SeaWorld Entertainment, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017; filed November 8, 2017. The supplied filing is for SeaWorld Entertainment, Inc., not a company identified in the request metadata as United Parks & Resorts Inc. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and results
SeaWorld operated 12 U.S. theme parks. Its business is seasonal, with about two-thirds of annual attendance and revenue typically generated in the second and third quarters. Attendance and per-capita spending are key drivers.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Attendance | 7.61 million | 8.34 million | 16.54 million | 17.62 million |
| Revenue | $437.7 | $485.3 | $997.8 | $1,076.7 |
| Operating income (loss) | $108.8 | $152.6 | $(190.5) | $71.1 |
| Net income (loss) | $55.0 | $65.7 | $(181.9) | $(0.6) |
| Adjusted EBITDA (non-GAAP) | $172.3 | $196.0 | $246.2 | $273.9 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $187.8 | $258.9 |
Q3 revenue fell 9.8% year over year, primarily as attendance declined 8.8%; total revenue per capita was $57.52, down 1.1%. Q3 operating margin was approximately 24.9%, versus 31.5% a year earlier, and net margin was approximately 12.6%, versus 13.5%. For the first nine months, revenue fell 7.3%, attendance declined 6.2%, admission per capita decreased 1.6% to $36.59, and in-park per capita spending decreased 0.6% to $23.75.
The nine-month operating loss includes a $269.3 million non-cash impairment of all goodwill at SeaWorld Orlando. Excluding that charge does not eliminate the reported operating loss without considering other adjustments. Q3 included $5.1 million of restructuring charges and approximately $7.8 million of long-lived-asset impairment related to an amended animal-use agreement. Q3 interest expense rose 33.2% to $20.2 million; nine-month interest expense rose 30.6% to $57.9 million. Nine-month results also include an $8.1 million debt-extinguishment and debt-cost write-off.
Liquidity, debt and capital
Cash was $52.3 million at September 30, 2017, down from $69.0 million at year-end 2016. Nine-month cash from operations was $187.8 million; capital expenditures were $139.6 million; cash used in investing was $138.8 million; and cash used in financing was $65.6 million. Cash declined $16.6 million over the period. Management cited a working-capital deficit of approximately $110.3 million, which it said is typical for the seasonal business.
Gross debt was $1.551 billion, with $1.508 billion reported as long-term debt net of discounts, issuance costs and current maturities. The company refinanced in March 2017, issuing $998.3 million of Term B-5 loans and replacing its revolver with a $210 million facility. The revolver was undrawn at quarter-end; approximately $190.9 million remained available after letters of credit. The reported facility leverage ratio was 4.93x. The company said it was in covenant compliance, while warning that further operating deterioration could increase compliance risk. A $1.0 billion notional interest-rate swap program hedged part of its variable-rate exposure; management estimated a 100-basis-point LIBOR increase would add about $5.9 million to annual cash interest, assuming specified average revolver borrowings.
The quarterly dividend policy had been suspended in 2016, and no dividends were declared in the 2017 periods shown. No program repurchases were made during the quarter or nine months.
Material changes, outlook and risks
- Management attributed weaker attendance to declines in domestic and international visitors, particularly in Orlando and San Diego; reduced national advertising and competition in Orlando; and renewed public-perception challenges in California. Hurricane Irma caused Orlando and Tampa closures; Hurricane Harvey disrupted Texas operations and travel, with additional weather effects in Virginia.
- United Kingdom attendance fell 28% in Q3 and 21% for the nine months; Latin America attendance fell 11% in Q3 and 6% for the nine months. Management cited currency strength, Brexit-related uncertainty and competitive pressures among contributing factors.
- The company was increasing national advertising and reputation-marketing efforts, launched a California campaign in October 2017 and planned a nationwide launch in early 2018. It introduced a promotional SoCal pass and was working with a consulting firm on pricing and revenue-per-capita initiatives.
- Management said it remained on track for $40 million of net cost savings by the end of 2018 and identified an additional $25 million in potential savings. A restructuring program announced in October eliminated approximately 350 positions, with $5.1 million of related charges recorded in Q3. These savings are targets, not guaranteed outcomes.
- No specific full-year revenue or earnings guidance is stated in the supplied filing text. Management said existing cash, operating cash flow and available revolver borrowings were expected to meet capital expenditure and working-capital needs for at least 12 months.
- Other commitments include a Sesame Workshop license requiring a second Sesame Place by mid-2021 and a Sesame-themed land at SeaWorld Orlando by fall 2022; management estimated combined obligations could reach approximately $150 million over the agreement term. The potential Abu Dhabi project remained conditional, with a planned opening by 2022 and no assurance it would proceed. China-region design and advisory agreements involve an affiliate of the new shareholder Zhonghong.
- Material uncertainties include securities and consumer class actions, an EZPay-plan class action with a liability ruling against the company but damages not yet determined, and U.S. Department of Justice and SEC inquiries into historical disclosures and securities trading. Management said it intended to defend or cooperate as applicable; outcomes and potential losses were uncertain.
- Additional risks include animal-care regulation and litigation, adverse publicity, weather and concentration in Florida, California and Virginia, substantial leverage and covenant restrictions, activist-shareholder activity, and possible further impairment of SeaWorld brand intangible assets. Credit ratings were downgraded in August 2017, with negative outlooks reported afterward.
Most important facts for investors to verify
- Whether attendance and per-capita spending recover in Orlando and San Diego, and whether the marketing changes improve demand.
- Whether the $40 million savings target and additional potential savings are achieved without undermining guest experience or revenue.
- Debt maturities, interest costs, covenant headroom and the company’s ability to maintain compliance if performance weakens.
- The cash and earnings effects of the EZPay damages phase, securities and consumer litigation, and DOJ/SEC inquiries.
- Whether planned Sesame, Abu Dhabi and China-region initiatives proceed, and their eventual capital commitments and returns.
- Whether further goodwill or brand-asset impairments, tax valuation allowances or other unusual charges arise.