Cedar Fair (FUN) Q1 2021 Earnings Call Transcript

Cedar Fair (FUN 0.60%)
Q1 2021 Earnings Call
May 05, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to Cedar Fair Entertainment Company 2021 first-quarter earnings call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] Thank you.

I would now like to hand the conference over to your host, Mr. Michael Russell, corporate director, investor relations. Sir, the floor is yours.

Michael Russell -- Corporate Director, Investor Relations

Thank you, Laura. Good morning, and welcome to our 2021 first-quarter earnings conference call. Earlier this morning, we distributed via wire service, our earnings press release, a copy of which is available under the News tab of our investor's 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 would like to introduce our CEO, Richard Zimmerman. Richard?

Richard Zimmerman -- President and Chief Executive Officer

Thank you, Michael, and thanks to everyone for joining us on the call this morning. We trust that you are well and hope that springtime has brought a sense of renewal and optimism to your businesses, colleagues, families and friends. On today's earnings call we will cover two main topics. As usual, we will discuss our quarterly results and near-term financial outlook, as well as update you on park operations.

Additionally, we want to start today's call with a discussion of the key components of our business optimization program, which is already well under way. As I mentioned on our last earnings call, we've used the past year as an opportunity to take a step back and reassess nearly every aspect of our company, something I've been referring to internally as the great reset. The pandemic, while enormously challenging to our business, has allowed us to rethink our long-term strategy with the ultimate goal of driving profitable and sustainable growth in our business. The outcome of our efforts was the development of our business optimization program, which was designed to streamline our business processes, realize efficiencies that improve our financial performance and bring new ways of thinking to how we entertain our guests. Ultimately, the initiatives within the business optimization program will ensure that we cannot only meet but exceed the expectation of our guests and associates now and for many years to come.

To ensure the success of our optimization efforts and maximize returns, we engaged outside consultants to assist with design and implementation and to provide added bandwidth and a fresh perspective. It's a dynamic process that we expect will evolve over time, but it currently consists of multiple initiatives focused on high-value areas to produce a better guest experience and improve profitability. Implementation of these initiatives will occur over the next six to 12 months, while maximum returns may take two to three years to fully realize. Brian will provide details on the financial implications of our business optimization program in a moment, but for now, let me provide some color on the key aspects of the plan.

Strategically, we have broken our efforts into two core components -- revenue enhancements and cost efficiencies. On the revenue front, we are focused on continuing much of the work started pre-pandemic to enhance the guest experience and meet changing consumer behaviors and preferences. On the cost front, we are focused on ensuring we are operating as efficiently as possible at both the corporate and park levels and that we have the appropriate organizational structure in place to maximize results. Looking more closely at the cost side, our efforts can be broken down into three productivity areas -- organizational redesign, reduced non-headcount operating cost, and optimize park level labor.

On the org design work, our outside consultants are assisting us with a comprehensive review of organizational structures throughout the company. The main objectives are to identify cost efficiencies, expand our capabilities and improve our decision-making. The first step in the process will be consolidating certain administrative functions and work streams into a more centralized service center. This will create operational efficiencies and allow Park leadership teams the opportunity to focus on what is most important delivering the best possible experience to both our guests and our associates.

The efforts to expand these shared services centers are under way and will continue over the next 12 months as we take a deliberate but disciplined approach to ensure a smooth and seamless transition. Next, centralized resources will be added to support robust business intelligence and financial planning and analysis functions, with a focus on improving capabilities to help our teams make better data-driven decisions and drive greater returns. The build-out of our business intelligence and FP&A teams is well under way, and I believe both groups will make a meaningful contribution to our performance. The second productivity initiative is the reduction of non-headcount operating cost, which incorporates spending in nearly every aspect of our business.

Everything from how much we pay for maintenance materials and office supplies to the contracts we negotiate on major ride purchases is in scope, and the upside is meaningful. Capitalizing fully on this initiative won't happen overnight, but based on what I have seen thus far, it promises to produce meaningful cost savings and systematic improvements. In other words, I am confident that this is a high-return initiative that will create substantial value. We are also focused on reviewing our strategic approach for each key cost area, including big dollar items like advertising.

With our parks reopening shortly, our marketing teams have implemented more cost-efficient and flexible advertising programs for the 2021 season, actions that will result in significant savings without sacrificing the impact and effectiveness of the overall program. The third and final productivity initiative is the optimization of park-level labor. As we have noted, seasonal labor represents close to 30% of our total operating cost and is an area that is seeing significant pressure in both availability and affordability. To address these challenges, several years ago, we established a workforce optimization committee tasked with tightening up our labor models.

We also began a gradual implementation of a new Kronos based workforce management solution, which will be operational on opening day at all but our two Schlitterbahn water parks, both of which will be up and running on the new system at the start of the 2022 season. The Kronos platform provides our park teams with better tools for managing their labor force in real-time, as well as improved data analytics that will help us better align staffing with guest demand. Optimizing seasonal labor will be even more important going forward as we confront the growing challenges with labor availability. We believe maximizing labor hour efficiencies will be key to offsetting some portion of the pressures we're seeing on seasonal wage rates.

