an opportunity to community customize to tap that value that smaller group really represents.

Selim Bassoul

I would like to add something. I look at their resorts model with epic pass [ph]. And I like that model where you will get depending on how you structure that pass, we might be able to incentivize. Today, I can tell you, I agree with Richard, our guests do not truly go from one park to another. They don’t, basically transcend Six Flags to see this. But maybe we can create a model like their resorts where they got the epic pass and gave an incentive for people if they want to visit other ski resorts.

James Hardiman

That makes a lot of sense. I appreciate it guys and good luck.

Richard Zimmerman

Thanks James.

Operator

Our next question comes from Ian Zaffino at Oppenheimer. Please go ahead.

Ian Zaffino

Hi. Great. Thank you very much. Maybe a question for Richard, can you just maybe talk about the assets and the CapEx maybe at the Six Flags parks that that you would expect to put in. How do you feel about the state of those assets and not to send the merchandising higher the customer experience, but the actual rides itself, and maybe the need to, the maintenance that those assets necessarily need and how are you kind of thinking about that? Thanks.

Richard Zimmerman

Thanks Ian. As I think about bringing together these two iconic portfolios, what hits me more and more is how this is like buying, putting together beachfront property. These are irreplaceable assets that have incredible value to sustain cash – the revenue generation, cash flow generation over time. So, in each portfolio we would say there are always things and as somebody used to run a single park and I run the chain, you walk the park and you see things you want to fix. You see things we want to make it better for your guests. The list is always long, but we are trying to get to many of those things over time as we can. So, I think there is opportunity on both sides to continue to improve our sites, improve our parks, listen to our guests and what they value and make sure that we create that memorable experience and that special experience for folks as they come through our gates.

Ian Zaffino

Okay. Thank you. And then as far as use the cash flow, is this going to just be a pure deleveraging story for until you are down to 3x? Is there any other use of it outside of like the investment in the park as far as just distributions to shareholders or either dividends, buybacks or and any other means? Thanks.

Richard Zimmerman

No, as we talked about in our prepared remarks, our immediate priority is getting the integration plan together, generate the synergies and de-lever as quickly as possible. Once we reach that point then I think we will, management along with working with Celine and the Board evaluate what’s the best way to maximize shareholder returns and focus on growth versus unlocking the value that we think is inherent in the combined company.

Ian Zaffino

Okay. Thank you very much.

Richard Zimmerman

Thanks Ian.

Operator

Our next question comes from Chris Woronka from Deutsche Bank. Please go ahead.

Chris Woronka

Hey, good morning guys. Appreciate all the details so far. So, my question kind of relates to the timing and the transition and how you view ‘24, how much of it – what you want to get done can kind of get done for next prime season. I guess question is really kind of how messy could ‘24 be versus how good could it be? And we assume that by ‘25 you are much closer to where you where you want to be. But just risk and opportunity for the for the ‘24 peak season, if you will. Thanks.

Richard Zimmerman

Chris, thanks for the question. Let me tell you I am so excited by the momentum each company has as we go into ‘24. We have got an opportunity to really focus on the integration, get it right, be a model of that people look to from an integration perspective, when they talk about a mergers of equal and putting two companies together. But the momentum I think shows that we are going to have a strong year and we have got the momentum heading in. You look at season pass sales from each fall program, from each of us, we are both up 20%. You look at what typically has happened when we are out, when that’s strong in the fall, it typically leads to a really good. So, I think the environment is working well for us. I know there has always been a lot of concern about the health of consumers and I think that’s one of the overhangs in our sector. But I think what we keep proving and you look at the top line revenue of both companies in the third quarter. We have got an extremely strong start to next year, layer the – getting to the synergies more quickly from the cost side. They are easier to measure from a CapEx perspective and getting to the investments we need to create those plans. But as we have always said this is a long lead cycle for any significant investment in our parks. Both parks have put together robust plans on the capital side for ‘24 and ‘25. We are going to try and modify those and make sure we are tapping the best opportunity within the combined portfolio, but work hard on ‘25 and ‘26 and how we move as quickly as possible to unlock the revenue uplift opportunities.

