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Ladies and gentlemen, thank you for standing by, and welcome to the Six Flags Q2 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions] Thank you.
I will now turn the call over to Steve Purtell, Senior Vice President, Investor Relations.
Good morning, and welcome to our second quarter call. With me are Mike Spanos, President and CEO of Six Flags; and Sandeep Reddy, our Chief Financial Officer. We will begin the call with prepared comments and then open the call to your questions. Our comments will include forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements, and the Company undertakes no obligation to update or revise these statements.
In addition, on the call, we will discuss non-GAAP financial measures. Investors can find both a detailed discussion and business risks and reconciliations of non-GAAP financial measures to GAAP financial measures in the Company's annual report, quarterly reports and other forms filed or furnished with the SEC.
At this time, I will turn the call over to Mike.
Good morning. Thank you for joining our second quarter earnings call. It is with great pleasure that I welcome Sandeep Reddy, who is joining our call for the first time as our new Chief Financial Officer. He is a seasoned public company CFO with exceptional strategic, analytical and change management skills. He is an experienced developer of team capability and an outstanding addition to the Six Flags team.
I would also like to thank Lenny Russ for his outstanding leadership, commitment and business partnership over the last four months. He played a vital role as Interim CFO during a very challenging time. He will continue to report to me in a large operational role that will compliment his individual development and skills and position him to contribute significantly to our long-term success.
This quarter tested everyone at the company, and I am proud of how the entire team rose to meet the challenges that the world is facing. Seeing how the team responded over the last several months gives me even more conviction that Six Flags is a truly special company.
In the early part of the quarter, we were in a crisis management mode. It was an all hands on deck effort to keep our people safe, reduce our cash burn, and bolster our liquidity position. However, as the situation has evolved over the last several months, we have switched from defense to offense. Our number one priority is always safety, but we have broadened our focus.
We learned how to operate profitably with reduced capacity today and how we can be an even stronger company on the other side of the pandemic. In this very dynamic environment, I am proud of how the team has reached a level of nimbleness and agility. We have been able to respond very quickly and effectively as the situation continues to evolve.
On today's call, I will provide more detail on the progress we have made, reopening our parks during the pandemic and the trends we are seeing in the business. Then Sandeep will discuss our financial performance and liquidity position. Before opening up for Q&A, I will highlight our transformation initiative to drive earnings growth and improve the guest experience so that we emerge stronger and more profitable after the crisis.
On March 13, we suspended our operations in response to the COVID-19 pandemic and local government mandates. Our immediate focus was on liquidity and cash flow. We shored up our liquidity and implemented aggressive cost saving measures that partially offset the result in revenue decline.
We also proactively communicated with our guests to preserve our Active Pass Base during this period of uncertainty. These efforts have been very successful as we limited our net cash outflow in the second quarter to approximately $25 million per month, a significant improvement compared to the average $30 million to $35 million per month that we projected on our last earnings call.
Over the last few months, we worked closely with local health authorities, disease experts, and others in the theme park industry. We also solicited extensive feedback from our guests to understand their expectations in a socially distance world.
This work has enabled us to implement best-in-class safety protocols, including health screenings of team members, temperature checks of both team members and guests, mandatory face mask requirements for anyone in our parks, pervasive social distancing markers and abundance of hand sanitizing and hand washing stations added throughout our parks and frequent sanitization of rides and other high touch points. We also established clean teams to uphold the highest standards of cleanliness.
The crisis has allowed us to accelerate the introduction of technology into our parks that will have ongoing benefits even after the crisis subsides. We have used technology to remove some of the pain points common to theme parks.
These include advanced reservations online, which spread out the entry times for guests to avoid wait times at the gate, contactless temperature and security screening to ease entry into the park, mobile food ordering to reduce the time it takes to fulfill an order and encourage guests to add-on to their order through easier menu access and testing of reverse ATM machines to reduce cash transactions.
In addition, we will be testing our newly developed virtual queuing system in one of our parks. Waiting in long lines is consistently ranked as the number one pain point in our guests experience and virtual queuing technology will allow customers to push a button on their smartphone to secure a seat on one of our major coasters without physically standing in line. If the testing is successful, we will begin rolling the technology out to other parks.
With our new operating protocols and technology in place, we have resumed limited operations at 14 of our parks. In addition, we opened our Safari as a standalone attraction at Six Flags Great Adventure and animal experience at Six Flags Discovery Kingdom, our hotel waterpark at The Great Escape and our campground at Darien Lake. We've used a cautious and phased approach with limited attendance in accordance with local conditions and government guidelines.
Our park reopenings initially experienced solid demand as our customer sought opportunities to have fun in the safe and outdoor environment that our parks provide. In addition, guests' feedback on our enhanced safety protocols has been very positive. However, a recent spike in coronavirus cases in many of the states in which we operate has had a negative impact on demand of these theme parks. It is very difficult to forecast future demand trends in this rapidly changing environment.
Based on capacity limitations designed to ensure a safe environment for guests, as well as current demand trends, we expect daily attendance to be approximately 25% to 30% of prior year levels for the foreseeable future. This has resulted in our reducing some parks schedules to maximize attendance on the days we are open.
There is no question that this unprecedented environment has created challenges for our business. However, our parks have a number of advantages to operate during the pandemic compared to other out-of-home entertainment attractions.
First, our parks are outdoor venues and spread over anywhere from a dozen to hundreds of acres, allowing for social distancing. Second, our parks are opened many hours throughout the day, reducing the need for people to arrive or leave at the same time. Third, our parks are regionally diverse and we operate in the largest markets in the U.S., making us not overly reliant on one geographic region. Fourth, almost 90% of our guests come within driving distance. So we are not dependent on air travel or other public transportation. Finally, our parks generate cash flow in excess of their variable costs at significantly less than 25% of their maximum capacity.
Although this crisis has affected our business profoundly in the short-term, it has given us the opportunity to make necessary changes in the business that will benefit us in the long-term. I will discuss our long-term transformation initiative in the second part of my prepared remarks.
