Earnings Call Transcript - FUN Q2 2022

Operator, Operator

Good morning. My name is Rex, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. You may begin your conference.

Michael Russell, Corporate Director of Investor Relations

Thank you, Rex, 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 second quarter results ended June 26 as well as trends we are seeing through this past Sunday, July 31. Earlier this morning, we distributed via wire service our earnings press release, a copy of which is under the News tab of our investors website at 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 as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content on this call will be considered fully disclosed. With that, I'd like to introduce our CEO, Richard Zimmerman. Richard?

Richard Zimmerman, President and CEO

Thank you, Michael, and good morning, everyone. Let me start today's call by saying I am extremely proud of our team and all that we've accomplished so far this season. Our team's commitment to delighting guests and operating the best parks in the industry has allowed us to achieve record performance coming out of the pandemic. Based on our results over the first half of the year and the strength of long lead indicators, I've never had more confidence in our business than I do right now. And I'm excited to see how much fun we can create for our guests and our associates over the balance of the season and into next year. My confidence in the business is driven by several factors. First and most importantly, are our guest satisfaction scores. Guest satisfaction ratings at our parks this season have been among our highest ever validating the investments we've made and the initiatives we've implemented to broaden and improve the guest experience. The quality of the guest experience is a direct driver of guest spending which remains at record levels and continues to grow. Second is our overall financial performance. On a trailing 12-month basis through the end of the second quarter, we've generated $509 million of adjusted EBITDA, which surpasses our record performance in 2019. Third, our long lead indicators have never looked better. For the 2022 season, we sold 3.2 million season passes, surpassing 3 million units sold for the first time in company history. This year's total units sold is up more than 20% from our prior record of 2.6 million units sold back in 2019 and at much higher prices. Resort bookings are also pacing well ahead of pre-pandemic levels, allowing us to reap the benefits of the investments we've made to refresh and expand our resort offerings. These strong trends position us well for the balance of the year, particularly considering that we produce roughly 80% of the company's adjusted EBITDA in the third and fourth quarter. Finally, the strength and pace of our performance over the first half of the year, combined with our recent monetization of Cedar Fair's valuable real estate in Santa Clara, California, has enabled us to deliver on several key priorities, including reducing net leverage and establishing a well-defined capital allocation policy to return capital to our unitholders. I'll share more about the importance of these initiatives prior to taking your questions, but I want to emphasize that we have successfully paid off the equivalent of 75% of the pandemic-related debt we took on when our parks were forced to close in 2020. As we continue working towards our net debt target of $2 billion, we believe we are well positioned to achieve net leverage of less than 4x adjusted EBITDA by year-end. Before I turn things over to Brian to review our financial results in more detail, let me share some additional thoughts on Cedar Fair and why we're so excited about the remainder of the 2022 season and beyond. As we work to get back to pre-pandemic levels, we sharpened our focus to ensure we are meeting or exceeding our most important business objectives. It's especially rewarding to see how the decisions we've made, the capital we've invested, and the initiatives we've deployed over the last few years have resulted in better experiences for our guests and better results for all Cedar Fair unitholders. The breadth and scale of our properties continue to lead the industry. Our extensive offering of unique high-quality dining options and premium experiences are being wholly embraced by our guests, and our resort properties remain popular destinations for family staycations, which appears to be in full swing once again in 2022. While it's rewarding to see our revenue channels performing well, I'm equally pleased with how our park GMs have responded to the additional challenge of managing cost in such an inflationary environment. Labor costs are more than half of our operating cost structure. So driving EBITDA growth requires a more efficient utilization of labor, something our teams have successfully executed against this year. I'll wrap up my opening remarks with a few comments about our recent real estate transaction. Just after the close of the second quarter, we sold approximately 117 acres of land located in Santa Clara, California, the land upon which our Great America Park is located, was sold for approximately $2.7 million per acre, a significant premium compared to our cost to purchase the land 3 years ago. While a difficult decision, selling the land at Great America was a generational opportunity to capitalize on a very attractive real estate market, while at the same time, allowing us to continue to operate the park for the foreseeable future. The monetization of the real estate also enables us to strategically accelerate our capital allocation priorities, returning capital to all unitholders and making Cedar Fair a much stronger company going forward. I'll pause here so that Brian can review our financial results in more detail. Brian?

