Cedar Fair, L.P. (NYSE:FUN) Q3 2022 Earnings Conference Call November 2, 2022 10:00 AM ET
Company Participants
Michael Russell – Corporate Director of Investor Relations
Richard Zimmerman – President & Chief Executive Officer
Brian Witherow – Executive Vice President & Chief Financial Officer
Conference Call Participants
James Hardiman – Citigroup
Steve Wieczynski – Stifel
Chris Woronka – Deutsche Bank
Mike Swartz – Truist Securities
Ben Chaiken – Credit Suisse
Eric Wold – B.Riley Securities
Barton Crockett – Rosenblatt Securities
Operator
Good morning. My name is Chris and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Cedar Fair Entertainment Company 2022 Third Quarter Earnings Call. [Operator Instructions] Thank you.
I’ll now turn it over to Cedar Fair.
Michael Russell
Thank you, Chris 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 third quarter results ended September 25 as well as trends we are seeing through this past Sunday, October 30. Earlier this morning, we distributed via wire service our earnings press release, 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 unselectively disseminated. All content on this call will be considered fully disclosed.
With that, I’d like to introduce our Chief Executive Officer, Richard Zimmerman. Richard?
Richard Zimmerman
Thank you, Michael and good morning, everyone. Earlier this morning, we announced record results for the third quarter and for the first 10 months of 2022. As you all know, the third quarter of the year is our biggest and most important quarter. And I’m extremely proud of what our team accomplished over the last few months and since we reopened our parks. There’s no better group of professionals in the business. Together, we have quickly and effectively addressed the effects of the pandemic on our business and put Cedar Fair back on course to drive significant growth.
Our strong recovery and record performance this year has allowed us to deliver on our capital allocation priorities of reducing leverage and returning capital to unitholders. Brian will provide more detail on the state of our balance sheet in just a moment. But I am extremely proud of the fact that we have already reduced net leverage back inside 4x adjusted EBITDA, in line with pre-pandemic levels.
This morning, we also announced that the Board has authorized the fourth quarter cash distribution of $0.30 per limited partner unit which is in line with our third quarter distribution. In addition to our quarterly cash distribution, we are returning capital to unitholders through our $250 million unit repurchase program which was initiated in August. In just a few short months, we have repurchased approximately 2.8 million units or 5% of Cedar Fair’s outstanding units at an average — at an aggregate cost of approximately $115 million. We believe that a combination of quarterly cash distribution payments and buying back units is the most effective and value-enhancing path to return capital to our unitholders in the current environment. And we will continue to execute on our capital return plans as we head into 2023.
Before I turn the call over to Brian to review our financial results in more detail, let me highlight some of the key measures that underlie our outstanding year-to-date performance. First, we set a record for third quarter net revenues, improving on last year’s third quarter by 12%. Second, we established a new high in the third quarter for adjusted EBITDA, beating last year’s third quarter performance by 9%.
Third, our trailing 12-month adjusted EBITDA at the end of the quarter totaled $537 million which was 6% better than the adjusted EBITDA of $505 million we delivered in fiscal 2019. Fourth, preliminary net revenues year-to-date through October 30 were $1.68 billion, a record for the 10-month period despite attendance remaining below historical levels. And finally, trends in our long lead indicators through October, including our season pass products, reservation at our resort properties and group bookings, look solid heading into next year.
Looking at more recent results. Our Halloween and fall events which kicked off in mid-September, once again have produced some of our most profitable days of the season despite ongoing economic uncertainty and mounting financial pressures on consumers. During the month of October, revenues were up approximately 4% to October of last year, driven by higher attendance and continued growth in out-of-park revenues.
In-park per capita spending during the month remained in line with October of last year despite a sizable increase in our season pass mix this year. The strength of our recent results and our excellent top line performance through the first 10 months of the year sets the stage for us to deliver the best year in the company’s history. Most importantly, our year-to-date results demonstrate our ability to generate record revenues despite attendance remaining below pre-pandemic levels. As we’ve previously noted, demand levels this year have been impacted by a number of factors, including the anticipated slower recovery of our group channel and inclement weather during key periods of the summer season.
Helping offset our demand levels has been the solid trends in guest spending inside our parks as well as at our resorts and adjacent properties. Guest spending on food and beverage has again led the way, validating the significant investments we’ve made this year and over the past several years to expand and enhance our in-park offerings. Although price increases have played a part in delivering per cap growth, higher guest spending reflects the success of our investments to deliver higher quality offerings in a more efficient manner, driving increases in transaction counts and average transaction values. With more room for improvement, we will continue to invest behind our F&B strategy in the future.
The results from our resort properties which we consider a differentiator of our business model from others, have also helped offset the demand headwinds. Our hotels, cottages and camp grounds quietly generate steady and reliable cash flow and they play a valuable role in the ecosystem of our parks. Our resort properties extend the stay of our guests in multiple days, create flexibility for our guests to visit our parks multiple times and represent a sticky demand channel for tenants. We are extremely pleased with the early guest response from our recently completed resort renovations and believe the renovation is currently underway at the Knott’s Berry Farm hotel will be a game changer for that property as well.
In spite of the pressures on demand we’ve dealt with this year, we remain true to our revenue and yield management approach, maintaining the integrity of our pricing structures. Looking ahead, we are optimistic that we can recover a meaningful portion of the shortfall to historical attendance levels as early as next season, led in part by the improving momentum we are seeing around group bookings.
