Earnings Call Transcript - FUN Q3 2022

Operator, Operator

Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cedar Fair Entertainment Company 2022 Third Quarter Earnings Call. Thank you. I’ll now turn it over to Cedar Fair.

Michael Russell, Corporate Director of Investor Relations

Thank you, Chris and good morning to everyone. My name is Michael Russell, Corporate Director of Investor Relations for Cedar Fair. Welcome to today's earnings call to review our 2022 third quarter results ended September 25 as well as trends we are seeing through this past Sunday, October 30. Earlier this morning, we distributed via wire service our earnings press release, ir.cedarfair.com. On the call with me this morning are Richard Zimmerman, Cedar Fair President and CEO; and Brian Witherow, our Executive Vice President and CFO. 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 from those described in such statements. For a more detailed discussion of these risks, you may refer to the company's filings with the SEC. In compliance with the SEC’s Regulation FD, this webcast is being made available to the media and the general public unselectively disseminated. All content on this call will be considered fully disclosed. With that, I’d like to introduce our Chief Executive Officer, Richard Zimmerman. Richard?

Richard Zimmerman, President and CEO

Thank you, Michael and good morning, everyone. Earlier this morning, we announced record results for the third quarter and for the first 10 months of 2022. As you all know, the third quarter of the year is our biggest and most important quarter. And I'm extremely proud of what our team accomplished over the last few months and since we reopened our parks. There's no better group of professionals in the business. Together, we have quickly and effectively addressed the effects of the pandemic on our business and put Cedar Fair back on course to drive significant growth. Our strong recovery and record performance this year has allowed us to deliver on our capital allocation priorities of reducing leverage and returning capital to unitholders. Brian will provide more detail on the state of our balance sheet in just a moment. But I am extremely proud of the fact that we have already reduced net leverage back inside 4x adjusted EBITDA, in line with pre-pandemic levels. This morning, we also announced that the Board has authorized the fourth quarter cash distribution of $0.30 per limited partner unit which is in line with our third quarter distribution. In addition to our quarterly cash distribution, we are returning capital to unitholders through our $250 million unit repurchase program which was initiated in August. In just a few short months, we have repurchased approximately 2.8 million units or 5% of Cedar Fair's outstanding units at an aggregate cost of approximately $115 million. We believe that a combination of quarterly cash distribution payments and buying back units is the most effective and value-enhancing path to return capital to our unitholders in the current environment. And we will continue to execute on our capital return plans as we head into 2023. Before I turn the call over to Brian to review our financial results in more detail, let me highlight some of the key measures that underlie our outstanding year-to-date performance. First, we set a record for third quarter net revenues, improving on last year's third quarter by 12%. Second, we established a new high in the third quarter for adjusted EBITDA, beating last year's third quarter performance by 9%. Third, our trailing 12-month adjusted EBITDA at the end of the quarter totaled $537 million which was 6% better than the adjusted EBITDA of $505 million we delivered in fiscal 2019. Fourth, preliminary net revenues year-to-date through October 30 were $1.68 billion, a record for the 10-month period despite attendance remaining below historical levels. And finally, trends in our long lead indicators through October, including our season pass products, reservation at our resort properties and group bookings, look solid heading into next year. Looking at more recent results. Our Halloween and fall events which kicked off in mid-September, once again have produced some of our most profitable days of the season despite ongoing economic uncertainty and mounting financial pressures on consumers. During the month of October, revenues were up approximately 4% compared to October of last year, driven by higher attendance and continued growth in out-of-park revenues. In-park per capita spending during the month remained in line with October of last year despite a sizable increase in our season pass mix this year. The strength of our recent results and our excellent top line performance through the first 10 months of the year sets the stage for us to deliver the best year in the company's history. Most importantly, our year-to-date results demonstrate our ability to generate record revenues despite attendance remaining below pre-pandemic levels. As we've previously noted, demand levels this year have been impacted by a number of factors, including the anticipated slower recovery of our group channel and inclement weather during key periods of the summer season. Helping offset our demand levels has been the solid trends in guest spending inside our parks as well as at our resorts and adjacent properties. Guest spending on food and beverage has again led the way, validating the significant investments we've made this year and over the past several years to expand and enhance our in-park offerings. Although price increases have played a part in delivering per cap growth, higher guest spending reflects the success of our investments to deliver higher quality offerings in a more efficient manner, driving increases in transaction counts and average transaction values. With more room for improvement, we will continue to invest behind our F&B strategy in the future. The results from our resort properties which we consider a differentiator of our business model from others, have also helped offset the demand headwinds. Our hotels, cottages and campgrounds quietly generate steady and reliable cash flow and they play a valuable role in the ecosystem of our parks. Our resort properties extend the stay of our guests in multiple days, create flexibility for our guests to visit our parks multiple times and represent a sticky demand channel for tenants. We are extremely pleased with the early guest response from our recently completed resort renovations and believe the renovation currently underway at the Knott’s Berry Farm hotel will be a game changer for that property as well. In spite of the pressures on demand we’ve dealt with this year, we remain true to our revenue and yield management approach, maintaining the integrity of our pricing structures. Looking ahead, we are optimistic that we can recover a meaningful portion of the shortfall to historical attendance levels as early as next season, led in part by the improving momentum we are seeing around group bookings. With that, I would like to turn the call over to Brian to review our financial results in more detail. Brian?