Brian Witherow, Executive Vice President and CFO

Thanks, Richard, and good morning, everyone. I'll begin by outlining our second quarter operating results and then provide a preliminary overview of results through July 31. I will conclude with an update on our balance sheet and outlook for free cash flow. First, I want to remind everyone that due to the impact of the pandemic on park operations in 2020 and 2021, we lack meaningful data comparisons for the second quarter of this year compared to the same period in the last two years, which is why we are using comparisons to 2019 instead. During the quarter, our parks had 708 total operating days compared to 726 in the second quarter of 2019. The 708 operating days for the recently completed quarter included 96 days at our two Schlitterbahn water parks, which we acquired on July 1, 2019. Excluding Schlitterbahn, the operating days at our legacy properties decreased by 114 days compared to the second quarter of 2019, due to a four-day calendar shift and the planned removal of certain early-season operating days at several parks. In the second quarter, we hosted 7.8 million guests and generated net revenues of $509 million, which is a 17% or $73 million increase compared to the second quarter of 2019. This record net revenue was mainly due to a 26% increase in in-park per capita spending and a 21% rise in out-of-park revenues, in addition to the inclusion of the Schlitterbahn parks in this year's second quarter. These gains were partially offset by an 8% decline in attendance during the recently completed quarter. This decline was linked to fewer operating days at our legacy parks, a slower recovery in the group sales channel, and the strategic elimination of several low-value ticket programs as we took the opportunity presented by the pandemic to review our business model. Despite these challenges, attendance per operating day in the second quarter for legacy parks was about 12,100 guests, which is a 3% increase compared to the same period in 2019, reflecting strong demand in the season pass channel. In this quarter, season pass visits made up 62% of our attendance mix, compared to 56% during the second quarter of 2019. Additionally, as Richard mentioned, our pricing strategies and efforts to enhance the guest experience have effectively driven guest spending, resulting in in-park per capita spending of $59.52, up from $47.22 in the second quarter of 2019. We are very pleased with the sustained momentum in per capita spending, especially considering the improvement we saw in the second half of last year from pre-pandemic levels. The per capita increase shows that guest spending has risen across all key revenue categories we are focusing on. In the quarter, admissions per capita grew to $32.27, a 20% increase from the second quarter of 2019, while combined spending on food, beverage, merchandise, and extra charge attractions reached $27.25, a 35% increase from 2019. The improved in-park guest spending levels were driven by more transactions and higher average transaction values. The rise in admissions per capita reflects both higher pricing and better yield management stemming from our strategic pricing efforts. By investing in great experiences for our guests, we have successfully raised admission prices without harming demand. The increase in single-day ticket prices has also heightened the value of our season passes, contributing to the record number sold this year. Out-of-park revenues rose to $60 million from $49 million in the second quarter of 2019, due to higher online customer transaction fees and increased revenue from our resort properties, particularly from the Schlitterbahn resort in New Braunfels and revenue growth at our Cedar Point resorts. The improved performance of our resort properties highlights the value of our investments in recent years to refresh and expand that aspect of our business, impressive considering that our Castaway Bay and Sawmill Creek properties didn't reopen until late in the second quarter. On the cost side, operating costs and expenses in the second quarter increased to $347 million, a $70 million rise compared to the second quarter of 2019. This increase resulted from a $9 million rise in cost of goods sold, a $55 million increase in operating expenses, and a $6 million jump in SG&A expense. Despite inflationary cost pressures, the cost of goods sold as a percentage of food, merchandise, and games revenue only rose by 128 basis points from 2019 levels. The increase in operating costs was mainly due to higher seasonal labor costs driven by increased rates, higher full-time wages related to planned headcount increases at select parks, and the operations of the Schlitterbahn parks. In more recent comparisons, our average seasonal labor rate in the second quarter was only up 3% compared to the second quarter of 2021, reflecting the successful revamping of our seasonal pay structure last year. The rise in SG&A expense was primarily due to an increase in full-time wages, including higher incentive plan expenses and larger transaction fees related to this