With that, I would like to turn the call over to Brian to review our financial results in more detail. Brian?
Brian Witherow
Thanks, Richard and good morning, everyone. I’ll start by discussing our third quarter operating results compared to last year’s third quarter before providing an overview of our preliminary year-to-date results through October 30. I’ll wrap up my remarks with an update on our balance sheet and free cash flow outlook.
During the quarter, our parks had 1,088 total operating days compared with 988 operating days in the third quarter of 2021. The increase in operating days reflects the impact of the pandemic on last year’s operations and the benefit of a return to a normal operating calendar in 2022. As Richard mentioned at the beginning of the call, we delivered an outstanding quarter with meaningful year-over-year increases across our key performance metrics. In the third quarter, we entertained 12.3 million guests and generated record net revenues of $843 million, representing 12% or $90 million increase compared to the third quarter of 2021.
The increase in net revenues was largely attributable to the 100 incremental operating days in the period which contributed to a 1.5 million visit gain in attendance and a 17% or $14 million increase in out-of-park revenues. The increase in out-of-park revenues reflects incremental third quarter results at Castaway Bay and Sawmill Creek Resort, 2 properties that were closed for renovations during the third quarter last year as well as higher occupancy rates and higher ADRs across the majority of our resort portfolio. As we noted on our last call, the continued strong performance of our resort properties validates the investments we made in recent years to refresh and expand that side of our business.
Meanwhile, in-park capital spending in the quarter totaled $62.62, down 3% compared with the third quarter last year. The decline in per capita in the period was due primarily to lower levels of guest spending on extra-charge products and admissions. The lower spend on extra-charge products was largely the result of lower average daily attendance at several key parks, while the slight decline in admissions per cap can be attributed to a higher season pass mix in 2022. Year-to-date, season pass attendance represents 58% of our total attendance mix. By comparison, season pass visitation represented 55% of 2021 full year attendance and 51% of 2019 attendance.
Offsetting the small pullback in guest spending on extra-charge attractions and admissions was continued strength in guest spending within our retail channels, something that was a focus for our park teams coming into the season. In the quarter, combined per capita spending on food and beverage, merchandise and games increased to $22.28, up 2% from last year and up 31% from pre-pandemic levels. The improved per capital levels were driven by increases in transaction counts and average value per transaction and reflects the stickiness of guest spending from year-to-year.
Moving on to the cost front. Operating costs and expenses in the third quarter totaled $485 million compared with $424 million for the third quarter of 2021. The $61 million increase was the result of a $14 million increase of cost of goods sold, a $50 million increase in operating costs and a $3 million decrease in SG&A expense. Increase in cost of goods sold reflect higher sales in the quarter as well as the impact of rising product costs. Despite these cost pressures, cost of goods sold as a percentage of food, merch and games revenue only increased 150 basis points from the third quarter last year.
The increase in operating costs was largely attributable to the 100 incremental operating days in the current period and the related impact on variable costs, including operating supplies and seasonal labor. Based on — based primarily on the expanded operating calendar, our parks had approximately 1 million more seasonal labor hours in the current period compared to the third quarter last year, accounting for more than 35% increase in operating costs. Also contributing to the increase in operating costs were higher full-time wages related to planned increase in headcount in select parks, higher maintenance labor rates and incremental land lease and property tax costs associated with the sale-leaseback of the land in California’s Great America.
The decline in third quarter SG&A expense reflects a decrease in wages, including incentive plan expense, offset by an increase in transaction and credit card fees. These higher fees were driven in part by this year’s conversion of all our properties to cashless, an initiative that has been received very well by our guests and is helping us take labor hours out of the system.
Looking a little more deeply at labor costs. While the labor market this year remains challenging, we are very pleased with the progress we’ve made around improving our staffing levels and controlling costs. During the quarter, we maintained adequate staffing levels while managing our average seasonal labor rate down 2% from the third quarter last year. And year-to-date, our average seasonal labor rate remains essentially flat to last year, reflecting the success of our revamped seasonal pay structure implemented for the 2022 season. While there’s still more to do, we are extremely pleased with our ability to flatten the growth curve around labor rates, particularly given that seasonal labor represents our single largest operating cost.
Adjusted EBITDA which management believes is a meaningful measure of the company’s park level operating results, increased $29 million in the third quarter to a record $362 million compared to $333 million for the third quarter of 2021. The increase reflects the impact of incremental operating days in the current quarter and the continued strength in the outstanding, offset in part by higher operating costs, particularly for labor and cost of goods sold.
Shifting focus to our preliminary results for the month of October and operating trends for the first 10 months of the year. Over the past 5 weeks, our parks entertained a record 3.2 million guests and generated $227 million of net revenues. Based on preliminary results for the 5-week period which had 177 total operating days, in-park per capita spending was $64.91 and out-of-park revenues totaled a record $21 million. For the comparable 5-week period in 2021 which had 176 operating days, net revenues totaled $219 million on total attendance of 3.2 million guests, in-park per capita spending of $64.97 and out-of-park revenues of $19 million.
Compared to October of 2019 demand levels, October attendance this year was up 11% or approximately 318,000 visits, underscoring the growing demand of our fall event offerings and the benefit of Halloween falling on or near a weekend. Based on these preliminary October results, through the first 10 months of the year, we’ve entertained 24.9 million guests and generated $1.68 billion in net revenues, representing an increase of 22% or $306 million compared to the first 10 months of 2019. Over this same period, in-park per capita spending was $61.72, up 27% from 2019 levels and out-of-park revenues totaled $195 million, up $40 million or 26% from the same period in 2019.
