United Parks & Resorts (then SeaWorld Entertainment, Inc.) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The filing is by SeaWorld Entertainment, Inc., the company’s name at the time, and covers its 12 U.S. theme parks. Results are unaudited.
Financial and operating results
- Q2 revenue: $439.8 million, versus $18.0 million in Q2 2020. Admissions were $243.2 million and food, merchandise and other revenue was $196.6 million. The prior-year quarter was severely affected by park closures.
- Q2 earnings: Operating income was $167.4 million versus an operating loss of $101.2 million; net income was $127.8 million, or $1.62 per basic share, versus a net loss of $131.0 million, or $1.68 per share.
- Q2 attendance and spending: 5.809 million visits, compared with 0.272 million in Q2 2020. Revenue per capita was $75.71, up 14.2%; admission per capita rose 16.5% to $41.87 and in-park per capita spending rose 11.6% to $33.84. Against Q2 2019, attendance remained 10.1% lower, while revenue was 8.3% higher.
- Six-month results: Revenue was $611.7 million versus $171.6 million; operating income was $148.5 million versus an operating loss of $158.8 million; and net income was $82.9 million versus a net loss of $187.5 million. Attendance was 8.023 million, up from 2.591 million.
- Adjusted EBITDA (non-GAAP): $218.8 million for Q2 and $244.0 million for the first half, compared with losses of $53.8 million and $84.7 million, respectively, in 2020. Last-twelve-month Adjusted EBITDA was $255.5 million; the filing also reports $262.6 million after specified estimated cost savings. These measures are not GAAP and include permitted adjustments.
- Cash flow and investment: First-half operating cash flow was $248.1 million, versus cash used of $68.3 million. Capital expenditures were $45.0 million, and cash and restricted cash increased $182.5 million to $617.7 million.
- Debt and liquidity: Debt principal totaled $2.212 billion at June 30; cash and cash equivalents were $615.8 million. The $332.5 million revolving facility was undrawn, with about $312.0 million available after letters of credit. The company reported a 1.5 working-capital ratio and compliance with debt covenants.
Material changes and management commentary
- All 12 parks were open without COVID-related capacity limits by June 30, although most of the first half included restrictions or modified operations. Results improved with more operating days and stronger demand; comparisons with 2020 are substantially distorted by pandemic closures.
- Compared with Q2 2019, higher ticket pricing and per-capita spending more than offset lower attendance. Management attributed spending gains to pricing, product mix, new or expanded in-park offerings and strong consumer demand.
- Management cited structural cost savings and efficiency initiatives. It also reported seasonal staffing challenges and wage pressure in selected markets, which it said were more than offset by savings initiatives.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management said available cash, operating cash flow and revolver capacity should meet capital expenditure and working-capital needs for at least the next 12 months.
Debt developments, risks and contingencies
- On July 14, 2021, after quarter-end, the company redeemed $50 million of 9.5% Second-Priority Senior Notes at 103% of principal, plus accrued interest. On July 26 it issued conditional notices for further redemptions of $50 million at 103% and $400 million at par plus an applicable premium; these depended on completing financing.
- On August 5, the company announced plans to market a $1.1 billion seven-year first-lien term loan and an approximately $385 million five-year revolving facility, with intended use including refinancing existing senior facilities. Completion and terms were not assured.
- The filing identifies COVID-19 effects, seasonality, attendance and discretionary-spending sensitivity, weather and travel disruption, labor availability and costs, animal-care regulation and public perception, leverage, interest-rate exposure, and debt restrictions as risks. A hypothetical 100-basis-point LIBOR increase was estimated to add about $5.2 million in annual interest with no revolver borrowing.
- A securities class action remained pending; plaintiffs estimated damages of $30–$35 million before interest. The company disputed the claims and said it did not expect a material loss. It also disclosed a dispute involving approximately 300,000 shares claimed by former employees, which it likewise considered without merit and not expected to result in a material loss.
- Estimated remaining Sesame Workshop license commitments could reach approximately $35 million over the agreement term. The planned conversion of Aquatica San Diego into a second Sesame Place park was then expected to open in 2022.
- Management said recent operating improvements could make some remaining deferred-tax valuation allowances unnecessary by year-end, but the timing and amount were uncertain. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether attendance, pricing and guest spending remain strong as pandemic restrictions ease and comparisons normalize, especially relative to 2019.
- Whether the planned refinancing and conditional note redemptions were completed, on what terms, and how they affect interest expense, maturities and liquidity.
- Whether staffing constraints, wage inflation and other operating costs erode the reported savings and margins.
- How much Adjusted EBITDA depends on add-backs and estimated savings, and how it compares with GAAP cash generation and debt-service needs.
- Developments in the litigation, Sesame Place project timing and deferred-tax valuation allowances.