Chris Woronka

Okay. Very helpful. Thanks Richard.

Richard Zimmerman

Thanks Chris.

Operator

Our next question comes from Michael Swartz from Truist. Please go ahead.

Michael Swartz

Hey, good morning everyone. Just a couple of questions. Maybe one more broadly speaking, as it pertains to maybe the scope of the transaction whether or not it’s tied to regulatory review or not. I mean is there a kind of a broader look into a portfolio review? I know you have talked about the 40 plus properties and it sounds like you are kind of committed to all of those. But are there areas where you think you may look to maybe divest some lower return, lower quality properties?

Richard Zimmerman

Mike, good morning. Good question. As we look at the portfolio, I have said this before. These are really irreplaceable assets. We have always struggled with how do you grow, if you shrink your portfolio. But I do think as we look at the combined portfolio, we are going to evaluate the whole range of ways to unlock and maximize the values. I am most excited about focusing on all 42 to see how we optimize and create the ability to generate as much revenue uplift and cash flow generation as possible. But overtime as stewards of capital in the market, I think our Board will have the opportunity to evaluate what will really drive and maximize shareholder returns once we get to that targeted leverage ratio and looking forward.

Michael Swartz

Okay. Perfect. That’s great. The second question, I think Richard, you may have pressed it with saying there is little overlap between kind of the consumer or maybe you were referring to this season pass base. But is there any granularity or just context you can add to maybe the pure overlap between the guest spaces?

Richard Zimmerman

We are going to take a look at each park, so diving into the data and see what we can unlock in terms of that overlap in terms of guest markets. I do think that there is an opportunity to create a new chapter here with a new story. And that really speaks to our consumers differently and speaks to the opportunity that within the bigger portfolio, Selim referenced veil and how as they kept adding mountains they created more value for their guests. So, I think there is a compelling opportunity here to change the narrative about the value. We compete against all forms of out of home entertainment. We have such a small share, only 5% of the out of home entertainment market. I think that this way opportunity lets us hopefully get people to understand, they can spend their leisure time and dollars with us. And when they come to us, as I have always said to all the general mangers, the best measure of your success is how many of your guests come back next year. We will focus with that on every day when we open every one of our parks, both at Six Flags and Cedar Fair.

Operator

Our next question comes from Barton Crockett from Rosenblatt Securities. Please go ahead.

Barton Crockett

Okay. Thanks for taking the question. I was interested in first the regulatory, the antitrust positioning, not much discussion about that. And you do have a couple of markets where you overlap like around the DC area with your park in Maryland and the park in Virginia at Kings Dominion with Six Flags, to a degree at San Antonio was a water park and also Los Angeles. And just in this environment, I mean antitrust is such a loaded political question for any kind of big corporate merger. How do you feel about the antitrust setup and maybe the potential to have to divest stuff to get the deal done?

Richard Zimmerman

Alright. Good morning. Thanks for the question. Listen, as we think about the regulatory approval process, we are 100% committed to this transaction and think we will proceed out to close. We understand there is a process to go through, but we have been well advised and we are absolutely confident that we can get this successfully completed as planned. You look at amusement park. I touched on it just before by coming out of home. We compete in a highly fragmented and constantly evolving leisure economy. It includes everything from bowling, to athletic events, to movie theaters. We are complemented across our geographies. And I really do think we are part of the broader landscape of all the leisure opportunities that consumers have, when they get up in the morning or when they think about what they want to do on the weekend. And from that perspective I don’t see a lot of overlap.