For reference, operating days for the first 10 months of 2022 and 2019 totaled 2,103 days and 2,028 days, respectively. As park calendars currently stand, we project that in November, December, we will have a total of 6 incremental operating days compared to last year and 17 additional days compared to November and December of 2019 driven in large part by our efforts to expand the operating calendar in select markets. These additional operating days are projected to be modestly profitable but, more importantly, provide us with incremental opportunities to sell season passes and other advanced purchase commitment products for the 2023 season.
Now turning to our balance sheet. Our deferred revenue balance at the end of the third quarter totaled $188 million. This compares to $211 million at the end of the third quarter last year which included approximately $30 million of COVID-related product extensions at Knott’s Berry Farm and Canada’s Wonderland into 2022. Excluding the extensions in the prior year quarter, deferred revenues would have been up approximately $7 million or 4% year-over-year, including results from early fall sales of 2023 season passes and related all-season products. Compared to September of 2019, third quarter deferred revenues are up 26% or $39 million.
With 70% of the season pass sales cycle remaining, including the spring window that accounts for more than 40% of our full program sales, we remain laser-focused on driving unit sales higher and matching the record performance of our 2022 season pass program. As Richard mentioned, we have a strong balance sheet position which we expect to continue to prove as we deliver on our strategic initiatives. As of September 25, 2022, Cedar Fair’s total available liquidity was $568 million, including $288 of cash and cash equivalents and $280 million available under our revolving credit facility which is undrawn. This compares to $319 million of total liquidity at the end of the second quarter of 2022. During the first 9 months of the year, cash flow from operations totaled $412 million, vesting our comparable 2019 performance by $23 million or 6%.
During the 9-month period, we also generated $310 million in the sale leaseback of the land at our Great America park in Santa Clara, California. Through the first 9 months of the year, we used $264 million to fully repay the company’s term loan, bringing total debt outstanding down to $2.3 billion and net leverage back to pre-pandemic levels at 3.7x trailing 12-month adjusted EBITDA at the end of the quarter. During the 9-month period, we used another $17 million to pay cash distributions to our unitholders and $64 million to repurchase units under the unit repurchase program. Regarding capital investments. Through the first 9 months of the year, we’ve spent $138 million on CapEx, including investments in new rides and attractions, upgraded and expanded F&B facilities and renovations to several of our resort properties.
For the full year, we now anticipate investing approximately $170 million to $180 million on CapEx. By comparison, we project investing $180 million to $200 million on capital projects for the upcoming 2023 season. Lastly, for modeling purposes for the full year 2022, we are projecting cash interest payments of $145 million to $150 million and cash taxes of $40 million to $50 million.
With that, I’d like to turn the call back to Richard to share some final thoughts.
Richard Zimmerman
Thanks, Brian. While we are extremely pleased with our performance year-to-date, we are just as excited about the remainder of 2022 and the compelling opportunity that we have to build on our momentum in the coming year. In the weeks ahead, a number of our parks and resort properties will be transforming themselves into winter wonderlands and hosting holiday events. These immersive season-ending holiday events have proven to be extremely popular with everyone from grandkids to grandparents, while offering our loyalties and pass holders another compelling reason to visit the park.
We believe the success of our fourth quarter events which now account for more than 15% of our annual attendance is the catalyst for expanding our appeal as well as the steady growth of our season pass sales program. To ensure our parks remain a top entertainment choice among consumers, we continually improve the quality and breadth of our offerings and enhance our guest experience. That is why we continue to invest a significant amount of our free cash flow back into our properties each year, creating a powerful economic life cycle that benefits our guests, our associates and our park communities and ultimately drive sustainable growth and value creation for our unitholders.
The guest-focused strategies we have in place are producing record results, none more effective than our expanding season pass program — we are also generating excellent returns from the capital we have invested to improve the quality and scale of our food and beverage offerings. Food and beverage is a top priority for our guests and we are focused on continuing to invest in our capabilities to improve and grow our offerings. For 2023, we are investing in marketable new attractions at our 5 largest parks and 7 parks overall. These include large-scale updates to major sections of our parks and will include the addition of new coasters and the rebirth of iconic rides from the past.
We are also investing in new high-capacity dining facilities, major events to support two 50-year anniversary celebrations and a number of other additions designed to delight our guests. Our marketing team does a great job of creating excitement and urgency around the introduction of new attractions which historically lift attendance and guest spending and increased season pass sales.
On the other side of the coin, we remain committed to optimizing our cost structure and getting back to 2019 margin levels as we get deeper into the recovery. A return to pre-pandemic attendance levels, along with moderating the cost pressures we’ve experienced over the past few years will be critical to achieving our margin goals. Coming into the 2022 season, we felt that the fastest and most effective way to facilitate a recovery of the business was to drive attendance and top line revenue by staying connected with our guests and maintaining the quality of the guest experience. This included ensuring our rides, attractions and retail centers were appropriately staffed for the level of demand they generated throughout the season.
As expected, this approach led to an increase in seasonal labor hours compared to last year. We helped us somewhat offset the impact of higher labor hours by managing our average seasonal labor rate to essentially flat between the years, something I’m extremely proud of in today’s market and something that I believe we can build on going forward. Although the macroeconomic environment remains unclear, what drives our optimism for 2023 is solid momentum once again in our season pass programs, an extremely compelling lineup of new marketable attractions planned for next season, early signs of recovery in our group channel and ongoing strength in guest spending, driven by guest experience, we believe, is second to none. Should economic headwinds increase heading into next season, our team is prepared to take the necessary measures to respond quickly and appropriately.
