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Good day, and welcome to the Cedar Fair Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Ms. Stacy Frole, Vice President of Investor Relations. Please go ahead, ma'am.
Thank you, Anna. Good morning and welcome to our second quarter earnings conference call. Earlier today, we issued our 2018 second quarter earnings release. A copy of that release can be obtained on our Web site at www.cedarfair.com under the Investors tab or by contacting our Investor Relations Officers at 419-627-2233. On the call this morning are Richard Zimmerman, our President and Chief Executive Officer; and Brian Witherow, our Executive Vice President and Chief Financial Officer.
Before we begin, I need to remind you that comments made during this call will include forward-looking statements within the meaning of the Federal Securities Laws. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. For a more detailed discussion of these risks, you can refer to filings made by the company with the SEC. In addition, in accordance with Regulation G, non-GAAP financial measures used on the conference call today are required to be reconciled to most directly comparable GAAP measures. During today's call, we will make reference to adjusted EBITDA, as defined in our earnings release. The required reconciliation of adjusted EBITDA is in the earnings release and is also available to investors on our website via the conference call access page.
In compliance with SEC's Regulation FD, this webcast is being made available to the media and the general public, as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.
Now, I would like to turn the call over to Richard Zimmerman. Richard?
Thank you Stacy, good morning everyone. On today's call we will provide context for our second quarter results, update revenue trends through this past weekend, and provide perspective on our expectations for the balance of the year.
As you read in our earnings release this morning, the first-half of 2018 has been a challenge on several levels, while our only year around park, Knott's Berry Farm is off to an outstanding start and on pace for a record year; Kings Island, our park in Cincinnati has gotten off to a very slow start and it struggled to match last year's record performance offsetting the gain generated by Knott's.
Meanwhile, the performance at our other seasonal parks has been mixed with disruptive weather patterns throughout much of the first half of the year making it difficult to build any sustained momentum in attendance. The impact of the attendance shortfalls has been compounded by anticipated labor cost pressures although our parks had done an excellent job of minimizing these as much as possible.
While results through this past weekend have not met expectations, we remain confident in the resiliency of our business model. Our annual revenues remain strong and we continue to generate a significant amount of free cash flow, which funds our tax advantage distribution, currently sitting at more than 6% yield.
Before I turn the call over to Brian to discuss second quarter results in more detail, I want to directly address the question on everybody's mind. Are consumer trends changing? Each day that our parks are open, we compete for the consumers' entertainment dollar as well as for their discretionary free time. We hang our hats on offering guests an extraordinary experience. That is our overarching strategy and it has withstood the test of time by producing solid growth over the long-term. Although the first half of the year has been challenging, we see nothing to suggest wholesale changes in our guest's attitudes towards the unique entertainment we provide.
The guest response to our new rides and attractions has been very positive. Guests have increased their spending inside our parks and the number of season pass holders renewing their passes has again increased. We also look at the strength in our long-lead indicators such as group bookings and resort reservations along with our award winning Halloween attractions and new WinterFest celebrations as positive indicators of our ability to have a strong finish to 2018. And as we saw this past weekend, when summer weather is normal, attendance levels are in line with expectations giving us confidence in our long-term strategy and the investments we have made to support it. Given the variable impact that weather has on outdoor seasonal business, discerning evolving consumer trends is difficult without a continual focuson gathering consumer information.
With that in mind, we have undertaken a number of initiatives that deepen our understanding of what our guests want to see in our park including our brand positioning work, the ongoing evolution of our consumer insight function employing increased utilization of focus groups and guest surveys and the development of new consumer touchpoints and distribution channels.
Based on the information gleaned from this research and in particular from the brand positioning work, we have significantly enhanced the guest experience at our parks through investments in new rides and attractions, the expansion of multi-week special events, the introduction of executive chefs and first class catering facilities, upgrades to our resort properties and general infrastructure improvements. And our guests like what we have done. We believe a strategic investment combined with future initiatives will provide meaningful economic returns for many years to come. For example, you've heard us talk about our brand revitalization efforts, specifically at Knott's Berry Farm where we updated the Timber Mountain Log Ride and the Calico Mine Ride, expanded the subcity water park in Camp Snoopy children's area and built a world-class rollercoaster, HangTime.
In combination with these transformational capital investments, we introduced seasons of fun where we strategically introduced evens and programming to create fresh excitement and therefore additional urgency to visit the park all-year long. And given Knott's results year-to-date, it's working. Offering more programs and attractions was part of a multi-year strategy that revitalized the Knott's brand and turned the park into the place to be for fun year round in the Southern California market.
I'm pleased to report that in 2018, Knott's is on pace to have its best year ever, driven by record season pass sales, attendance and per capita spending. We are also implementing multi-year strategies at our other seasonal amusement parks to enhance their brands and support new regions for the consumer to visit.
At Cedar Point, for example, the recent investments in our resort accommodations, including the renovation and expansion of Hotel Breakers and the Cedar Point Express Hotel, along with the expansion of lighthouse point with new luxury cabins and RV sites, are the largest contributors to our out-of-park revenue growth, currently on track for a record year in 2018.