year's initiative to transition all properties to cashless. These increases were partly offset by a reduction in advertising costs due to a strategic shift to more efficient and flexible digital advertising. Adjusted EBITDA for the quarter, a key measure of our park-level operating results, totaled $171 million, up $7 million or 5% compared to the second quarter of 2019. Looking at our preliminary results for the last five weeks and trends over the first seven months of the year, our parks entertained 6.1 million guests and generated net revenues of $421 million. In this five-week period, which had 524 total operating days, in-park per capita spending reached a record $62.80, and out-of-park revenues hit a record $48 million. For the same five-week period in 2021, which had 471 total operating days, net revenues were $354 million, reflecting attendance of 5.2 million guests, an in-park per capita spending of $61.99, and out-of-park revenues of $41 million. The July attendance trends align with what we've seen in the first half of the year, with much of the variance again being due to the slower recovery in the group sales channel and the elimination of certain ticket programs. In any short window, attendance can also be affected by macro factors like extreme heat or rainy weekends. Overall, however, July demand stayed in line with expectations. Based on preliminary results through the first seven months of the year, we've entertained 15.4 million guests and generated net revenues of $1.03 billion, reflecting an increase of 17% or $152 million compared to the same period in 2019. During this seven-month period, in-park per capita spending was a record $60.76, a 25% increase from 2019, and out-of-park revenues totaled a record $125 million, up $20 million or 19% from the same period in 2019. For context, operating days for the first seven months of 2022 and 2019 totaled 1,362 days and 1,352 days, respectively. After releasing our interim updates for Memorial Day and the July 4 weekend, some investors inquired about our decision to reduce the number of operating days for 2022. I want to assure you, this decision was intentional and strategic. While labor availability has improved, challenges still exist, particularly in certain markets. Our adjustments to the park operating calendars reflect those challenges. By concentrating demand into fewer operating days, we not only improve labor utilization and reduce operating costs but also enhance the guest experience. We will continue to adjust operating calendars as necessary, adding or reducing days when appropriate. Currently, we project the remainder of the season will have around 80 additional operating days compared to the same period in 2019, largely due to the later timing of Labor Day this year. These extra operating days offer an opportunity to recover a meaningful portion of the early-season attendance variance. As our park teams focus on driving demand and maximizing operational efficiencies, access to market intelligence and better analytics informs us when it is beneficial to adjust operating calendars. This is an example of how we are now using data and analytics to make smarter, more proactive decisions that drive value creation. Now, regarding our balance sheet. As Richard mentioned, for the 2022 season, we achieved a new record high for season pass sales. By the end of July, we sold 3.2 million season passes, while sales of related All-Season products, including All-Season Dining and All-Season Beverage, were 56% higher than the previous record for add-on products. These strong results, combined with robust resort bookings, brought deferred revenues to $307 million at the end of the second quarter, an increase of $73 million or 31% from the end of the first quarter of 2022 and up $15 million or 5% from the end of the second quarter of 2021. As of the end of the quarter, Cedar Fair's balance sheet is in solid financial condition. We held $125 million in cash and had $194 million available under our revolving credit facility, net of $16 million in letters of credit, bringing total liquidity to $319 million at the end of the quarter, compared to $284 million at the end of the first quarter. Net debt at the end of the second quarter was $2.5 billion, calculated as total debt of $2.6 billion minus cash and cash equivalents of $125 million. These figures do not include the proceeds from the sale of our California real estate since that transaction did not close until the first week of the third quarter. During the second quarter, we invested $62 million in capital projects, totaling $96 million in CapEx for the first half of the year. Looking ahead, we expect to spend between $160 million and $175 million on core CapEx in 2022, along with an additional $40 million for resort and renovation investments, including the recently reopened Castaway Bay and Sawmill Creek resort properties at Cedar Point. The total projected investment for 2022 aligns with our planned capital program of $200 million for the upcoming 2023 season. Now, I will turn the call back to Richard for some final thoughts.