Finally, I want to take this opportunity to welcome our two new directors, Michelle Mckinney Frymire and Jennifer Mason to our Board. Michelle and Jennifer bring to Cedar Fair more than 40 years of executive leadership and senior management experience in the travel, leisure and hospitality industries. Our Board prides itself on best-in-class governance and regularly and actively refreshes its composition with the addition of outstanding new directors like Michelle and Jennifer. They each bring great fresh perspective to the Board that will only strengthen our ability to drive future growth and create value for our unitholders.
Chris, that’s the end of our prepared remarks. Please open the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from James Hardiman with Citigroup.
James Hardiman
So a lot of data, a lot of math to sift through here. But basically, since your Labor Day release, it looks like we saw a pretty material deceleration in September ultimately through the end of the third quarter and then a pretty significant reacceleration in the month of October. I guess, a, sort of verify or dispel that just broad narrative and b, any why as to why you think that’s happening?
Richard Zimmerman
James, great question. I think we would say exactly what you just said which is September was a tough month in part because of the weather that impacted us in the early part of the month. But I think what we’ve seen in October is our markets respond to the quality of our Halloween events. We know that with our season pass sales up 20% this year, there are a lot of folks out there that were itching to come. The weather was really good in October. But the appeal of our events really carried through and we saw that through all of our channels, demand group and season pass.
Every year, we look at October and go, it’s been another great October. I think it speaks to the appeal of the product not just the holiday but the appeal of the product culturally and that people look forward to holidays. But overall, we continue to see a strengthening of demand in the fall. And that seems to be an ongoing, almost multi-decade trend.
James Hardiman
Makes sense. And then let’s talk about costs for a little bit here. A significant amount of operating expense deleverage here. I think by my math, that line is up 42% versus 2019. I guess maybe – I mean just given that, that is so much more than revenues are growing, I don’t know if there’s a way to do sort of a bridge. I know you now have an incremental lease that is adding to some of your costs, I think, in that line. Obviously, operating days were up as well. But I’m struggling to sort of bridge the gap in that number, particularly when it sounds like you guys have done a good job in sort of staving off labor increases – or at least the wage rate increases.
Richard Zimmerman
James, I’ll let Brian weigh in here. But overall, listen, we’ve tried to be as transparent as possible as we went through the pandemic about what we thought the effects were. See, labor is our single biggest line and we’ve been very transparent about what we needed to do in each of our regional markets to be able to get the staff we needed to run our parks and get the experience. When I look back on where we are year-to-date through the third quarter, we’re down approximately 1 million seasonal hours to 2019. So we have focused on efficiencies. But we’ve also focused on driving the revenue. But when your single largest line item is going up by a significant percentage, that’s the challenge. We think we can work that out over time and get back to pre-pandemic margin levels. But that takes time and it certainly takes a recovery to 2019 attendance levels.
Brian?
Brian Witherow
Yes. Just adding on, James, to Richard’s comments. I think the efforts to take hours out of the system are certainly producing. There’s more opportunity there to optimize some of those workforce management tools. Being able to flatten that growth rate around seasonal labor for the full year, as Richard noted, down slightly in the third quarter, is certainly helping. But to your point, there is pressure the other way by the incremental days that are in the system. And then when you look at it versus last year, the recovery of some of the attendance and the variable-related costs. But when we look at it overall, I think you hit on it, labor is the largest single cost item. And it would represent probably more than 2/3 of that increase that you’re seeing in the third quarter versus where we were in ’19 and that’s primarily right. We’ll continue to focus on it, as Richard noted. I think there’s opportunities given the momentum we’ve established more recently but there’s more work to be done.
James Hardiman
And let me maybe ask the question in slightly different way. I mean that line seems to be growing faster than revenues. And so to turn around margins, we need to get that line to grow, at least start by getting those 2 things to grow at a commensurate rate. Any thoughts on when that might happen? Is there sort of an opportunity to get back on par with at least not a big deleverage item?
Brian Witherow
Yes. I think, as Richard noted in his prepared remarks, I mean the focus is to get back to those pre-pandemic margin levels. One of the key factors that will assist in accomplishing that is getting back to those pre-pandemic attendance levels, right? We talked about group remaining disrupted. That certainly puts more pressure on margins earlier in the season, still somewhat in the third quarter as well. But as we’ve talked about in prior calls, youth and school groups being lost in the spring is a big headwind when it comes to margins. So I think we’re covering volume and we feel very good about that. The trends we’re seeing in that area as we wrap up 2022 and head into ’23, particularly around youth and school. And so I think that’s the first step.
And the second piece is we’ve already started to show some wins in this area. It’s flattening out and starting to decelerate that growth around the labor rate. More of that was accomplished here recently. I think we’ll have the benefit of that now for a full season as we roll into 2023. And there’s — and we feel very good about the other — the top line metrics. We’re seeing guest spend in the park, as I noted in my prepared remarks, up 20-plus percent to — or 30-plus percent, I’m sorry, to 2019 levels and 2% still to last year. Some of the admissions per cap pressure we’re seeing is really more mix driven and not a reflection of the consumer pulling back, just really more of a reflection of season pass growth. So I think we think that things are aligned to start seeing that margin expansion. It’s just going to take — takes more time.