Our investment in an outdoor amateur sports facility near Cedar Point, a new destination marketing campaign and the activation of our mile-long beach with an expanded boardwalk are also attracting new customers to Cedar Point, Cedar Point Shores and our resort accommodations.
Steel Vengeance, a record-breaking, hyper hybrid rollercoaster is quickly becoming recognized as one of the best rollercoasters in the world, leading to higher sales of our premium products such as FastLane and driving increased guest spending inside the park. As our slogan says and we truly believe, Cedar Point is a place like no other. We are confident in the investments we've made thus far as well as the investments we will soon be announcing and that they are transforming this park into more than a place to ride rides, but rather a unique vacation destination for guests of all ages.
At this point, I will turn the call over to Brian to discuss second quarter financials and results through this past weekend in more detail before I discuss our outlook for the remainder of 2018. Brian.
Thanks, Richard, and good morning. Before I begin, I want to caution you that it's always difficult to extrapolate partial season performance into full-year results. As of this past Sunday, July 29, more than 40% of our forecasted attendance and some of our most profitable operating days are still to come.
First, I would like to briefly discuss our results through the second quarter before moving onto current revenue and attendance trends. Net revenues for the second quarter ended June 24, 2018, totaled $380 million, which is down $12 million or 3% when compared with the second quarter of 2017.
A decrease in net revenues for the quarter was the direct result of a 5% or 363,000 visit decrease in attendance. Somewhat offsetting the attendance decline was a 1% increase in average in-park guest per capital spending and a 4% or $2 million increase in out-of-park revenues.
As Rich had said earlier, Knott's Berry Farm's solid first quarter performance has continued into the second quarter with the park on track for another record performance in 2018. Unfortunately, Knott's strong performance was not enough to offset lower than expected attendance figures at our seasonal amusement parks. While the attendance declines are across most of the seasonal parks, we have not identified any negative long-term consumer trends as there have also been pockets of solid demand throughout the quarter.
As mentioned earlier, we have a number of initiatives underway to further deepen our understanding of the current state of consumer trends and potential indicators of a change in long-term trends. We believe the large contributors to our attendance declines in the second quarter of 2018 were a result of unfavorable weather patterns in the Mid-Atlantic region which included record rainfall and flooding in the spring, lower season pass sales at Kings Island and regulator and construction delays on a new coaster at California's great America which added pressure on season pass sales and daily attendance during the second quarter.
At the end of the quarter, our deferred revenue balance totaled $211 million representing an increase of $18 million from the second quarter of 2017. The 9% year-over-year increase in deferred revenues is largely attributable to an 8% increase in sales of season passes and all season products and to a lesser extent room night deposits at our resort properties. Virtually, all of this deferred revenue will be fully recognized in the second half of the year.
With regards to average in-park per capita spending, we saw pure in-park guest spending increase 2% in the quarter. The largest increase was in our food and beverage category, followed by increases in spending on premium products and merchandise. The strength in food and beverage is largely attributable to the continued growth of our all-season dining and beverage programs.
The increase in pure in-park spend was partially offset by a 1% decrease in admissions revenue per capita, which is primarily due to a higher season pass attendance mix the expansion of our free Pre-K season pass program to three more parks this year and the recognition of season pass revenue over a longer period of time at Kings Dominion as it remains open in November-December this year for its WinterFest celebrations.
Admissions per capita on nonseason pass sales in the second quarter increased 4% compared with the second quarter in 2017, giving us confidence in our pricing structure and our ability to continue to strategically manage to a better net yield at the front gate.
Moving onto the cost front, operating cost and expenses for the second quarter were up $10 million or 4% to $256 million, which is in line with our expectations. The increase in cost and expenses is largely the result of higher labor cost, due to market and minimum wage rate increases as well as higher operating expenses attributable to operating supplies for park operations, personnel related costs including associated housing. I want to assure you that our team remains highly focused on managing operating costs as we pursue our long-term strategy, a disciplined approach expense and capital investment management as a core initiative to a long-term success of the business. It's difficult to make material adjustments to operating cost in the middle of the year without significantly impacting the guest experience as of our calendars including operating hours have already been established.
We also don't want to overreact to short-term fluctuations that may impact our long-term success. We have identified opportunities where we may take advantage of additional cost savings in the future whether by adjusting the operating calendar based on demand, investing in technology to more effectively and efficiently manage the scheduling of our 45,000 seasonal employees or by eliminating cost related to ride and attractions that have run their course and are no longer as popular with our guests.
All of these things are being reviewed and discussed at great lengths as we work to build our 2019 park level business plans. Meanwhile adjusted EBITDA, which we believe is a meaningful measure of park level operating results, totaled a $127 million for the second quarter of 2018, down $23 million when compared with the same period a year ago. This is the direct results of the attendance shortfalls in the second quarter combined with the anticipated increases in operating cost and expenses.