Before I share some additional thoughts about our strategic direction, I will turn the call over to Sandeep to introduce himself and provide some details about our financial performance and liquidity position. Sandeep?
Thank you, Mike, and good morning to everyone on the call. I am very excited to be at Six Flags. I’m a huge fan of the brand and I've long admired the consumer experience it delivers. My first month on the job has only confirmed my view that the opportunities ahead are substantial and the company is well positioned for its next round of profitable growth.
I will begin by telling you a little bit about myself, I'll then discuss our second quarter financial results and liquidity position and end by outlining our team priorities. I have 25 years of finance and strategy experience primarily in consumer-facing businesses. Most recently, I was the CFO of Guess Incorporated, a publicly traded, global, multi-channel lifestyle brand in the fashion industry. And prior to that, I worked in financials for Mattel Incorporated, one of the leading toy companies in the world.
As CFO of Six Flags, I believe my primary role in partnership with Mike and the leadership team is to identify and drive a value creation agenda for the company. I've done this in the past and believe that with the incredible brand and company like Six Flags, we can generate significant value for all the stakeholders. I look forward to these opportunities and to meeting many of you on this call.
Turning to Six Flags financial performance. Results for the second quarter were not comparable to prior year because we suspended the operations of our parks for almost the entire quarter during the pandemic.
As Mike mentioned, we were able to limit our net cash outflow for the second quarter to $76 million. This was excluding the cost associated with our financing initiatives or approximately $25 million per month. This represented an improvement compared to the previously projected net cash outflow of $30 million to $35 million per month during the last nine months of 2020.
The improvement was driven by disciplined cost management, higher Active Pass Base retention due to the lower than anticipated membership cancellations and season pass refund requests as well as positive cash flow from our parks that have reopened.
Total attendance for the quarter was 433,000, half of which came from our drive-through Safari at our park in New Jersey, which was our first attraction to open. As a result, revenue declined by $458 million or 96% to $19 million. The reduction in revenue included $29 million of membership revenue from our members that have completed that initial 12-month commitment period that we devote into future periods.
Ordinarily, when our members enter their 13th month in membership, we recognized their revenue on a monthly basis according to their cash payments. However, as part of our retention efforts, we offered an additional month to our members for every month they could not use their home park.
As a result, for those members who have completed their initial 12-month commitment period, we will recognize revenue at the end of their membership term, whenever those members utilize their additional months.
The decrease in revenue was also partially attributable to our $29 million reduction in sponsorship, international agreements and accommodations revenue. This reduction was driven by three things. The termination of the company's international contracts in China and Dubai, resulting in no revenue from those contracts in 2020, the deferral of most sponsorship revenues while the parks were not operating, the suspension of almost all accommodations operations.
We recognized little revenue from corporate sponsorships in the second quarter, but are working with our corporate partners on a case-by-case basis to defer other planned programs until our parks are open. We also continue to recognize revenue from our park being developed in Saudi Arabia.
Guest spending per capita in the quarter decreased 15% to $35.77. Admissions per capita increased 5% primarily due to a higher mix of single day paid tickets. In-park spending per capita decreased 43%, primarily due to the large proportion of attendance from our drive-through Safari park, where there is no opportunity for in-park spending.
On the cost side, cash operating and SG&A expenses increased by $141 million or 60%, primarily due to cost savings measures we took after we suspended operations. These savings were partially offset by costs we incurred to open and operate our park towards the end of the quarter, including increased costs related to enhanced sanitization and additional preventative measures to help minimize the spread of COVID-19.
In addition, we increased our legal reserves by $8 million in the quarter. This expense is associated with several unrelated legal claims. Adjusted EBITDA for the quarter was a loss of $96 million compared to income of $180 million in the prior year period.
We now have 14 of 26 parks open. These parks generated more than 50% of our 2019 attendance on a full-year basis. Month-to-date in July, we are averaging approximately 30% of prior attendance at the parks that are open. We are holding steady in surge states, but are doing much better and improving in states that are experiencing favorable COVID-19 trends. This gives us confidence that we will see a rebound once the virus has abated.
In the near-term, it is unclear if we will be able to open any of the remaining parks this year or whether we will close any of the open parks earlier than prior years. At this time, we are evaluating a modified version of our popular Fright Fest and Holiday in the Park events.
Turning to our Active Pass Base, which represents the total number of guests enrolled in the company's membership program or that have a season pass. As anticipated, we lost significant season pass and membership sales while our parks were not operating.
Our Active Pass Base as of the end of the second quarter was down 38% compared to the prior year quarter. This includes 2.1 million members compared to 2.6 million at the end of calendar year 2019 and 2.4 million at the end of the first quarter of 2020.
Customers typically purchased new season passes or memberships when they are planning to visit a park. For that reason, the temporary closure of our parks had a temporary, but large impact on our ability to sell new season passes and memberships.
However, we were pleased with the retention of our existing members as we retained 81% of our members since the start of the year through the second quarter. Since we opened our parks, we have begun to sell new memberships and season passes. We are proactively working to retain our existing members and season pass holders in several ways.
First, we offer day-to-day extensions for our season pass holders for each operating day their home park is closed and extended our members by one month for each month that their home park is closed. Second, we offer to automatically upgrade memberships to the next year level for the rest of the 2020 season for members who continue to make payments until the parks reopen. And third, we offer to pause payments for any member requesting to do so.
We are taking members on pause as we open our parks and we anticipate that most of our pause members will return to active paying members once we reopen our remaining parks. In addition, we are actively recruiting our canceled members back to our programs now that park operations are beginning to resume.
We have received very few refund requests to our season passes to date. While we have no contractual obligation to make a refund and almost all of our existing pass holders have used their pass at least once. The satisfaction of our guests is very important to us. We are actively engaged in conversations with them to ensure a continued loyalty.
