Six Flags Entertainment Corporation (FUN) has emerged as a formidable player in the amusement park industry, following its transformative merger with Cedar Fair in 2024. The combined entity, now known as Six Flags Entertainment Corporation, has unlocked substantial synergies and positioned itself for long-term growth, making it an intriguing investment opportunity for discerning investors.

Business Overview

Six Flags Entertainment Corporation has a rich history dating back to the late 19th century, with its origins tracing back to the opening of the first Six Flags park, Six Flags Over Texas, in 1961. Founded by Angus G. Wynne Jr., this park was the first regional theme park in the United States. The company's journey has been marked by significant milestones and strategic moves, including a merger with Time Warner in 1998, which fueled further growth and expansion. During this period, Six Flags acquired numerous regional theme parks and water parks, substantially expanding its portfolio.

The company faced challenges during the economic recession in the late 2000s, which adversely impacted attendance and profitability. In 2010, Six Flags emerged from bankruptcy and was acquired by private equity firm Stanley Works, enabling the company to stabilize its operations and refocus on its core theme park business. Over the next decade, Six Flags continued to invest in its parks, adding new rides and attractions to drive attendance and guest spending.

Today, following its merger with Cedar Fair in 2024, Six Flags Entertainment Corporation boasts an impressive portfolio of 42 amusement and water parks, 15 separately gated water parks, and 9 resort properties across North America, making it the largest regional amusement park operator on the continent. The company's parks are family-oriented, offering a wide range of recreational facilities, exciting rides, and immersive entertainment experiences. Six Flags generates revenue from admission fees, food and merchandise sales, accommodations, and other extra-charge products within its parks. The company's operations are highly seasonal, with approximately 70% of annual attendance and revenue typically occurring during the second and third quarters of the year.

Financial Performance and Synergies

The merger between Six Flags and Cedar Fair has unlocked significant financial benefits for the combined entity. In the fourth quarter of 2024, the company reported net revenues of $687 million, reflecting a 3.6% year-over-year increase. This growth was driven by the inclusion of $324 million in net revenues from the legacy Six Flags operations, which more than offset a slight decrease in legacy Cedar Fair revenues.

Adjusted EBITDA for the fourth quarter of 2024 increased by $120 million to $209 million, representing a 650-basis-point expansion in the modified EBITDA margin to 30.4%. This impressive performance was achieved through a combination of revenue growth and disciplined cost management initiatives, with the company capturing approximately $50 million in gross cost synergies during 2024.

Looking ahead, the company is targeting $1.08 billion to $1.12 billion in Adjusted EBITDA for the full year 2025, reflecting the ongoing integration of the two legacy businesses and the realization of additional cost savings. Management has outlined plans to deliver $70 million in gross cost synergies in 2025, primarily through further organizational streamlining, vendor rationalization, and the optimization of the combined park infrastructure and technology systems.

Financials

The company's financial performance has been strong following the merger. For the full fiscal year 2024, Six Flags Entertainment Corporation generated net revenues of $2.71 billion, representing a 50.6% increase compared to 2023. This growth was primarily driven by a 56.2% increase in attendance to 41.65 million guests and a 20.9% increase in out-of-park revenues to $232.41 million. The increase in attendance was attributed to higher season pass sales, improved weather, and increased demand at parks with new marketable rides and attractions.

Despite the revenue growth, the company reported a net loss of $206.66 million for fiscal year 2024. Operating cash flow for the year was $373.41 million, with free cash flow of $52.59 million.

In the fourth quarter of 2024, net revenues reached $687.31 million, a 50.6% increase year-over-year. However, the company reported a net loss of $264.22 million for the quarter. The significant revenue growth in Q4 was primarily driven by the inclusion of $324 million in net revenues from the legacy Six Flags operations added through the merger.

It's worth noting that in-park per capita spending decreased 1.4% to $61.31 in 2024. This was due to a planned decrease in average season pass pricing and a higher mix of season pass visitation, partially offset by improved spending on food, beverage, and extra-charge products.

Liquidity

Six Flags Entertainment Corporation maintains a solid liquidity position. As of December 31, 2024, the company had $83.17 million in cash and cash equivalents. Additionally, the company had $494.40 million available under its $850 million senior secured revolving credit facility.

The company's debt-to-equity ratio stood at 2.53 as of December 31, 2024. The current ratio was 0.43, and the quick ratio was 0.35, indicating potential short-term liquidity challenges that management will need to address.