Turning our attention to results through this past Sunday July 29, based on preliminary results, net revenues through the first seven months of the year were down 2% or approximately $50 million compared with the same period a year ago. This decrease was due to a 3% or 408,000 visit decrease in attendance to 14.6 million guests. During the same period, average in park guest per capital spending increased 1% and out-of-park revenues were at 4% or $3 million compared with the similar period last year.
As Richard mentioned earlier, 2018 has been a challenging year for us thus far. While we had anticipated a positive shift in momentum coming out of the second quarter, disruptive weather patterns in July cross the country have made it difficult for our parks to gain meaningful momentum through the end of July. However, on the days with normal seasonal and weather patterns, our parks are reporting a nice lift in attendance coupled with increased guest spending.
This gives us confidence that our long-term strategy is working and the fundamentals of our business model remains strong. Given where we are in the operating season, it will be challenging to fully recover the year-to-date attendance shortfalls, but it is not impossible. As I mentioned earlier, we still have more than 40% of our forecasted full year attendance ahead of us including some of our most profitable operating days, our very popular Halloween events and the continued expansion of our WinterFest celebration [indiscernible]. What this means moving forward is that our long term strategic plan is no longer dependent on any one quarter or any one year. We will continue to monitor trends and make adjustments where we deem appropriate. But as we have said in the past, on given Saturday don't change your strategy on Monday.
Now let me shift focus to our balance sheet for a moment. At the end of the second quarter, we had $60 million in cash on hand and approximately $1.69 billion of debt. Of which the majority is fixed either through long-term notes or interest rate swaps. Of our total churn debt only $2 million is scheduled to mature within the next 12 months. Based on our current outlook, we anticipate our total leverage ratio at the end of the year to be approximately 2.5 times debt-to-adjusted EBITDA which is well within our comfort level.
And for the full year, we anticipate cash payments on interest and taxes to approximately $85 million and $45 million respectively. You have heard us say numerous times that our focus is not just on the amount of the distribution we are paying to our unit holders, but also on the quality of the distribution ensuring that it is sustainable and growing as our business grows. Our balance sheet is designed to withstand a challenging year like 2018 providing us with the financial flexibility to pursue organic growth in tandem with our commitment to grow the distribution. Because of this, we remain committed to a steady 4% annual increase in the distribution even in a year where results may be below what was anticipated.
In conclusion, our cash position together with the existing lines of credit provides sufficient flexibilities for our working capital needs, partnership distributions and growth through our capital expenditure programs. And with that, I would like to pass the call back to Richard. Richard?
Thank you, Brian. As we head into the last five months of 2018, I remain confident in the resiliency of our business model, the core elements of strategic plan, and our ability to implement them. I also believe in the quality of our total entertainment package and the value it represents to our guest. This includes two of our largest multi-week special events, our award winning Halloween events in October and our WinterFest celebration that extend the operating season five of our seasonal amusement parks.
Both of these events leverage our unique regional brands. The offer a complete immersive experience at a quality and scale no other regional amusement park or entertainment venue can match. For Halloween this year, our parks will offer more than 120 [indiscernible] attractions, more 140 hair-raising shows, and more than 5000 monsters roaming the midways. Then as we transition to WinterFest our parks are transformed into spectacular winter wonderland with magnificent light displays, holiday shows, and festivities for every member of the family.
During these seasons of fun, we also offer a wide variety of student beverage offerings specifically tailored to the event and time of year. As Brian mentioned earlier, it will be challenging to fully recover the attendance shortfalls we have experienced to-date. Despite some recent areas of strength in our business, the lack of meaningful momentum or pickup of attendance through July, leads to us to believe that results could fall below the low end of our full year guidance of net revenues between $1.34 billion and $1.38 billion, adjusted EBITDA between $475 million and $495 million.
Full-year results will be heavily influenced by our parks performance between now and Labor Day and the success of the numerous new initiatives we deploy. We will be better positioned to provide more color on the season and update our guidance in early September. While today's call primarily addresses the current operating season, I can ensure you we already actively engaged in the execution of all strategic aspects of the 2019 season.
Over the next month, many of our parks will be announcing new rides and attractions for next year including the introduction of additional world-class roller coasters, immersive and interactive areas for families of all ages, and continued enchantments to our in-park revenue locations particularly within the critical food and beverage channel.
In the latter half of 2019, we also look forward to completion and opening of several long term projects including an indoor sports facility at Cedar Point and the new SpringHill Suites Hotel adjacent to Carowinds. With the investments we have made over the past several years and plan for 2019, I am confident that we offer a great combination of family thrill entertainment.
However, I am also equally confident that we can continue to expand the appeal of our parks adding events and entertainment program to drive urgency to visit and enhance the appeal to broader audience. I have challenged our team to develop programs to drive incremental revenue with less reliance on capital expenditures. Growing free cash flow is our ultimate objective. And while we remain committed to the long-term decisions, I am convinced we have arrived at a point where we should be able to drive greater efficiency from the capital we choose to invest going forward.