Selim Bassoul

I was ready to ask something interesting that happened literally last week. Yes, last week and we have the rangers that played the World Series. And the rangers stadium is less than a quarter mile away from our Dallas Six Flags over Texas. First, congratulations on the Texas Rangers for winning the World Series. We are very excited being based being in Arlington, Texas. Many of our season passes ended up parking in the parking lot and walking into because they have free parking given their season pass and walked across to the Texas Rangers Stadium to attend the World Series. We were expecting to be way before the series started or after the series opened, the game opened, they will come to our park and they did not. What was interesting is anecdotally, we found out that when there is a game, even it’s a quarter mile away and they parked out season pass holder park, now parking, they went back home. So, we did not benefit from the World Series being played a quarter mile away from our park, which tells you that entertainment – other form entertainment takes away from our attendance. So, we competed against the World Series, thinking that it will be a boon for us for that day.

Barton Crockett

Okay. Thanks for that color. I was also curious for this deal, are there provisions to ensure – to compensate one party or the other, if the deal is broken. I mean is there a timeline for this to be completed, or people can walk away without any penalty?

Richard Zimmerman

Barton, all of those types of details will be included in the merger proxy statement, which will come out at the appropriate time.

Barton Crockett

Okay. And then just on the business, the branding situation here is interesting, with Six Flags being essentially a national, nearly global brand and Cedar Fair being a collection of kind of local brands. Is the idea over time that it might make sense to rebrand to attach the Six Flags brand to the Cedar Fair properties as part of this kind of multi-park pass, positioning and the way of positioning is that something that could be contemplated?

Richard Zimmerman

Barton, I have had this one before. We have loyal and passionate customers, deeply held loyalty and passion around our unique regional brands. We think of this as a broader portfolio with incredibly powerful brands, but we really respect, Cedar Point and Magic – Six Flags’ Magic Mountain. Everybody has and every region has such a unique identifier. I view this as an opportunity just to reinforce the strong regional brands and understand who we are. We sort of talked about the difference between regional and destination. This is really an opportunity to enhance our regional brands and over time, create more value and choices for our customers.

Barton Crockett

Okay. Alright. Thank you.

Operator

Our next question comes from Paul Golding at Macquarie. Please go ahead.

Paul Golding

Thanks so much and congratulations on the announcement. I just wanted to drill a little deeper into your prior comment, Richard, around branding. It seems like there is an opportunity as we have seen with other theme park holding companies that have multiple brands to leverage attraction IP, whether it’s for a new ride or event or festival. Is that something that we could expect to see and how are you thinking about maintaining the unique branding on the part overall relative to the capital efficiencies you could see for specific attractions that require investment? Thanks.

Richard Zimmerman

Thanks Paul. Great question. One of the things that excites me is somebody who came into the Cedar Fair organization from the Paramount side understanding the movie studio and the drive for exploiting IP and enhancing that along with Six Flags. Looking at the Warner Brothers, we have – as we have said on prepared remarks, really three powerful IPs that we can think about how best fit within the portfolio Peanuts, DC Comics and of course the Warner Brothers connection. I am so excited to think about how we could potentially roll out and enhance the guest experience in all our regions and rethink how we use IP. IP is incredibly important, differentiator in the minds of our consumers and I think our ability to unlock how we look at that in the future gets me really excited and I know for our internal design staff on both sides. As we think about how to plot and plan the guest experience going forward, I think our challenge is working close – is to work more closely with the holders of the IP and think about how we might both benefit from a closer association.

Paul Golding

Thanks. And then just a quick follow-up, that’s maybe more of a housekeeping question. As you are now out in the marketplace talking about the potential for a combined network pass. Is there anything that we should consider in terms of changes or considerations to your selling process for the current mix of the pass products across both footprints in the lead up to the merger and the timeline of an anticipated first half ‘24 close?

Richard Zimmerman

Both of us are midway in our cycle already. It really starts late summer, early fall. Again, the numbers are tremendous, deferred revenue up 20% in both companies, so tremendous success. I think we are going to run each company’s playbook well into the spring and this cycle and then look at how we can adapt and evolve in a way that makes sense, in a way that makes sure that we are delivering as we listen to our customers what they are telling us would enhance the program.

Paul Golding

Great. Thanks so much.

Operator

Our final question comes from Robert Aurand from Key Corp. Please go ahead.

