Business context and reporting period
SeaWorld Entertainment, Inc. (ticker: SEAS) filed this Form 10-K for the fiscal year ended December 31, 2019; it is an annual report, not a standalone fourth-quarter filing. The filing covers a U.S. portfolio of 12 theme parks. The company reported approximately 22.6 million guest visits in 2019. The registrant named in the filing is SeaWorld Entertainment, Inc., not United Parks & Resorts Inc.
Key financial metrics
Amounts below are in millions of dollars except per-share, attendance and per-capita data.
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $1,398.2 | $1,372.3 | +1.9% |
| Operating income | $213.2 | $151.7 | +40.6% |
| Operating margin | 15.2% | 11.1% | +4.1 percentage points |
| Net income | $89.5 | $44.8 | +99.8% |
| Diluted EPS | $1.10 | $0.52 | +$0.58 |
| Operating cash flow | $348.4 | $293.9 | +$54.5 |
| Cash capital expenditures | $195.2 | $179.8 | +$15.4 |
| Cash and cash equivalents at year-end | $39.9 | $34.1 | +$5.9 |
| Total debt, including revolver | $1,557.9 | $1,553.4 | +$4.5 |
- Admissions revenue was $802.8 million (+0.5%); food, merchandise and other revenue was $595.4 million (+3.8%). Attendance rose 0.2% to 22.624 million. Total revenue per guest increased 1.7% to $61.80, driven mainly by in-park spending per guest (+3.6% to $26.32).
- Operating expenses fell 8.0% to $649.7 million, which management attributed mainly to labor cost efficiencies and lower non-cash asset write-offs. SG&A rose 13.9% to $261.7 million, including legal, consulting and marketing costs.
- Net cash from operations less cash capital expenditures was approximately $153.2 million in 2019, versus $114.2 million in 2018. This is a simple calculation, not a company-reported non-GAAP measure.
- Adjusted EBITDA, as defined under the credit agreement, was $456.9 million versus $401.3 million; after estimated cost savings, it was $468.2 million versus $424.7 million. These are non-GAAP measures with substantial permitted add-backs and should not be treated as GAAP earnings or cash flow.
- Year-end working-capital ratio was 0.4; management said a ratio below 1 is typical for the business, in part because of advance ticket receipts and low inventory. The $210 million revolver had $50 million drawn and $20.4 million of letters of credit, leaving $139.6 million available at year-end. The company subsequently borrowed another $45 million for working capital.
Material changes versus the prior comparable period
- Revenue increased modestly, while operating income and net income rose more sharply, reflecting lower operating expenses and the absence of 2018’s $8.2 million debt-extinguishment charge. 2019 results included a $32.1 million legal-settlement charge, net of insurance recoveries.
- Attendance was nearly flat despite new attractions and improved pricing and spending per guest; management said unfavorable weather, particularly during peak seasons, offset positive attendance factors. Hurricane Dorian affected attendance over Labor Day weekend.
- Interest expense increased 4.0% to $84.2 million. The company reported total indebtedness of approximately $1.558 billion and a credit-agreement net leverage ratio of 3.24x, calculated using Adjusted EBITDA and estimated savings.
- Cash capital expenditures rose to $195.2 million, including investment in future attractions, a new corporate building and the planned Sesame Place San Diego conversion. The company repurchased 5.6 million shares for $150 million; the repurchase authorization was replenished to $250 million. No common dividend was being paid.
- The company adopted ASC 842 leases in 2019, recording $141.4 million in operating right-of-use assets and $128.2 million in operating lease liabilities; prior-year figures were not recast.
Outlook, commentary, risks and unusual items
- No quantified company guidance for 2020 revenue, earnings or attendance is provided in the filing. Management planned a broad 2020 attraction lineup and expected to fund 2020 capital expenditures from operating cash flow.
- Aquatica San Diego was planned to become the company’s second standalone Sesame Place park in spring 2021, with construction underway and no expected impact on the 2020 operating schedule. SeaWorld Abu Dhabi was described as on track to finish construction in 2022, subject to conditions and with no assurance of completion. The China-related ZHG agreements were terminated in April 2019 after nonpayment.
- On February 11, 2020, after year-end, the company announced a proposed $65 million settlement of the Baker securities class action, subject to court approval. It expected to fund this with $32.9 million of insurance proceeds for that case, $12.5 million of insurance proceeds from the Kistenmacher derivative matter, and $19.6 million of cash. The derivative settlement also remained subject to formal documentation and court approval; a $12.5 million gain was expected in Q1 2020.
- Other matters included a remaining securities lawsuit and an individual consumer lawsuit; the EZPay class settlement of $11.5 million had been funded. Management said it did not expect known claims and proceedings to materially adversely affect consolidated financial position, results or cash flows, but outcomes remain uncertain.
- Key risks include seasonality and weather, geographic concentration (about 57% of 2019 revenue came from Florida), discretionary consumer spending, competition, animal-care regulation and public perception, safety incidents, labor costs, capital needs, and substantial leverage. Approximately $1.0 billion of debt was hedged only through May 14, 2020; the filing estimated that a 100-basis-point LIBOR increase would raise annual cash interest by about $5.5 million with the swaps in place, versus $15.5 million without them. The filing also identifies coronavirus-related travel concerns as a risk, not as a reported 2019 impact.
- Hill Path owned approximately 34.6% of shares at year-end and had rights to designate up to three directors, giving it significant influence. The CEO changed in November 2019, when Serge Rivera took office.
Most important facts an investor should verify
- Confirm the legal issuer and ticker: the supplied filing is SeaWorld Entertainment, Inc. (SEAS), despite the request metadata naming United Parks & Resorts Inc.
- Review the quality of 2019 earnings and Adjusted EBITDA, including the $32.1 million net legal charge, consulting and marketing costs, and the credit agreement’s permitted add-backs and estimated savings.
- Check the status and final cash cost of the Baker and Kistenmacher settlements, including court approval and actual insurance recoveries.
- Assess debt-service capacity, revolver usage after the subsequent $45 million draw, and refinancing or interest-rate exposure after the May 2020 swap maturity.
- Track attendance, per-guest spending, weather effects, capital spending and opening timelines for planned attractions and Sesame Place San Diego.