Brian Witherow, Executive Vice President and CFO

Thanks, Richard and good morning, everyone. I'll start by discussing our third quarter operating results compared to last year's third quarter before providing an overview of our preliminary year-to-date results through October 30. I'll wrap up my remarks with an update on our balance sheet and free cash flow outlook. During the quarter, our parks had 1,088 total operating days compared with 988 operating days in the third quarter of 2021. The increase in operating days reflects the impact of the pandemic on last year's operations and the benefit of a return to a normal operating calendar in 2022. As Richard mentioned at the beginning of the call, we delivered an outstanding quarter with meaningful year-over-year increases across our key performance metrics. In the third quarter, we entertained 12.3 million guests and generated record net revenues of $843 million, representing a 12% or $90 million increase compared to the third quarter of 2021. The increase in net revenues was largely attributable to the 100 incremental operating days in the period which contributed to a 1.5 million visit gain in attendance and a 17% or $14 million increase in out-of-park revenues. The increase in out-of-park revenues reflects incremental third quarter results at Castaway Bay and Sawmill Creek Resort, two properties that were closed for renovations during the third quarter last year as well as higher occupancy rates and higher ADRs across the majority of our resort portfolio. As we noted on our last call, the continued strong performance of our resort properties validates the investments we made in recent years to refresh and expand that side of our business. Meanwhile, in-park capital spending in the quarter totaled $62.62 million, down 3% compared with the third quarter last year. The decline in per capita in the period was due primarily to lower levels of guest spending on extra-charge products and admissions. The lower spend on extra-charge products was largely the result of lower average daily attendance at several key parks, while the slight decline in admissions per cap can be attributed to a higher season pass mix in 2022. Year-to-date, season pass attendance represents 58% of our total attendance mix. By comparison, season pass visitation represented 55% of 2021 full year attendance and 51% of 2019 attendance. Offsetting the small pullback in guest spending on extra-charge attractions and admissions was continued strength in guest spending within our retail channels, something that was a focus for our park teams coming into the season. In the quarter, combined per capita spending on food and beverage, merchandise and games increased to $22.28, up 2% from last year and up 31% from pre-pandemic levels. The improved per capita levels were driven by increases in transaction counts and average value per transaction and reflects the stickiness of guest spending from year-to-year. Moving on to the cost front. Operating costs and expenses in the third quarter totaled $485 million compared with $424 million for the third quarter of 2021. The $61 million increase was the result of a $14 million increase in cost of goods sold, a $50 million increase in operating costs and a $3 million decrease in SG&A expense. Increase in cost of goods sold reflect higher sales in the quarter as well as the impact of rising product costs. Despite these cost pressures, cost of goods sold as a percentage of food, merchandise and games revenue only increased 150 basis points from the third quarter last year. The increase in operating costs was largely attributable to the 100 incremental operating days in the current period and the related impact on variable costs, including operating supplies and seasonal labor. Based on primarily on the expanded operating calendar, our parks had approximately 1 million more seasonal labor hours in the current period compared to the third quarter last year, accounting for more than a 35% increase in operating costs. Also contributing to the increase in operating costs were higher full-time wages related to planned increase in headcount in select parks, higher maintenance labor rates and incremental land lease and property tax costs associated with the sale-leaseback of the land in California's Great America. The decline in third quarter SG&A expense reflects a decrease in wages, including incentive plan expense, offset by an increase in transaction and credit card fees. These higher fees were driven in part by this year's conversion of all our properties to cashless, an initiative that has been received very well by our guests and is helping us take labor hours out of the system. Looking a little more deeply at labor costs. While the labor market this year remains challenging, we are very pleased with the progress we've made around improving our staffing levels and controlling costs. During the quarter, we maintained adequate staffing levels while managing our average seasonal labor rate down 2% from the third quarter last year. And year-to-date, our average seasonal labor rate remains essentially flat to last year, reflecting the success of our revamped seasonal pay structure implemented for the 2022 season. While there's still more to do, we are extremely pleased with our ability to flatten the growth curve around labor