In response to our curtailed operations, we continue to take actions to reduce operating expenses and to defer or eliminate at least $50 million to $60 million of capital expenditures. We now expect to spend $80 million to $90 million on capital expenditures in 2020, $10 million lower than our previous projections.
We have kept our full-time team members on the payroll and maintained their benefits at the same cost. We believe this has left us in the best position to open our parks quickie. However, we will continue to evaluate all options in the future given the fluidity of the virus and any associated impacts on park operating calendars.
Based on all the cost savings measures we have implemented, the retention of most of our membership base and positive cash flow from the parks that are currently open, we estimate that our net cash outflows will average between $25 million to $30 million per month through the end of 2020. This includes all operating expenditures and capital expenditures relating to our parks along with contractual rent, interest and partnership park distributions.
Note that partnership park distributions occur only in the back half of the year and represent an average run rate of $7 million per month for the last six months of the year. We believe we have adequate liquidity through the end of 2021 even if we need to close our parks. However, if operations remain curtailed, we will likely need a further amendment to our senior secured leverage ratio covenant.
We also incurred approximately $6 million of cost on the strategic work related to the transformation initiative that Mike will discuss. Cost in future periods are included in our net cash outflow estimates. However, we will not finalize the cost or associated savings until we complete the work. We anticipate that a portion of the work will be completed by the fourth quarter of 2020 and the remaining portion will be completed when the parks are again operating at more normal capacity.
Deferred revenue of $182 million was down $53 million or 22% to prior year, driven by fewer membership and season pass sales while our parks have been closed. These lower sales were partially offset by the deferral of revenue out of the quarter from our members who have completed their initial 12-month commitment period and extension of visitation privileges into the 2021 season for our season pass holders and members in the initial 12-month commitment period.
Our liquidity position as of June 30 was $756 million. This included $460 million of available revolver capacity net of $21 million of letters of credit and $296 million of cash. This compares to a pro forma liquidity position of $832 million as of March 31, 2020, a reduction of $76 million or approximately $25 million per month. We do not expect to draw on our revolver until Q1 2021.
I now would like to turn to our immediate priorities for the company. First, reopened with caution and prioritize the health of our employees and guests. Second, focus on liquidity and minimizing cash expenditure while we go through this period of uncertainty. Third, be conservative of the CapEx, ensuring we only invest in projects with a good return of investment. And finally, continue building business and team capability. We have withdrawn guidance due to the uncertain trajectory of the virus. However, like Mike, I am committed to providing additional disclosures when feasible and being as transparent as possible.
Our capital allocation strategy will be focused on growing the base business and paying down debt to return our net leverage ratio to between 3x and 4x adjusted EBITDA. We have suspended our dividend and share repurchases for the foreseeable future and we believe targeting the low-end of the range is appropriate given the new environment.
In summary, despite the challenges our entire industry is facing, we have adapted our operations in response to the crisis, and we remain a healthy company with a bright future. We will not let these difficulties to slowdown our efforts to build new business capabilities and prepare the company for its next phase of profitable growth.
Now I will pass the call back over to Mike.
Thank you, Sandeep. Our focus is on building a stronger base business and reducing our net leverage ratio. We will be disciplined in this focus post the pandemic. We are developing a holistic transformation program that will allow us to accelerate growth and unlock significant new efficiencies as we emerge from the pandemic in ramp up to full scale operations.
We will focus on revenue generation and cost efficiency programs in our base business as we become a more agile, commercially driven and technology-savvy organization. Our transformation will improve the guests’ end-to-end experience while reducing our operating costs.
To this end, we have initiated a detailed review of our business. As we complete different work streams, we will provide our expectations for annual earnings improvements.
Our transformation issue is composed of three elements. The first element is topline growth. This element is about improving the end-to-end guest experience starting with price and simplicity, website redesign and a compelling value proposition for food and beverage. One focus area that we previously highlighted was the recapture of lost single day guests. We already saw progress in this area through our focus and targeted offers prior to the COVID-19 crisis. And it will continue to be a major focus going forward.
The second element is organizational design. The purpose of this element is to enhance the guest and team member experience while creating cost efficiencies. We will reexamine what work belongs in the parks versus headquarters and eliminate any redundancy while being careful to protect the guest and team member experience. This organizational design will be constructed in a way that fosters an entrepreneurial culture in our park leadership teams.
The third element is non-headcount cost reductions. We will leverage the scale of Six Flags and examine each area of our cash operating expenses to determine what is essential. We will capture savings by implementing consistent systems, standards and processes. In addition, we are beginning to revamp our environmental, social and governance program, which has a special emphasis on diversity and inclusion.
This is a personal priority for me. I know the importance of this firsthand from my decades of experiences, working with diverse teams and customer bases, including in multiple countries and cultures around the globe. I believe diversity and inclusion provide the necessary foundation for sustainable and healthy business. More importantly, they are simply the values we should all uphold.
We will integrate diversity and inclusion into our existing business agenda, and we will hold ourselves accountable by measuring our results to ensure that we make sustainable progress.
Our plans will focus on five key areas. One, listen, we are creating a diversity and inclusion council made up of members of our team to provide me as CEO, direct feedback on how we are doing and what we can do to improve.
Two, train, we are conducting robust training on diversity and inclusion for all of our team members, including dedicated sessions with our top 200 leaders on understanding the business rationale, identifying unconscious biases and learning how to lead open and honest conversations with our team members.
Three, address unconscious biases. We have updated our grooming, social media and hiring policies. We are also reviewing and correcting all branded names, park attractions, and infrastructure that might be offensive in anyway to our guests and team members. We expect our social media partners to model the same values.
Four, build a diverse team. We will establish a leadership team that represents the diversity of our marketplace. We are reviewing and updating our recruiting and talent management programs to foster more objective processes for all team members. We aspire to have a workforce that represents the population of our markets and to improve leadership representation by hiring and mentoring individuals from those groups who have been underrepresented.
