Cedar Fair LP
NYSE:FUN
Earnings Call Analysis
Q3-2023 Analysis
Cedar Fair LP
Cedar Fair and Six Flags have announced a 'merger of equals' aimed to bring together two iconic amusement park companies. This strategic move is expected to enhance the value offered to both Cedar Fair unit holders and Six Flags shareholders. With a focus on capturing higher demand and leveraging cost savings opportunities, the companies target to return to pre-pandemic margin levels over time. The merger announcement coincides with the release of their third-quarter financial results for 2023, which indicate a mixed performance due to a variety of factors, including weather disruptions.
Cedar Fair showcased a strong financial performance despite minor revenue decline, with a 7% increase in third-quarter adjusted EBITDA to a record $388 million and a 320 basis point increase in adjusted EBITDA margin to 46.1%. This was achieved through a combination of increased attendance and significant cost reductions, notably in operating costs and expenses. Preliminary data indicates a stable trend in revenue and attendance numbers for October and suggests that the company is poised for a promising 2024 season, bolstered by growing sales from advanced purchase products like season passes.
Six Flags emphasizes a strategy of enhancing guest experience through significant investments, aiming to drive attention and spending. Despite a decrease in guest spending per capita, the quarter witnessed an attendance spike of 16% and an $43 million increase in revenues. Notably, active passholders increased to 5.3 million, marking an 8% rise. However, weather adversities dampened the expected attendance following the revamped events and festivals, underlining the challenges faced by the company.
The merger is designed to realize substantial cost savings and revenue enhancements, aiming for $200 million in total annual synergies. This would comprise $120 million in cost savings within two years and an incremental $80 million in EBITDA within three years. As the companies strive to optimize costs and improve operating margins, a target leverage ratio of 3.0x is in sight, with the merger expected to be EPS accretive to stakeholders of both companies within a year of closure.
Post-merger, the combined entity will boast a rich IP portfolio and a diversified line-up of amusement parks, theme parks, and water parks. With nearly 50 million annual visitors, the company is expected to produce pro forma adjusted EBITDA of $1.2 billion, incorporating anticipated synergies. The aim is to enhance guest spending and profitability across a wider array of leisure experiences, tapping into opportunities such as season pass sales and in-park spending. The new company will operate under the Six Flags name and will trade with the ticker symbol FUN on the New York Stock Exchange.
Ultimately, the combined Cedar Fair-Six Flags enterprise is set to deliver increased shareholder value. The transactional structure sidesteps triggering change of control provisions, reducing financing requirements. A diversified footprint across different regions minimizes earnings volatility, as stakeholders anticipate performance consistency. Both synergy capture and a robust financial structure underscore the aim of a stronger balance sheet, flexible capital deployment, and meaningful returns for shareholders.
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Hello, everyone, and welcome to today's conference call on Cedar Fair and Six Flags to Combine in Merger of Equals, Creating a Leading Amusement Park Operator. My name is Seth, and I'll be the operator for your call today. [Operator Instructions] I will now hand over to the speakers team to begin the call.
Thank you, Seth, and good morning to everyone. My name is Michael Russell, Corporate Director of Investor Relations for Cedar Fair. Welcome to today's call to discuss this morning's press release issued to the wire jointly by Cedar Fair and Six Flags announcing a proposed merger of equals between the 2 companies. Also, we will briefly touch on both companies' financial results for the third quarter of 2023 including -- included in our press releases issued this morning to the wire services, which can be found on our respective investor website, ir.cedarfair.com and investors.sixflags.com. Before we begin, I need to remind you that comments made during this call will include forward-looking statements within the meanings of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ from those described in such statements. For a more detailed discussion of these risks, you may refer to the periodic filings with the SEC by Cedar Fair, and the Six Flags. On the call with me this morning are: Selim Bassoul, CEO of Six Flags; Richard Zimmerman, CEO of Cedar Fair; Brian Witherow, CFO of Cedar Fair; and Gary Mick, CFO of Six Flags. We have an action pack call today, so let me quickly run through the agenda. Brian and Gary are going to kick things off with a brief overview of each company's third quarter results announced this morning. Then Selim and Richard will take you through a deep dive of this combination and the significant opportunities we expect to unlock together. We'll then turn the call to Brian for a review of the compelling financial benefits. After that, Richard will wrap things up before we open the floor to Q&A. With that, I'll turn the call over to Brian.
Thanks, Michael, and good morning, everyone. Today is truly an exciting day for Cedar Fair and Six Flags, and we look forward to sharing more about the transaction. I'll start off by reviewing Cedar Fair's third quarter operating results before discussing preliminary results for the 5-week period ended October 29. After weather and other factors contributed to a disappointing start, we had a twofold strategy for the second half of the year: first, generate higher demand levels with the goal of recapturing attendance disrupted by weather earlier in the year; and second, aggressively seize upon cost savings opportunities that not only improve our near-term operating margins but also put us on a path to return to pre-pandemic margin levels over time. I'm very pleased to report the net effect of these strategic efforts resulted in a 7% increase in third quarter adjusted EBITDA to a record $388 million, and a 320 basis point increase in adjusted EBITDA margin to 46.1%. These outstanding results were driven by a 100,000 visit increase in attendance. And more importantly, by more than $25 million reduction in adjusted EBITDA related operating costs and expenses in the quarter. Credit goes to our incredible team who tackled this challenge during the season's busiest and most intense stretch of the season. During the quarter, we entertained 12.4 million guests and generated net revenues of $842 million compared with 12.3 million guests and net revenues of $843 million in the third quarter of 2022. The slight decrease in net revenues is primarily attributable to a 2% decrease in in-park per capita spending offset in part by a 1% increase in attendance and a 2% increase in out-of-park revenues. During the quarter, we reduced operating expenses by $22 million while also reducing cost of goods sold by $3 million. The decrease in operating expenses was driven by our new cost-saving initiatives, highlighted by a meaningful reduction in seasonal labor hours and in-park entertainment costs. Meanwhile, SG&A expense in the period increased $8 million primarily due to increased marketing efforts and initial costs associated with today's announced transaction. Turning our attention to preliminary results for this past Sunday, October 29. For the most recent 5 weeks, we generated preliminary net revenues of $226 million, down less than 1% compared with net revenues for the comparable 5-week period a year ago. Our revenue performance in October reflects a 2% or 69,000 visit increase in attendance, consistent out-of-park revenues and a 3% decrease in in-park per capital spending. In total, we entertained 3.3 million guests over the 5-week period. Based on our preliminary results for October through the first 10 months of 2023, we have now entertained 24.2 million guests and generated preliminary net revenues of $1.7 billion. Lastly, I want to provide a quick update on early sales of our 2024 season passes and other advanced purchase products. As of the end of the third quarter, our deferred revenue balance totaled $208 million, representing an increase of $20 million or 11% compared to deferred revenues at the end of the third quarter last year. The increase in deferred revenues has been driven by an outstanding start to fall sales of 2024 season passes and related all-season products. Through this past week, combined sales are pacing up 24% or approximately $30 million over the same time last year. We are confident that our season pass strategy and outstanding start position us well for another strong season in 2024. With that, let me turn the call over to Gary to review Six Flags third quarter results.