Richard Zimmerman, President and CEO

Thanks, Brian. I want to take a few minutes to discuss our updated capital allocation strategy, which we announced earlier this morning. Fundamentally, our priorities remain the same. That is, we intend to invest in Cedar Fair's core business, strengthen the balance sheet, and return capital to unitholders. The difference now is we have all the levers available to us, and we can adjust our emphasis on each of these elements as market conditions evolve. Certainly, the headline of today's announcement is the reinstatement of the quarterly cash distribution reflecting an annualized rate of $1.20 per unit or approximately 1/3 of our pre-pandemic distribution rate. The size of the distribution reflects our board's confidence that Cedar Fair's business outlook is strong and its financial position is stable and improving. Setting aside the disruption of the pandemic, Cedar Fair has a proven long-term track record of successfully balancing the capital allocation needs of the business to support an attractive, reliable and steadily growing distribution, a priority on which we remain laser-focused. Today, we also expanded our ability to return capital to unitholders with the board's authorization of a $250 million unit repurchase plan, which further strengthens our capital return policy. When combined with a growing and sustainable quarterly distribution, we believe opportunistic, well-timed unit repurchases will serve as a very effective means to enhance total return over time. This is especially true at current price levels. We believe units of Cedar Fair represent a very attractive investment opportunity. The current unit price does not reflect the underlying value of the business, as demonstrated by Cedar Fair's rapid recovery since the pandemic, including the company's stronger balance sheet and the record results we've delivered since reopening the parks last season. Moreover, the company's current market valuation does not reflect the value of long lead indicators, nor the consistent growth and sustainability of our recurring revenue streams such as season pass sales, which continue to substantially outpace pre-pandemic levels and position us well to post another record performance in 2022. Cedar Fair's generation of significant free cash flow is the primary strength of our business model and fuels our capital allocation strategy, including our priorities of paying down debt and reinvesting in our properties to drive growth and value creation. Our commitment to investing in the guest experience improved the pace of our recovery and is the primary driver of the record levels of in-park guest spending and out-of-park revenues we've achieved this year. As I previously mentioned, thanks to our outstanding performance over the past 12 months and disciplined approach to cash management, we've greatly strengthened the company's balance sheet. Based on our outlook for the full year, we're on pace to finish this year with a net leverage ratio well inside 4x adjusted EBITDA and approaching pre-pandemic levels. Achieving that milestone will give us added flexibility to deploy free cash flow, whether investing in capital projects with compelling returns, increasing our distribution over time, or buying back equity when we believe it is undervalued. Along with our board, our management team remains focused on driving growth and delivering upon the commitment of creating value for our unitholders. Finally, while we're proud of what we've accomplished so far this year, by no means are we resting on our walls. Next Thursday, we will be unveiling our 2023 capital investment program, sharing with our guests, communities and associates, the first look at what exciting new rides, attractions, and immersive entertainment are coming to our parks and resort properties, some of which are already under construction. While continuously improving our properties is a Cedar Fair tradition, we also never lose sight of what matters most: making people happy. Having emerged from the pandemic, a more flexible business and more cohesive as a team, we're thrilled to be in a position to continue to fully deliver on that purpose. Rex, that's the end of our prepared remarks.

Operator, Operator

Your first question comes from the line of Steve Wieczynski.

Steve Wieczynski, Analyst

So I wanted to dig into the change in capital allocation here a little bit more. Just look, I understand your business seems like it's in a pretty good spot at this point. But I guess the question is going to be more about trying to understand why you decided to put the buyback in there or why the board decided to put the buyback in there now versus maybe going down the path of a higher distribution?

Richard Zimmerman, President and CEO

Steve, great question. Thank you. We think, as I said in my prepared remarks, the board and our management team feel Cedar Fair represents a really attractive investment opportunity. And as we've looked at it, we think there's ability to boost our total return over time. The distribution has always been the core focus of our company and certainly with our MLP entity structure been a very tax-efficient way to return capital. But we also believe when there are dislocations in what we believe the market values our company at that we've got an opportunity to opportunistically go in and buy units at a really attractive valuation level that will improve the return to all of our unitholders over time.

Steve Wieczynski, Analyst

I appreciate that. I want to ask about July. It appears there was a drop in attendance compared to 2019, possibly in the upper single digits. I understand there are calendar changes and variations in operating days. However, I'm trying to determine how significant the impact is of removing those low-value ticket programs and the group segment. I'm looking to understand what the year-over-year comparison for July really looks like.

Brian Witherow, Executive Vice President and CFO

Yes, Steve, I'll address that and you can let me know if I haven't answered it clearly. As mentioned in my prepared remarks, I would describe July as generally in line with the results we've experienced in the first half of the year. The key highlights include the strong and steady momentum in guest spending levels, although July's per capita growth has decreased slightly to around 24% compared to approximately 26% in Q2. However, in terms of total dollars, guest spending trends remain very steady. Our out-of-park revenue is robust. On the attendance side, short periods like a 5-week interval often have macro factors that need consideration. For instance, record temperatures on the East Coast have occasionally impacted our parks, along with some rain. Overall, the demand trends have aligned with our expectations, and the gap to 2019 levels relates to your point about group attendance still being somewhat disconnected, which we anticipated at the beginning of the year, knowing it would take a couple of years to fully recover. The decisions to phase out certain programs were strategic, aimed at addressing low-margin legacy ticket promotions that we believed were less valuable, using the pandemic as a chance to reset and move forward on a better path. Additionally, regarding the health of July, we closely monitor longer-term indicators, and hotel bookings have significantly surpassed 2019 levels in July, similar to the first half of the year. Furthermore, season pass sales during the 5-week period were more than 50% higher compared to 2019, which is a strong indicator of consumer sentiment and the overall health of the business, helping to filter out the short-term macro factors previously mentioned.