Operator
The next question is from Steve Wieczynski with Stifel.
Steve Wieczynski
So Brian or Rich, I want to go back to the in-park. You just made some comments about the in-park spend levels which were down year-over-year. And it’s probably one of the first times we’ve heard any kind of slowdown in spend levels across multiple consumer verticals that we look at. So is there anything you can help us think about as to maybe what drove that slowdown? And look, I understand you just called out lower spend levels and extra charge products and some negative headwinds from a higher season pass mix. But I guess the question is, if you look at the average person, Joe Schmo coming in, are they still spending more as they come in the park versus what they – where they were last year?
Brian Witherow
Yes. Steve, it’s Brian. Yes, I’ll reiterate what I said to James’ question. The — when I — when we split it apart and we look at those pure in-park areas, where we take math, a big piece of the math out that season pass represents, right? That impacts admissions more than it affects those in-park spend areas. We’re still seeing the stickiness in growth, as I noted, up 2% from third quarter of last year, when we look at just food and beverage, merch games. That’s transaction count improvement. That’s higher average value per transaction. The one in-park area that saw a little bit of pressure was extra charge. Overall, revenues are up based on pricing. But given that we’re not at its higher peak attendance days, particularly in the summer, more July, August, at some of our big parks, that’s a reflection of some of the disconnected group still.
It’s also a reflection of us moving guests off of some of those busier days through our dynamic pricing techniques. That definitely takes — took some of the demand for fast line, as an example, down a little bit. But overall, revenue is still up in that as we price more into it. So the one area that we’ve seen the most pressure is more mathematical or accounting and that’s admissions. And that, again, ties back more towards that mix, as we noted. We’re pushing close to 60% of our attendance coming from season pass this year versus mid 55%, 56% range last year.
Steve Wieczynski
Okay. Got you. And then second question is, you keep talking about trying to get back to those pre-pandemic attendance levels which I think was around 28 million. I guess as we kind of think about the 2022 winding down at this point, how should we think about ‘23? And I’m not sure how you really want to take this question but is it possible to get back to those levels in ‘23? I mean I think that would kind of infer, let’s call it, a 3.5% to 4% kind of growth rate in terms of attendance. Is that too quick? Or – and is this more of a ‘24 type story? Or is that still a potential in ‘23?
Richard Zimmerman
Steve, when I think about what we saw this year, a 20% increase from 2.6 million season pass to 3.2 million, we had more of our loyal customers step up to buying our most expensive ticket, if you think about it as a ticket, the highest price ticket. I think that bodes well as we look forward in terms of our ability to mine more out of our existing customer base. We’ve been transparent from the beginning on the group channel on what we thought it would take. You go back to ’08, ’09, it took a full 3 years to get back to similar levels. We see that kind of recovery happening now. I’m really excited. By the way, the phones are ringing, as Brian said, as we, in particular, look at the big chunk we get back in the spring, early summer which is the youth and school groups. So I think that, combined with one of our strategies and our look at the world coming into it, it’s tough to go back 12 months and say what we were thinking as we went into 2022.
But when we looked at this, we felt there’d be pent-up demand. We’ve seen that across the board and certainly have seen that up in Canada this year. But we did — we invested heavily in food and beverage to drive that in-park spend. We thought we could have the demand we needed within the channels. I think the season pass 20% up shows that. But as we look at next year, now we’re back to our more traditional approach which is we’re going to have something new in 7 different — in 7 of our parks that we talk about. I think it’s probably the deepest and most complete product lineup I’ve seen us have over the course of — since I’ve been doing this. So, I think we have what we need in terms of our marketing folks to go out there and drive demand. So all of that factors into how I kind of look at next year.
Operator
The next question is from Chris Woronka with Deutsche Bank.
Chris Woronka
I’m going to try to come at, I guess, the margin question, one different way which is, I think you’re back to 93% or so of 2019 attendance in the third quarter of ‘22. If you get back to 100% next year, is there – how much incremental labor do you really need to get that, right? The question – I guess the question, or the observation would be, are you kind of – with a higher fixed cost base when the parks are open, is there a lot of incremental labor hours that need to come in to make up that final 7% of attendance?
Richard Zimmerman
Chris, when we think about the business model we have — it’s a fair question, I think a really good question. The incremental attendance on any given day really doesn’t drive a lot of extra cost. So every time we drive higher attendance on different days, we really — those are our high-margin days. Go to October; we just talked about being some of our most profitable days. That’s really true. So I think the more we can drive back that 7%, the more likely we’re going to push deeper into the higher margins. But what I’ll also tell you and this is what Brian always says, where we get the growth from sometimes determines the impact on margin which parks are doing well.
And I’ll even go to something like our Canadian park which is park in Toronto, Canada ones are having a phenomenal year. But because the dollar has weakened, that’s probably taken our estimate about 50% — 50 basis points off of our consolidated margin because that’s not flowing through. So there’s a lot of things that impact that but it’s a fair question.
Chris Woronka
Okay. And then I guess, secondly, I know we’re not really talking about 2023 yet but how much confidence do you have based on what you’ve seen to date in ‘22 to kind of move pricing up further, whether it’s on certain ticket plans or whether it’s on some of the food and merchandise? Do you feel confident if you had to make that decision today that you could take additional price for next season?