I am not ready to give you specifics today, but I hope this gives you a sense of discussions we are having internally and with our board as we finalize the next iteration of our strategic plan. Before we turn the call over to questions, I just want to say how proud I am of our team for their hard work and dedication to giving our guest the best day experience each and every time they visit our park.
I am fortunate to work with passionate people who have committed their careers to this industry. They have the experience and maturity that supports effective dialog and in turn results in better decision making. And because of this, we expect to have a strong finish in 2018 and make the necessary adjustments to resume our growth trajectory next year and beyond. Now we will open the call for any questions you may have.
Thank you. [Operator Instructions] And we will now take our first question from Tim Conder with Wells Fargo Securities.
Thank you. Yes, just a couple here. Little more color, Richard, on why -- I know you said you had a record year last year at Kings Island, but why then maybe experiencing the season past decline in sales there? And then, the Santa Clara ride delay when is that expected to be resolved? And then Cedar Point, how specifically has Cedar Point done in July given the appearance [ph] of weather there, it was pretty good in the month of July?
Thanks, Tim. Let me take those in order. First at Kings Island, as we said, they were coming off a record year last year between the reaction to Mystic Timbers, the rollercoaster, and their addition of WinterFest. As we got in to the spring season pass sales period, which if you take a step back, that's the biggest sales period for all of our parks. They experienced some extreme cold as they out of the -- have the blocks in the April, early-May timeframe. So what we've seen there, as we've seen in other parks, is that when attendance is a little low in the spring we sell the same percentage of season pass sales, but -- has a percent of attendance, but that trends down.
Okay.
Yes, Tim, this is Brian. I would add to Richard's point on Kings Island. We came into the year with the expectation there'd be a little bit of pressure on season pass sales given the strength of 2017 that Richard alluded to. I will tell you, in spite of the challenges we've seen there the park is still on pace for its second highest season pass program performance ever. And so it's a little bit of a tough pill to swallow, the softness we've seen in '18, but quite frankly that the performance, if we just gauge it versus the last five or six years, it's still a very good year for that park.
Okay.
And with regards with Santa Clara, we had a bit of a challenge getting our new ride opened there which -- RailBlazer which opened a little later than we had anticipated, in part because of a complicated construction environment, a lot of activity out there. But what we've seen there, which we see everywhere, where we missed a little bit of season pass sales window. I will tell you; since the ride had debuted we've seen tremendous response from our consumers. They really like the ride. And since the ride has opened Great America has largely been performing in line with expectation.
As it relates to Cedar Point, Tim, as you could see from the release and marry that up with the July 4th announcement which really took results through the '08, the last three weeks have been challenging for us across the system, in large part at the seasonal parks, particularly in the eastern half of the U.S. I will tell you that Cedar Point was sort of under the same kinds of pressures that we saw generally at those parks. If I look at the last three weeks and break it down a little bit, it's really the tale of a couple of different scenarios. We had one week, very good weather and we saw good lift across the system at those parks, mid single-digit lift in attendance. We had two weeks of very challenged weather, and saw attendance down high single-digit to low double-digit those two weeks.
So, while we don't like to cling to weather as an excuse, when you break it down in these small bite sizes it definitely has an influence. And I would characterize Cedar Point's performance over that three weeks as pretty consistent to what we've seen out of the broader group.
Okay. And then lastly, any color on the second-half initiatives to drive attendance that you alluded to in the press release?
Yes, Tim, as we go into each year we go through a meticulous amount of planning. And we've got on the shelf things that we may need should we see an opportunity or not see the results that we want. So what we've gone in and done, and really breaking down into a couple of different avenues, we pull off the shelf some things we had ready to go through different channels. Now that varies market by market. So we've got offers out there that we're testing through different channels. We're also looking at what we can do the support the growth following the second-half of the year, but in '19 and beyond. So we're a couple of weeks out from debuting our season pass program, and when we do you'll see there's some program enhancements there that we think will help drive season pass sales in the fall, which will also then benefit our 2019 season.
Okay. Thank you.
We'll now take our next question from Steve Wieczynski from Stifel.
Hey guys, good morning.
Good morning.
Good morning. How are you guys? So I guess the question is around your guidance for the year. And it looks like to get to the midpoint of your guidance you'd probably have to grow the back half of the year; probably around 8% is kind of the math that we're coming up with. Given the pressures we've already seen in July, I guess the question is why not adjust your guidance range now, maybe be a little bit more conservative and get in front of some of these weather events and other pressures versus kind of waiting to see how the next six or eight weeks plays out.
Steve, good question, and good morning; as we look to the back-half of the year, we continue to look at, once we get to Labor Day, the fall represents, as I said in my prepared remarks, the strength of our Halloween celebration, the WinterFest, when you look at the appeal of those, and how in particular it's driven record October after record October. We've also seen, as we saw last year, a really strong second half of the year. We saw a little bit of challenge in July and August. We came into the year believing July and August were our opportunity. We continue to see when weather is good. As witness, Brian said the last tree weeks, a good weather week we're up mid single-digit. But when we look at last Saturday [indiscernible] with a good forecast and good weather, we had one of our strongest Saturdays in last several years.