Five, partner with communities. We will proactively work with minority suppliers to develop long-term alliances. We will pledge up to $5 million cumulatively in investments and ticket value by the end of 2022 toward programs dedicated to equality and the socioeconomic advancement of people of color.
Our transformation initiative is an ambitious and important program, and I am confident it will reshape our business for future profitable growth and sustained value creation coming out of the COVID-19 crisis. We look forward to updating you on our progress during the third quarter earnings call.
Operator, at this point, could you please open the call for any questions.
[Operator Instructions] Your first question comes from the line of Brett Andress with KeyBanc.
Hey, good morning. So you highlighted the impact of COVID cases increasing, but can you help us a little more with maybe the pacing or evolution of attendance in the parks that have been open really for any substantive length of time and how does that pacing differ depending on the COVID status in that region?
Yes. Hey, Brett. Good morning. I'll take that. So first of all, remember, we had a very phased approach on attendance, meaning when you look at it, step one was we tested in very small attendance levels in alignment with city and state officials. That was the first portion of the alignment of opening. Then we went to basically what was about a 25 index to the average historical peak attendance or the theoretical max attendance, which again was in alignment with the city and state. Then we were ramping up to about a 50 index, roughly 50 to 60 index to that theoretical max capacity, which was also very incumbent upon also ensuring social distancing. And we were on that track broadly across the entire enterprise.
Now what I've seen within the last month, we've seen that split. We've seen in the surge states that number has come down after it was ramping up very consistent with the surge. However, we've seen really good trends in the non-surge states. So if you look at our parks that are up north, specifically if you look at America, you look at a Great Adventure, you look at a St. Louis. We've seen really good steady numbers to include Great Adventure. We've hit max numbers that we aligned on with the local city and state, and we're still in that phased up approach in that park. And that's, again, just the pure theme park numbers.
So I do think what we're seeing broadly is people want to get out, but they're also being very concerned with the virus depending on where it is. So I'm very optimistic, we'll see a rebound when the health crisis subsides because we've seen that in our surveys. We're surveying guests every week. And what they're telling us is when they see a flattening of the curve, they want to get out. And we also see a chunk of guests that are saying when they're comfortable with the vaccine, they want to get out. So in the short-term, we're going to have to continue to monitor the situation on a local basis.
Just to follow-up on that. I think you mentioned the kind of the capacity indexes. How does that translate to attendance, I guess, is maybe as a percent of last year? Just trying to kind of desegregate the two.
Yes. Again, it depends by parks. As Sandeep said, we're seeing numbers that are roughly on average 25 to 30 index versus prior. We've seen in the parks that are not surging. We've been getting in the mid- to high-40s fairly quickly versus prior year. So I think that's pretty solid. So roughly we average about 50% in 2019 versus the max is a baseline, Brett, just as a barometer. But what we've seen in these non-surge states, we're seeing on days. We're in the mid- to high-40s versus prior year, which I think is encouraging given our ramp up in our agreement with the local states and cities.
Thank you for that. And just one last one. I’m just curious what the guest satisfaction feedback has been in this environment, maybe what you're learning from them and whether or not that experiences, in your mind, impacting any of the attendance levels?
It's a great question, Brett. And I've personally been in the parks and observed this. So what we're seeing is, it's consistent, meaning what the guests want is? They want more rides per day. That's the number one item they're zoning in on. So that's been the first area they continue to hone in on is they want to continue to ride as many coasters as they can that day, which we're very cognizant of.
The second is, although more than two-thirds of our guests absolutely agree with masks, they're all telling us that when you're down in Texas, it can be tough, when it's pretty humid and hot out, but that's why we've done a lot of the right things in the parks with mass break areas and other accommodations.
So I would say it’s consistent with what we're seeing. We're also by the way getting really high marks on our health standards. What we're being told by the guests is, we are best-in-class example across all business channels, okay? So I think we’ll probably want to move on to the next question. If that's okay, Brett.
Thank you.
You bet. Take care.
Your next question comes from the line of Steve Wieczynski with Stifel.
Hey guys. Good morning. So first, I wanted to ask about the reservation system that's currently in place at your parks. And I guess the question is how much of that reservation system really helping you guys control your cost structure? And is this something that could permanently be implemented as things go back to normal? Or do you think the potential negative reaction you would get from your customers would outweigh the benefits? And if I can add on to that question, I guess how far in advance is your typical customer making his or her online reservation?
Yes. How are you doing Steve? So first of all, I think what the beauty we've been able to accomplish in a couple of months, when you think about it, Steve is, we've now gotten to a point. If you're a guest, you can go from making a reservation, paid for every element, get through security, and you're never touched, right?
So this – our ability to implement technology and make it work. I'll tell you the front gate experience I've heard it right from the guests. They love what we have done. Love it. Now on the reservation system, this was a big component to get cities and states very comfortable with flowing capacity, controlling capacity in the park because that's one of the beauties of us is we're not relying on a start and a stop time like other venues.
We have also, though, seen this as an advantage to guests like they're paying for parking online, they like the ability to reserve, and we are seeing the reservation state. They're pretty consistent with what we saw before. We're seeing folks go a week out and others, and then we're seeing others honestly wait until a day or two before. But that seems to be more weather dependent, Steve, whether they're gauging the weather and they're looking at the open slots.
So I think we're going to continue to look at it. And I really like the fact how we’ve been able to pivot the technology to make this front gate experience starting with the reservation and getting the park, a much more positive time reduction process. So we are going to definitely want to keep doing this post COVID. As far as the reservation system, we will continue to monitor on how it works in terms of guest satisfaction.
Okay. Got it. Thanks for that. And then turning to your Active Pass Base. I guess, the question is around the decision to offer members the ability to pause payments and not sure if you'll say this, but can you give us some kind of idea of how much of your Active Pass Base has elected that option? And then I think Sandeep also talked about, you've seen an uptick in your Active Pass Base as parks have started to reopen. So maybe if you could go into a little more color around that as well, that would be helpful.