rates, particularly given that seasonal labor represents our single largest operating cost. Adjusted EBITDA, which management believes is a meaningful measure of the company's park-level operating results, increased $29 million in the third quarter to a record $362 million compared to $333 million for the third quarter of 2021. The increase reflects the impact of incremental operating days in the current quarter and the continued strength in the outstanding, offset in part by higher operating costs, particularly for labor and cost of goods sold. Shifting focus to our preliminary results for the month of October and operating trends for the first 10 months of the year. Over the past five weeks, our parks entertained a record 3.2 million guests and generated $227 million of net revenues. Based on preliminary results for the five-week period which had 177 total operating days, in-park per capita spending was $64.91 and out-of-park revenues totaled a record $21 million. For the comparable five-week period in 2021 which had 176 operating days, net revenues totaled $219 million on total attendance of 3.2 million guests, in-park per capita spending of $64.97 and out-of-park revenues of $19 million. Compared to October of 2019 demand levels, October attendance this year was up 11% or approximately 318,000 visits, underscoring the growing demand of our fall event offerings and the benefit of Halloween falling on or near a weekend. Based on these preliminary October results, through the first 10 months of the year, we've entertained 24.9 million guests and generated $1.68 billion in net revenues, representing an increase of 22% or $306 million compared to the first 10 months of 2019. Over this same period, in-park per capita spending was $61.72, up 27% from 2019 levels and out-of-park revenues totaled $195 million, up $40 million or 26% from the same period in 2019. For reference, operating days for the first 10 months of 2022 and 2019 totaled 2,103 days and 2,028 days, respectively. As park calendars currently stand, we project that in November and December, we will have a total of six incremental operating days compared to last year and 17 additional days compared to November and December of 2019 driven in large part by our efforts to expand the operating calendar in select markets. These additional operating days are projected to be modestly profitable but, more importantly, provide us with incremental opportunities to sell season passes and other advanced purchase commitment products for the 2023 season. Now turning to our balance sheet. Our deferred revenue balance at the end of the third quarter totaled $188 million. This compares to $211 million at the end of the third quarter last year which included approximately $30 million of COVID-related product extensions at Knott's Berry Farm and Canada's Wonderland into 2022. Excluding the extensions in the prior year quarter, deferred revenues would have been up approximately $7 million or 4% year-over-year, including results from early fall sales of 2023 season passes and related all-season products. Compared to September of 2019, third quarter deferred revenues are up 26% or $39 million. With 70% of the season pass sales cycle remaining, including the spring window that accounts for more than 40% of our full program sales, we remain laser-focused on driving unit sales higher and matching the record performance of our 2022 season pass program. As Richard mentioned, we have a strong balance sheet position which we expect to continue to prove as we deliver on our strategic initiatives. As of September 25, 2022, Cedar Fair's total available liquidity was $568 million, including $288 million of cash and cash equivalents and $280 million available under our revolving credit facility which is undrawn. This compares to $319 million of total liquidity at the end of the second quarter of 2022. During the first nine months of the year, cash flow from operations totaled $412 million, besting our comparable 2019 performance by $23 million or 6%. During the nine-month period, we also generated $310 million in the sale leaseback of the land at our Great America park in Santa Clara, California. Through the first nine months of the year, we used $264 million to fully repay the company's term loan, bringing total debt outstanding down to $2.3 billion and net leverage back to pre-pandemic levels at 3.7x trailing 12-month adjusted EBITDA at the end of the quarter. During the nine-month period, we used another $17 million to pay cash distributions to our unitholders and $64 million to repurchase units under the unit repurchase program. Regarding capital investments. Through the first nine months of the year, we've spent $138 million on CapEx, including investments in new rides and attractions, upgraded and expanded F&B facilities and renovations to several of our resort properties. For the full year, we now anticipate investing approximately $170 million to $180 million on CapEx. By comparison, we project investing $180 million to $200 million on capital projects for the upcoming 2023 season. Lastly, for modeling purposes for the full year 2022, we are projecting cash interest payments of $145 million to $150 million and cash taxes of $40 million to $50 million. With that, I'd like to turn the call back to Richard to share some final thoughts.