So when you look at August, since it's a key period between now and Labor Day in terms of impacting our look at the full-year, and I'll go back to Labor Day weekend being a weekend where we lost last year probably around 150,000 in attendance. So when we look at it I thin we're trying to be as transparent as possible. But when we look at not revising guidance at this point, we wanted to make sure we were as transparent as we could be. But we've got strong belief in the confidence in the second-half of the year based on the quality of our events.
So, Brian, anything to add?
No, I think just dovetailing off of that, we gave a lot of consideration to taking guidance, as Richard alluded to. August is critical to, and we said on the call, August is critical to our ability to hit the year-end number that we'd like to. And I'd throw Labor Day into that as well. And so I think we'll be much better positioned to forecast what the full-year looks like when we get through the next five or six weeks.
Okay, got you. Thanks guys. And then the second question I guess would be around the distribution. I know you guys have talked about trying to increase that about 4% on an annual basis. And we've gotten a couple of questions from investors kind of saying, well, how secure is that 4% increase if attendance continues to go down? So, I guess, a different way to say it is, are you guys even remotely close at this point to being concerned about being able to raise that, the distribution?
Steve, when we look at our business model, we built the balance sheet to withstand short-term disruptions. Our current leverage ratio, we built this flexibility over several years so we could accommodate that. When we look forward we don't see a structural change in our business model, we don't see a fundamental shift in the consumers' behavior, matter of fact, in their attitude towards our entertainment package. All of our internal metrics from our guest satisfaction scores, to the ad awareness intent to visit says those are all pointing in the right direction. So when we look at the distribution I got to set back the fundamentals of the business model, which we generate a lot of free cash flow. Looking forward, we continue to see the distribution as one of our main priorities. And both the quality and the sustainability of that is our focus going forward.
Okay, great. Thanks, guys. Appreciate it.
We'll now take our next question from Barton Crockett from B. Riley FBR.
Okay, great. Thanks for taking the question. I wanted to ask a little bit about the structuring of your business model in the face of these kind of weather issues. It seems like we're now in kind of the third successive summer of subpar weather, which almost sounds like kind of an anti like woebegone setup where everyone is below average, which maybe we should contemplate this. And I know that maybe this is the new normal, that weather is perhaps churned more negatively for summer. Which I think asks the question, whether it makes sense to pivot your business to a model that would be more resistant, more durable in the face of weather volatility? I think of someone like sale that's insulated themselves from a bad ski weather period last year by pivoting more to season pass.
Your peer, Six Flags, is doing a lot more attendance from seasons passes move more aggressively to that than you guys have in terms of a percentage of mix. And now they're pushing essentially a Netflix-style subscription model which would go a long way to mute weather volatility. And I'm just wondering how you guys think about the statement that maybe weather patterns are changing permanently, and whether it makes sense to kind of address the business model to do some of these things I mentioned to and from that.
Barton, thanks for the question. First, let me say that we continue to be extremely pleased with the performance of our season pass program, which does in and of itself provide a hedge of weather. You look at the deferred revenue sitting on our balance sheet. When we think about that you know, we continue seeing higher season pass renewal rates, as we referenced in our prepared remarks. Yes, when we look at the evolution of our season pass program, it has evolved over the past several years. We do study everything that goes on in our industry, in adjacent industries, one of the things that you will see us come out with in the fall is we're going to test a 12-month installment in the fall versus a nine-month to test incrementality and see how the -- each of our markets react.
So one of the conversations that's on the table as we prepare for the next iteration of the strategic plan which we've committed to roll out later this year, early next year is both dealing with the weather and you know, looking at our business model, but also how can we continue to evolve our season pass program, because that needs to be a key source of growth as we move forward, and obviously a key part of our focus.
Yes, but what about the comment about weather, I mean, would you say at this point we should assume, maybe as a base case why the patterns are more like what we've had for the past three years and what we had before that?
I don't know that we can comment, because I'll go back to what we always say about weather, Barton, which is over the course of the season, or over a course of few years, weather tends to average out. What I can say is with the appeal of the events that we stacked in our third and fourth quarter we continue to see more appeal of those events. So as we think about both weather protection in the business model, I go back to our seasons of FUN looking specifically at the second quarter and how we would build early season attendance, how we'd build a focus, a challenge the marketing teams take a fresh look at our second quarter both in terms of programming and promotions. And I think one of the things that we can do to hedge against weather is get off to a stronger start to each season.
Okay. All right. Well, thanks for addressing the questions, I appreciate it.
Thanks, Barton.
Thanks, Barton.
We'll now take our next question from James Hardiman with Wedbush Securities.
Good morning, thanks for taking my questions, which unfortunately are going to --
-- James.
Good morning, James.