Moving to the revenue side, many of the near-term initiatives within our business optimization program can be summed up on one-key strategy, providing guests with compelling experiences and conveniences in an evolving consumer landscape. To that end, we are ramping up our efforts around the introduction of new consumer-facing technologies aimed at eliminating pain points for our guests and improving customer satisfaction, ultimately leading to higher demand for what we offer. Our efforts will feature a continued rollout and use of guest convenient technologies, such as advanced reservation systems, mobile food ordering, expanded online retail and contact-less payment options, including a move by several of our parks to full cashless operations later this year. We have also kicked off a complete strategic review of our Park mobile apps with the goal of adding enhanced functionality, better park information and other general improvements that defy the park visit and provide more opportunities for our guests to have fun.

Over the last several years, we have also seen how optimizing pricing and promotions can drive attendance and admissions revenue growth. And the revenue management team we built to address this has done an outstanding job. The expansion of these resources coupled with advanced business intelligent capabilities will enable us to dynamically price more broadly across the business and drive real revenue growth through increased transaction counts and better pricing decisions throughout the season. While it will take time to fully implement and mature all these initiatives, we are confident they will have a meaningful impact on our operating results.

We look forward to updating you on our continued progress over the coming quarters. I'll pause here to allow Brian to review our first-quarter results and the impact of our business optimization efforts. Brian?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Thanks, Richard, and good morning to everyone on the call. I'll start with a recap of our first-quarter results and our outlook around liquidity before discussing the expected financial impact of the business optimization program Richard outlined. But first, I need to remind you that due to the business disruption caused by the COVID-19 pandemic, financial results for the 2021 first quarter are not comparable to results for prior years. In response to the spread of the coronavirus and in compliance with California mandates, full park operations at Knott's Berry Farm, our only year-round park, remained suspended in the first quarter, and we were limited to hosting a culinary festival.

Results for such festivals are not -- are included in out-of-park revenues and are not included in the company's attendance or in-park per capita spending data. As we announced last quarter, our 2021 operating strategy is designed to maximize results for our seasonally weighted second half by scheduling park openings beginning in May. Taking advantage of what we anticipated would be a broad rollout of vaccines during the first half of the year and optimizing cash burn and liquidity when operating restrictions remain the tightest. As expected during the first quarter of 2021, we had zero operating days compared with 90 operating days in the same period last year.

For the quarter ended March 28, 2021, net revenues totaled $10 million versus 54 million for the first quarter of 2020. Approximately 75% of first-quarter net revenues were generated from the sale of food, merchandise and gains associated with the culinary event hosted by Knott's Berry Farm and Amateur Sports tournaments hosted at the Cedar Point Sports Center. The decrease in net revenues was the result of a 936,000 visit decrease in attendance and a $2 million decrease in out-of-park revenues, both due to COVID-19-related park closures and operating calendar changes, offset in-park by proceeds generated from Knott's Berry Farm and Cedar Point. On the cost side, operating costs and expenses in the first-quarter 2021 totaled $99 million, a decrease of $39 million from $138 million in the first quarter last year.

The overall decrease in operating costs and expenses included a 64% or $4 million decrease in cost of goods sold and a 38%, or $40 million decrease in operating expenses. Both variances reflective of having no parks open in the period, as well as our cost containment efforts, partially offsetting the declines in cost of goods sold and operating expenses was a $5 million increase in SG&A expense. This increase was primarily due to higher equity compensation in the quarter, as well as an increase in nonrecurring consulting fees related to our business optimization program. Looking at the balance sheet for a moment.

At the end of the first quarter, deferred revenues totaled $206 million, representing an increase of $12 million, or 6%, compared with deferred revenues at the end of 2020. The increase was driven in large part by the ongoing sale of season passes and related all-season products during the quarter, as well as improving trends in reservations at our resort properties. We're pleased to report we now have 1.9 million valid season passes outstanding, which should provide solid momentum for attendance as our parts begin to reopen this month. Turning to liquidity.

We continue to closely manage our cash burn rate while appropriately maintaining our properties. At the end of the quarter, we had total liquidity of $631 million, inclusive of $359 million of undrawn capacity under the company's revolving credit facility. Cash on hand at the end of the first quarter was $272 million, compared with a cash balance of $377 million at the end of 2020, representing a cash burn of approximately $105 million, or $35 million per month during the first quarter. The average cash burn of $35 million per month was better than our prior guidance of 40 to 50 million per month, due in large part to improving season pass sales, higher-than-expected revenues from the Knott's Berry Farm culinary festival and the Cedar Point Sports complex and better than projected cost savings during the period.

Based on the level of liquidity at the end of the first quarter, we have sufficient liquidity to satisfy our cash obligations and remain in compliance with debt covenants at least through the second quarter of 2022. Regarding capital expenditures, as we stated on our last call, with nearly half our parks unable to fully operate last year, many new rides and attractions planned for the 2020 season have yet to be introduced to our guests, reducing our capital investment needs for new attractions in the current year. To address other capital needs, we expect to invest approximately 100 million in capital expenditures during 2021. Approximately one-third of these investments will be focused on completion of select unfinished 2020 projects, including the renovation of some of our resort properties.

Another one-third directed at essential compliance and infrastructure requirements for the current season. And the last third earmarked for the start of new attractions for the 2022 season, work on which will likely begin in the fourth quarter of this year. Depending on the strength of our results and operating conditions in this year's second half, as well as our outlook for the recovery of the business, we may choose to invest in additional capital projects with compelling returns above and beyond those currently planned. As we've noted in the past, over the longer term, our strategy is to return to annual capital expenditures within the core that are in line with historical investment levels of 9% to 10% of revenues.