Richard Zimmerman, President and CEO

Thank you, Brian. We are very happy with our performance so far this year and are looking forward to the rest of 2022, along with the exciting opportunity to build on our momentum next year. In the upcoming weeks, several of our parks and resorts will transform into winter wonderlands and host holiday events. These immersive holiday experiences have been very popular with visitors of all ages, providing our loyal customers and passholders with even more reasons to visit. We believe that our fourth-quarter events, which now represent over 15% of our annual attendance, will help broaden our appeal and contribute to the steady increase in our season pass sales program. To ensure our parks remain a preferred entertainment choice, we continually enhance the quality of our offerings and improve the guest experience. That's why we invest a significant portion of our free cash flow back into our properties each year, creating an economic cycle that benefits our guests, associates, and park communities, ultimately fostering sustainable growth and value for our unitholders. The guest-oriented strategies we have in place are yielding record results, particularly our expanding season pass program. We are also seeing strong returns from investments made to elevate our food and beverage options. Food and beverage are top priorities for our guests, and we are committed to improving and expanding our offerings. In 2023, we will invest in new attractions at our five largest parks and across seven parks in total. These investments will include significant updates to major areas of our parks, the addition of new coasters, and the revival of classic rides. We are also funding new high-capacity dining facilities, major events for two 50-year anniversary celebrations, and various other enhancements aimed at delighting our guests. Our marketing team does an excellent job of generating enthusiasm around new attractions, which historically increases attendance, guest spending, and season pass sales. Conversely, we are focused on optimizing our cost structure and returning to 2019 margin levels as we progress in our recovery. Achieving pre-pandemic attendance levels, while alleviating cost pressures from recent years, is vital to meeting our margin targets. As we approached the 2022 season, we believed that driving attendance and top-line revenue while maintaining strong connections with our guests and high standards for guest experience would be the most effective way to facilitate business recovery. This included adequately staffing our rides, attractions, and retail centers according to the demand throughout the season. As expected, this strategy led to increased seasonal labor hours compared to last year. We managed to mitigate the impact of higher labor hours by keeping our average seasonal labor rate stable year-over-year, which I take pride in considering the current market conditions and something we can build upon moving forward. Despite uncertainties in the macroeconomic environment, we are optimistic for 2023 due to solid momentum in our season pass programs, an enticing lineup of new marketable attractions planned, early signs of recovery in our group channel, and ongoing robust guest spending, driven by what we believe is an unparalleled guest experience. If economic challenges arise next season, our team is ready to respond swiftly and appropriately. Lastly, I would like to welcome our two new directors, Michelle Mckinney Frymire and Jennifer Mason, to our Board. They bring over 40 years of executive leadership and senior management experience in the travel, leisure, and hospitality sectors to Cedar Fair. Our Board is committed to top-notch governance and regularly refreshes its composition with exceptional new members like Michelle and Jennifer, who provide fresh perspectives that will enhance our ability to drive future growth and create value for our unitholders. Chris, that concludes our prepared remarks. Please open the call to questions.

Operator, Operator

Our first question is from James Hardiman with Citigroup.

James Hardiman, Analyst

So a lot of data, a lot of math to sift through here. But basically, since your Labor Day release, it looks like we saw a pretty material deceleration in September ultimately through the end of the third quarter and then a pretty significant reacceleration in the month of October. I guess, a, sort of verify or dispel that just broad narrative and b, any why as to why you think that’s happening?

Richard Zimmerman, President and CEO

James, great question. I think we would say exactly what you just said which is September was a tough month in part because of the weather that impacted us in the early part of the month. But I think what we've seen in October is our markets respond to the quality of our Halloween events. We know that with our season pass sales up 20% this year, there are a lot of folks out there that were itching to come. The weather was really good in October. But the appeal of our events really carried through and we saw that through all of our channels, demand group and season pass. Every year, we look at October and go, it's been another great October. I think it speaks to the appeal of the product not just the holiday but the appeal of the product culturally and that people look forward to holidays. But overall, we continue to see a strengthening of demand in the fall. And that seems to be an ongoing, almost multi-decade trend.

James Hardiman, Analyst

Makes sense. And then let’s talk about costs for a little bit here. A significant amount of operating expense deleverage here. I think by my math, that line is up 42% versus 2019. I guess maybe – I mean just given that, that is so much more than revenues are growing, I don’t know if there’s a way to do sort of a bridge. I know you now have an incremental lease that is adding to some of your costs, I think, in that line. Obviously, operating days were up as well. But I’m struggling to sort of bridge the gap in that number, particularly when it sounds like you guys have done a good job in sort of staving off labor increases – or at least the wage rate increases.

Richard Zimmerman, President and CEO

James, I'll let Brian weigh in here. But overall, listen, we've tried to be as transparent as possible as we went through the pandemic about what we thought the effects were. See, labor is our single biggest line and we've been very transparent about what we needed to do in each of our regional markets to be able to get the staff we needed to run our parks and get the experience. When I look back on where we are year-to-date through the third quarter, we’re down approximately 1 million seasonal hours to 2019. So we have focused on efficiencies. But we’ve also focused on driving the revenue. But when your single largest line item is going up by a significant percentage, that’s the challenge. We think we can work that out over time and get back to pre-pandemic margin levels. But that takes time and it certainly takes a recovery to 2019 attendance levels. Brian?

Brian Witherow, Executive Vice President and CFO

Yes. Just adding on, James, to Richard's comments. I think the efforts to take hours out of the system are certainly producing. There's more opportunity there to optimize some of those workforce management tools. Being able to flatten that growth rate around seasonal labor for the full year, as Richard noted, down slightly in the third quarter, is certainly helping. But to your point, there is pressure the other way by the incremental days that are in the system. And then when you look at it versus last year, the recovery of some of the attendance and the variable-related costs. But when we look at it overall, I think you hit on it, labor is the largest single cost item. And it would represent probably more than two-thirds of that increase that you're seeing in the third quarter versus where we were in '19 and that's primarily right. We'll continue to focus on it, as Richard noted. I think there's opportunities given the momentum we've established more recently but there's more work to be done.