Good morning -- continue, I guess, along this weather line. Obviously, you've said for a while now that when weather is normal, attendance levels are in line with expectations. I think Barton's question was a good one, whether normal is changing. But I guess, the other possibility is as we think about what's going on here is that -- is attendance significantly worse for bad weather days, I guess, is a question that I've never asked and I'm going to age myself a little bit when I say that I remember a time when kids would actually go outside when it was raining.
Maybe that's a bigger deal today, maybe as people have more and more apps that tell them what the weather is going to be like the next day, the next week, the next 10 minutes, you know, that's a negative impact on your business. Any thoughts around that?
James, you must be sitting on some of our internal conversations, because we talk about this one a lot. Not in just in terms of weather, but how the consumer perceives weather. I will tell you the metrics -- I'll give you the metrics, and then we can all talk about the reasons behind, but if you look at this particular season, when we've seen significant declines on a daily basis, you know, we've had significantly more days where we've lost on particular days a lot of attendance versus less days where we've seen a pickup of that type of attendance. So yes, we have seen that type of more extreme, if you want to call it, volatility, where we lose more in a given day. So that's clearly one of the things that we're seeing this year that makes this year very different from past years.
Now, for those of us who've been around a long time, we've been doing this -- a lot of us have been here for a couple of decades. One of the things we always say is this year's bad news is next year's good news on any daily basis. It gives some opportunity to go on forward. But yes, your comment about how consumers perceive weather is something that we do talk about a lot, and I do think there is something to the immediacy of it. What we do know whether it's our advanced bookings, our sales pattern on e-commerce, our consumers tend to buy their tickets closer to when they want to use them, be they season pass or single day tickets. And because of that, you know, that may exaggerate the potential impact of weather.
And is it also safe to say that as more and more of your mix is season pass holders given that they can go at any point over the course of the summer, are they significantly less likely to go to the park on a day when the weather is bad?
Yes, that's what we see, James. They shift their visits around now. Over the course of a season, season pass holder, average visitation tends to also revert to the mean. So we do see them make up their visits when the better weather returns.
Great. And then lastly, I think you made a comment in the prepared remarks about some of the contingency plans that you might be considering for next year. One of those included adjusting the operating calendar, which may speak to one of the issues going on here, just the notion that you've expanded your calendar into some of the shoulder periods, maybe -- I think I've asked this question before, but given what's going on, it's worth revisiting. Is it possible then rather than being additive, some of these late season events are cannibalizing earlier on in the season and how do you address that if that might be the case?
Good question, James. We've added incremental operating days attached to WinterFest because of the appeal of the event, but as I said before, and I think you hit on it, the Halloween and WinterFest have tremendous appeal. So we are pulling interest and appeal into the third and fourth quarter of generating attendance. I'll go back to what we've seen worked successfully at Knott's, which is really program each of the four different seasons. When I look at -- and reiterate my comments about the second quarter, James, I think we're going to look at the front part of the year differently and really lean to our programming and drive the value and the appeal.
The other thing that I'll touch back on the research we keep doing. Some of the common themes keep coming through. We're living in a bifurcated economy. As we think about the valued customer, the early part of the season really becomes, I think, an appeal to us when we think about how we can attract the valued customer. So I think there's a few different things that we can do to even out the attendance throughout the year.
Got it. Thanks, guys, good luck.
Thanks, James.
Thanks, James.
We'll now take our next question from Michael Swartz from SunTrust.
Hey good morning, everyone.
Good morning, Michael.
Good morning, Michael.
I didn't hear any commentary on your prepared statements regarding the Cedar Point sport complex. I know that's something that we talked about the last several years. So I just wanted to get an update of maybe how attendance or tournament bookings are trending there and whether or not they're in line with your expectations for the year?
Michael, I can tell you the outdoor sports complex is performing well ahead of the performance that we had going into the project. We knew that there would be appeal on the ticket side, but one of the significant impacts we're seeing is it's really driving occupancy in our hotels not just during the summer, but in right now even the shoulder periods, because there are some tournaments in the spring and the fall.
One of the things that we liked about the indoor sports complex is that it'll drive room occupancies that at our resort during full 12 months a year. But in particular, during the shoulder periods and during the winter when we're not traditionally open. Brian, anything to add there?
No, I think you know, just to your point against projections, the -- as we said last year, the first year numbers were well ahead of the year one pro forma. And I would tell you that the -- as Richard just alluded to, year two results are significantly outpacing year one, so very pleased with the results today. Wish we could put more of these types of facilities around the other parks, but the -- as we've said in the past, the complexities around that come down to the financing of these facilities and the ability to get the public funding that we got here in Erie County and the City of Sandusky, a little bit more challenging than some of our other markets.
Yes, thanks. And second question, you've talked in previous calls about some of the local marketing initiatives that you've undertaken over the past couple of years, just wanted to get an update there and maybe thoughts around the return of some of those investments and maybe how you see yourselves tweaking that going forward?