Thank you, Brian. Six Flags also released our third quarter results today. So before we jump into the transaction, I'll say a few words about the quarter. This was a quarter focused on investment. We made great strides in improving our guest experience by investing in our digital transformation, events, shows, food and beverage and new entertainment. We made intentional and deliberate decisions to try new things including introducing new shows designed to cater to a multigenerational audience, enhanced fireworks displays and state-of-the-art trunk shows, testing and promoting speedy gates, automated toll plazas, launching our first-ever water park festival as well as introducing a water float parade in our Texas theme park that experienced record-breaking heat this summer. Lastly, we initiated our Fright Fest, BOO Fest and Oktoberfest events up to 3 weeks earlier than in previous years. We have identified what resonated with our visitors and what did not, which push us in an advantageous position to make data-driven decisions moving forward. While these efforts drove a short-term increase in our operating expenses, they are integral to our long-term strategy of consistently enhancing visitor experiences and optimizing our park operations. We've also invested in media to drive season pass single-day tickets and our do-it-all-in-a-day promotion. This resulted in increased attendance, revenue and pass sales in the third quarter versus prior year as well as a solid start on the sale of next year's passes, which will largely benefit next year's revenue. We also cultivated our sponsorship relationships, resulting in additional revenues and cross-branding initiatives. That said, poor weather continued putting pressure on results in the third quarter with 8 weekends of rainfall in the Northeast and Mid-Atlantic regions beginning after Labor Day that coincided with the start of our fall festival lineup. Now moving on to financial results. For the quarter, total attendance was 9.3 million guests, up 16% from third quarter 2022. Revenue in the quarter increased $43 million or 8% to $547 million. This is primarily the result of higher tenants partially offset by a decrease in total guest spending per capita of $5 or 8% versus third quarter 2022. Admission spending per capita decreased $4 or 12% and in-park spending per capita decreased $1 or 2%. The decrease in admission spending per capita was driven primarily by lower average season pass and single-day ticket pricing versus 2023 as we worked to optimize our pricing structure. In-park spending per capita declined versus prior year as a result of a higher mix of season pass attendance versus prior year. We have seen strong growth in food and beverage sales, both in units and total sales, largely fueled by a revamped culinary assortment and event lineup, which partially offset the in-park per capital decline driven by the season pass mix. We expect to derive additional value going forward from our digital guest facing innovations, such as our self-serve kiosks, 6 day wristbands and mobile food ordering. On the cost side, in the third quarter, cash operating and SG&A expenses were up $43 million or 20%. Our costs grew in the third quarter for the following reasons: first, our tenants growth in the quarter had the expected results of driving seasonal labor cost of sales and other variable costs; second, we boosted our advertising for our 2024 fall season pass promotion. We are pleased with the success so far in our past sales, and this is expected to serve as a nice tailwind in 2024 but the expenses associated with this effort are reflected in the third quarter. Third, while we invested expense an earlier start to the fall events lineup, we did not yield the attendance as we were hoping for in the quarter due to poor weather on the weekends late in September. Lastly, as I mentioned earlier, we made significant investments in new entertainment, events, shows and digital guest-facing innovation. Adjusted EBITDA for the quarter was $220 million, a $5 million decrease or 2% compared to third quarter 2022 with higher revenues offset by the cost investments previously mentioned. Our Active Pass Base as of October 1, 2023, comprised 5.3 million passholders, and a [ 8% ] increase over the prior year. Deferred revenue as of October 1, 2023 was $148 million, up $21 million or 17% compared to third quarter 2022, primarily driven by our strong fall pass promotion. Total capital expenditures for the quarter was $42 million, an increase of $24 million compared to third quarter 2022. Year-to-date capital expenditures $109 million. Our liquidity position as of October 1 was $457 million. This included $390 million of available revolver capacity, net of $21 million of letters of credit plus $67 million in cash. And lastly, during the third quarter, we paid down $80 million in debt. We are excited about the future and the insights this summer has granted us. We are approaching 2024 with great strength and confidence. Now I will turn it over to Selim.
Thanks, Gary. I am very excited about the strategic combination between Six Flags and Cedar Fair and the incredible opportunity it will unlock for both businesses. In fact, in my 25 years of leading companies through transactions, I have never been more excited about a combination as this one. First, I'm excited because this combination starts and ends with the guests. If you've known me, and look at my track record. I have -- I am customer obsessed. Thanks to the dedicated and resilient team at Six Flags, we have made incredible progress in the past 2 years. Our transformation has been grounded in instilling a guest-obsessed culture and harnessing what makes our parks so special to deliver an exceptional guest experience. This transaction is all about our guests. The value it would create for them, the additional perks we will provide and the additional thrills we will create not only locally but regionally. Second is culturally, the fit between Six Flags and Cedar Fair culture is fully aligned. We think of Cedar Fair as outstanding operators. I saw this firsthand as I visited their parks, where we at Six Flags are very strong in that we are huge innovators. If you look again at my track record at Middleby, I disrupted the industry with innovation, and we've done that again here at Six Flags over the last 2 years, and we are starting to impair many of these innovations just now and continuing into 2024. We expect to take the best practices of both businesses. The best operating team and the most innovative team and brings them together with the best parks in the industry. Third, what I love about this combination is the value it will create for our shareholders. This starts with our expected annual synergies of $200 million, which we have been -- which have been fully vetted. We are confident we can achieve these in the next 3 years, and create significant value along the way. In addition, this combination derisks our businesses in many ways in terms of leverage, weather and the regional mix of our portfolio. We will operate an expanded and complementary portfolio of 42 amusement and water parks, 9 resort properties and other entertainment experiences that our guests love. Our expanded footprint will reduce dependency on any one park or any one region, providing us more earnings stability and allowing us to offer more exciting options to guests. Our free cash flow generation will allow us to quickly delever while also deploying capital strategically into our business to enhance performance. Importantly, this merger will also allow us to grow our new company into a global brand with our IP. Our combined season pass and loyalty programs will make this deal even sweeter for our most loyal guests providing enhanced access and additional perks. Finally, our employees. We would not have made this deal if we did not believe it would be good for our people. In the long run, we expect this to create new growth, giving employees more opportunities and the flexibility to put themselves in a position to succeed. This will also allow us to take the brightest, the smartest and the most dedicated to work within a bigger company and within our parks. Together, we'll create a vision of excellence and friendliness, ultimately elevating the experience -- the guest experience even more and faster. On a personal role, I have come to know Richard and Brian well as we work to reach today's milestone. I could not think of better partners for this new chapter. Richard?