You bet. So first of all, our pivot and my pivot is we got to be consumer-centric, guest-centric on the state, which was why we said – when you think about members, we wanted to give the guests the option. Option is, they can pause if they're dealing with some personal financial issues or they can keep paying. And if they keep paying, they get upgraded to the higher level and they get that extension of time.
So for every month, the parks shot, they get that extension time, which has been very favorably reviewed. Because if you think about it, we've maintained 81% of our members from the start, which I think is very positive. Specific to your question, we've seen roughly about a five point pause rate of the base of members. It's been quite small actually. People have been really excited about being able to get that upgrade with the same payment that they were making before.
Okay. Got it. Thanks guys. Appreciate it.
You bet.
Thanks.
Your next question comes from the line of Tyler Batory with Janney Capital Market.
Hey, good morning. Thank you. I wanted to follow-up on the demand side of things and attendance and what you've seen in some of these non-surge states, are you bumping up against your capacity limits? In other words, if there weren't capacity limits, would attendance be even higher? And in some of these markets that are performing a little bit better, how are you thinking about increasing some of those limits and what would you have to see and how much flexibility do you have to remove those limits in the park?
Yes. Hey Tyler, how are you doing? So yes, like I said, this is what I think is a really good positive for us. In the non-surge states, we have had days as we've had this phased up ramp up schedule we've aligned with local city officials. We have hit max numbers, but that is temporary.
I mean, again, if you go back, we have this, what I’d call test stage, 25% index of theoretical max capacity, then get roughly to a 50% and then we've had the ability to go higher or where we have enough usable acres. And it's very specific by park.
So we are still in that – in the non-surge states because when we look at when we opened, a lot of these parks have not even been open a month. So we're still in that ramp up to go to the highest levels. So yes, we do have the ability to go further. And we've been very clear, we're going to continue to do that in a phased manner that gets everybody comfortable with the way we're managing concerns around the pandemic given our best-in-class safety standards. And we'll continue to do that.
So as far as – I think going beyond those levels, Tyler, I think a lot is just going to be where the curve is in terms of flatness in each area. And with that how everybody gets comfortable with more of that. And then obviously, into the future, as we get closer to vaccines, I think that just creates much more opportunities for us.
Okay. I'll leave it there. Thank you.
Thank you.
Your next question comes from the line of Tim Conder with Wells Fargo Securities.
Thank you. And gentlemen, congrats on the safety protocols. We’ve heard good feedback there. And Sandeep, also good feedback from our sources due diligence on your background, so congrats on joining.
Thank you.
Gentlemen, a couple of things here. First of all, maybe a housekeeping. What was the international revenue in the quarter? And then Mike or Sandeep, whoever wants to take this, can you maybe talk about what you're considering on the Halloween/Christmas events? The modifications there? And any timetable for decisions on those?
Yes, Tim. Hi, and thanks for the accolades. Real quick. I will tell you this, Tim, and I want everybody to hear this. I've had governors and reopening task force tell us our safety standards are best-in-class. They've been lifting and shifting across multiple industries. And we were very data focused from day one both as an industry and as Six Flags, which I think has been very powerful for the industry.
Let me take the latter part of your question, Tim. As far as Fright Fest and Holiday in the Park, what we're doing here, Tim, is we're looking at it and there's going to be really for me, three decision trees on this. Number one is safety, and we're continuing to talk to medical experts on what we're comfortable with from a safety of guests and team members as we execute.
The second is we want to make sure we’re cash flow positive in anything we do around that. And then third, I'm being very watchful of the brand reputation, especially around Fright Fest. And I want to make sure we don't disappoint guests.
We're in the middle of that. We're working through it. Over the next few weeks, we'll finalize that, but we are planning to have something out there that excites families and our guests to get out there and come to the parks during that time period. As far as international, Sandeep, do you want to take that? I know – go ahead.
Sure, sure. Yes. So I think, Tim, to celebrate – if you go back to what we said since the beginning of the year, a lot of the international revenue was not expected to come through this year compared to 2019 because of our Dubai and China relationships basically being wound down. And what we've said previously is, there's one park that's basically in progress right now in Saudi Arabia and typically for new parks reopening, we run between $5 million and $10 million EBITDA on an annual basis. And so we're not going to get into too much specifics on this because the numbers become less and less materials to the total business. But that's pretty much a good estimate for you.
Okay. And just to follow-up on the Fright Fest and Holiday in the Park. Again, maybe the decisions that Disney and Universal have done versus yourselves and a couple of your other regional competitors have not really made a firm decision exactly what you're going to do yet, but you've outlined your sort of benchmarks.
Maybe are they taking – is that just because where they're located, do you think, Mike, versus where obviously you guys have more diversity there? And then I guess as a follow-on to that. Just the plans on – you said whether or not you open some of the parks that have remained close, just any thoughts there. Obviously, as we get deeper here in Q3, the probability would decrease, I would suspect there.
Yes. Tim, I'll comment on us around Fright Fest. I think this is really the advantage. One of the advantages we have is Six Flags. In our attraction, the great thing and I think this is a huge positive of COVID, we're not relying on hotel or airfare. So as long as we can operate the parks and operate them cash flow positive, and you see a flattening of the curve, I think we can great pent-up demand and we're prepared to capture that with our team members that are working and we have not furloughed our full-time folks.
So I think that has and will be an advantage for us given the way we're spread out and we're very regionally diverse, which we talked about. And so as far as we're concerned is that's a good advantage. And as long as we can keep running the parks cash flow positive, we're going to keep running the parks cash flow positive, which would include Fright Fest and Holiday in the Park.
And we'll make a local decision, Tim. These are very local decisions based on where COVID is and the dynamics in that market. So I think that principle will stay there. And anyway that's how we're thinking about it, Tim. Was there another – sorry, Tim, was there another part of the question? I think that was it.
I think that feeds in both the Fright Fest and Holiday in the Park as well as the additional park opening. Thank you.
Yes. You bet. Thanks sir.