James Hardiman, Analyst

And let me maybe ask the question in slightly different way. I mean that line seems to be growing faster than revenues. And so to turn around margins, we need to get that line to grow, at least start by getting those two things to grow at a commensurate rate. Any thoughts on when that might happen? Is there sort of an opportunity to get back on par with at least not a big deleverage item?

Brian Witherow, Executive Vice President and CFO

Yes. As Richard mentioned in his prepared remarks, the goal is to return to pre-pandemic margin levels. A significant factor in achieving this is restoring pre-pandemic attendance levels. We've noted that group attendance remains disrupted, which pressures margins earlier in the season and into the third quarter. The loss of youth and school groups in the spring is a major challenge for margins. However, we are increasing volume and are optimistic about the trends in that segment as we conclude 2022 and move into 2023, especially concerning youth and school attendance. This is the initial step. Additionally, we have started to see positive developments in controlling labor rates, which is stabilizing and slowing growth in that area. This will benefit us for the upcoming season as we enter 2023. We are also encouraged by the top-line metrics, with guest spending in the park up over 30 percent compared to 2019 levels, while being 2 percent higher than last year. Some pressure on admissions per capita is largely due to a shift in mix rather than a decrease in consumer spending, reflecting season pass growth. We believe the conditions are right for margin expansion, though it will require more time.

Steve Wieczynski, Analyst

So Brian or Rich, I want to go back to the in-park. You just made some comments about the in-park spend levels which were down year-over-year. And it's probably one of the first times we've heard any kind of slowdown in spend levels across multiple consumer verticals that we look at. So is there anything you can help us think about as to maybe what drove that slowdown? And look, I understand you just called out lower spend levels on extra charge products and some negative headwinds from a higher season pass mix. But I guess the question is, if you look at the average person, Joe Schmo coming in, are they still spending more as they come in the park versus where they – where they were last year?

Brian Witherow, Executive Vice President and CFO

Yes, I'll repeat what I mentioned in response to James' question. When we separate the pure in-park areas and consider the significant impact that season pass sales have on admissions, it becomes clear that admissions are affected more than in-park spending areas. We continue to see growth, as I mentioned, with a 2% increase compared to the third quarter of last year in food and beverage, merchandise, and games. This is due to an increase in transaction counts and higher average values per transaction. The one in-park area that experienced some pressure was extra charge items. Overall, revenues have risen due to pricing adjustments. However, since we haven't reached peak attendance levels during the summer months, especially in July and August at our larger parks, this reflects some disconnected group attendance. Additionally, our dynamic pricing strategies have helped manage guest flow on busier days, which has slightly reduced demand for certain fast lines. Despite these challenges, we are still seeing revenue growth as we adjust pricing. The area experiencing the most pressure is primarily due to accounting considerations related to admissions, which ties back into the mix of our attendance. This year, nearly 60% of our attendance comes from season pass holders compared to the mid-55% range last year.

Steve Wieczynski, Analyst

Okay. Got you. And then second question is, you keep talking about trying to get back to those pre-pandemic attendance levels which I think was around 28 million. I guess as we kind of think about the 2022 winding down at this point, how should we think about ‘23? And I’m not sure how you really want to take this question but is it possible to get back to those levels in ‘23? I mean I think that would kind of infer, let’s call it, a 3.5% to 4% kind of growth rate in terms of attendance. Is that too quick? Or – and is this more of a ‘24 type story? Or is that still a potential in ‘23?

Richard Zimmerman, President and CEO

Steve, reflecting on this year, we saw a 20% increase in season passes, rising from 2.6 million to 3.2 million. More of our loyal customers opted for the highest-priced ticket, which indicates a positive trend for our ability to engage our existing customer base. We have been clear about our expectations from the beginning. Looking back to 2008 and 2009, it took us three full years to reach similar levels, and we are witnessing a similar recovery now. I’m really enthusiastic about this development. As Brian mentioned, we have noticed significant interest already, particularly as we approach the busy spring and early summer season for youth and school groups. It’s challenging to revisit our mindset from a year ago as we entered 2022, but we anticipated pent-up demand. This is evident across the board, especially in Canada this year. We also invested substantially in food and beverage options to encourage spending in the parks, believing we had the required demand within our channels. The 20% increase in season passes reflects that confidence. Looking ahead to next year, we are returning to our traditional strategy with new offerings in seven different parks. I believe this is the most comprehensive product lineup I’ve seen since I started in this role. Our marketing team is equipped to drive demand, which I believe will positively influence our outlook for next year.