Richard Zimmerman
Chris, as I look at our approach, it’s always been to take price every year and dynamically price. The early indicator for me would be season pass. And we’ve, on average, targeted a high single, low double-digit increase in our pricing. Now mix will impact what comes through which far sell. But we think there’s an opportunity to always move price. So I also firmly believe when you take price every year, you’re sort of training the market than expected. So our approach is always in dynamic pricing lean into demand. We — you always hear me talk about price value. Our guests got great value this year. That gives us an opportunity to continue to take price.
I’ll answer your question a different way, Chris which is if I go back and look what we saw ’08 into ’09, the health of the consumer back then, we saw hotel booking dropping — dropped. We’re not seeing that. We saw a season pass soften considerably. We’re not seeing that. And group dried up on us, both corporate and school. We’re not seeing that. Schools are calling us and the phone’s ringing. So the things I would be looking at, to answer your question, I don’t see them right now. So I’m really confident that we can continue to try and take our approach where we try and both get – recover volume but get price.
Operator
The next question is from Mike Swartz with Truist Securities.
Mike Swartz
Maybe just a question on your plans for marketing in ‘23 and then maybe how they differ versus how you’ve marketed historically and then look at the – sounds like season pass visitation is probably higher than it was. Pre-pandemic group, obviously, we know is starting to come back. But is that single-day visitor, is there anything you’re planning to do differently to drive those attendance levels back in ‘23 and beyond?
Brian Witherow
Yes. Mike, it’s Brian. As we look at where marketing has pivoted or changed over the last couple of years and we’ve talked about this on prior calls, shifting during the pandemic out of necessity away from traditional media more heavily into digital. And as Richard just mentioned a moment ago, we felt coming into this year, there was going to be a lot of pent-up consumer demand. And so we were pretty aggressive with paring back our advertising dollars and mining some savings there and trying to ride that pent-up demand wave. As we look at 2023 and Richard highlighted what’s going to be a very strong capital program. Big new attractions going in, in our 5 largest parks and 7, 8 parks overall. We want to lean into that and make sure that we’re not penny-wise, dollar-foolish on the advertising side.
So I think as we look towards ’23, we may accelerate some spending around that capital program. I don’t think it’s going to be material, nothing we believe the returns are there to warrant it. But it will be still a somewhat similar approach, heavy on digital because of the efficiencies, cost-wise but also the flexibility of that but also getting a little bit back more into mainstream media as we lean into that capital program.
Richard Zimmerman
Mike, as we think about marketing, I had — Kelley Ford, our CMO and I were discussing yesterday. We’re so excited about the digital shift because as she would tell you, we need to be where the customers are, not where they’ve been. They’re not watching linear TV anymore. We’ve got to be out there where they are. And we’re trying to be — look forward and invest where we think we can get them, not just mine the efficiency but get the most impact.
Mike Swartz
Okay, perfect. That’s helpful. And then just maybe on — I think you said season pass sales, if I heard that correctly, were up 20%. I apologize if I missed it but was that versus ’21 or ’19?
Richard Zimmerman
Yes. I’m sorry. That’s whole year 2022 versus last year, $3.2 million for full year 2022 versus $2.6 million in ‘21.
Operator
The next question is from Ben Chaiken with Credit Suisse.
Ben Chaiken
Just going back to cost briefly. Your 3Q flow-through was, I think, around 5%. Now it’s following 10% in 2Q. Regardless of how you look at trends, revenue is up materially and it’s not necessarily translating to EBITDA. I guess as you reflect on your business in ‘22 season to date, do you think you made the right moves on labor hours and rate and/or operating days? Or would you change anything?
Richard Zimmerman
Fair question. Certainly, we’ve always been — we always look at how we’ve approached the year and what lessons can we learn and what can we mine out of our experience. If you go back to — and again, we’ve been transparent with our interim updates. We took a number of days out of the calendar early on. We weren’t sure what demand was going to look like in the springtime. And we had some challenges on the staffing front. As I look at – and as we think about next year, we want to make sure that we’re giving ourselves a chance to drive as much revenue as possible. And when we think about how to mine that most effectively, as I said, through year-to-date, through the end of the third quarter, we’ve taken over 1 million hours out. We want to make sure that we’re fine-tuning that approach and giving us the ability to drive deeper and recover our margin, continue to drive the revenue, get far more efficient. I touched on that with Chris’ call.
But as we look forward, I think there’s some things that we’ll look at. Brian talked about our ability to invest a little bit more in marketing to make sure we’re capturing both the demand for 1-day tickets but also make sure we are optimizing those price breaks that are so critical for us for season pass.
Brian, anything you want to add?
Brian Witherow
Yes. I mean, just to reiterate, Ben, as we came into this year, the focus was on recovering volume and driving guest spend. As we said in the prepared remarks, it’s critical that we have all of our revenue centers and our attractions adequately staffed to the expected demand levels on a day-by-day basis. There were — as Richard noted, times early in the year that we weren’t able to open several of our parks because of shortage of staff, more of a shoulder season issue when students weren’t out of school yet and we felt that we wouldn’t be able to deliver the right guest experience. We unplug those operating days in a few markets. Saved some operating costs. But I think to Richard’s point, we hurt ourselves in the revenue line item.
So, I think we can always get smarter and there’s always more upside on the cost side of things and more efficiencies to be gathered. As I noted, I think the progress we’ve made around the labor rate structure was huge, probably seeing more benefit of that in Q3 than we did in the first half of the year. And that’s going to translate into 2023. But I think as we look at where — what we did in 2022, we delivered on what we intended to which was to achieve record revenues and record adjusted EBITDA. And we’ll get better at margin and optimization of those revenue dollars as we roll forward.