Operational Highlights and Growth Initiatives

The merger has allowed Six Flags to leverage the complementary strengths of the legacy Cedar Fair and Six Flags operations, positioning the combined entity for sustainable growth. The company has embarked on a strategic capital investment program, allocating approximately $475 million to $500 million in 2025 to enhance the guest experience and drive increased visitation.

Key initiatives include the introduction of major new attractions at 11 of the company's 14 largest parks, such as the record-breaking tilt coaster "Siren's Curse" at Cedar Point, the world's steepest dive coaster "Wrath of Roksha Shaa" at Six Flags Great America, and the multi-launch straddle coaster "Quantum Accelerator" at Six Flags New England. These cutting-edge rides and attractions are designed to attract thrill-seekers and families alike, catering to the diverse preferences of the company's guest base.

In addition to these capital investments, Six Flags is also focused on unlocking the full potential of its existing assets through strategic portfolio optimization. The company has identified several smaller, non-core properties, as well as excess undeveloped land, that it may consider divesting under the right circumstances. This process is aimed at reducing complexity, narrowing management's focus, and enhancing shareholder value.

The company operates within a single reportable segment of amusement and water parks with accompanying resort facilities. Of its 42 amusement and water parks, 38 are located in the United States, two in Mexico, and two in Canada. This geographic diversity provides some insulation against regional economic fluctuations.

Six Flags' strategy, known as Project Accelerate, focuses on enhancing the guest experience, identifying operating efficiencies to generate cost synergies, maintaining a disciplined approach to capital investments, integrating technology, and evaluating potential divestitures of non-core assets. The company plans to invest approximately $1 billion in capital expenditures during 2025 and 2026 to realize the full market potential of each park and maximize free cash flow efficiency.

Risks and Challenges

While Six Flags Entertainment Corporation has demonstrated impressive post-merger performance, the company is not without its share of risks and challenges. The amusement park industry is highly susceptible to macroeconomic factors, such as consumer spending patterns and discretionary income levels, which can directly impact attendance and in-park per capita spending.

Moreover, the company's operations are subject to various regulatory requirements, including those related to employment practices, environmental compliance, and safety standards. Any failure to maintain regulatory compliance or address emerging issues could result in fines, legal proceedings, and reputational damage.

Additionally, the company's international expansion plans, particularly in regions like Saudi Arabia, carry inherent risks related to political and economic stability, as well as potential challenges in adapting to local market dynamics and preferences.

The highly seasonal nature of Six Flags' operations, with approximately 70% of annual attendance and revenue occurring during the second and third quarters, can magnify the impact of adverse conditions or events occurring within the operating season. This leaves only a limited period to mitigate their effects, posing a significant risk to the company's financial performance.

Industry Trends and Future Outlook

The global leisure travel market, which directly impacts Six Flags' business, had a market size of $1.2 trillion in 2023 and is anticipated to grow at a compound annual growth rate of 18.3% between 2024 and 2033, reaching $6.2 trillion by the end of the forecast period. This positive industry outlook bodes well for Six Flags' future growth prospects.

For 2025, Six Flags is targeting adjusted EBITDA of $1.08 billion to $1.12 billion, representing an initial step function of growth for their expanded portfolio. The company is planning for 5,852 total operating days in 2025, similar to the 5,851 operating days across the combined portfolios in 2024.

Management is projecting full year 2025 depreciation and amortization of approximately $450 million, reflecting the impact of fair value adjustments to the legacy Six Flags assets. Additionally, the company is projecting annualized 2025 cash interest payments of $305 million to $315 million and annualized cash tax payments of $105 million to $115 million.

It's important to note that this guidance does not include any material impacts from potential weather-related events or foreign currency exchange rate fluctuations, which could impact the company's 2025 performance.

Conclusion

Six Flags Entertainment Corporation has emerged as a formidable player in the amusement park industry following its transformative merger with Cedar Fair. The combined entity has unlocked substantial synergies, improved operational efficiency, and positioned itself for long-term growth through strategic capital investments and portfolio optimization. With a focus on enhancing the guest experience, diversifying its revenue streams, and prudently managing risks, Six Flags is well-poised to capitalize on the robust leisure and entertainment industry trends.

As the company continues to execute on its strategic initiatives and realizes the full potential of its expanded portfolio, it presents an intriguing investment opportunity for investors seeking exposure to the thriving amusement park sector. However, potential investors should carefully consider the company's debt levels, seasonal vulnerabilities, and broader economic factors that could impact discretionary spending. With strong management execution and favorable industry tailwinds, Six Flags Entertainment Corporation appears well-positioned to deliver long-term value to its shareholders.