Operator, Operator

The next question is from Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst

I’m going to try to come at, I guess, the margin question, one different way which is, I think you’re back to 93% or so of 2019 attendance in the third quarter of ‘22. If you get back to 100% next year, is there – how much incremental labor do you really need to get that, right? The question – I guess the question, or the observation would be, are you kind of – with a higher fixed cost base when the parks are open, is there a lot of incremental labor hours that need to come in to make up that final 7% of attendance?

Richard Zimmerman, President and CEO

Chris, when we consider our business model, it's a valid and insightful question. The additional attendance on any specific day doesn't significantly increase our costs. Therefore, when we boost attendance on various days, those days become our high-margin days. For instance, looking at October, we've noted that those are some of our most profitable days, and that's indeed accurate. The more we can recover that 7%, the more we're likely to delve into higher margins. However, as Brian often mentions, the source of our growth can sometimes influence our margins, depending on how well specific parks are performing. For example, our park in Toronto, Canada is experiencing an exceptional year, but the weaker dollar has likely reduced our estimated consolidated margin by about 50 basis points because it isn't fully translating through. Numerous factors affect this, but your question is certainly valid.

Chris Woronka, Analyst

Okay. And then I guess, secondly, I know we’re not really talking about 2023 yet but how much confidence do you have based on what you’ve seen to date in ‘22 to kind of move pricing up further, whether it’s on certain ticket plans or whether it’s on some of the food and merchandise? Do you feel confident if you had to make that decision today that you could take additional price for next season?

Richard Zimmerman, President and CEO

Chris, our strategy has always been to implement annual price increases and adapt our pricing dynamically. An important indicator for me is the season pass pricing, where we've generally aimed for a high single-digit to low double-digit increase. While the sales mix will affect what ultimately sells, we believe there is always room to raise prices. I also believe that by raising prices annually, we prepare the market for such changes. Our dynamic pricing model allows us to respond to demand. We are committed to ensuring our guests perceive great value, which positions us well for future price increases. To address your question another way, if I reflect on the consumer environment during '08 and '09, we experienced a significant drop in hotel bookings, a considerable softening in season pass sales, and a decline in group sales. Currently, we are not observing those trends; in fact, schools are reaching out to us, indicating strong demand. Therefore, I am confident that we can continue to adopt a strategy that combines recovering volume while also pursuing price increases.

Mike Swartz, Analyst

Maybe just a question on your plans for marketing in ‘23 and then maybe how they differ versus how you’ve marketed historically and then look at the – sounds like season pass visitation is probably higher than it was. Pre-pandemic group, obviously, we know is starting to come back. But is that single-day visitor, is there anything you’re planning to do differently to drive those attendance levels back in ‘23 and beyond?

Brian Witherow, Executive Vice President and CFO

Yes. Mike, it's Brian. As we look at where marketing has pivoted or changed over the last couple of years and we've talked about this on prior calls, shifting during the pandemic out of necessity away from traditional media more heavily into digital. And as Richard just mentioned a moment ago, we felt coming into this year, there was going to be a lot of pent-up consumer demand. And so we were pretty aggressive with paring back our advertising dollars and mining some savings there and trying to ride that pent-up demand wave. As we look at 2023 and Richard highlighted what's going to be a very strong capital program. Big new attractions going in, in our five largest parks and seven or eight parks overall. We want to lean into that and make sure that we're not penny-wise, dollar-foolish on the advertising side. So I think as we look towards '23, we may accelerate some spending around that capital program. I don't think it's going to be material, nothing we believe the returns are there to warrant it. But it will be still a somewhat similar approach, heavy on digital because of the efficiencies, cost-wise but also the flexibility of that but also getting a little bit back more into mainstream media as we lean into that capital program.

Richard Zimmerman, President and CEO

Mike, as we consider our marketing strategy, Kelley Ford, our CMO, and I discussed yesterday our enthusiasm for the digital transformation. We need to be present where our customers are currently engaged, rather than where they used to be. Since they are not consuming traditional TV, it’s essential for us to reach them in their current spaces. We are focusing on forward-thinking investments that not only enhance efficiency but also maximize our impact.

James Hardiman, Analyst

I think you said season pass sales, if I heard that correctly, were up 20%. I apologize if I missed it but was that versus '21 or '19?

Richard Zimmerman, President and CEO

Yes. I’m sorry. That’s whole year 2022 versus last year, $3.2 million for full year 2022 versus $2.6 million in ‘21.

Ben Chaiken, Analyst

Just going back to cost briefly. Your 3Q flow-through was, I think, around 5%. Now it’s following 10% in 2Q. Regardless of how you look at trends, revenue is up materially and it’s not necessarily translating to EBITDA. I guess as you reflect on your business in ‘22 season to date, do you think you made the right moves on labor hours and rate and/or operating days? Or would you change anything?