Robert Aurand

Hi. Thank you. I was hoping just to dig a little bit more into kind of the why now aspect of the deal. I mean you both had some long-term targets out there and kind of whether that was standing, seem to be bearing some fruit here into next year. I guess is there anything to read into kind of your standalone outlook and how you are feeling about it? You are heading into next year, you are kind of with the macro environment the way it is.

Richard Zimmerman

Good question, Rob. Good morning. I will tell you that as I have mentioned before, I think we are both coming into this transaction excited about what the buying company can do. But coming from a position of strength, you saw the third quarter for both companies nice recovery in the revenue uplift. I think there is – we can both be excited at the standalone opportunities. But both Boards determined that by putting these companies together, we could really achieve a level of return for our owners that we couldn’t get on a standalone basis. There is opportunities available to us and we have articulated throughout this call that really will let us just drive home the value of this transaction and achieve the potential. That’s what Selim and I are most excited about as we look at this, there is the potential of the combined company that we think neither one of us could reach on our own. Selim?

Selim Bassoul

Yes, I think what is exciting, why now. Let’s talk about why now. Neither one of the companies needed to do the deal. We were not coerced to the deal. I can tell you on Six Flags, we are just almost finished with our transformation. And you are starting seeing attendance coming up double digits despite weather this summer. Our fall sales is basically setting this to 2024 pay very well. However, we believe truly that this merger creates a successful amusement park operator in the highly competitive leisure space, with an expanded and diversified footprint a more robust operating model and a strong revenue and cash flow generation. I will tell you over the past 2 years, we have taken significant steps to transform our operation and create a more agile businesses while investing in the new offerings to delight and excite our guests. I know that, Richard and Brain and their team were earlier than us doing all what I would call, elevating the experience. We are trying to catch up, do this combination build on our momentum, but making sure that we create a geographic footprint that is expected to mitigate the impact of seasonality and reduced earnings volatility. Combining our complementary operating capabilities and technology portfolio will help us create a platform for Richard and Brain to improve our park offerings and more efficient system wide performance. I will tell you what I love about Cedar Fair. They were delivering a more engaging and immersive guest experience than we have ever done. And that’s something we need to take to our guests. And finally, I think increasing and bolstering our free cash flow will increase flexibility to invest in new rides and attraction, broader food and beverage selection, additional impact offering and cross path initiative. And then from our side, we are bringing a lot of technologies that are starting to unveil in this fourth quarter and 2024, specifically to make our guests easier to do business with us. All of which will be specifically deployed to grow attendance, increase per capita spending and profitability. I will tell you there are a lot of monetizing initiatives that we are both excited about that are coming in 2024.

Robert Aurand

Thank you. And maybe just as a quick follow-up. I mean can you give me color around kind of the potential long-term margin profile of the combined business? I know Six Flags had talked about getting margins into the low-40s. Can you talk about where the combined company can get to?

Brain Witherow

Yes. This is Brain. From a margin perspective, certainly we are excited about the possibilities. As Richard and Selim have said, the combined company has much more upside as we maximize the strengths of each side and that should benefit us as it relates to margins. As we – as Six has shown over the last couple of years, the ability to deliver strong margins is certainly one of their strengths. And as the last quarter show, that’s the clear focus for the Cedar Fair team as well. Ultimately our top priority is driving EBITDA growth and free cash flow generation, but margin will remain a very high priority and we think the upside is significant.

Robert Aurand

Alright. Thank you very much and congratulations on the deal.

Richard Zimmerman

Thanks Rob.

Brain Witherow

Thanks Robert.

Operator

This concludes the Q&A session. I will now hand the call back to Richard Zimmerman to wrap up.

Richard Zimmerman

Thank you everybody for your time and attention today, for your interest in the new combined Six Flags-Cedar Fair Company. We are speaking for Selim, Gary, Brain and I, we are excited to get to work starting today, to tap the potential of this combined company. So, thank you and we look forward to talking to you soon.

Operator

Thank you all for joining today’s conference call. You may now disconnect.