Regarding cash burn, based on our scheduled park openings and current trends, we expect cash burn during the second quarter to be approximately $60 million per month, compared to the $35 million per month spent during the first quarter. Included in the higher second-quarter cash burn estimates our projected higher capital investments and incremental operating costs associated with preparing the parks to open in May, as well as interest payments on four of our five outstanding note issuances. As we mentioned on the last earnings call, our interest payments on outstanding notes are highest in the second and fourth quarters. Excluding interest payments, our cash burn in the first quarter was $30 million per month compared to a projected cash burn of approximately $35 million per month in the second quarter.

Before I turn the call back over to Richard, I'd like to discuss the projected financial impact of our business optimization efforts. As Richard mentioned, implementation of various initiatives is under way, and in most cases, will take six to 12 months to complete. Meanwhile, fully realizing the anticipated returns could take as long as two to three years in some cases, as the business recovers to historical attendance levels and as each initiative matures. Fully executed, we project the optimization efforts will unlock $50 million of incremental annual run rate benefit once we are able to operate under normal business conditions and attendance returns to historical levels.

Of the $50 million lift, roughly one-third, or approximately $15 million is expected to come from incremental revenue initiatives, largely dependent on attendance, while the other two-thirds, or $35 million is expected to come from cost efficiencies. Of the cost efficiencies, roughly half is projected to be realized through a reduction in fixed costs that are totally independent of attendance and fully within our control. Of the reduction in fixed costs, we anticipate delivering 5 to 10 million of improvement in 2021 with the balance anticipated to be realized in 2022 independent of attendance levels. The other half of cost efficiencies is projected to be realized through lower variable costs.

Altogether, approximately $30 million of the total benefit is projected to be realized over the next two to three years from variable cost savings and incremental revenue opportunities, both largely dependent on attendance trends. Going forward, as our business optimization program takes hold and the business recovers, our capital allocation strategy will be focused on paying down debt to return our net leverage ratio to between three to four times adjusted EBITDA. At the same time, we will continue to appropriately reinvest behind our strategic plans to grow the core business. Reinvestment of the -- reinstatement of the distribution to unitholders remains a priority.

However, our ability to get back to a meaningful and sustainable distribution hinges on the pace of the business recovery and our disciplined execution of reducing net leverage back to that historical range. The board will continue to regularly reassess the potential reinitiation of the quarterly distribution. And finally, given how dynamic the current operating environment remains, we will continue to withhold current year or long-term financial guidance. While we remain very encouraged by the progress improvements we are seeing, our performance in 2021 will be highly dependent on the speed of the recovery and several other factors not directly in our control, including restrictions around park openings, imposed capacity limitations and broad consumer sentiment around the pandemic.

As we noted on the last call in spite of the improvement we've seen, 2021 will not be a normal operating year. And external limitations on park operations may delay achievement of full potential of our parks until later in the year or beyond. With that, I'll turn the call back over to Richard.

Richard Zimmerman -- President and Chief Executive Officer

Thanks, Brian. For our parks and our thousands of associates, it's now go time. Tremendous excitement is building among our associates, guests and communities as our parks prepare for their opening days. To put things in perspective for several of our parks, including Great America, Michigan's Adventure and Valleyfair, opening day will mark the first time since 2019 that their rides and attractions will be operating.

Both of our California parks will debut long-awaited major attractions, including Knott's Bear-y Tales, Return to the Fair, a 4D interactive dark ride, and South Bay Shores water park, specifically designed for Great America to be the Bay Area's coolest place to slide, splash, chill and dine. These and similar tractions at our other parks, such as the 150th anniversary celebration Cedar Point and the 100th anniversary celebration at Knott's Berry Farm, strengthen our legacy of connecting with guests in a meaningful and memorable way. We kicked things off this Saturday with the opening of both Schlitterbahn Water Parks in Texas. And within one month, all of our U.S.

properties are scheduled to be fully opened. As of today, only the opening of Canada's Wonderland will be delayed as COVID-19 restrictions remain in place that directly affect our Toronto Park. Until restrictions are lifted, we will minimize park operating costs and maintain Canada's Wonderland in a state of readiness. While we are happy and excited to be reopening, the health and safety of our guests and our associates remains our highest priority.

Therefore, our parks will continue to observe state and local guidelines, which pertain primarily to capacity limitations, mask wearing and social distancing protocols. As the season progresses, we will continue to -- we will closely monitor state and local requirements, as well as CDC guidance, and we will adjust our park safety protocols accordingly. In addition to dealing with the lingering impacts of the pandemic, we are actively addressing the challenges of staffing our parks this season. As we are seen across a wide range of industries, the availability of labor is a significant headwind.

And based on our staffing needs, the regional park industry is right in the middle of it all. While we've had to deal with tight labor markets in the past, this is by far the most challenging labor environment I've seen in my more than 30 years in this business. To address these challenges, our team is ramping up recruiting efforts and getting very creative. We've aggressively but strategically increased hourly wages in more challenged markets and around the more difficult to fill positions.

We've introduced signing bonuses for certain jobs, and we've expanded our use of retention bonuses for employees that stay on through the length of their contracts. In addition, we are seeing the benefits from the decision we made several years ago to add to our employee housing facilities at several of the parks within our portfolio. Having these assets available allows us to market our jobs to individuals well outside the park's core markets, improving our odds of filling our staffing needs most effectively. Looking ahead, our goal is to strike the appropriate balance between our operating calendars and the availability of seasonal labor and the anticipated demand from our consumers, ensuring we can deliver the kind of experience our guests have come to expect from a Cedar Fair Park is critical to maximizing profits, both in the near-term and the long term.