Your next question comes from the line of Paul Golding with Macquarie Capital.
Thanks. Sandeep, great to meet over the phone, and appreciate the question for either Mike or Sandeep. So just a little more housekeeping for me. The rollout of the tech – the mobile enablement, the social distancing enablement, where is that being booked? And what should we expect going forward? Is that going to be – is that part of the OpEx that we should look at? Is that more likely part of the $80 million to $90 million in CapEx? How should we think about that?
Yes, Paul. This is Sandeep. So I'll take that. I think in terms of the tech enablement, there's a combination of CapEx and OpEx. But for the most part, I think what we have is, the costs that were built in to the OpEx were definitely part of the quarter cash burn that we just went through in the second quarter.
And the great thing about the tech enablement is while there was cost that we incurred in the technology side, we actually were able to save our labor with some of the automation measures that we took. So that was an offsetting impact on that.
And I think from a CapEx standpoint, it's very minimal and to the extent that we've incurred and it's within the $80 million to $90 million that we’re guiding to for the year, but it's small in relative terms. But hopefully that gives you a bit of color on where we are on that piece in the quarter and the year.
Yes. That's great. I appreciate it. And then, Mike, on your transformation initiative commentary, you were talking about recapture of single day guest. So I guess any color you can provide on how you're going to weigh attracting single day versus conversion of single day to members or season passes as has been the goal in the past I would say. Any color around this strategy there and how you're weighing that?
We are. And as I've said in the past, it’s enhanced. I think, again, there's different consumer demand spaces and consumer needs that relate to our parks. So we do have what I would call, light users that initially want to engage in a trial experience in our parks. That's single day ticket, they're great guests. We want them, and we should have the right value, which is a function of price and benefits to bring them in properly and responsibly.
Now, ideally we want to make them loyals, and that's where we have the Active Pass Base. And ideally, we want to show them the benefits of trading up on the right incentive curve to get into the Active Pass Base, either season pass or membership. So we're going to continue to look at that. We're going to be very thoughtful on our price pack architecture. We're going to be very thoughtful in terms of the volume price elasticity. And what we think is the right value per market, but we're going to want to continue to do both.
And what I would say is go back to January, February. If you remember, we had our attendance up those first two months by 19%, and if you backed out Texas, which we had extended into attendance, our base attendance was growing 13% with our single day tickets up 38%. So we know we can do this. We did it before the pandemic, and we're learning more as we're doing the work. So we'll continue to navigate growing both Active Pass and single day ticket.
Great. Thank you, both. Appreciate it.
Thanks.
Your next question comes from the line of James Hardiman with Wedbush Securities.
Hi, good morning. Thanks for taking my call. I really appreciate all the color and transparency that you're giving us with some of the non-traditional metrics during what obviously the most non-traditional times that any of us have seen. I just want to make sure I understand a couple of the numbers that you've given us.
So the 25% to 30% of prior attendance levels, as we move forward. That's of the parks that are open, right? And so as I think about company-wide with 14 of the 26 parks open, should I be thinking about it as maybe low- to mid-teens in terms of overall attendance versus last year?
James, hi. It's Mike. What I would say is what we – I wouldn't want to project into the future which parks will be open or not open because it's such a fluid environment as you said. What we gave you is just what we're seeing today with the ranges. So right now in the state, if you just look at July, roughly, we've been in that 25% to 30% versus prior on the open parks.
But again, the ranges vary James. Like I said, you've got the non-surge states that have been pushing much higher than that. And we've seen the last three weeks or so in the surge states, where those numbers came down. And again, they were seeing now improvement again, back in the surge state. So I think it would be – I wouldn't want to speculate on the future. I would just tell you that's what's happened so far and we'll continue to keep you updated as we understand what those numbers look like.
Okay. That's helpful. Just to know that is just the open parks, obviously closed parks, you're not getting any attendance there.
Yes, correct.
No. I think that was predictable, I just want to make it a 100% clear. The $25 million per month that we talked about in the second quarter in terms of your cash drag, obviously, that's down from what you previously projected in a no-park open scenario. I'm assuming though that since you had some parks open towards the end of the quarter, as we sit here today with the parks open that are open, I'm assuming that cash burn number is something significantly less than $25 million a month?
So James, let me take that…
Yes. Go ahead Sandeep.
Yes. So I think when you look at the $25 million to $30 million cash burn rate, there's a bit of nuance in terms of Q2, and let me walk you through Q2, and we didn't understand what Q3 looks like. And by the way, James, before I get started, I just got to note that I said, something in inadvertently on the prepared remarks, cash operating expenses decreased by $141 million or 60% in Q2. I think I said they increased, obviously, it's not the case, but just so you have the right record.
Thanks.
So now turning to Q2 itself – welcome. We actually went through $76 million in the quarter, which is about $25 million per month. And that was better than the $30 million to $35 million that we guided to in April. And there were a few drivers for this, right?
I think the first driver was, there were lower membership cancellations in season pass refunds then we were anticipating, which was a very good thing. I think Mike alluded to you by talking about the retention on membership, which has been very good. In the circumstances, to only be done 19% since the beginning of the year is a very good fact that has actually helped us from a cash flow standpoint.
Then second, I think the lower cash operating expenses that was talked about earlier through very tight cost management and all this happened while keeping very current on our payables. So I think with that to be able to limit the amount of cash out was very good for us.
And then third to the point that you were just making, some parks opened up towards the end of June or through the month of June, some later, some earlier, and that generated some positive cash flow. But I think in terms of relative impact on the quarter in the second quarter, it was reasonably small.
But if you roll forward and look into the back half, our burn rate is expected to be $25 million to $30 million with similar drivers to what we saw in Q2 with one exception. Now we actually made cash distributions of $41 million to our partnership parks only in the back half. And that average is $7 million a month.