Richard Zimmerman, President and CEO

That's a fair question. We've consistently evaluated our approach throughout the year to learn from our experiences. In the past, we have been open with our interim updates. Early on, we took several days out of the calendar because we were uncertain about the demand in the spring and faced some staffing challenges. Looking ahead to next year, we aim to maximize our revenue potential. To achieve this effectively, we've reduced over 1 million hours year-to-date through the end of the third quarter. We need to refine this strategy to enhance our efficiency and recover our margins while continuing to drive revenue. I mentioned this during my call with Chris. As we move forward, there are aspects we will consider, including Brian's point about increasing our marketing investments to capture demand for one-day tickets and optimize critical price breaks for our season passes. Brian, do you have anything to add?

Brian Witherow, Executive Vice President and CFO

Yes, to reiterate, as we entered this year, our focus was on recovering volume and increasing guest spending. It's essential for us to have all revenue centers and attractions staffed appropriately to meet expected demand on a daily basis. As Richard mentioned, there were times early in the year when we couldn't open several parks due to staff shortages, which primarily occurred during the shoulder season when students were still in school. We decided not to operate on certain days in some markets, which saved us operating costs. However, as Richard pointed out, this impacted our revenue. There's always room for improvement and opportunities for increased efficiency on the cost side. The improvements we made regarding our labor rate structure were significant, and we are starting to see more benefits from that in Q3 compared to the first half of the year, which will carry into 2023. Looking back at 2022, we achieved our goals of record revenues and record adjusted EBITDA, and we will continue to enhance our margins and optimize those revenue dollars as we move forward.

Eric Wold, Analyst

A couple of questions, kind of somewhat like follow-ups and I’ll not try to beat on these too much. I guess, one, you talked about obviously the amount of season pass contribution to total attendance up well above last year, well above ‘19. Is this something you’re seeing kind of in the demographics coming in the park given kind of the economy we’re in now? Are you seeing single-day passes get impacted because of maybe the lower income consumer that normally wouldn’t buy a season pass? You’ve got to be impacted there but you can hold up in-park spending at these elevated levels because that consumer is still there. Anything to read into that? Or is that looking at the wrong way from your point of view?

Richard Zimmerman, President and CEO

No. What I would say, Eric, is that when considering the season pass, we observed this year that as we implemented dynamic pricing and increased the price of our demand tickets online, more people noticed the difference between the demand ticket and the season pass and chose to upgrade. This trade-up to our highest ticket option contributed to the 20% increase in season pass sales that I mentioned earlier. Once guests enter the park, we also see a rise in purchases of All-Season Dining and All-Season Beverage. Visitors are increasingly opting for a comprehensive experience at our parks. Moreover, after they arrive, we monitor their spending, which indicates they spend on additional items as well. Upselling from a one-day ticket to a season pass is beneficial for our business. We frequently encounter questions about whether there is an optimal limit for season pass sales. Our preference is to sell as many season passes as possible because when visitors come, they continue to enjoy the park's offerings. In relation to what we are currently observing, there has been a year-over-year increase in All-Season Dining for the 2023 passes, indicating that guests perceive value in it and want to enhance their visit. Looking back at the staycations of '08 and '09, we acknowledge that even when people stay close to home, they still wish to pamper themselves, and when they visit our parks, they seek to enjoy their experience fully. This is what we are witnessing.

Brian Witherow, Executive Vice President and CFO

Yes. Eric, it's Brian. I think when we look at labor for next year, broad comment, the availability and affordability challenges aren't going away. We believe those are largely structural. That said, there have been some tailwinds this year that we've leaned into and benefited from, right? The return of the J-1 Visa program brought more international students over at our parks. That was extremely helpful. Our ability to, as I mentioned on the call, sort of put in place a more pay program and scale more aligned with where we've been in the past, not everybody at that max level, right? So we'll pay up for certain jobs. We'll pay up for seniority and experience. But the newer first-year associates that come in or maybe those J-1 Visa students are only here for a short period in the summer, we'll keep them at the lower end. And so we still, in each of our markets, want to remain the market center and be the first choice for folks seeking a job during the summer season. And so that’s not going to change. But I think leaning into that structure that we did this year, continuing to benefit from some of those same tailwind factors will allow us to offset significant pressure. I think we’ll see if we have to pay up in some markets, we’ll pay up because what we do know is if we’re not staffed appropriately, we’re losing revenue. And I think that’s the key message that we want to make sure we deliver. And we saw it play out this year. In some of our markets, when staffing was more challenged, our per caps were challenged. When staffing was adequate or at its right level, we are delivering our best per caps on those days. So it’s critical that we maintain those adequate staffing levels and that will be the focus.

Barton Crockett, Analyst

One thing I was wondering about was the October trend, how reasonable it is to think about that as a baseline for what could happen in the other holiday period here at the end of the year in December and talk about puts and takes around the reasonableness of extrapolating that trend to the balance of the quarter.