With that said, we are very encouraged by the strong industry demand being reported in the early weeks of the season. Nowhere with that felt more acutely than at Knott's Berry Farm's Annual Boysenberry Festival, which last Sunday concluded its 6-week run with multiple weekend sellouts. Robust pent-up demand is further supported by our customer surveys, which have indicated a strong desire to visit our parks in 2021. We also recently experienced a trend of growing and increasing season pass sales, which we fully expect this time of year as opening dates drawn near.

Anticipated strong demand, coupled with an already large and active season pass base, means that guest reservations will initially be required at all of our parks, particularly on weekends and our historically busiest days. This will ensure attendance remains within our capacity limitations, which we hope will be relaxed or removed as the environment around COVID-19 improves. It will also ensure our guests enjoy a best day experience from check-in to departure. Most importantly, we can get back to the business of making people happy.

I can assure you that our park teams are focused on that goal by delivering an entertainment experience that makes our guests want to come back again and again. Laura, at this point, could you please open up the call for questions?

Questions & Answers:

Operator

Absolutely, sir. Thank you. [Operator instructions] Your first question will come from the line of Brett Andress from KeyBanc. Your line is our line.

Go ahead, please.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Hey. Good morning, guys. So I may be confusing myself here, but I just wanted to make sure I understand some of the language in the business optimization plan, this quarter compared to last quarter. So last quarter, there was 200 to 300 basis points of margin that seemed predicated on a return to 2019 attendance.

Today, it's 50 million over the next two to three years. So you gave us some of the moving parts in the prepared remarks. But like if we get back to 2019 attendance over the next, I don't know, 12, 18 months, does that 200 to 300 basis points still hold?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Brett, it's Brian. Yeah. So I think stepping back just for a second as we said on the last call, we were earlier in the process as it related to the development of the program, the business optimization program. We still do believe the 200 to 300 basis points margin expansion that we talked about previously is very executable.

The timeline as we've gotten deeper into this, certainly some aspects of the program on the cost side may take a little longer to develop. And as I noted in my prepared remarks, there are some big components in here that are highly dependent on that -- that return to historical attendance levels. So it does depend on your view of the recovery to back up to that $28 million or more in attendance. As you know, that's the big driver behind margin.

But as we've gotten deeper into the process, and building out the program, we've identified more costs and the potential longer-term for that margin expansion to maybe even be above and beyond that earlier range we provided may exist as well.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Got it. OK. And then, you're removing the outdoor mask mandate in a few of your parks, which I think puts you at the leading-edge compared to your peers. I guess, maybe what drove that decision in those parts, what's the initial customer feedback or response been to that? And are you looking to do that in other parks this season?

Richard Zimmerman -- President and Chief Executive Officer

Yeah. Brett, good morning. You know, first of all, as we always say, and as everybody on this call knows, the health and safety of our guests and associates top priority. As we looked at it last year going into the pandemic, we thought it was an appropriate step to both insist on appropriate safety -- social distancing protocols, mask wearing, things that would ensure in the environment we had last year, we would keep everybody safe.

I'll go back to what we said on the last earnings call, and I reiterate today all of the protocols that we put in place. There wasn't a single case contact traced back to us within the almost 3 million visitors we had to all of our parks last year. So we felt really good about that. As we now see the landscape change this year, conditions on the ground are very different, region to region, state to state.

We always tried to rely on the most recent regional information and work with both our infectious disease team that we consult with outside doctors, but also very closely with the state and local regulators who have their fingers on the pulse of what's happening throughout the region. So we're encouraged by the improving trends. And I think the protocols we've come out with or react to what we're seeing on the ground and what we think is appropriate, given all those conversations, both with outside medical experts, but also our state and local partners. So we're monitoring everything as we go forward.

But as things improve, I think we are encouraged that we're seeing relaxation and the restrictions throughout certainly the U.S. We're watching Canada closely, as I said in my remarks, but the initial reaction has been positive. I think there is going to be pent-up demand. I think there's a desire to get back to not just normal but get out and really enjoy this summer.

When you look back at last summer, everybody was impacted and didn't have quite the experience they wanted to. But closer to home outdoor entertainment, the regional -- the key tenant of the regional theme park business, I think, rings really true right now.

Brett Andress -- KeyBanc Capital Markets -- Analyst

All right. Thank you.

Operator

Thank you, sir. Your next question will come from the line of Steve Wieczynski from Stifel. Your line is online. Go ahead, please.

Steve Wieczynski -- Stifel Financial Corp -- Analyst

Hey, guys. Good morning. So I want to start on the labor side of things. You mentioned now availability and the cost of labor has moved against you guys.

And I'm wondering, from here, how do you balance the labor side of things from an availability perspective relative to the guest experience? Meaning, how do you balance trying to lower the amount of labor in your parks versus not impacting the eventual customer experience?

Richard Zimmerman -- President and Chief Executive Officer

Steve, it's Richard. I'll start and then Brian can weigh in. When we go back to what we've seen in terms of cost pressures in the past several years, go back to '16, '17, we were seeing high single-digit kind of pressure on the wage rate, and through efficiencies and the focus of the park teams, we were able to bring that down to mid-single-digits. So within our business model, we've always had an ability to find a way to both maintain the quality of the guest experience.