Operator, Operator

Your next question comes from the line of James Hardiman.

James Hardiman, Analyst

So I wanted to pick up where Steve may be left off there. Brian, when you talk sort of macro factors, I know that you're talking in a lot of ways, sort of short-term, maybe weather-related things. I want to try to figure out what impact, if any, the sort of macroeconomic environment is having on the consumer. It's sort of an open-ended question, I'm curious what consumer trends or how you're able to sort of slice and tighten the trends of the consumer. Obviously, gas prices have been a big concern. Are you seeing deltas between short distance versus long distance? Are there particular parks or geographies that are doing better than others and then low-end versus high-end? So sort of open-ended based on whatever data you guys might have available to you?

Brian Witherow, Executive Vice President and CFO

Yes, James. We are very focused on this topic, as is everyone else. Analyzing the data we have so far can be challenging mid-season because we can’t draw firm conclusions until we have the complete year and consider any timing differences in these interim periods. Currently, we aren’t observing anything significant regarding a downturn. We are paying attention to areas of our business where we could potentially see a change in the behavior of lower-end consumers. For instance, when examining our accommodations group, specifically the Express Hotel compared to Sawmill Creek and the Breakers Hotel, we sometimes expect that discounted hotels might show a pullback earlier, but we haven't seen that yet. Additionally, per capita spending remains strong, along with other leading indicators. Guests continue to opt for our highest-priced ticket, which is the season pass. As Richard and I pointed out, the record sales for 2022 are very encouraging, and we haven't noticed any slowdown in that trend. In fact, as I mentioned in response to Steve's question, the growth in sales accelerated on a percentage basis throughout July, leading up to our transition this week into the 2023 sales cycle at some of the parks.

Richard Zimmerman, President and CEO

Yes, James, it's Richard. I want to highlight what Brian mentioned regarding the health of our business and the significance of our loyal customer base. Coming into the year, we recognized that we had season pass privileges extending through early May and into the summer in Canada. Despite this, we achieved a record season pass year, with significant performance and sales figures in Canada. Looking at comparable industries, such as ski resorts, we see they are also experiencing increases in season pass sales, up over 20%, and at higher prices. Our most dedicated customers are moving toward our premium offering, the season pass, which represents our highest ticket price but also provides the greatest value. This trend is very positive for our business, not just for July but also for our long-term revenue strategies, and I'm really pleased with the choices our consumers are making.

James Hardiman, Analyst

Got it. As a follow-up, it seems you're generally satisfied with our current position, especially when compared to 2019, where we have experienced notable growth. However, the EBITDA figures might have fallen slightly short of Wall Street expectations. I'm interested in understanding how this aligns with your own projections from three months ago and how it relates to the distribution aspect. You mentioned that this is one-third of the pre-pandemic distribution, even though EBITDA is expected to exceed 2019 levels. Since both of you were here during that time, could you elaborate on the thought process behind this? It appears that there wasn’t much recognition for it back in 2019, so please walk us through your reasoning and its relation to current performance.

Richard Zimmerman, President and CEO

Yes, James, this is Richard again. We have clearly outlined our priorities concerning capital allocation. We aim to reduce our net debt to about $2.0 billion. As we reflect on the entirety of this year and observe trends from previous years, especially pre-pandemic, we notice that our results have become increasingly weighted towards the latter half of the year. This emphasizes the strong performance in July and August, the significant popularity of our Halloween event, and the revenue we generated in October. Furthermore, we anticipate increased revenue and EBITDA in November and December, alongside season pass sales during our WinterFest event. As I mentioned in my prepared remarks, over 80% of our EBITDA is driven in the last six months, and we expect this trend to continue. Currently, we are on track with our expectations. Notably, the $73 million increase in deferred revenue from season pass sales is significant. Looking at the latter half of this year and beyond, we have an opportunity with a larger base of season pass holders to renew. As we prepare our plans for 2023, which we will announce next week, we are excited about the demand we believe we can generate and the overall health of the business. We believe there is an opportunity to take a balanced approach to capital allocation, ensuring we invest enough to keep the business robust while also expanding distribution and rewarding our unitholders. We also want to leverage the market conditions, as we feel we are not receiving appropriate recognition for the distribution or the free cash flow we are generating over time, which is a testament to our business strategy and model. Therefore, the Board and I prefer to have various options available to us and believe it is wise to maintain some flexibility in how we return capital to our unitholders.

