Buried deep within Cedar Fair's Q1 2024 earnings call transcript lies a potential revelation that could reshape the company's future and unlock unprecedented profitability. While Wall Street fixates on the impending Six Flags merger and the company's strategic shift towards fewer operating days, a quieter, more profound transformation is taking place within Cedar Fair's core cost structure. This transformation, if sustained, could propel the company to industry-leading margins and deliver outsized returns for investors in the years to come.

The clue lies in a seemingly innocuous statement by CFO Brian Witherow: "Excluding these costs [merger-related expenses], operating costs and expenses were essentially flat on a comparable week basis, and that's while still entertaining 125,000 more guests during the period." This seemingly innocuous statement holds the potential to be a bombshell. It suggests that Cedar Fair, despite the widely-acknowledged inflationary environment and the ever-present challenges of seasonal labor management, has achieved an extraordinary level of operational efficiency.

Let's unpack the significance of this statement. By holding operating costs flat while accommodating a 10% increase in attendance, Cedar Fair has effectively decoupled its cost structure from attendance growth. This is a remarkable feat, indicating a fundamental shift in the company's operational model. It suggests a move away from a traditional variable cost structure, where costs rise in lockstep with attendance, towards a more fixed-cost model.

The implications of this shift are profound. A more fixed-cost structure creates a powerful operating leverage dynamic, where incremental revenue translates into outsized profit growth. As Cedar Fair drives attendance back to pre-pandemic levels and beyond, the company's profitability could explode, potentially leading to industry-leading margins and a dramatic revaluation of the business.

But is this sustainable? Can Cedar Fair truly maintain this level of operational efficiency in the long term?

Here's the hypothesis: Cedar Fair is leveraging a potent combination of strategies to permanently lower its cost base and transform its operational model. These strategies include:

Strategic Calendar Condensation: By reducing operating days, particularly in the shoulder seasons, Cedar Fair is concentrating attendance over fewer, higher-volume days. This allows the company to optimize staffing levels and resource allocation, driving efficiency gains.

Reimagined Programming: Cedar Fair is shifting towards entertainment programming that is less reliant on seasonal labor. This strategic shift reduces reliance on the most volatile and expensive component of its cost structure, creating a more stable and predictable cost base.

Digital Transformation and Automation: Cedar Fair is investing heavily in digital technology and automation, including a new mobile app, upgraded WiFi infrastructure and AI-powered recruitment tools. These initiatives enhance the guest experience, streamline operations and reduce reliance on labor, driving further efficiency gains.

These strategies, combined with the company's continued focus on dynamic pricing and data analytics, create a powerful engine for long-term margin expansion. If Cedar Fair successfully executes this plan, the company could achieve the following:

Hypothesis:

Adjusted EBITDA margin expansion to 35% or higher within the next 3 years. This would represent a significant improvement over the company's historical margins and potentially position Cedar Fair as the most profitable regional amusement park operator in the industry.

Accelerated free cash flow generation and distribution growth. Higher margins translate into increased free cash flow, which can be used to fund distributions, reduce debt or reinvest in the business. This could drive significant value creation for unitholders.

The numbers support this hypothesis. Cedar Fair's Q1 2024 results demonstrate the potential of this new model. The company's lone park with substantial first quarter operations, Knott's Berry Farm, achieved a 200 basis point improvement in EBITDA margin on a comparable week basis. This result provides a tantalizing glimpse into the company's potential if it can replicate this success across its portfolio.

Potential Numbers:

Assuming a 5% annual attendance growth and a 35% EBITDA margin, Cedar Fair could generate over $700 million in Adjusted EBITDA by 2027. This represents a significant increase from the company's 2023 Adjusted EBITDA of $528 million. (

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This level of profitability could support a substantial increase in distributions, potentially reaching $4 per unit or higher, representing a yield of over 7% at current prices. (

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Season Pass Sales Growth and Pricing

The chart below shows the growth in season pass unit sales for Cedar Fair in Q1 2024 compared to the same period last year, alongside the change in average season pass price. This highlights the company's strategy of prioritizing volume growth in the early stages of the season pass program, with the potential for price increases as demand strengthens.

The Six Flags merger undoubtedly represents a watershed moment for Cedar Fair. But the real story may be unfolding behind the scenes, where the company is quietly building a foundation for unprecedented profitability. If Cedar Fair successfully navigates the merger and maintains its laser focus on cost control and operational efficiency, the company could emerge as a true industry titan, delivering extraordinary returns for investors who recognize the power of this margin revolution.

"Fun Fact: Cedar Point, Cedar Fair's flagship park, is known as the "Roller Coaster Capital of the World" and has held the record for the most roller coasters in a single park for several years. This commitment to thrilling attractions and innovation is a hallmark of Cedar Fair's brand."

Cedar Point Website