When I go back to those years, we saw improving guest satisfaction scores. So I think that's part of having one of the most experienced teams in the business. That's part of what I certainly work with the teams in the field to make sure that we are accomplishing that high-quality guest experience, everybody has come to see and come to expect. But in terms of the numbers and the pressure, Brian, anything you want to add?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah. Steve, I would just say, similar to what we -- how we approach this in any given year, while as Richard noted in his prepared remarks, this environment, labor environment may be unlike any we've ever seen in terms of scale or magnitude. There are still some similarities. Right? It's always a little more challenging to find labor in the shoulder season, spring before schools are out of session, fall as schools are getting back in session.

And what we've done in the past is manage our operating calendars, our hours with that in mind. Because as you noted, we always want to provide the best guest experience. And so, we've made those -- those are the kinds of adjustments that you have to make in the near-term. Longer-term, as we noted in the call and in previous calls, it puts more and more pressure on automation within the system, using more advanced technology like our new workforce management system to more actively and dynamically manage our staffing, sharing staffing around jobs in the park, adjusting staffing levels based on attendance levels, etc.

So there's things that we need to do and are working on in the near term, but there are also things that we need to be focused on and are focused on more longer-term because we don't see this as just a 2021 issue. We think that this is a longer-term issue that needs to be addressed.

Steve Wieczynski -- Stifel Financial Corp -- Analyst

OK. Got you. And then, second question would be around the capex side of things. You talked about how -- if conditions permit, you guys might invest in additional capital projects with compelling returns.

So I'm wondering if you could help me think about that a little bit more in terms of what those conditions -- what conditions you're looking for? And then what kind of return profile you guys are targeting at this point?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah. I'd say, in terms of the broad conditions, at a high level right now, what we're focused on is the projects within that 100 million that we spoke about in our prepared remarks, to the extent that as we start getting toward the second half of this season and demand is strong, and we're seeing better pacing in our fall sales around '22 passes are solid and we feel better and better about liquidity. There may be an opportunity to start leaning into projects that have compelling returns as we've always done in the past. Right? We've never been shy to spend money on projects that have compelling long-term returns.

For us, that's usually projects that are approaching that 10%-plus ROI, mid-teens, maybe on the bigger, more marketable rides and attractions, something in the lower double digits. If it's a ancillary revenue and EBITDA stream like the hotels and the incremental revenues, adjacent development type projects we've added in the past. But we're probably a little bit away from that at this point, Steve. I think it really, there is a lot to still be seen on how the '21 season develops, but we feel very confident and comfortable with the level of spend that we do have planned for calendar year 2021 at this point.

Steve Wieczynski -- Stifel Financial Corp -- Analyst

OK, great. Thanks, guys. Appreciate it.

Operator

Thank you, sir. Your next question will be coming from the line of Ben Chaiken from Credit Suisse. your line is now live. Go ahead, please.

Ben Chaiken -- Credit Suisse -- Analyst

Hey, how's it going? You mentioned pent-up demand a few times in the release. Just any color you can provide on spring pass sale trends in April or May that may not be reflected in that 1.8 million number? And then, kind of how are you handling the spring pass selling period with those parks closed? And I have another, if I may.

Richard Zimmerman -- President and Chief Executive Officer

Ben, good morning. It's Richard. As we look at Season Pass sales, I'll start first with the 1. -- almost 1.9 million we've got with us.

And I'll go back to what we said last time on our earnings call, and I'd reiterate again today. We've seen less than 0.5% or 1% request for refunds. So we've had -- we've engaged with our customers. I think our marketing teams have done an excellent job, staying engaged with our customers, and we've kept that loyalty factor going into the season.

So you start with that foundation. As I said in our prepared remarks, we've seen increasing sales week over week. And our customer surveys point toward a high intent to visit. But also, I'll go back to early last week, we opened up both ticket sales and reservations.

And at one point, on the first day, we opened all that up. There was over an hour wait to either purchase a ticket or get a reservation. So we had a virtual queue on our e-commerce site. So tremendous response from -- and I think it just goes back to that really deep customer loyalty we've seen throughout all of our parks in our regions.

Ben Chaiken -- Credit Suisse -- Analyst

Got you. That's helpful. And then, one more on the pass. I think that you had articulated before that 75 to 80% of pass revenue ballpark was going to be allocated to 2021 from passes that you sold the previous year.

Now, that we didn't have a 1Q because of COVID, essentially, is it pretty close to apples-to-apples at this point because normally, you would have released some pass revenue into 1Q? I guess what I'm getting at is, is there a drag for the remainder of the season to allocate pass rev per visitation, or is that normalized because of the lack of 1Q, essentially. If that didn't make sense, I can try it a bit differently.

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah. Ben, let me try and answer it this way. From what we had commented on previously, we had -- coming into Q1, not anticipated releasing any meaningful deferred revenue based on our outlook for the operating calendar. So the situation still applies.

It is still pretty dynamic, right. Something like Canada's Wonderland, as Richard noted on the call. We're still in a state of flux there in terms of getting reopened, and that's a bigger season pass based park for us. So where that sorts out could ultimately impact and potentially create a little bit of drag, but we don't know what we don't know at this point in time.

I'm not sure if that answers what you're looking for but, hopefully, it does.

Ben Chaiken -- Credit Suisse -- Analyst

OK. Thank you. That's helpful.

Operator

Thank you, sir. Your next question will come from the line of Michael Swartz from Truist. Your line is now live. Go ahead, please.