Thanks, Selim. I echo that sentiment. Working closely with you and the Six Flags team to get this announcement done has only reinforced my confidence in how complementary our businesses are. Since the pandemic, our team has done tremendous work to create a more agile business. We've invested in the highest revenue opportunities, focused on new attractions and upgraded dining options to offer our guests a truly special experience. We have doubled down on technology and data analytics providing us with deeper insights into our operations and our guests. We've done so while prudently managing variable costs, optimizing our cost structure while driving incremental demand and guest spending. We've made incredible progress on all fronts. Attendance and guest satisfaction are at all-time highs, in-park and out-of-the-park spending continue to grow, and our company's financial performance remains strong. The robust third quarter results we announced this morning reflect how far we've come. With that said, we have more work to do as we continue to drive top line growth, optimize our cost structure and further improve operating margins. With that, I'll get into the transaction. This is a merger of equals transaction offering a tax-efficient means for both Cedar Fair unitholders and Six Flags shareholders to participate in the significant value of the combined company. Cedar Fair unitholders will receive 1 share of stock in the new combined company for each Cedar Fair unit owned, and Six Flags shareholders will receive 0.58 shares for each Six Flags share owned. Additionally, immediately prior to close, Six Flags will issue a special dividend consisting of 2 parts. Part 1 is a fixed $1 per outstanding share. Part 2 is a per share amount equal to the aggregate distributions paid to Cedar Fair unitholders between today and the close of the transaction. Following the close of the transaction, Cedar Fair unitholders will own slightly more than 51%, and Six Flags shareholders will own slightly less than 49% of the new company. Selim will serve as Executive Chair of the combined company, leading a Board that will comprise 6 directors from each of the current Cedar Fair and Six Flags Boards. Selim will also partner with me to achieve a full range of cost savings and revenue uplift... [Technical Difficulty] Thanks, everybody. We apologize for the technical difficulties, but let me jump back in. Thank you, Selim. I echo your sentiment, Working closely with you in the Six Flags team to get to this announcement has only reinforced my confidence in how complementary our businesses are. Since the pandemic, our team has done tremendous work to create a more agile business. We've invested in the highest revenue opportunities, focused on new attractions and upgraded dining options to offer our guests a truly special experience. We have doubled down on technology and data analytics, providing us with deeper insights into our operations and our guests. We've done so while prudently managing variable costs, optimizing our cost structure while driving incremental demand and guest spend. We've made incredible progress on all fronts. Attendance and guest satisfaction are at all-time highs, in-park and out-of-park spending continue to grow, and our company's financial performance remains strong. The robust third quarter results we announced this morning reflect how far we've come.
With that said, we have more work to do as we continue to drive top line growth, optimize our cost structure and further improve operating margins. With that, let me get into the transaction. This merger -- this is a merger of equals transaction offering a tax-efficient means for both Cedar Fair unitholders and Six Flags shareholders to participate in the significant value of the combined company. Cedar Fair unitholders will receive 1 share of stock in the new combined company for each Cedar Fair unit owned and Six Flags shareholders will receive 0.58 shares for each Six Flag share owned. Additionally, immediately prior to close, Six Flags will issue a special dividend consisting of 2 parts. Part 1 is a fixed $1 per outstanding share. Part 2 is a per share amount equal to the aggregate distributions paid to Cedar Fair unitholders between today and the close of the transaction. Following the close of the transaction, Cedar Fair unitholders will own slightly more than 51% and Six Flags shareholders will own slightly less than 49% of the new company. Selim will serve as Executive Chair of the combined company leading a Board that will comprise 6 directors from each of the current Cedar Fair and Six Flags Boards. Selim will also partner with me to achieve the full range of cost savings and revenue uplift opportunities we expect to unlock. Meanwhile, Brian will serve as Chief Financial Officer of the new company, and Gary will lead the integration efforts as Chief Integration Officer. The new company will operate under the Six Flags name and trade under the ticker symbol FUN, F-U-N, on the New York Stock Exchange. It will be structured as a C-corp, which both companies' Boards determined will unlock the most value for the new company's shareholders. And finally, the new company will be headquartered in Charlotte, North Carolina. Continuing with terms on Slide 6. We expect this transaction to unlock considerable upside opportunity for our shareholders. The transaction is expected to be EPS accretive to Cedar Fair unitholders and Six Flags shareholders within 12 months of close. We also anticipate total annual synergies of $200 million, comprised of $120 million in cost savings, which we expect to realize within 2 years of closing, and $80 million of incremental EBITDA, which we expect to realize within 3 years. Finally, we expect to utilize enhanced cash flow generation to delever down to our target ratio of 3.0x with additional flexibility to invest in our growth initiatives and drive shareholder returns. Brian will speak more to these and other financial benefits in a moment. In terms of path to completion, we expect the transaction to close in the first half of 2024. Moving to Slide 7. I want to turn to our shared focus on the guest experience. Both Cedar Fair and Six Flags are built around a commitment to providing amazing experiences that create memories that last a lifetime. By doing so, we boost season pass sales, drive higher attendance and increase guest spending. As we just discussed, our combined company will offer a more diversified experience across live entertainment formats, whether guests visit one of our amusement parks, water parks, resorts, safaris or campgrounds, they can expect the same outstanding service and standard of excellence. Inside our parks, we expect to leverage the capabilities of both companies to create a more engaging and immersive experience so the guests choose us from amid the wide array of options they have to spend their leisure time and leisure money. Investment in our parks has been a key focus at Cedar Fair over the last few years, and we're excited to leverage our experience and strategies across a broader portfolio. With our financial profile, we will have the flexibility to invest in new rides and attractions, broader food and beverage selections, additional in-park offerings and cross park initiatives. For example, on Slide 8, you can see a snapshot of the incredible portfolio of IP that the new company will have, including Looney Tunes, DC Comics and Peanuts. Our combined portfolio will open up new opportunities to develop engaging theme, rides and guest offerings. Turning to Slide 9, which gives a snapshot of our combined company. As I mentioned, we will operate a portfolio of 42 parks and 9 resort properties across the U.S., Canada and Mexico. Together, Cedar Fair and Six Flags entertain just under 50 million guests annually. As we saw from our results today, attendance numbers continue to grow and guest spending remains robust as both companies have invested in their parks. Our strong attendance numbers and guest spending levels set the foundation for a