Operator, Operator

Your next question comes from the line of Ben Chaiken.

Benjamin Chaiken, Analyst

Just to clarify some earlier discussion, the group and the removal of the lower-end ticket programs is not something new in July. Does that just highlight the weather or those lower-end ticket programs you mentioned, and does it group a larger portion of the mix in the last five or six weeks? I'm trying to understand why those changes, which I believe were already influencing the situation, didn't affect the year-to-date period in the same way. As Steve mentioned, attendance in the last five or six weeks is down about 9% compared to 2019. Additionally, you're suggesting that the trends in the last five or six weeks align with your expectations and with the first half of the year. Should we anticipate that attendance will be down 9% in the second half of the year?

Brian Witherow, Executive Vice President and CFO

It's Brian. To address the first part of your question regarding group and lower-value ticket programs, I wouldn't say that they performed any better in July compared to the first half of the year. To provide some context, group attendance has been gradually improving and the gap relative to 2019 has been narrowing, but it remains about a third lower than pre-pandemic levels. This is a challenging area to recover in a single year since many of these groups are tied to specific dates or times of year. For instance, spring events for youth and schools cannot be made up once missed until the following year. Lower-value ticket programs are scattered throughout the season. As I mentioned earlier, examining a short time frame can lead to inconsistencies, so it is more informative to consider the entire year. Steve highlighted in his update this morning that it's important to understand the trends for 2022, suggesting we might need to analyze the second and third quarters together to see how calendar shifts affect attendance, especially with the later Labor Day. The earlier remark about being in line with expectations was based on our own analysis of how weather might have influenced the attendance over the last five weeks. We conduct extensive analyses of demand trends across various channels and try to estimate the effects of macro factors like weather during rainy weekends or heat waves, which contributed to that comment.

Benjamin Chaiken, Analyst

Okay. That's helpful. Moving forward from August until the end of the season, is it reasonable to expect that attendance will be higher compared to 2019, excluding weather? Or should we be aware of factors such as group attendance or lower-priced tickets that might affect this? Just trying to clarify that.

Brian Witherow, Executive Vice President and CFO

Sure. We're not going to provide guidance, but we do anticipate facing some challenges from group sales, and we fully expect that. We will still experience some of those lower value ticketing programs that haven't occurred yet, and we will continue to address those. Our strategy remains unchanged. Therefore, we can expect some headwinds. However, the most encouraging point, as Richard mentioned, is when you look at the long-term indicators. There are record numbers of season passes sold, a significant amount of deferred revenue, and approximately 80 additional operating days ahead. This combination presents a very compelling scenario that could lead to a significant improvement in the variance we've observed year-to-date.

Operator, Operator

Your next question comes from the line of Mike Swartz.

Michael Swartz, Analyst

To start with the distribution, it's about one-third of what it was before the pandemic, which gives us some flexibility. How should we view the long-term growth in distribution? Should we consider it in line with the anticipated EBITDA growth over the next few years, or should we expect it to grow a bit faster in the near term?

Richard Zimmerman, President and CEO

Thank you for your question, Steve. I appreciate it. As we consider our outlook for the coming years, we regularly review it with the board. Our planning process involves more than just setting budgets for 2023; it includes looking at our long-range models. I want to emphasize the flexibility we've discussed. We have priorities for capital allocation that we aim to meet with our cash, similar to what we did in 2010, 2011, and 2012 when distribution was disrupted and later restored as we experienced growth. We recognize how crucial the distribution is for our unitholders, and the tax advantages of our structure make it particularly appealing for long-term investors. While we won't provide specific guidance on this, it is a significant topic in our deliberations about returning capital to unitholders. We need to ensure that we're not sacrificing the chance to invest in our core business and achieve growth, as this is key to sustaining and eventually increasing the distribution over time.