Michael Swartz -- Truist Securities -- Analyst

Hey, good morning, guys. Just wanted to follow-up on the earlier question on labor inflation. I think you said back in the '16-'17 timeframe, that kind of the gross rate of inflation was something in the high single-digit range. Maybe give us a sense of -- or a little bit context of what maybe you're seeing right now, or how are you thinking about labor inflation going forward?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah. Sure, Mike, it's Brian. So as Richard noted in that answer to the previous question, we had gotten aggressive in taking market adjustments, and we had some statutory requirements in some markets. But in that sort of that '16-'17 timeframe, we were seeing rates in the high single-digit in terms of that pressure, 8, 9%, even maybe even 10% and certainly some markets.

That began to subside a little bit because of the more aggressive increases that we took in that time frame back into the mid-single-digits the last couple of years, in that sort of 5 to 6%. That was where our seasonal labor rates were in 2020 over '19. We came into '21 expecting and planning for something in that same range, that 5 to 6% range in terms of wage rate inflation. I will tell you, based on some of the adjustments that Richard noted, the strategic increases in hourly rates in certain markets and on certain more difficult to fill jobs, the retention bonuses and the sign up bonuses when you factor all of those pieces in, that rate pressure inflation is now approaching something closer to 10%.

And so, our focus is on managing hours, again, aggressively trying to find those efficiencies on the hour side of the equation, to help some -- take some of that pressure off the overall cost increase we might be facing based on the higher inflation than originally planned.

Richard Zimmerman -- President and Chief Executive Officer

Yeah. So Mike, I'd also add, one of the benefits we saw of increasing our wage rates back in the last few years is a higher quality applicant and a higher quality employee associates. So as we -- as I sort through that that's allowed us to be far more productive. As Brian said, we've got -- we've always seen whenever there's more money in the pockets of our core customers, so as wage rates go up on our key demographic, the teen young adult.

We've been able to pass along price increases, and that's been one of the unique things about our business model, not just the customer loyalty, but the high guest satisfaction. You hear me talk all the time about price value. Let's focus on the value, so we continue to take pride. All those factors over time, I think we know the levers to play, and we know how we can use those to both mitigate but leverage this issue around wages.

Michael Swartz -- Truist Securities -- Analyst

OK. Great. And then, just a second question, maybe a little different on the optimization plan. I'm just wondering from an organizational buy-in standpoint.

I guess how does the compensation structure for like park managers and corporate employees change at all based on some of the targets that you've now outlined with cost savings and some of the revenue pickup opportunities?

Richard Zimmerman -- President and Chief Executive Officer

Really good question, Mike. Let me just tell you that it's our firm belief, and I know it's our Board's belief that compensation structure and incentives need to follow strategy. So as we think about the strategy going forward, right now, everything that we've got in place really focuses on the recovery. But longer term, as we think about what incentive is appropriate, we're going to make sure that it lines up behind the strategies we've laid forward at all levels.

Michael Swartz -- Truist Securities -- Analyst

OK, great. Thank you.

Operator

Thank you, sir. Your next question will come from the line of James Hardiman from Wedbush Securities. Your line is now live. Go ahead, please.

James Hardiman -- Wedbush Securities -- Analyst

Hey, good morning. So I apologize if you've already clarified this, but the $50 million, just want to understand if that is a gross or a net benefit, I guess, particularly given the labor headwinds that we keep talking about here? Net of the labor, should we still expect an EBITDA number that's $50 million better once we're through all of these initiatives?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah, James. It's Brian. Based on what we know right now, yeah, the target that we're aiming at that $50 million is reflective of headwinds within the labor category.

James Hardiman -- Wedbush Securities -- Analyst

OK. And so, it should be -- I mean, obviously, none of this is going to be perfect. But if I just look at 2019 revenues and adjusted EBITDA, once we get back to those levels of attendance, we should be thinking about revenues that are 15 million higher and EBITDA that's 50 million higher, correct?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Based on the way you just summarize that, yes, I'd say that's a fair way to look at it. I would say that as we continue to see this labor market and the labor environment globally evolve, our views around labor may change. But as of right now, that's where we stand.

James Hardiman -- Wedbush Securities -- Analyst

Got it. OK. And then, lastly, maybe there's no answer here. But obviously, you didn't have any traditional park operations in the fourth quarter and for the most part in April, some things are starting to open up last weekend or two.

But I think the last we spoke; we were talking about attendance that was maybe 40% of the prior year. I'm sure you know Six Flags reported last week, and they saw a pretty significant ramp over the past few months. Is there any reason to think that once your parks open back up again and that you won't also benefit from a really significant uptick in attendance versus 2019? And if not, what else do you look at, I guess, given that we don't have actual park operations as a barometer, how should we think about sort of where this is headed?

Richard Zimmerman -- President and Chief Executive Officer

Yeah. James, good question. And part of the challenge of this particular point in time is we haven't had significant operations. I need to go back and lean back into all of the leading indicators we typically would follow.

So I look at the season pass channel, seeing increasing sales there across all the parks for the most part. I look at our reservations on the resort side, particularly there in Ohio and elsewhere. And we're seeing those start to pick up nicely. So we're seeing what we would expect to see.

And then, lastly, I think keeping -- to your point, I think everybody where the restrictions have been starting to be relaxed there has been great demand. So I think part of the challenge in our portfolio in answering your question is, where is each park, where is that region in terms of relaxing the restriction. We said from the beginning what will impact us the most is how quickly restrictions lapse, how quickly you get -- you're able to get back to what would be a fully operating model, 100% of capacity. We're not there in a lot of places yet.

So I think the answer to your question lies, how quickly do things improve? I don't have a perfect crystal ball on that. But I will say what we see from our side, the things we can watch and the things we can control are very encouraging.

