Business context and reporting period
This summary covers SeaWorld Entertainment, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. The filing registrant is SeaWorld Entertainment, Inc.; it is not titled United Parks & Resorts Inc. The company operated 11 U.S. theme parks. Results are seasonal, with the second and third quarters typically strongest.
Financial and operating performance
Amounts below are in millions of dollars, except per-share and per-capita data. Comparisons are with the corresponding 2013 period.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $495.8 | $538.4 | $1,113.3 | $1,188.3 |
| Operating income | $161.9 | $205.6 | $183.1 | $197.4 |
| Net income | $87.2 | $120.7 | $75.4 | $64.9 |
| Diluted EPS | $1.00 | $1.34 | $0.86 | $0.74 |
| Attendance (millions) | 8.405 | 8.864 | 18.034 | 18.926 |
| Adjusted EBITDA (non-GAAP) | $209.1 | $254.4 | $320.2 | $392.5 |
- Q3 revenue fell 7.9%, operating income 21.2%, net income 27.8% and attendance 5.2%. Operating margin was approximately 32.7%, down from 38.2%.
- Nine-month revenue declined 6.3%, operating income 7.2% and attendance 4.7%; net income rose 16.1%, partly reflecting lower interest expense and substantially lower debt-extinguishment charges than in 2013. Nine-month operating margin was approximately 16.4%, versus 16.6%.
- Admissions revenue fell 9.9% in Q3 and 7.3% for the nine months. Admission per capita declined 5.0% to $36.47 in Q3 and 2.7% to $38.44 year to date. In-park spending per capita rose 0.8% to $22.53 in Q3 and was essentially flat at $23.30 year to date.
- Cash from operations was $269.9 million for the nine months, versus $273.0 million. Capital expenditures were $122.8 million; cash from operations less capital expenditures was approximately $147.1 million. Cash declined $1.6 million to $115.2 million.
- At September 30, total debt principal was approximately $1.616 billion, including $260 million of 11% senior notes; the term loan balance was approximately $1.356 billion. The term loan’s stated LIBOR-based rate was 3.00%. The company reported covenant compliance.
- The $192.5 million revolving facility was undrawn; approximately $16.1 million of letters of credit left $176.4 million available. Working capital was negative $26.6 million, which management said was typical for the business.
Material changes, outlook, risks and unusual items
- Management attributed attendance and admissions weakness to negative media attention, especially in California; competition and new attractions in Florida; a delayed Busch Gardens Tampa ride; and, year to date, adverse first-quarter weather. The prior-year comparison also benefited from the opening of Antarctica: Empire of the Penguin.
- Management was adjusting attraction and marketing plans and targeting approximately $50 million of annual cost savings by the end of 2015. It expected inflation in labor and other expenses and higher marketing spending to offset much of the savings. No specific revenue or earnings guidance was provided.
- The company announced new killer whale environments at all three SeaWorld parks, with San Diego expected to open in 2018 and the other parks to follow. Expected investment was approximately $100 million per park.
- The board authorized a share repurchase program of up to $250 million, beginning January 1, 2015. Timing and amount are discretionary and subject to cash needs, market conditions, legal requirements and debt covenants. At September 30, the company reported approximately $15.1 million of remaining 2014 restricted-payment capacity after using about $104.9 million of the $120 million capacity.
- Q3 included a $0.5 million debt-related write-off associated with a voluntary $31.5 million term-loan prepayment. Nine-month 2013 results included $50.1 million of advisory-agreement termination expense and $29.9 million of debt-extinguishment and financing-cost charges. The filing revised prior-period figures for immaterial errors in applying debt-modification accounting.
- A purported securities class action filed in September 2014 alleges materially false or misleading statements in offering documents and seeks unspecified damages. The company said it believed the suit was without merit and intended to defend it; outcome was uncertain. Animal-welfare regulation, proposed California legislation, negative publicity, weather, consumer spending, seasonality, leverage and high fixed costs were also highlighted risks.
- Management stated that cash, operating cash flow and available revolver capacity should meet capital expenditure, dividend and working-capital needs for at least 12 months. This is a forward-looking assessment, not a guarantee.
Important facts for investors to verify
- Whether attendance and admission-per-capita trends improved after Q3, and the contribution of California perceptions, Florida competition, promotions and weather.
- Progress and realized net benefit of the cost-reduction plan, including the effect of inflation and marketing costs.
- Expected timing, total funding and covenant implications of the approximately $100 million-per-park killer whale projects and the planned share repurchases.
- Debt repayment, interest-rate exposure, covenant headroom and the limited remaining 2014 restricted-payment capacity.
- Developments in the securities litigation and animal-related regulatory or reputational matters.
- The revised comparative financial statements and the filing’s explanation that the debt-accounting corrections were deemed immaterial to previously issued statements.