much stronger combined financial profile. On a pro forma basis over the trailing 12 months ending with each company's fiscal third quarter, the combined company would have generated $3.4 billion in revenue and $1.2 billion in adjusted EBITDA, inclusive of our expected synergies. We will also have a healthy margin profile with a pro forma modified EBITDA margin of 36%. The combined company would have generated $826 million in free cash flow, and our net leverage would be 3.7x adjusted EBITDA, reflecting expected synergies and enhanced cash flow generation, which we expect to reduce to approximately 3x within 2 years of closing. With this strong financial profile, we look forward to advancing strategic investments throughout our parks to grow attendance, increase guest spending and improve profitability. As you can see on Slide 10, we will have a much wider offering for guests to increasingly look for new and differentiated out-of-home leisure experiences. For guests who want to make a pit stop, go on a day trip or plan a weekend away, the combined company will have offerings to meet every interest, whether they prefer cooking under the stars or playing all-star athletes for the day, roller coasters or Lazy Rivers. They will find one of these at one of our properties. We'll also have a significantly more diversified footprint. Slide 11 highlights the complementary nature of our 42 parks across North America and illustrates the significant opportunity to attract more guests to our parks. This opportunity starts with season pass programs of both companies. Season pass holders account for more than half of the annual attendance mix for Cedar Fair and Six Flag though the overlap between the two is minimal and most guests only visit 1 to 2 parks. We see an opportunity for the combined company to increase the opportunities for guests to choose an incremental visit to a Cedar Fair or Six Flags park in their region rather than select another leisure option. Rollout of a combined company pass will give our guests more choice and enhance value, making amusement park entertainment more accessible to more guests than ever before. I'll now turn it over to Brian to walk through the financial benefits in more detail.
Thanks, Richard. I'll start by running through an overview of the compelling and financial benefits this transaction creates for the combined company and shareholders on Slide 12 before diving deeper on each. The new company will start from a position of financial strength with $1.2 billion in adjusted EBITDA on a trailing 12-month basis, inclusive of the $200 million in expected run rate synergies. We also expect the transaction to be accretive to earnings per share for both companies within the first 12 months to close. Our diversified footprint will improve performance consistency with the broader scope of locations and offerings to mitigate weather-related and seasonal earnings volatility. I'll speak more to that in just a minute. Moving down the list, the new company will have a robust balance sheet with attractive free cash flow generation to reduce leverage, invest back in our portfolio and drive shareholder returns. Finally, one other important detail, the transaction structure does not trigger change of control provisions for either company's notes, minimizing financing needs. The opportunity to enhance value was what brought Cedar Fair and Six Flags that is able to make this merger a reality. As you can see, the opportunity in front of us is significant. Given the depth of operational expertise we have, we are confident in our ability to capitalize on this potential for the benefit of our shareholders. Slide 13 highlights our diversified footprint and the considerable earnings stability it will provide. Cedar Fair and Six Flags are each more heavily concentrated in different regions for Cedar Fair, it's the Midwest; and for Six Flags, it's the South. By combining our footprint, we'll have a more balanced presence, particularly in regions with extended operating season. As a result, no single geography will contribute greater than 30% of total park-level EBITDA. Said another way, currently, several of our largest parks account from the majority of our respective earnings. The combined company's expanded and diverse portfolio addresses this imbalance with no single park contributing more than about 17% of the new company's park-level EBITDA. Striking this balance is critical as our businesses are currently pronged to weather-related and other macro factors out of our control. We expect our broader portfolio will mitigate the impact of these headwinds, extend our operating calendars and limit earnings volatility. Turning to synergies. As noted earlier, we've identified $120 million of annual run rate cost savings that we expect to realize within 2 years of closing. As you'll see on Slide 14, these cost savings come from the areas you see in a combination largely duplicative corporate functions, administrative efficiencies and other operational cost reductions. We believe all savings areas we've identified are highly achievable. We expect to realize roughly 65% of these cost savings in the first year with the remaining to be realized in Year 2. Both Cedar Fair and Six Flags have disciplined cost structures and strong track records of driving efficiencies. We will continue to look for additional cost savings opportunities as we work through our integration planning process. While we expect to drive significant cost savings, we are most excited about the revenue growth opportunity. As shown on Slide 15, we've already identified additional revenue uplift opportunities implying an approximately $80 million of incremental EBITDA that we expect to capture within 3 years of close as we invest in our parks and improve the guest experience. Half of that $80 million comes from the -- from implementing an enhanced combined season pass program and fully optimizing our Flash pass and Fast Lane program opportunities. These are popular offerings that represent great value for our guests among all their leisure options. The other half will come from the expected improvement in in-park spending particularly at Six Flags parks as a result of investments in our food and beverage and merchandise offerings. This is one that we can take from the Cedar Fair playbook, having seen the results of investment in these areas first hand. And as Richard mentioned, combining our IP portfolios creates an opportunity to bolster merchandise sales and roll out new themed offerings at all of our parks. Together, we will create a more agile and consistent growth model while also delivering an enhanced and more immersive experience for our guests, both of which contribute to the inherent value creation for shareholders. Our ability to invest in these growth opportunities will be underpinned by a strong balance sheet and cash flow generation profile. We expect to have a combined leverage ratio of approximately 3.7x reflecting expected synergies and enhanced cash flow generation. But we have outlined a clear path to reduce that to approximately 3x within the first 2 years. Following the close of the transaction, we will prioritize delevering to hit our target leverage ratio and ensure we are maintaining our robust capital structure. While this is our first priority, the combined company is committed to allocating capital to maximize shareholder return once we achieve this targeted leverage. As you can see on the right side of Slide 16, we expect free cash flow of just below $800 million, a 66% conversion rate, which is a 4 percentage point improvement on Six Flags conversion rate and a 9 percentage point improvement on Cedar Fair's. We're confident that our substantial free cash flow generation will provide us with ample flexibility to delever while increasing investments in our parks to grow attendance, increased guest spending and improved profitability, all while enhancing guest value and experience across the portfolio. With that, I'll pass it back to Richard to close the call.