James Hardiman -- Wedbush Securities -- Analyst

That's helpful. And good luck to the next critical month or so.

Richard Zimmerman -- President and Chief Executive Officer

Thanks for that, James.

Operator

Thank you, sir. [Operator, Instructions] Your next question will come from the line of Paul Golding from Macquarie Capital. Your line is now live. Go ahead, please.

Paul Golding -- Macquarie Group -- Analyst

Thanks so much for the question. I just wanted to clarify on the labor supply commentary. You have labor in place to meet your anticipated demand for the U.S. reopenings over the next month.

Is that correct?

Richard Zimmerman -- President and Chief Executive Officer

Yeah. When I look at where we are, based on the calendar we've put out there, we've got sufficient labor to meet that demand. But typically, as we've seen in the past, our early season needs and I put particularly the month of May, early June into the early season, very different than prime season. But what we've also seen, which we've seen in past years is as you get closer to opening and the noise around the park being open, that tends to help applicant flow as we get into it.

Again, this is a really unique time because of the pandemic and its impact and all the programs around labor and supporting those on unemployment. So it's a unique time where there's a lot of cross currents in the labor market, particularly in the leisure and hospitality space. But right now, as I look at what we're doing, I think we have what we need to provide the high-quality guest experience our guests have come to expect. And as we build out and we see the improvement in our labor availability to us, then we'll react accordingly on the operating calendar and the operating hours.

Paul Golding -- Macquarie Group -- Analyst

Great. And then, my follow-up is around the interest commentary you mentioned the 25 million per month in cash interest expense and expected for second quarter. How are you thinking about paydown versus refinancing opportunities? Any commentary around timeline and access there? And how you're weighing those options given the substantial interest cash outflow component that you're flagging for 2Q and future periods?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah. Paul, it's Brian. What I would say first is that we're very comfortable with where we're at from a liquidity perspective, as noted. That said, we -- as Richard said on the call, paying down debt, deleveraging remains our top priority at this point in time.

We have a lot of flexibility in the capital structure right now. There aren't any near-term maturities. And so, as we see how '21 develops for the second half of the year, we'd like to see a little bit of a more return to normal, where some of the restrictions and the macro factors, capacity limitations, as an example, things that are outside of our control as those start to be relaxed and fall off when we can feel a lot more comfortable about going into the '22 season and getting back to what I would characterize as normal cash flow generation for Cedar Fair. Strong second, third, fourth quarter, we'll be in a better position, I think, as we get into '22 to start thinking about actually paying down debt.

Right now, I think maintaining that liquidity and having that flexibility is probably more important than paying down debt at least over the balance of this year.

Paul Golding -- Macquarie Group -- Analyst

Thanks, Brian.

Operator

Thank you, sir. Your next question will come from the line of Eric Wold from B. Riley Securities. Your line is our line.

Go ahead, please.

Eric Wold -- B. Riley Securities -- Analyst

Thank you. Good morning. Just a couple of questions. I guess, one, as you -- as the parks that you reopen and you've got obviously the reservation systems in place, can you talk about the initial mix that you're seeing on those reservations between single day tickets and the season pass holders? And how does that compare maybe to '19? And kind of what is your goal for that mix evolving as this kind of business optimization kicks in?

Richard Zimmerman -- President and Chief Executive Officer

Eric, it's Richard. We're seeing the same thing that we saw last year. And our approach is similar to last year. So if you go back to what we -- how we started the reopenings last year, we reserved some days and some time slots for season pass holders.

We're doing that again this year. We sold -- as we said, we got almost 1.9 million season passes hold out there who have stayed with us. So for instance, starting this weekend, season pass holders will get in Knott's Berry Farm, and there's been strong response to that. And then, we'll open up to the public a couple of weeks from now.

You'll see early days reserved for season pass holders. So if you go back to 2019, we're at 53% of our tenants with season pass holders. Last year, we settled out around 62 or so for all of 2020. So when you look at those types of numbers, I think you'll see similar impact this year with a heavier weighting early and then the longer we're open and fully -- the more we can get fully open, I think your trends start to settle into whatever the normal trend will be, but it will look closer to what we've seen in the past.

Eric Wold -- B. Riley Securities -- Analyst

Got it. And then, a final question. As you think about the parks kind of reopening and moving into the stronger back half of the year, obviously, pent-up demand, obviously, earlier question or comment around what Six Flags reported. What do you anticipate the actual headwinds from any kind of "official" capacity limits actually being in the back half of the year versus kind of your realistic ability to get people into a park?

Richard Zimmerman -- President and Chief Executive Officer

I'll let Brian weigh in here in a second. If you go back to how we've talked about it in the past, we've always had 20 or 25% of the days that we call peak attendance broadly throughout the system. Many of those happen in the back half of the year. So I think the difficult part about answering your question is we just don't know how the restrictions will lapse in all of our markets.

And again, we've got -- we're monitoring closely Canada and seeing how those restrictions lapse. So as I think about where the impact of any capacity restrictions really reside, it's in those peak days so to the extent that the peak days have no restrictions, then we'll be able to realize more of that historical attendance on those days. And certainly, those days have a meaningful impact on our both profitability and our ability to drive revenues. Brian?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah. I think, Eric, that's the key point that Richard just made is that the -- when we look at a normal operating season and if we narrow it down to the second half of the year, while there may be more of those peak days in the second half, think Saturdays in July and August, the fall season, the ever popular Halloween events. There are still more days where we sit below that 50th percentile of the theoretical capacity. So there's more upside but those key days are critical.