Richard Zimmerman, President and CEO

Barton, Richard, good question. When I think about the appeal of the holiday events, they fall a different time of year. Halloween sort of leads into November. And not all of our WinterFest events open up right away but they do open up shortly thereafter. So what we've seen is there is such a thing as momentum. When we're top of mind and people visited and they go home and tell their friends about their visit, it keeps us in the consideration set. So we've always seen that good momentum leads to better next year performance. We've always seen strong spring performance when we have a strong fall. So I think it's a really good sign. I think it gives us great momentum. We're starting to see some markets pick up. I anticipate that Canada, in particular which had a great opening WinterFest in 2019. Given the strength we've seen there all year long and their recent trends, I think they'll have a phenomenal WinterFest. So I do think with our always normal weather caveat, if it rains, it's tough to get people to come out. But with reasonable weather, I anticipate that the momentum we've seen in October is sort of sets the table and positions us for a successful WinterFest, Knott's Merry Farm season once again.

Barton Crockett, Analyst

Okay, that's helpful. And I wanted to step back a little bit on the macro view because you guys are in an interesting position, right? You see where the consumers' appetite is and willingness to spend their pricing sensitivity, also buy a lot of things. You pay a lot on labor. You buy a lot of products. You have a CapEx cycle that will be buying a lot of commodities, maybe some steel. And we have a Fed right now that's bound to determine to keep raising interest rates until they end this inflationary spiral. And there's a lot of speculation about whether there has to be kind of a wage cost spend kind of cycle that has to be ended. And what I hear from you guys is a lot of sense of strength from the consumer, maybe some easing of some cost pressures. And I'm just wondering how you kind of fit that into what you believe is happening macro-wise based on your view of the world and how that kind of informs how you think about what the most likely macro set up is as we navigate through next year?

Richard Zimmerman, President and CEO

I'll go back to as we went through the pandemic, we said pre-pandemic experiences, consumers were prioritizing experiences over possessions. Clearly, that wasn't the case during the pandemic. During the heart of it, they prioritized possessions and were buying goods. Everything that we're seeing is being collaborated by those that I talked to within the broader leisure hospitality world. Hotels are doing good. You continue to see strong interest in all the different sectors of the leisure and hospitality sector. I think we’re back to consumers prioritizing experiences over possessions. Whether that’s pent-up demand or event spending, all those things we’ve talked about, experiences are what consumers in the U.S. and in Canada are looking for. And they’ll pay up to go get the experiences that they want, particularly after being through the depths of the pandemic, however it impacted everybody. I do think from a broad front, consumers continue to be in pretty good shape even though the lower end is getting increasingly pressured. And our broad macro view is that we think there’s a lot of demand that will continue to come back for us. That’s code for we continue to see our ability to close the gap on the attendance levels for 2019 being a reasonable estimate of next year. Brian, anything you want to add?

Brian Witherow, Executive Vice President and CFO

No, I think you summed it up well. There is a lot of uncertainty in the macroeconomic environment, and our predictions are not clearer than anyone else's. What we can focus on are the trends we are observing. The recent trends in October have been extremely strong, which highlights the continued demand for that event. We can't overlook the great weather in October, as Richard pointed out. Additionally, despite the strong attendance numbers, we also saw excellent sales of the 2023 products, indicating that consumers remain optimistic about the future, especially since some of these products won't be used for another 5 or 6 months. Yes. Around labor, I think what we've experienced is the result of strategies that we've deployed. There is certainly still pressure around wage rates. We've just deployed a different strategy that is allowing us to flatten that curve as I noted. In other areas, you’re right. I mean we are seeing an acceleration of costs. We noted it in terms of the impact it’s having on things like cost of goods sold. As we work on our capital programs for next year, those projects are certainly under pressure, increasing costs. We are making adjustments within the capital program where we can to absorb those pressures without sacrificing the impact of the product. It may mean deferring some infrastructure things here or there but we’re certainly doing everything we can to offset those pressures.

Operator, Operator

We have no further questions at this time. I'll turn it over to Richard Zimmerman for any closing comments.

Richard Zimmerman, President and CEO

All right. Thank you all for your interest in Cedar Fair. As a heads-up, we will be participating in three banking conferences before the end of the year, hosted by Stifel in Chicago, Deutsche Bank in West Palm Beach and Truist in Boston. We hope to have a chance to visit with you in person at one of these events. Otherwise, I want to wish you and your families a safe and happy holiday season. Michael?

Michael Russell, Corporate Director of Investor Relations

Thanks again, everybody. With additional questions, please feel free to contact our Investor Relations department at 419-627-2233. And our next earnings call will be held in mid-February after the release of our full year results for 2022. Chris, that concludes our call today. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.