Business context and reporting period
Registrant: SeaWorld Entertainment, Inc. and subsidiaries (the filing name; the request identifies United Parks & Resorts Inc.). This unaudited Form 10-Q covers the three months ended March 31, 2013, compared with the same quarter in 2012. The company operated 11 U.S. theme parks and reported attendance of approximately 3.5 million guests. Results are highly seasonal: management says the second and third quarters typically generate the most revenue, while the first and fourth quarters typically incur net losses.
Financial highlights
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $238.6 | $212.4 |
| Operating loss | $(35.9) | $(48.3) |
| Net loss | $(40.4) | $(45.1) |
| Net loss per share | $(0.49) | $(0.55) |
| Operating cash flow | $24.2 | $(8.1) |
| Capital expenditures | $32.3 | $57.1 |
- Revenue increased 12.3%. Admissions revenue rose 14% to $152.4 million; food, merchandise and other revenue increased 9% to $86.2 million.
- Attendance increased 2% to 3.499 million. Total revenue per capita was $68.19, up from $62.15. Admission per capita increased 11.7% to $43.56, and in-park per capita spending rose 6.3% to $24.63.
- Operating loss narrowed by $12.4 million. Approximate operating margin improved to negative 15.0% from negative 22.7%; net margin improved to negative 16.9% from negative 21.2%.
- Adjusted EBITDA, a company-defined non-GAAP measure, was $11.1 million versus negative $6.2 million. The company cautions that this measure is not GAAP and may not be comparable across companies.
- Operating cash flow improved by $32.3 million, helped by stronger operating results and working-capital movements, including higher deferred revenue. Operating cash flow less capital expenditures was approximately negative $8.1 million.
- At March 31, cash was $59.4 million; current assets were $177.3 million and current liabilities $340.1 million, a working-capital deficit of $162.8 million. Management attributed recurring deficits partly to advance ticket sales recorded as deferred revenue.
- Debt at March 31 was $1.871 billion before discounts and current maturities; reported current maturities were $51.3 million and long-term debt, net of discounts and current maturities, was $1.799 billion. The company also had $30 million drawn on its revolver and approximately $18.5 million of letters of credit. Interest expense was $28.6 million.
Material changes and significant subsequent events
- Revenue growth reflected higher ticket prices and yield-management strategies, increased in-park spending, and a 2% attendance increase. Management said Easter timing benefited attendance; pricing and yield management partly offset that effect.
- Operating expenses rose 6% to $173.3 million, mainly due to higher labor costs, increased attendance, and costs supporting newer attractions. SG&A fell 6% to $40.0 million, primarily because of advertising and media-expense timing. Depreciation and amortization rose 15% to $41.4 million, mainly due to asset additions during 2012.
- On April 24, 2013, the company completed its IPO, selling 10 million primary shares at $27 per share and receiving approximately $245.4 million in net proceeds. Selling shareholders sold 19.9 million shares and received no proceeds on those sales. The company used proceeds to redeem $140 million of 11% Senior Notes at 111% of principal, repay approximately $37 million of Term Loan B, pay approximately $46.3 million to terminate its Blackstone-affiliate advisory agreement, and fund general corporate purposes with the remainder.
- On May 14, 2013, the company refinanced Term Loan A and Term Loan B into $1.405 billion of Term B-2 Loans, with final maturity in 2020. Management estimated approximately $19 million lower annual future principal and interest payments, based on rates in effect at March 31. The amended facilities also permit up to $350 million of incremental term loans and/or increased revolver commitments, subject to conditions.
- The company reported material compliance with debt covenants at March 31. It said cash, operating cash flow, and available credit were expected to meet operating, working-capital, and capital-expenditure needs for at least the next 12 months.
Outlook, risks, and contingencies
- No formal numerical revenue or earnings guidance is provided. Management expects moderate GDP and consumer-spending improvements to support performance, while emphasizing dependence on discretionary spending, attendance, and per-capita spending.
- Key risks include seasonality, weather and economic conditions, high fixed operating costs, substantial leverage and debt restrictions, interest-rate exposure, labor and inflation costs, animal-related and reputational risks, permits and licenses, litigation, and reliance on key geographic markets. Management noted that approximately two-thirds of attendance and revenue historically occur in the second and third quarters.
- Approximately $890.5 million of debt was variable-rate after considering swaps; the filing estimates a hypothetical 100-basis-point LIBOR increase would raise annual cash interest costs by approximately $3.4 million. The company estimated that $1.4 million of derivative-related amounts would be reclassified as increased interest expense over the next 12 months.
- Management said ordinary-course legal matters were not expected to have a material adverse effect; accrued amounts for probable and estimable claims were not material. The filing reports no off-balance-sheet arrangements as of March 31.
- The filing states disclosure controls were effective at a reasonable assurance level and that no material change in internal control over financial reporting occurred during the quarter.
Investor facts to verify
- Confirm post-IPO debt balances, redemption costs, refinancing terms, and actual interest savings against subsequent filings.
- Assess whether attendance and per-capita spending gains persisted beyond the seasonally weaker first quarter, and distinguish pricing effects from underlying demand.
- Review liquidity and covenant headroom, including revolver availability, scheduled debt service, and capital-expenditure needs.
- Check the final accounting impact of IPO-related equity awards and the advisory-agreement termination payment.
- Evaluate the sensitivity of results to seasonal operating leverage, consumer spending, weather, interest rates, and the company’s concentrated geographic exposure.