Well, a couple of things that I'll touch on -- Michael asked Brian to step in. The destination marketing campaign in and around Cedar Point has really worked well. When we look at driving the outer markets, we continue to see the pull from further out, which is really important for our flagship part. It's really fueling the occupancy of our hotels and resorts and accommodations here. You know, we've been sold out for past couple of weekends when we sold out again this weekend. So we're seeing good traction in the outer drive markets.
Yes, as always just one of the things that's nice about being a house of brands like when it comes to marketing and some of the advertising initiatives we have in place, we're able to test things differently from part to part without worrying about the message, we spend a lot of time working as a management team including Kelley Semmelroth, our CMO on reviewing our marketing spend and gauging its efficiently, challenging ourselves of getting the impression that we want, we're being as efficient with the dollar. So I spend a lot of time with her analyzing that each year and as we work towards as Richard alluded too on the call, we work towards our 2019 business plan, I can tell you right now we're right in the pick of it as it relates to assessing what those marketing plans look like going into next year.
Okay, great, thank you.
Thanks, Michael.
I will take our next question from Chris Prykull from Goldman Sachs.
Good morning guys, thanks for taking my questions. First one just, first one just a follow-up to Barton's question earlier, given consecutive years of bit softer start to the summer than everyone had hoped are you considering any more structural changes to the long-term growth strategy to help offset weather and softer organic growth and I guess for example maybe three things that I'll highlight, membership, M&A or international licensing?
Thanks, Chris, I'll take the one. On all three things, let me first start with membership/subscription, I think we want to see what the evolution of our season pass program is and it's one of the things what we're closely looking at, so as we go through the dialog for our strategic plan and look at what we think the evolution on the growth rate is. We're going to look at that as one of the key plans. Specific to M&A, I'm not going to comment on anything specific other than to say Cedar Fair has been built through a pattern of M&A over a series of years, they have been a while since we've done one 2006 last major acquisition but we're constantly engaged in dialog on opportunities that maybe out there and I won't comment any further than that.
And then in terms of international, when you heard us say on previous calls, our management team has been focused on really the core organic growth that we've had, we've had imbalance over the last several years and continue to feel imbalanced now on development opportunities overseas and potential management opportunities. We continue to be intrigued by that and continue to see those imbalanced, we got a little bit better understanding of that, now we've hired Tim Fisher who has got in as Chief Operating Officer who has got international experience. So as we look to the growth outside the core, I will expand that all of these conversations are on the table.
Great. And then a question on CapEx, I think you alluded in your scripted remarks, so just more efficient spend, do you think you can get CapEx closer to 9% of revenue like your peer target or is there something just structurally different with your locations of business that could prevent that?
I don't think there is anything that's structurally different from us and the rest of the industry, I think our strategies are different and sometimes that drives what we spend on capital, we continue to like things like resort accommodations which makes us slightly different but in terms of core marketable capital, I stand by my statement, I won't give you specific number, I think I have challenged the team to come up with ways to grow our revenue on a far more efficient spend.
Yes, and Chris, I would just add. Our capital programs over the last several years have been a little inflated by some of the investments that we've made that I do think as Richard just said are little bit of differentiator from us for us in the space whether that be the accommodation side or even down the infrastructure things, the amount of monies that we put into our products over the last three or four years to add amenities like WiFi as an example.
Now that those things are behind us whether we're talking about those infrastructure project like WiFi or the hotel refubs like the breakers and the Cedar Point's Express Hotel, I think we're able to get back down to levels that are maybe more comparable to where we've been historically and as the company we've been able to drive growth at those 9% levels and so Richard has challenged us to find those efficiencies and I think they are not going to be that hard to find given the things that we've done over the last several years.
Chris, let me follow-up and say as a reference, we do longer term projects like hotels and other things you could have heard us talk about and we put in place longer term financing for that, we bought incremental $115 million, we did our refinancing last year for projects that we knew about but we're really focused on the core organic growth and the trajectory we see forward and the right level of capital expenditure to target that growth and again I think you'll hear us saying loud and clear is free cash flow is the priority for us.
Great, that's all really helpful color. Thanks so much and good luck for the rest of the year.
Thanks, Chris.
Thanks Chris.
We'll now take a question from Brett Andress from KeyBanc Capital Markets.
Hey, this is Dan Charrow on for Brett. Thanks for taking my question.
Good morning, Dan.
If my math is correct, from what you mentioned earlier around the weather impact in the Easter half of the U.S., it seems like overall was somewhere in the mid-single digit realm of headwind during the quarter which would be most if not all of the attendance declines, so I guess looking forward, what are you thinking for a sustainable attendance growth rate from your ex-weather?
Brian?
Yes, I don't, yes I don't think we're going to give any specifics to what our attendance expectations are over the balance of the year, just to comment on your point regarding the magnitude of weather, as we said earlier it's tough to really to put a specific number on it.
The one thing we want to make sure that we are not doing down when it comes to weather is using it as a croucher and excuse internally. It is one of the reasons why we've taken some of our normal course research efforts and refocus them in a couple of markets to specifically try and cut through the noise that weather maybe creating. But clearly it has been a factor particularly as we look at short window like the month of July with summer turn to normalcy of weather and again as number of people said on this what does normal mean today, that that's a tough thing to gauge but summer returned to good weather, we would expect to see attendance lift like we saw during the best week that we had during the month of July.