Thanks, Brian. On Slide 17, we've outlined the key milestones from today until the close of the transaction. One of the first steps we're taking is completing commitments for our new revolver and bond backstop. We are also already starting to assemble our integration planning team, which will be led by Gary Mick and include leaders from both companies. A thoughtful and comprehensive integration plan is critical to setting up our combined company for long-term success, and this effort will be our highest priority. Six Flags will hold its shareholder vote at the right time and we are confident that we can kick through the other required approvals and closing conditions in the first half of the year. Before we turn to Q&A, I want to reiterate how thrilled I am to reach this milestone. This transaction will allow us to take a massive step forward as we bring together 2 iconic park portfolios to unlock new and exciting opportunities for our guests, our teams and our combined shareholders. Together, we will have an expanded and diversified footprint of 42 beloved parks and 9 resort properties. Our complementary footprints will provide us with significant stability and mitigate the impact of anomalous weather conditions like those we experienced earlier this year. We will also have a robust financial profile with a strong balance sheet, enhance the diversified cash flow generation and $200 million of identified and achievable cost savings and revenue uplift opportunities. All of this will allow us to build on what makes our businesses and our parks so special and deliver an even more entertaining experience for our guests. Moreover, we'll be able to leverage our complementary operating capability and technology platforms to make our parks more immersive and increase investments to broaden our offerings. As we do so, we will build on our business' strong track records of profitable growth and value creation. All of these opportunities are only possible because of the great work of the Cedar Fair and Six Flags team. I know I can speak for myself, Selim, Brian, and Gary, when I say we are so excited about the road ahead for our combined business. On behalf of the Cedar Fair and Six Flags teams, thanks for listening in today. With that, we can now begin Q&A.
[Operator Instructions] Our first question today comes from Steven Wieczynski from Stifel.
Congratulations on the deal here. So Richard and Selim, I want to ask about just maybe the general philosophy of the combined company moving forward. And what I mean by that is Cedar Fair has always talked about moderate price increases, moderate attendance growth, while Six Flags under you, Selim, has been pushing for much higher pricing while trying to limit attendance growth. So just wondering how we should think about the combined company moving forward in which -- I guess, which operating strategy will ultimately be utilized going forward?
Steve, great question. Thanks for that. Let me jump in here and say, we really believe the opportunity ahead for us to create significant value for everybody involved, our guests, our employees, our shareholders, really rest in our ability to take the best of both companies and combine them. We're going to work through as Brian and I did when Cedar Fair acquired Paramount Parks, looking at both sides of the portfolio, there are things that we each do extremely well that as I said in my prepared remarks, are very complementary, and we have an opportunity to really step back, have an open mind, and really take a look at how we can best create value. Selim?
I believe, Steve, that it really does not stop the work we've done at Six Flags, it basically enhances it. As I visited and toured Cedar Fair park, I was very impressed by, literally, the premiumization they got, whether it's in food service, or in the landscaping, the way they basically -- seeing their rides, I think there is opportunities for both of us to still improve pricing, opportunity to make margins. But I can tell you this is not about only prices. It's mostly about how do you create values and additional perks for our guests. And I believe that is critical. We have both millions of guests. And I think that -- I think about a simple example. We have a membership and they don't have a membership. I would love to have our members be able to take their membership and their dining meal plan and go to Cedar Fair park and be able to enjoy more parks. I would love also to have what they've done where they have guests that spend per cap higher than us and be able to come and spend in our retail stores and in our food service, it's a fantastic complementary business here.
So Steve, it's all about price value equation and listen, creating more value for our guests. Next question?
Yes, sure. So I appreciate that. And then second question, probably for Brian or Gary. But when we think about the synergy number that you guys have laid out here, the all-in $200 million number. Listening to Brian's prepared remarks, it sounds like that $200 million number might just actually be a starting point and there could be more potentially behind that. Am I thinking about that right? Or am I reading too much into that? And if there is potential upside to that $200 million, do you think it would come more from the revenue side or more from the cost side?
Steve, it's Brian. I'll let Gary jump in. Gary and I are going to spend a lot of time focused on this, right? As we said in our prepared remarks, the cost side of this is front and center. We believe we can realize those cost savings synergies over the next 2 years. We're not going to stop at what we've identified today. I think as we get deeper into this transaction and into the integration process, we may uncover other things. But certainly, I think where there is probably more upside is on the revenue. That's something we're really excited about. But as you know, it takes a little bit longer sometimes get to those revenue synergies. There's a lot of system integration that has to happen. So I think that may be where there's more upside longer term. But right now, our immediate focus is building out that integration plan, as Richard said, and mining those cost synergies as quickly as we possibly can.
Yes, I echo that. Thank you, Brian. What we have on the table so far is what we've identified. And if there's more, we certainly will execute to that. At this stage, that's what we have found.
Our next question comes from Thomas Yeh from Morgan Stanley.
Congratulations. As we think about holding the portfolio together, what's the right way to think about the long-term capital intensity of the business? It sounds like you expect to take advantage of some of the synergies to drive higher investments at close. And Selim, you recently given long-term CapEx guidance based on some of the incremental opportunities that you've seen. Does that go up further now? I think, Brian, you mentioned that primarily there's some opportunities in driving more in-park food and bev investments. Just wondering what you're seeing as an incremental opportunity on top of that.