At another way, our cash burn in the back half would have been $18 million to $23 million on average per month without the partnership on distributions. And so when you think about all this, you basically have competitive $30 million to $35 million that we were talking about back in April. We feel we've actually made a significant improvement in our cash burn rate expectations as well as what we’ve achieved in Q2. But that's a lot of color, but I hopefully give you enough to kind of synchronize into it.
That is extremely helpful. And maybe just one last question. Are your parks generating enough cash that – you only have 14 parks open now. If they were all open, but still just operating at that lower attendance rate, would the cash generation be enough to offset sort of the corporate overhead piece such that maybe you could have breakeven or better EBITDA. I'm just trying to understand the path back to profitability from here?
Great question. So right now in July, there are three considerations to the parks being open, right? The first is safety, which Mike talked about extensively earlier. The second is the brand experience that we're delivering to our customers in there. And then third is financial, and it has to be a positive cash flow. If isn't a part of the cash flow, it doesn't make sense from that standpoint.
So obviously, I think in the current situation where we're more than breakeven on the parks that are open, the 14 parks are open and we expect that we will continue to monitor this. And as long as this is the case, we'll keep opening it. But remember to the point you were making earlier, only 14 of the parks are open that covers 50% of the revenue. So the impact it’s going to have on the total company is going to be less when that's the case. But I think it makes an economic sense to still open on these parks that are open.
And then what I would say to help you with the breakeven and the layers of cash flow is, remember, we've got to open up all the parks or a substantial number of the parks. And then to the point that we’re making on the non-surge states, you're seeing continuing momentum on those non-surge states.
So once we actually get out of the virus, constructions that are there in the third states, we expect attendance to lift over there too. All that should lift our cash flows closer to breakeven. But obviously, this is very mixed dependent, depending on which parks open and which states are surge states and how that evolves over time. And I think it's kind of dynamic to see what a breakeven point would be because it's a function of mix. But those are the layers you really have to think through to actually get to where we get to a breakeven level.
Really helpful. Thanks, Sandeep, and welcome aboard.
Thank you.
Your next question comes from the line of David Katz with Jefferies.
Hi. Good morning, everyone. Hello, Mike and welcome Sandeep.
Thank you.
Thanks for all the information so far. We touched on this a few questions back, but Mike, I recall we had a group discussion. I'm pretty sure it was our last week or even our last day in the office about the CRM system that the company has that you felt was state-of-the-art, I think may have been how you couched it at the time.
How are you – how have you started to use that, learn from that, and what remains to be captured from that CRM system? And my follow-up question is really around digital endeavors. Across all of our coverage, there's obviously increased focus on digital marketing, digital or everything, given the circumstances. Where are you all in those efforts and what can we expect to see in here about?
Hey, David. How are you?
Very good.
So let me start with CRM, and your question is really good on digital endeavors. A big part – let me start with that, a big part of what we're doing on transformation is to leverage technology for both the end-to-end guest experience to make it much easier for our guests to engage in our parks and to be a more effective company, meaning ways of working.
I think technology is going to be an underpinning of both. So we're taking a very – and that's a big part of the work we're looking at is how we do that to just make it easier to work, reduce those redundant costs and also make it easier for the guests. So I start there.
Now going back to the topline, we are looking really hard at everything from our website, mobile apps, search engine optimization work, and to your point CRM and CDP. And in the terms of CRM, it's just creating a more personalized relationship with our guests. And I don't know if I said – we have a good program, but we think we can make it a lot better. To me, integrating all the systems and the data points with our guest, knowing them personally allows us to create a differentiated offering with the technology.
To me, that's going to create two things. We're going to get more share of mind, which means we're going to get more frequency of visit, more recruitment of new users, and it allows to get more share of wallet. When they're in the parks, our ability to personalize and differentiate is going to get them more engaged and more attractions in the park. So that's where we want to take this thing, which is a big part of the work we're doing on the transformational front. And as we complete that work, we'll unveil that more.
Got it. Okay. Thank you very much.
Thank you.
Your next question comes from the line of Ben Chaiken with Credit Suisse.
Hey, how is it going? I guess, it maybe early, but for those people who have turned out, can you talk about how you'll reengage with that customer and for the season pass customer who will have, call it three or four months, three next year, how you're going to sell them an extension of that path, so to speak? Thanks.
Ben, hi. How are you doing? So we are staying very actively engaged with all of our members. So we still have our newsletters going to them. We do direct emails to them. We have a relationship with them and they know that they can unpause when they feel good about their individual credit situation.
So what we're doing is communicating and making sure they know we're there for them at the right time. And by the way, they know they can do it themselves as well. Once they go to a park, they can unpause, so to speak. So we'll continue to do that in the right way, in the right professional way with those guests has been our policy.
Yes.
And we're doing a lot of it, both e-mail and candidly direct conversations with them. We've ramped up kind of what we call a Fresh Desk team that is reaching out to these folks as well.
Okay. Got it. That's helpful. And then earlier in the year though there was a discussion of $60 million in costs. It sounds like there's going to be some costs for that transformation as well. Do you anticipate those being incremental to those three buckets highlighted earlier in the year or what's the difference?
Yes. So I think – let me start with the three buckets, Ben, because if you go back, there was a bucket of investment in the parks OpEx. There's a bucket of bonus, and there was a bucket of let's call it labor headwinds. I would say that we’re not – we feel really good that that $20 million bucket of labor headwinds that was before COVID between complexity and wage. We feel less concerned about that, much less concerned about that as we've been doing things. I obviously – as we move forward, we want to put bonuses back into the business. And I do think we're going to want to continue to invest.
What I would then say is, I think you – everybody's got to look at this holistically as we go through the transformation work, which really is about emerging stronger on the other side of the pandemic. Fundamentally, the work is about getting back to that base business issue. When you think about it, it's making sure we have a good robust topline growth and that we're taking out costs that fuel future sustainable growth both in the bottom line and the topline.
So there's going to be cost efficiencies and takeout work there as well as what we can invest in the topline. So as we put all that together, as we do this work, Ben, we will be very clear on what the push and pulls are, especially what are the spends, what are the returns and what are the payback time into that.