Ben Chaiken
Got you. And just to make sure I’m kind of interpreting – first of all, that’s all super helpful color. I appreciate it. And then just to make sure that I’m interpreting your comments correctly, it sounds like the – getting back to ‘19 margins will be a function of kind of like operating leverage on incremental growth because it sounds like you guys are talking about like maybe some marketing dollars coming in and driving incremental revenues. So the point – the way that we should be thinking about it is operating leverage on incremental revenues rather than necessarily like absolute costs coming down. Is that fair?
Brian Witherow
I’d say it’s more heavily skewed towards what you just described. There are definitely some places where we’re going to look to mine some more cost efficiencies. And then back to Richard’s point, ultimately, that 2019 margin level — and Chris’ question about if we get back to those attendance levels, you get to that margin level. Part of it’s going to depend on the performance, right? I mean Canada’s Wonderland had a fantastic year, a record performance year for that part coming out of the pandemic. But unfortunately, when we bring that back over into U.S. dollars, the FX is hurting us, as Richard noted, to the tune of maybe 50, 60 basis points of margin.
Richard Zimmerman
Ben, the other thing that I’ll jump back to. When we went into the pandemic, a lot of question marks, we issued a $1 billion bond in April of 2020 to make sure we had adequate liquidity. Yes, you look at what we’ve done on the capital structure, paying down 90 — more than 90% of the debt that we incurred to survive the pandemic and get us through. The reinstitution of the distribution, getting down to that 3.7. I’m really pleased with the rapid recovery, if I could put it that way. And I’m really pleased with what we’ve been able to do with the free cash flow to set the foundation on the capital allocation side for how we create some – create even more value for our unitholders. I don’t want to step over that because I think the impact of that rapid recovery has really let us get healthy very quickly. And that’s going to let us drive growth in the future.
Operator
[Operator Instructions] The next question is from Eric Wold with B. Riley Securities.
Eric Wold
A couple of questions, kind of somewhat like follow-ups and I’ll not try to beat on these too much. I guess, one, you talked about obviously the amount of season pass contribution to total attendance up well above last year, well above ‘19. Is this something you’re seeing kind of in the demographics coming in the park given kind of the economy we’re in now? Are you seeing single-day passes get impacted because of maybe the lower income consumer that normally wouldn’t buy a season pass? You’ve got to be impacted there but you can hold up in-park spending at these elevated levels because that consumer is still there. Anything to read into that? Or is that looking at the wrong way from your point of view?
Richard Zimmerman
No. What I would say, Eric — it’s Richard and great question. What I would say is when you think about season pass, what we think we saw this year as we got more into dynamic pricing and price — and took the price of our demand tickets on the web up, the gap between the demand ticket and the season pass, we had more people look at that gap and go, let me trade up. So what we’re seeing is a trade-up to our highest ticket that helped drive the 20% increase in season pass that I referenced earlier. Once they get in the park, we continue to sell more All-Season Dining, more All-Season Beverage. We’re seeing people bundle together a full year’s worth of experience in our parks. And then once they come to the park and we track their spending, they spend on other things as well.
So people trading up from a 1-day ticket to a season pass is always good for our business. The question we always get is, is there an optimal limit? No, we’d like to sell as many season passes as we can because once they come, they keep enjoying the benefit of the park. And even in terms of what we’re seeing now, we continue to see an increase in All-Season Dining. We’re up year-over-year in our — as we look at that line item for the 2023 passes. So they see value there; they come to the park. And then once they come to the park, they want to enjoy the visit.
If you go all the way back to ’08, ’09 in the staycation, if people stay close to home, they still want to treat themselves well. And when they come to our parks, they want to indulge themselves a little bit. And that’s what we see.
Eric Wold
Got it. And then just another one on labor. I apologize. I know, obviously, you made the decision to staff up early and heavy to drive attendance and guest experience in spending the parks. I get all that. You’ve taken some labor hours out so far. So maybe there’s room there. If you can kind of walk through the goal of kind of closing the gap in attendance to leverage the current spend levels, I guess what are your early thoughts on what hourly wage pressures may look like next year? And kind of how will you compete maybe against – I think you kind of paid up early in this cycle to get people in the park. How will you kind of compete as we think about next year, how do we think that labor pressure may look like on the hourly wage side?
Brian Witherow
Yes. Eric, it’s Brian. I think when we look at labor for next year, broad comment, the availability and affordability challenges aren’t going away. We believe those are largely structural. That said, there have been some tailwinds this year that we’ve leaned into and benefited from, right? The return of the J-1 Visa program brought more international students over at our parks. That was extremely helpful. Our ability to, as I mentioned on the call, sort of put in place a more pay program and scale more aligned with where we’ve been in the past, not everybody at that max level, right? So we’ll pay up for certain jobs. We’ll pay up for seniority and experience. But the newer first year associates that come in or maybe those J-1 Visa students are only here for a short period in the summer, we’ll keep them at the lower end. And so we still, in each of our markets, want to remain the market center and be the first choice for folks seeking a job during the summer season. And so that’s not going to change. But I think leaning into that structure that we did this year, continuing to benefit from some of those same tailwind factors will allow us to offset significant pressure.
I think we’ll see if we have to pay up in some markets, we’ll pay up because what we do know is if we’re not staffed appropriately, we’re losing revenue. And I think that’s the key message that we want to make sure we deliver. And we saw it play out this year. In some of our markets, when staffing was more challenged, our per caps were challenged. When staffing was adequate or at its right level, we are delivering our best per caps on those days. So it’s critical that we maintain those adequate staffing levels and that will be the focus.
