Six Flags Entertainment Corporation just held their Q1 2024 earnings call and, on the surface, things seem to be chugging along. They're investing in shiny new rides, AI is the buzzword du jour and season pass sales are seeing a healthy bump. But buried beneath the rollercoaster announcements and metaverse ambitions lies a curious discrepancy that seems to have slipped past the watchful eyes of Wall Street analysts: a potential phantom revenue stream tied to their '13-plus' memberships.

To understand this anomaly, we need to delve into the peculiar world of theme park accounting. Six Flags, like many of its peers, relies heavily on recurring revenue streams, with season passes and memberships forming the backbone of their financial model. The '13-plus' category represents revenue from memberships that have extended beyond their initial 12-month commitment – essentially, a metric of customer loyalty and a predictable source of income.

However, Six Flags' latest transcript reveals a puzzling trend. While executives boast of strong in-park spending and a 5% underlying per capita growth (excluding those pesky '13-plus' memberships, of course), they also flag significant 'headwinds' in Q1 2024 due to lower 13-plus revenue. This headwind is quantified as a reduction of roughly $14 million compared to the same period last year.

Now, here's where things get interesting. In Q4 2023, Six Flags reported a $12 million reduction in 13-plus revenue compared to Q4 2022, attributing it to the attrition of 'legacy members' – a group that had enjoyed particularly generous benefits. They further stated that the full-year impact of 13-plus revenue on the year-over-year per capita comparison was 'negligible.'

So, we have a $12 million dip in Q4, a supposedly 'negligible' full-year impact, yet a projected $14 million headwind in Q1 2024? The math simply doesn't add up.

One hypothesis is that Six Flags is grappling with a more substantial exodus of these loyal '13-plus' members than they're letting on. Perhaps the allure of new, streamlined membership options or competitor offerings has led to a quiet churn that's impacting their anticipated revenue. This theory is further strengthened by their projection that these headwinds will continue into Q2 2024 with an anticipated reduction of approximately $10 million.

Projected '13-Plus' Membership Revenue Reduction

Let's look at the potential scale of this issue. If we assume a conservative $10 million reduction in '13-plus' revenue each quarter for the remainder of 2024, that equates to a $40 million annual impact – a figure that could make a dent in their profitability targets, especially when coupled with rising labor costs and continued investments.

Historical and Projected '13-Plus' Revenue (Millions USD)

Now, it's entirely possible that there are perfectly reasonable explanations for this revenue discrepancy. Perhaps it's an accounting quirk related to how they recognize '13-plus' revenue or a strategic decision to shift their membership model that hasn't been fully articulated. But the lack of clarity in the transcript, coupled with the significant sums involved, raises more questions than it answers.

As Six Flags barrels into the 2024 season, investors would be wise to seek further clarification on this enigmatic revenue stream. After all, when it comes to long-term financial performance, sometimes it's the subtle drops and unexpected turns that pack the most impactful punch.

"Fun Fact: The term '13-plus' in Six Flags' financial reporting refers to membership revenue beyond the initial 12-month commitment period. It's a unique metric that reflects customer loyalty and provides a recurring revenue stream for the theme park giant."