Michael Swartz, Analyst

Okay, that's helpful. Can you provide more details on the decision to sell the California property and whether there are any additional costs, such as lease expenses, we should consider as we plan for the rest of the year and beyond?

Richard Zimmerman, President and CEO

Good question, Mike. And as I look at it, this really was, as I said in my prepared remarks, a once-in-a-generation opportunity as we've all seen, the real estate market is extremely strong and healthy. Silicon Valley has its own dynamics in play. This was really an opportunity for us to take a look at where we got capital invested and how we deploy that capital, still give us an opportunity to both do other things with the capital that we generate from the sale, which we talked about this morning. But also, as we think about that market, we get to continue to operate that property for a number of years, maintain our relationship with the community, maintain our relationship with our customers. So we just thought that it was a very unique moment in time in terms of real estate values within Silicon Valley and that when you think about what we could generate, it gave us more flexibility on capital deployment both in the moment and going forward. Brian, do you want to take the comment about lease?

Brian Witherow, Executive Vice President and CFO

Yes, Mike, regarding the impact on the business, this is similar to the situation we faced before acquiring the land in 2019. We will now be making rent payments for that land. Looking ahead, on an annual basis, this will be around $12 million to $13 million. However, considering Great America and its growth trajectory, the EBITDA has been positive. We still view that property as generating cash flow even after accounting for lease payments.

Operator, Operator

Your next question comes from the line of Chris Woronka.

Chris Woronka, Analyst

I appreciate all the details so far. I was hoping we could revisit the comments about the shifts in the operating days that you have planned on, I guess, partially on account of labor challenges? Can you give us a little more color on is that a specific geography? And also does it make you think about more permanent changes to park operating hours or the way you staff outlets or things like that, right? We've seen restaurants, closed dining rooms and things like that. I'm just trying to get a sense for whether there's a longer-term aspect we need to think about here.

Brian Witherow, Executive Vice President and CFO

Yes. Chris, in terms of the changes to this point, as I mentioned in my prepared remarks, the motivating factor, the biggest motivating factor behind that was some challenges around staffing. Certainly, it's not a broad issue across the company, and it was more largely confined to some of our smaller or mid-tier properties in the early season. And that has always been a challenge or more challenging, I should say, to find staffing in the shoulder periods of the year, right? Spring, fall, when we lose access to a lot of the high school and college-age folks that are our associates. And so I would say as we think forward, our focus is in on making adjustments and relinquishing operating days and just taking it as it happened this year, but really focused on writing the staffing model. It's part of what's been a motivating factor behind you, maybe recall us talking about over the last year or so in certain markets, a little bit of a pivot away from more seasonal positions to more year-round part-time or full-time positions in the company that drove a little bit of some of our operating cost increase that we've talked about the last couple of quarters. But really at those smaller mid-tier parks is going to help us going forward with ensuring that we don't have to take days out of the operating season during those shoulder periods.

Chris Woronka, Analyst

Okay. That's helpful. And then as a follow-up, you've talked about more people upgrading to the season pass, which is your highest priced offering, which is great. When they go into the park, are you seeing them generate the same level of ancillary spend as they would have if they were on a lower price point pass?

Richard Zimmerman, President and CEO

Good question, Chris. When we look at it, we continue to see the same behavior in terms of in-park spending that we would expect to see from our season pass holders, whether they're new people that have upgraded or potentially, they were 1-day tickets before. When you look at the health up more than 50% in our add-on All-Season Dining, All-Season Beverage, we continue to see healthy spend from both 1-day, our unique visitors, the 1-day ticket purchasers and the season pass holders. So we're encouraged and go back to our capital program this year. Let me elevate back up and say, we made a significant investment in a number of facilities. We put culinary talent throughout our system, and we're reaping the benefits of that. So we're seeing higher average transaction values, and we're seeing increased number of transactions and we monitor that daily and weekly. So we're really diving into the data to make sure that we understand how we're driving. But coming into the year, there was a lot of question about the stickiness of the per caps. And I think what we're seeing, even with season pass holder percentage going to 62%, we're showing that we can drive the in-park spending even at higher season pass levels. I'm not sure pre-pandemic, we would have thought that, but we're seeing that in spades right now.

Operator, Operator

Next question comes from Paul Golding.

Paul Golding, Analyst

Attendance per property day has been up. You're yielding record per caps. I guess, are you doing anything to bring group back? Is group maybe even something that's worth forcefully bringing back or just waiting for organic attendance to flow back in, given how well you're yielding on the current product mix? I guess just any thoughts around how we should think about group, especially since I would expect that it is dilutive to per cap overall?