Thomas, it's Brian. I think on the CapEx front, one of the things that we'll be spending a lot of time together working on is how quickly can we get to some of those synergies, particularly the revenue synergies, as we mentioned in Richard's prepared remarks. It will take some capital to activate some of the synergies, the revenue synergies, the expanded guest spending opportunities as Selim noted premium experiences, we've backstop that with a lot of capital investment, particularly in areas like food and beverage. So we don't have a specific number as to where that will end up. We'll be spending a lot of time collectively as a management team and then working with our new Board on where we want that to be. But their capital is going to be a key part of mining those opportunities for growth.
And the key point from my perspective, Thomas, is as we delever this company and generate significant cash flow, we'll have the resources to invest behind the highest ROI projects and get to that growth quickly.
Okay, makes sense. And then just as a follow up, Richard, you mentioned the increased value proposition for season pass holders across a larger footprint. Just curious about dimensionalizing the appropriate TAM of pass holders that could visit multiple parks. Any sense of an overlap benefit in areas like California, for example?
If you look at the growth both companies have had over the last decade in season passes, it's clear that our customers see tremendous value in this program. It's driven our growth. It's been the core, a core part of our enhanced CRM program. We know a lot about our season pass holders as Six flags does. We think there's an opportunity to look at the two programs, meld them together over time in a way that will increase the opportunity for guests to visit but also acknowledge the value of the expanded portfolio. So we're both excited on both sides of the companies to take a look at how we create something that our guests really want and that they place tremendous value in. Not only that, but I'll speak -- as we've gotten to know each other and look at the data, our highest NPS scores come from, respectively, our season pass holders. It's clear they are most loyal customers and fans, and they'll be really interested in the value we can bring to the communities.
Our next question is from James Hardiman of Citigroup.
And I echo what's been said, congratulations on the merger. I'm sure there was a lot of work that went into this, but it does seem like you guys are potentially creating some value here. I was hoping you could dig in. It sounds like -- I'm sure there were some early discussions about the best form that the new company could take. Why the C Corp? Richard and Brian, we've talked a lot over the years about -- on the one hand, you've got some nice tax benefits; on the other, I think investors see the MLP as maybe a less sort of liquid vehicle. So why the C-corp? And maybe walk us through sort of the tax consequences here for MLP owners, if you can.
James, thanks for the question. When we look at the MLP structure, which historically has made sense for Cedar Fair, our Board determined that the C-corp structure will best position the combined company to unlock the most value for our unitholders going -- for our unitholders and shareholders going forward. As a C-corp, we'll have significantly more access to capital and appeal to a much broader investor base than we would have as an MLP. This structure also enhanced the liquidity of our shares, providing a lot more flexibility to the combined shareholders. This decision also reflects the feedback we've received from unitholders over the last several years, many of whom have suggested that a C-corp structure makes far more sense for where the business is today. In terms of the tax structure, let me throw that one to Brian.
Yes. I mean, this transaction, as Richard just noted, we feel going forward, the C-corp structure certainly is the -- creates the most value for our unitholders and the Six shareholders. And we've tried to structure this in the most efficient way for exiting the MLP.
Got it. That's helpful. But just to be clear, the MLP units will be converted to the C-corp shares, right, which is effectively, there will be a tax event for unitholders, I'm assuming. Is that how this is ultimately going to work?
The answer to the first part is yes, James. We will be converting to C Corp shares in terms of the implications to the investors. As you know, every one of our MLP investors has a different tax basis and there's different tax implications, that answers a lot more complicated and will depend on the individual investor.
Okay. Got it. That's helpful. And then just maybe a follow-up to the question on the synergies and the joint path is one that I'm sure is going to get a lot of focus, right, the combined season pass. I think both companies over the years have had something where you could go to most, if not all, of the parks. And it didn't seem like that many customers to queue up on that. What's different here? Is it just more locations, maybe Southern Cal, Middle Cal, D.C. area that might make that more of a value proposition for a consumer. How do we think about that? And what's different?
Yes, James. No, yes, I'd say the way you characterize it is largely accurate. As we know, our parks are regional in nature. We're not destination for the most part, although we have some that mimic those characteristics. We generate as the Six Flags, most of our tenants within a 2, 2.5-hour drive time. So by definition, being regional, it's all close to the park. As you think about it, it's been a very small percentage that's visited multiple parks more than 1 or 2, but it's a very appealing guest segment for us. Even though it's small, they have -- they really value that opportunity and see the value. So as we think about how to customize our season pass program, which we've been doing. We've evolved it over the last 10 years as Six Flags has. We think there's an opportunity to continue to customize to tap that value that, that smaller group really represents.
I would like to add something. I look at the Vail Resorts model with their Epic Pass. And I like that model with you will get depending on how you structure that pass, you might be able to incentivize today. I can tell you, I agree with Richard, our guests do not truly go from 1 park to another. They don't basically transcend Six Flags to Cedar Fair, but maybe we can create a model like Vail Resort where they get the Epic pass and gave an incentive for people if they want to visit other ski resorts.
Our next question comes from Ian Zaffino at Oppenheimer.
Great. Maybe a question for Richard, can you just maybe talk about the assets and the CapEx maybe at the Six Flags parks that you'd expect to put in. How do you feel about the state of those assets? And not necessary the merchandising side or the customer experience, but the actual ride itself and maybe the need to -- the maintenance that they -- that those assets necessarily need? And how are you kind of thinking about that?
Thanks, Ian. As I think about bringing together these 2 iconic portfolios, what hits me more and more is how this is like buying -- putting together beachfront property. These are irreplaceable assets and have incredible value to sustain cash flow -- revenue generation, cash flow generation over time. So in each portfolio, we would say there are always things and as somebody used to run a single park and I run the chain. You walk the park and you see things you want to fix, you see things where you want to make it better for your guests. The list is always long. We're trying to get to many of those things over time as we can. So I think there's opportunity on both sides to continue to improve our sites, improve our parks, listen to our guests and what they value, and make sure that we create that memorable experience and that special experience for folks as they come through our gates.
Okay. And then as far as use of cash flow, is this going to just be a pure deleveraging story for [ to bring ] down to 3x? Is there any other use of it outside of like the investment in the park as far as just distributions to shareholders through either dividends, buybacks or any other means?