So certainly, at some of our parks, those are some of the biggest margin, our highest margin, biggest revenue, biggest EBITDA days. And so, seeing a relaxation of the restriction, capacity limitations, etc., is our ultimate endgame, but we're just going to have to wait and see how that develops in 2021.

Eric Wold -- B. Riley Securities -- Analyst

Great. Thank you.

Operator

Thank you, sir. Your next question will come from the line of Stephen Grambling from Goldman Sachs. Your line is now live. Go ahead, please.

Stephen Grambling -- Goldman Sachs -- Analyst

Hi, thanks. In the opening remarks, you mentioned more efficient and flexible advertising programs. Can you just go into a little bit more detail on how the programs have changed? And then potentially a related question on the per cap side, how are you thinking about potential flow through if per caps actually hold improvements versus 2019 levels as we've heard from some of your peers? In other words, are your optimization strategies going to impact flow through on per caps versus history?

Richard Zimmerman -- President and Chief Executive Officer

Steven, it's Richard. I'll take the first one. I'll let Brian answer the second. As we look back on 2020, one of the learnings we had was that we could dive into digital on the advertising front.

Really more effectively use digital and social media, which is far more cost-effective and far more targeted. So as we built the plan this year, we leaned a lot heavier into that. That was really -- we said this so many times about the pandemic. It accelerates the underlying trends that were already there.

We have a -- we've seen an increase in terms of our percentage of advertising dedicated to digital and social over the last several years, but it really accelerated the trend, and it's building out that flexibility, building out that flexibility and being able to target different consumers, different groups, but also go in and out of the market and pulse through. We were really pleased with what we saw in 2020, and that's why we've built a plan that's much heavier digital and social going into 2021. And obviously, we'll monitor that and make sure that it's as effective as we want it to be. But when I look at the engagement of our customer, tells me our -- both our CRM platform, but also our medium message is resonating.

So, Brian, on the second part?

Brian Witherow -- Executive Vice President and Chief Financial Officer

Yeah, Stephen, in terms of per caps, a couple of layers, I guess, to that question. Just stepping back and looking at last year, and albeit a challenging year and an abbreviated season. As we said on our year-end earnings call, very pleased with what we saw out of the guest spend trends within the park, guest spending on food and beverage, merchandising games, trending up in the low to mid-teens. Now, if I step back and try and put that in the context of '19, there's probably, as the attendance number moves higher, it's likely that that normalizes a little bit, but it's still reflective of I think what others, as you noted, are seeing, and what we have been seeing for several years.

Just as a reminder, in an area like food and beverage, where we've spent a lot of time upgrading or adding new facilities at our parks, adding new technologies, better programs, better quality product with Executive Chefs. Our food and beverage revenues from 2012 to '19, were up more than $125 million, which was a 5-plus percent CAGR over that period of time. And it's been better in the later years as those programs in those facilities have continued to drive strong results. We continue to believe there's more opportunity, and we'll continue to lean into that.

In the business optimization front, I think, represents some more tailwinds around in-park spend. One of the key focuses for us is transaction counts. We're looking at optimizing the in-park guest experience to speed up transactions to provide more conveniences, so that we can give our guests more opportunities to spend and spend in a way that they want to spend. Now, they're -- and that then will definitely help flow through, to your question.

I think there are potential headwinds that we have to acknowledge, though, that could hurt flow through a little bit. And that is on the labor side, right, as we're having to pay more for our labor that is a potential headwind. Now, we're not going to just take that without trying to offset it with, as I said before, efficiencies in hours, efficiencies in technology that allow us to automate. Mobile ordering is a big area you've heard us talk about in the past.

So there are things that work both ways on that, but we're very encouraged by where we've been on per cap spending in the park, and I think there's more opportunity in front of us.

Stephen Grambling -- Goldman Sachs -- Analyst

Awesome. Thanks so much.

Richard Zimmerman -- President and Chief Executive Officer

Thanks, Steve.

Operator

Thank you, sir. And that will be our last question. I would now like to turn the conference back to Mr. Richard Zimmerman for the closing remarks.

Richard Zimmerman -- President and Chief Executive Officer

Thanks, Laura, and thanks to everybody for joining us on today's call and for your ongoing support of our company. Hopefully, you'll have a chance to visit one of our parks very soon with friends and families for a whole lot of fun. We will keep you updated on our progress and perhaps see you either virtually or in-person at an upcoming investor conference or roadshow. In the meantime, please take care and everybody stay safe and healthy.

Thank you again. Michael?

Michael Russell -- Corporate Director, Investor Relations

Thanks, Richard, and thanks to everyone. Please feel free to contact our investor relations department with any further questions at 419-627-2233, and we look forward to speaking with you again in August after releasing our 2021 second-quarter report. Laura, that ends our call today. Thanks, everyone.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Michael Russell -- Corporate Director, Investor Relations

Richard Zimmerman -- President and Chief Executive Officer

Brian Witherow -- Executive Vice President and Chief Financial Officer

Brett Andress -- KeyBanc Capital Markets -- Analyst

Steve Wieczynski -- Stifel Financial Corp -- Analyst

Ben Chaiken -- Credit Suisse -- Analyst

Michael Swartz -- Truist Securities -- Analyst

James Hardiman -- Wedbush Securities -- Analyst

Paul Golding -- Macquarie Group -- Analyst

Eric Wold -- B. Riley Securities -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

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