Operator
The next question is from Barton Crockett with Rosenblatt Securities.
Barton Crockett
One thing I was wondering about was the October trend, how reasonable it is to think about that as a baseline for what could happen in the other holiday period here at the end of the year in December and talk about puts and takes around the reasonableness of extrapolating that trend to the balance of the quarter.
Richard Zimmerman
Barton, Richard, good question. When I think about the appeal of the holiday events, they fall a different time of year. Halloween sort of leads into November. And not all of our WinterFest events open up right away but they do open up shortly thereafter. So what we’ve seen is there is such a thing as momentum. When we’re top of mind and people visited and they go home and tell their friends about their visit, it keeps us in the consideration set. So we’ve always seen that good momentum leads to better next year performance. We’ve always seen strong spring performance when we have a strong fall. So I think it’s a really good sign. I think it gives us great momentum. We’re starting to see some markets pick up. I anticipate that Canada, in particular which had a great opening WinterFest in 2019. Given the strength we’ve seen there all year long and their recent trends, I think they’ll have a phenomenal WinterFest.
So I do think with our always normal weather caveat, if it rains, it’s tough to get people to come out. But with reasonable weather, I anticipate that the momentum we’ve seen in October is sort of sets the table and positions us for a successful WinterFest, Knott’s Merry Farm season once again.
Barton Crockett
Okay, that’s helpful. And I wanted to step back a little bit on the macro view because you guys are in an interesting position, right? You see where the consumers’ appetite is and willingness to spend their pricing sensitivity, also buy a lot of things. You pay a lot on labor. You buy a lot of products. You have a CapEx cycle that will be buying a lot of commodities, maybe some steel. And we have a Fed right now that’s bound to determine to keep raising interest rates until they end this inflationary spiral.
And there’s a lot of speculation about whether there has to be kind of a wage cost spend kind of cycle that has to be ended. And what I hear from you guys is a lot of sense of strength from the consumer, maybe some easing of some cost pressures. And I’m just wondering how you kind of fit that into what you believe is happening macro-wise based on your view of the world and how that kind of informs how you think about what the most likely macro set up is as we navigate through next year?
Richard Zimmerman
I’ll go back to as we went through the pandemic, we said pre-pandemic experiences, consumers were prioritizing experiences over possessions. Clearly, that wasn’t the case during the pandemic. During the heart of it, they prioritized possessions and were buying goods. Everything that we’re seeing is being collaborated by those that I talked to within the broader leisure hospitality world. Hotels are doing good. You continue to see strong interest in all the different sectors of the leisure and hospitality sector. I think we’re back to consumers prioritizing experiences over possessions. Whether that’s pent-up demand or event spending, all those things we’ve talked about, experiences are what consumers in the U.S. and in Canada are looking for. And they’ll pay up to go get the experiences that they want, particularly after being through the depths of the pandemic, however it impacted everybody.
I do think from a broad front, consumers continue to be in pretty good shape even though the lower end is getting increasingly pressured. And our broad macro view is that we think there’s a lot of demand that will continue to come back for us. That’s code for we continue to see our ability to close the gap on the attendance levels for 2019 being a reasonable estimate of next year.
Brian, anything you want to add?
Brian Witherow
No. I mean I think you said it well. While there’s a lot of uncertainty around the macroeconomic environment and our crystal ball isn’t any clearer than anybody else is, all we can look at, Barton, is the trends we’re seeing. As you noted, the most recent trends, October, extremely strong, underscoring, again, the demand for that event. Great weather in October, we can’t ignore that, as Richard noted. But the longer lead indicators, we — along with those strong attendance numbers, we saw outstanding sales of the 2023 products which tell us the consumers still feel pretty good about looking forward because in some cases, these are products they’re not going to be able to use for another 5 or 6 months.
Barton Crockett
But on the flip side of that, cost pressures, are you seeing any deceleration? It sounds like maybe wage is less of an issue. Other things, or is it still is kind of inflationary as it ever has been?
Brian Witherow
Yes. Around labor, I think what we’ve experienced is the result of strategies that we’ve deployed. There is certainly still pressure around wage rates. We’ve just deployed a different strategy that is allowing us to flatten that curve as I noted. In other areas, you’re right. I mean we are seeing an acceleration of costs. We noted it in terms of the impact it’s having on things like cost of goods sold. As we work on our capital programs for next year, those projects are certainly under pressure, increasing costs. We are making adjustments within the capital program where we can to absorb those pressures without sacrificing the impact of the product. It may mean deferring some infrastructure things here or there but we’re certainly doing everything we can to offset those pressures.
Operator
We have no further questions at this time. I’ll turn it over to Richard Zimmerman for any closing comments.
Richard Zimmerman
All right. Thank you all for your interest in Cedar Fair. As a heads-up, we will be participating in three banking conferences before the end of the year, hosted by Stifel in Chicago, Deutsche Bank in West Palm Beach and Truist in Boston. We hope to have a chance to visit with you in person at one of these events. Otherwise, I want to wish you and your families a safe and happy holiday season. Michael?
Michael Russell
Thanks again, everybody. With additional questions, please feel free to contact our Investor Relations department at 419-627-2233. And our next earnings call will be held in mid-February after the release of our full year results for 2022.
Chris, that concludes our call today. Thank you.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
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