No. As we talked about in our prepared remarks. Our immediate priority is getting the integration plan together, generate the synergies and delever as quickly as possible. Once we reach that point, then I think we will, management, along with working with Selim and the Board evaluate what's the best way to maximize shareholder returns, and focus on growth versus unlocking the value that we think is inherent in the combined company.
Our next question comes from Chris Woronka from Deutsche Bank.
Appreciate all the details so far. So my question kind of relates to timing and the transition and how you view '24, how much of the -- what you want to get done -- can kind of get done for next prime season? I guess the question is really kind of how messy could '24 be versus how good could it be and we assume that by '25, you're much closer to where you want to be. But just risk and opportunity for the '24 peak season, if you will.
Chris, thanks for the question. Let me tell you, I am so excited by the momentum each company has as we go into '24. We've got an opportunity to really focus on the integration, get it right, be a model that people look to from an integration perspective, when they talk about a mergers of equal and putting 2 companies together. But the momentum we've got, I think, shows that we're going to have a strong year, and we got the momentum heading in. You look at season pass sales from each fall program, from each of us, we're both up 20%. You'll look at what typically has happened when that strong -- we're that strong in the fall? It typically leads to a really good. So I think the environment is working well for us. I know there's always been a lot of concern about the health of consumers. And I think that's one of the overhangs in our sector. But I think what we keep proving and you look at the top line revenue of both companies in the third quarter, we've got an extremely strong start to next year, getting to the synergies more quickly. From the cost side, they're easier to measure. From a CapEx perspective and getting to the investments we need to create those plans. But as we've always said, this is a long lead cycle for any significant investment in our parks. Both parks have put together robust plans on the capital side for '24 and '25. We're going to try and modify those and make sure we're tapping the best opportunity within the combined portfolio, to work hard on '25 and '26 and how we move as quickly as possible to unlock the revenue uplift opportunities.
Our next question comes from Michael Swartz from Truist.
Just a couple of questions. Maybe one more broadly speaking, as it pertains to maybe the scope of the transaction. Whether or not it's tied to a regulatory review or not, I mean, is there a kind of a broader look into a portfolio review? I know you talked about 40-plus properties, and it sounds like you're kind of committed to all of those. But are there areas where you think you may look to maybe divest some lower return, lower quality properties?
Mike, good question. As we look at the portfolio, and I said this before, these are really irreplaceable assets. We've always struggled with how do you grow if you shrink your portfolio. But I do think as we look at the combined portfolio, we're going to evaluate the whole range of ways to unlock and maximize the values. I'm most excited about focusing on all 42 to see how we optimize and create the ability to generate as much revenue uplift and cash flow generation as possible. But over time, as stewards of capital in the market, I think our Board will have the opportunity to evaluate what will really drive and maximize shareholder returns once we get to that targeted leverage ratio, and we're looking forward.
Okay. Perfect. That's great. And then second question, I think, Richard, you may have prefaced it with saying there's little overlap between kind of the consumer, maybe you were referring to the season pass base. But is there any granularity or just context you can add to maybe the pure overlap between the guest basis?
We're going to take a look at each part to dive in into the data and see what we can unlock in terms of that overlap in terms of guest market. I do think that there's an opportunity to create a new chapter here with a new story and that really speaks to our consumers differently and speaks to the opportunity that within the bigger portfolio. Selim referenced Vail and how as they kept adding mountains, they created more value for their guests. So I think there's a compelling opportunity here to change the narrative about the value. We compete against all forms of out-of-home entertainment we have such a small share, only 5% of the out-of-home entertainment market. I think that this opportunity lets us hopefully get people to understand they can spend their leisure time and dollars with us. And when they come to us, as I've always said to all the general managers. The best measure of your success is how many of your guests come back next year. We focus that on every day when we open every one of our parks, both at Six Flags and Cedar Fair.
Our next question comes from Barton Crockett from Rosenblatt Securities.
I was interested in, first, the regulatory, the antitrust positioning, not much discussion about that. And you do have a couple of markets where you overlap like around the D.C. area with your park in Maryland and the park in Virginia, Kings Dominion and Six Flags to a degree in San Antonio, with the water park and also Los Angeles. And just in this environment, and when antitrust is such a loaded political question for any kind of big corporate merger. How do you feel about the antitrust setup and maybe the potential to have to divest stuff to get the deal done?
Barton, thanks for the question. Listen, as we think about the regulatory approval process, we are 100% committed to this transaction and think we will see it out to close. We understand there's a process to go through, but we've been well advised and we are absolutely confident that we can get this successfully completed as planned. You look at amusement parks, I touched on it just before my comment on out-of-home. We compete in a highly fragmented and constantly evolving leisure economy includes everything from bowling to athletic events to movie theaters. We're complementary across our geographies, and I really do think we're part of the broader landscape of all the leisure opportunities that consumers have when they get up in the morning or when they think about what they want to do on the weekend. And from that perspective, I don't see a lot of overlap.
I was going to add something interesting that happened literally last week. And yes, last week, and we have the Rangers that play the World Series and the Ranger stadium is less than a quarter mile away from our Dallas, Six Flags Over Texas. First, congratulation on the Texas Rangers for winning the World Series, we're very excited being based in Arlington, Texas. Many of our season passes ended up parking in the parking lots, and walking into because they have free parking given they have season pass, and walked across to the Texas Rangers stadium to attend the World Series. We were expecting to be -- well, before the Series started or after the Series of when the game open, they will come to our park and they did not. What was interesting is, anecdotally, we found out that when there is a game, even it's a quarter mile away, and they park -- season pass holder park in our parking, they went back home. So we did not benefit from the World Series being placed a quarter mile away from our park, which tells you that -- and entertain -- other form of entertainment takes away from our attendance. So we competed against the World Series thinking that it will be a boom for us for that day.
Okay. I was also curious for this deal, are there provisions to ensure -- to compensate one party or the other if the deal is broken. I mean is there a timeline for this to be completed or people can walk away without any penalty?
Barton, all of those types of details will be included in the merger proxy statement, which will come out at the appropriate time.