Great, thanks. That's helpful. And then just one on some of the wage inflation that you called out and I think in the release you mentioned it was relatively in line with what you're expecting and on a year-over-year dollar growth rate should we think about that as comparable for the bulk of the year from here now?
Yes, so it's Brian, as we break down the pressures was seeing on seasonal labor really comes down the two things right it's raised and it's hours. Coming into the year I would tell you that rate is trending up at a level of in line with what we've expected our part management teams are general managers and then teams have done an outstanding jobs manager and the other level which is ours and we are running ours inside of both plan and prior year, they try and offset those pressures from rate overall the net effect of that is that seasonal labor cost are still trending up in a comparable ranged where they have been in the last couple of years which is in that mid single digits 5%, 6%, 7% kind of range. This year it's a little bit more rate driven of then it is clearly ours driven because the teams have done a outstanding job billing efficiencies and taking ours out of the system.
Okay, great. Thanks so much.
We'll now take a question from Tyler Batory from Janney Capital Markets.
Thank you. Good morning, so just quick follow-up for me on the topics here, can you talk a little bit more about what you're seeing within your various guest segments I mean your trends pretty consistent when you look at families your young adults are teenagers or in group bookings where there any differences worth calling out there?
Yes, this is Richard. We don't see any huge difference from demos in past year, so when we look at the family segment reasonably consistent year-over-year. The group segment in particular we got stronger second half bookings and the channels that it's coming from particularly that we have driven business very consistent. We haven't seen any outsize increase or decline in any of our age demos, so the pattern looks pretty much the same what we seen in prior years.
Okay and I think you said in the past demos about 50% in your tons is that still consistent?
That is still consistent.
Okay, great. That's all for me. Thank you.
Thanks.
I'll now take a follow-up from Tim Conder with Wells Fargo Securities.
Thank you, gentlemen, and just don't mean to keep beating on this been asked several different ways here but just wanted to get back to the Season Pass plans here, again you're evaluating moving from a nine to 12 month payment plan but still that under that approach the consumer still have to opt in and I guess we can taking at their word that it's higher renewal rate under a membership plan was what the six like this commented on, why wouldn't that be appealing because it's auto renew, you have a higher renewal rate, you address some of these issues or the other side is there's also brought up if you look at there. If somebody doesn't fully utilize their epic pass in a given year rather than risking the customer dropping out they contact and then say hey here's a smaller version of an epic pass to keep that customer engaged. Just any comments along those lines again just given how we're seeing result from vale and Six Flags and appears to be maybe a little bit more struggles with just the traditional season pass plan that you had?
Tim, let me answer your question this way, we have been at extremely healthy renewal rates already. I can't comment on what anybody else has seen but we've been extremely strong renewal rate so as we think about it and break it down into its pieces, we both want to attract new folks into the funnel and get them to purchase their season pass but continue to increase our renewals which we have been doing for several years, so we're healthy and getting healthier. So I would say we have the same objective as we look at it. We do have a season pass auto renewal program already existing within our program. We saw tremendous growth when I went in the installment program several years ago and we evolve that program to continue to do add appeal to it, so…
Okay, what about a plan, Richard, maybe to somebody is not utilizing rather than just hey utilize my plan last year only with warrants and it doesn't make sense dropping out to offer a slightly tweaked program again back to looking to what it would have would do?
I think if there's, we've got a really robust CRM platform that's one of the first things that Kelley summer author CMO did which came on board as built program, when we go through a lot of effort to activate somebody once if they for once they purchase the season pass, so we reach out to them often and drive the visitation. I'll remind you Tim our average visits are over five up from for a few years ago, so we continue to see the engage season pass holder and as the highest likelihood of renewal, so we're very much sourcing engagement but as with any big program most of the folks live kind of the middle of the bell curve in terms of the visitation engagement and yours got something somebody on either end.
Okay, thank you for the additional color. Appreciate it Richard.
Thanks, Tim.
And it appears no further questions in the queue at this time. I'd like to turn the conference back to our presenters for any additional or closing remarks.
Thank you all for your interest and ongoing support at Cedar Fair. I would like to reiterate the decisions we are making our responses to the short term trends we may experience in respect to a long term value creation. We are mindful that the vast majority of our investors are counting on us to be part of their portfolios for many years to come. I can sure we will do our best to deliver against both near-term and long-term objectives. I know many of you had an opportunity to visit a Cedar Fair part, for those of you would haven't I encourage you to take the time to visit one and more of our parts through experience what differentiates Cedar Fair. Stacey?
Thanks to everyone for joining us on the call today. Should you have any follow-up question please feel free to contact our Investor Relations Department at 419-627-2233. We look forward to speaking with you again and about three months to discuss our third quarter results.
And once again that does conclude today's conference. I'd like to thank everyone for your participation and you may now disconnect.