Got you. I appreciate it. Thanks.
Yes. Thank you.
Your next question comes from the line of Mike Swartz with SunTrust.
Hey. Good morning, guys. Maybe just to follow-up on the prior question, ask it a different way. Sandeep, I think you said that the $25 million to $30 million in monthly cash burn going forward does include costs related to the transformation. When you outlined that $30 million to $35 million back in April, that number also includes costs related to the transformation?
So Michael, let me take that. I would say that, for sure, this includes the cash burn for the backup includes the transformation cost that we expect to incur during the back half of the year. But to Mike's point, I think we're not going to get it. We basically don't have a specific number right now that we want to get into until the work actually continues to develop.
So back in April, when we actually came up with a $30 million to $35 million, there was probably even less clarity on exactly where that number was going to be. So there was probably some high level estimate, but not as clear as we are because we already incurred some money in the second quarter, $6 million that we talked about, and we do expect to incur some more. But it's always the cash burn number.
Okay, perfect. Thank you. And then Mike, just as you look at early days here with the park reopenings, the 14 park reopenings. Maybe talk about the guests demographic? Or I think historically, you've said the vast majority of your guests come within a couple of hundred mile radius of the parks. Have you seen that change in the past month or so maybe relative to what you've seen historically?
Yes. So it's a really good question, Mike. So I'll tell you all the metrics broadly are very consistent. We've looked at everything from mix of tickets, time in the park, kind of the mix of all sorts of things. And what we're seeing is it's really consistent, okay. So it sort of all boats rise or kind of drop depending on the surge. We're not seeing anything material where they're coming from, whether they're a member, single day ticket and how long they're in the park, their visitation rates. It's very consistent with what we saw before COVID is the headline. We've been spending a lot of time looking at this.
Okay. Great. Thank you.
Your next question comes from the line of Ryan Sundby with William Blair.
Yes. Hi. Good morning, and thanks for taking my questions. Welcome aboard Sandeep.
Thank you.
Mike, I think we can all understand the pressure on the in-park spending during the quarter just given the limited opportunities at the Safari drive-through and the attendance volume that accounted for. But with more traditional parks reopening in the past month, can you maybe talk about what you're seeing in terms of in-park spending with a more comparable base of parks now open?
Yes. As far as – yes, I just want to make sure I understand your specific question, meaning changes versus before or dynamics in terms of what are being bought in the parks?
Yes. More so, I mean just the pressure on the in-park per cap we saw…
Yes.
It clearly was impacted by the Safari, but…
Yes.
Yes. Okay.
I understand the question. Yes, I'm going to give you the answer excluding Safari. No, the in-park spending is good. This is consistent with the prior question. We are seeing good trends, and by the way, one of them as we've been introducing mobile ordering, one positive we're seeing of it is we're getting an increase in transaction size where we've employed it, which is very positive.
We're seeing a definite uptick, which has been one of the nice things we've been testing during this pandemic is how that works. And we're seeing a nice uptick in transaction size per order. So actually, I like what I'm seeing. We're also by the way seeing good pull-through our masks.
People are spending in the retail shops. People are spending with food, especially by the way because remember when they're getting food, they're also getting a mask break. So I've seen this myself and we're seeing in numbers. When people are in the parks, they want to spend money, they want to engage. It's been good.
That's great to hear. And then Mike or Sandeep, I guess, how should we think about that deferred membership revenue piece that kind of moved out of the quarter going forward. Should this grow as more members roll off that first year? Or as more parks come online, should we see the impact shrink going forward? Just trying to understand those two parts.
Great question. Sandeep, why don’t you take that because I think it's important everybody understand. That's a really good question. Go ahead.
No. I think it's a really important and frankly, there’s a lot of complexity moving parts on this. So bear with me because it's going to be a bit detailed. So to start with, I think, deferred revenue in the quarter when you actually look across the big components, there's about $29 million between the season pass and membership, and in-park dining. And in addition to that, we also had some deferrals on corporate sponsorship, in total it is about $35 million across everything.
So let me walk you through four components because I think there's four components that have discrete impacts. The first will be season pass. The second will be membership within the 12-month period. The third will be membership 13-plus, and the fourth will be sponsorship.
So on the season pass, we do see the cash upfront. So cash impact is needed. And on the normal circumstances, revenues deferred based on visitation history. However, because of the pandemic for parks not operating, we provided day-to-day extensions in the 2021 and the revenue will be recognized through 2021 based on historical visitation.
Now number two was membership within the 12-month period. Here, cash is received monthly. And here, revenue normally gets deferred based on historical visits, but for parks not operating, we've offered month-to-month extensions when the member’s home park is closed. And here, too, the revenue will be recognized based on historical visitation. But while members are paying if the parks are closed, we're giving them tier upgrades and also the option to pause, like we talked about earlier.
And the complex part is really membership 13-plus. People have passed their 12 months. Here, cash is received monthly and revenue normally would be recognized on receipt. But in this pandemic situation, where parks are operating, we're offering month-to-month extensions for the month the member’s home park is closed. These extra months will be recognized once the membership ends or is canceled and the months actually utilized.
And number four is sponsorship. And here, a lot of the cash were received from our corporate sponsors prior to the pandemic, but because the parks will close for the most part during the second quarter, the revenue has been deferred and will be recognized once the parks reopen and start operating, so that the corporate sponsors avail the benefits that they were paying for.
So that's really a bit of a long-winded answer to your question. But I think, as the pandemic rolls on, this is the approach we're taking to defer revenue. And you know what the triggers now are to recognize the revenue. I hope that answers your question, Ryan.
Yes. That's helpful. Thank you.
You bet.
Ladies and gentlemen, we have reached the allotted time for questions. I'll turn it back over to our speakers for closing remarks.
Thank you, everybody for joining our call and more importantly for your continued support. We will continue to focus on emerging stronger post the pandemic. Please take care and please be safe. Thank you once again.
Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.