Okay. And then just on the business, the branding situation here is interesting with Six Flags being essentially a national -- nearly global brand and Cedar Fair being a collection of kind of local brands. Is the idea over time that it might make sense to rebrand to attach the Six Flags brand to the Cedar Fair properties as part of this kind of multipart pass positioning and the Vail positioning? Is that something that could be contemplated?
Barton, I tried to touch on this before. We have loyal and passionate customers, deeply held loyalty and passion around our unique regional brands, we think of this as a broader portfolio with incredibly powerful brands, but we really respect Cedar Point and Six Flags Magic Mountain. Everybody has, and every region has such a unique identifier. I view this as an opportunity just to reinforce the strong regional brands and understand who we are. We sort of talked about the difference between regional and destination. This is really an opportunity to enhance our regional brands, and, over time, create more value and choices for our customers.
Our next question comes from Paul Golding at Macquarie.
Congratulations on the announcement. I just wanted to drill a little deeper into your prior comment, Richard, around branding. It seems like there's an opportunity, as we've seen with other theme park holding companies that have multiple brands to leverage attraction IP, whether it's for a new ride or event or festival. Is that something that we could expect to see? And how are you thinking about maintaining the unique branding on the park overall relative to the capital efficiencies you could see for specific attractions that require investments.
Thanks, Paul. Great question. One of the things that excites me as somebody who came into the Cedar Fair organization from the Paramount side, understanding the movie studio and the drive for exploiting IP and enhancing that, along with Six Flags, looking at the Warner Bros, we have, as we said in our prepared remarks, really 3 powerful IPs that we can think about how best fit within the portfolio, Peanuts, DC Comics and of course, the Warner Bros. connection. I'm so excited to think about how we could potentially roll out and enhance the guest experience in all our regions and rethink how we use IP. IP is incredibly important differentiator in the minds of our consumers. And I think our ability to unlock how we look at that in the future gets me really excited. I know for our internal design staff on both sides as we think about how to plot and plan the guest experience going forward. I think our challenge is working -- is to work more closely with the holders of the IP and think about how we might both benefit from a closer association.
And then just a quick follow-up. It's maybe more of a housekeeping question. As you are now out in the marketplace talking about the potential for a combined network pass. Is there anything that we should consider in terms of changes or considerations to your selling process for the current mix of pass products across both footprints in the lead-up to the merger and the timeline of an anticipated first half '24 close?
Both of us are midway in our cycle already. It really starts late summer, early fall. Again, the numbers are tremendous, deferred revenue up 20% in both companies. So tremendous success. I think we're going to run each company's playbook well into the spring in this cycle and then look at how we can adapt and evolve in a way that makes sense, in a way to make sure that we're delivering as we listen to our customers, what they're telling us would enhance the program.
Our final question comes from Robert Aurand from KeyCorp.
I was hoping just to dig a little bit more into kind of the why now aspect of the deal. I mean you both had some long-term targets out there and kind of whether or not withstanding, it seem to be bearing some fruit here into next year. I guess is there anything to read into kind of your stand-alone outlooks and how you're feeling about it? You're heading into next year, you -- kind of with the macro environment the way it is?
Good question, Rob. I will tell you that, as I mentioned before, I think we're both coming into this transaction, excited about what the combined company can do, but coming from a position of strength. You saw the third quarter for both companies, nice recovery in the revenue uplift. I think there's -- we can both be excited at the stand-alone opportunities. But both Boards determined that by putting these companies together, we could really achieve a level of return for our owners that we couldn't get on a stand-alone basis. There's opportunities available to us, and we've articulated throughout this call that really will let us just drive home the value of this transaction and achieve the potential. That's what Selim and I are most excited about as we look at this, is the potential of the combined company that we think neither 1 of us could reach on our own. Selim?
Yes. I think what is exciting -- why now. Let's talk about why now. Neither one of the companies needed to do the deal we were not coerced to the deal. I can tell you on Six Flags, we had just almost finished with our transformation, and you're starting seeing attendance coming up double digit despite weather this summer, how fall sales is basically setting the 2024 very, very well. However, we believe truly that this merger creates a successful amusement park operator in the highly competitive leisure space with an expanded and diversified footprint, a more robust operating model and strong revenue and cash flow generation. I tell you, over the past 2 years, we have taken significant steps to transform our operations and create a more agile business while investing in new offerings to delight and excite our guests. I know that Richard and Brian and their team were earlier than us doing all the what I call elevating the experience. So we're trying to catch up to this combination build on our momentum but making sure that we create a geographic footprint that is expected to mitigate the impact of seasonality and reduced earnings volatility. Combining our complementary operating capabilities and technology portfolio will help us create a platform for Richard and Brian to improve our park offerings and more efficient system-wide performance. I will tell you what I love about Cedar Fair is they were delivering a more engaging and immersive guest experience than we've ever done. And that's something we need to take to our guests. And finally, I think increasing and bolstering our free cash flow will increase flexibility to invest in new rides and attraction, broader food and beverage selection, additional in-park offering and cross-park initiative. And then from our side, we are bringing a lot of technologies that are starting to unveil in this fourth quarter and 2024, specifically to make our guests easier to do business with us, all of which will be successfully deployed to grow attendance, increase per capita spending and improve profitability. I will tell you there are a lot of monetizing initiatives that we are both excited about that are coming in, in 2024.
And maybe just as a quick follow-up. I mean, can you give me a color around just kind of the potential long-term margin profile of the combined business? I know Six Flags had talked about getting margins into the low 40s. Can you talk about where the combined company can get to?
Yes, this is Brian. From a margin perspective, certainly, we're excited about the possibilities, as Richard and Selim have said, the combined company has much more upside as we maximize the strengths of each side, and that should benefit us as it relates to margins. As we -- as Six has shown over the last couple of years, the ability to deliver strong margins is certainly one of their strengths. And as the last quarter showed that's a clear focus for the Cedar Fair team, as well. Ultimately, our top priority is driving EBITDA growth and free cash flow generation. But margin will remain a very high priority, and we think the upside is significant.
This concludes the Q&A session. I will now hand the call back to Richard Zimmerman to wrap up.
Thank you, everybody, for your time and attention today and for your interest in the new combined Six Flags-Cedar Fair Company. We are -- speaking for Selim, Gary, Brian and I, we are excited to get to work starting today to tap the potential of this combined company. So thank you, and we look forward to talking to you soon.
Thank you all for joining today's conference call. You may now disconnect.