Richard Zimmerman, President and CEO

Thank you, Paul. It's Richard. Let me share my thoughts. As we look towards 2023 and beyond, we believe that the group business, similar to what we experienced in 2008 and 2009, can return to previous levels. I've met with our group sales team, and they are very optimistic about the upcoming year. A unique aspect of the group business is our focus on youth groups, particularly during the spring and early summer. If we miss that timeframe, it can impact us. However, as we anticipate next year, there are promising signs in terms of demand in that area. We are dedicated to ensuring that we are prepared to capitalize on that demand and collaborate with youth organizations and school systems to secure dates and ensure we have everything in place.

Paul Golding, Analyst

And so would you say the group that serves more of a top-of-funnel function given that is likely not at pricing that's comparable to your single day or your season pass level?

Richard Zimmerman, President and CEO

Yes. I believe the group, especially youth organizations and corporate clients with specific outings, has unique aspects. We may accommodate some individuals from that segment through various ticketing options as they don't attend on certain days. Over the years, we have learned that by offering youth performance days focused on subjects like math, physics, and science, we can attract additional visitors. Re-establishing those groups will return us to previous attendance levels. It's essential to ensure we schedule these events properly since they need to be booked in advance, which we are currently organizing. We should have a clearer picture by the time winter arrives.

Brian Witherow, Executive Vice President and CFO

Yes, Paul. It's Brian. We're not going to give any specific nor can we in terms of what and when we think we're going to buy back units. As Richard said during the call, we believe that where units of Cedar Fair are trading right now does not reflect the strength of the business or our outlook for growth going forward. So we'll be as aggressive as we can be, given a number of factors for consideration, market considerations, our own liquidity considerations. As we noted, there are competing priorities right now. We still do want to continue to pay down debt, but we're generating a lot of free cash flow, and this is another lever that we have at our disposal to pull for returning capital to investors when we feel like there's a disconnect in value.

Operator, Operator

Our final question comes from the line of Ben Chaiken.

Barton Crockett, Analyst

I'm sorry, I think you turned in me. It's Barton, right? That you guys turned in me.

Richard Zimmerman, President and CEO

Yes, go ahead, Bart.

Barton Crockett, Analyst

I wanted to dive deeper into the sustainability of the per capita spending. I know you mentioned that transaction prices and spending per transaction have increased. Can you provide more insight into the relationship between the number of items purchased and their prices? Are customers buying more items, making that the main factor behind the growth in per capita spending, or is it more about the increasing cost of individual items or services? From your perspective, given that you’re in the parks regularly, does this feel like a temporary post-pandemic surge that might not last, or do you believe it is sustainable?

Richard Zimmerman, President and CEO

I believe the core of your question involves understanding consumer behavior, not only regarding their health but also their actions within our parks. This year, we've seen the benefits of our long-term investments, particularly in food and beverage. To address your question, we're experiencing a significant increase in transaction volume due to the higher capacity facilities we've developed that offer better quality food. We haven't primarily raised prices; instead, consumers are opting for more premium food options, such as choosing brisket over a burger, which has resulted in a higher average transaction value. The overall volume of transactions has greatly increased, partly due to our ongoing investments. We're upgrading older facilities to enhance their capacity and quality, and we are also constructing new venues designed for efficiency to meet our guests' dining expectations. Our focus on food and beverage will remain strong, and we've also observed a rise in merchandise sales, which will be emphasized moving forward. The continued in-park spending is largely attributed to our improved service quality and overall guest experience, as well as our capability to handle more volume.

Brian Witherow, Executive Vice President and CFO

Yes, Barton, it's Brian. Within the partnership agreement, there's a lot of flexibility for the Board in terms of how excess cash flow has returned to investors. So our MLP structure doesn't really create any structural barriers or any difference than it would if we were a C corp. So the flexibility is there. We haven't, as Richard noted before, used this as a tool historically. The last time was in the early 2000s. But we certainly see the value in having another lever for returning capital to investors that is more flexible that when we don't believe there's value being given for the distribution we're paying out, rising interest rate environment, maybe a time where that would be the case. We have this now as a tool in our tool belt that we can turn on or off a little bit easier than the distribution itself.

Operator, Operator

That concludes today's conference call. You may now disconnect.