Business context and reporting period
The supplied filing is SeaWorld Entertainment, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016, filed August 5, 2016. It is not filed under the name United Parks & Resorts Inc.; investors should verify the issuer and historical-company mapping. SeaWorld operated 12 U.S. theme parks. Results are seasonal, with the second and third quarters typically strongest.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $371.1 million, down 5.2% | $591.4 million, down 2.4% | $391.6 million; $606.2 million |
| Operating income (loss) | $38.1 million; 10.3% margin | $(81.5) million; (13.8)% margin | $45.8 million; 11.7% margin; $(4.4) million; (0.7)% margin |
| Net income (loss) | $17.8 million; diluted EPS $0.21 | $(66.3) million; diluted EPS $(0.78) | $5.8 million; $(37.8) million |
| Adjusted EBITDA | $83.8 million, down from $100.2 million | $77.8 million, down from $96.3 million | Non-GAAP measure; company cautions it is not comparable across issuers |
| Operating cash flow / capital expenditures | Not separately stated for quarter | $111.7 million / $103.2 million | $142.1 million / $83.5 million |
Second-quarter attendance was 6.0 million, down 7.6%; first-half attendance was 9.3 million, down 4.2%. Total revenue per capita rose 2.6% to $62.02 for the quarter and 1.9% to $63.72 for the half. Admission per capita increased 1.7% and 0.4%, respectively; in-park per capita spending rose 4.0% and 4.2%.
At June 30, cash was $29.2 million. Total debt was approximately $1.64 billion, including $65.0 million drawn on the revolving facility; approximately $110.3 million of revolver capacity remained after letters of credit. Working capital deficit was approximately $247.1 million. Total liabilities were $2.02 billion and stockholders’ equity was $397.7 million. The company reported covenant compliance and a 4.71x credit-agreement total leverage ratio.
Material changes versus the prior comparable period
- Quarterly revenue fell $20.5 million, mainly because attendance declined, particularly at Florida parks. First-half revenue fell $14.8 million.
- Despite higher per-capita spending, the attendance decline weighed on revenue. Management cited weaker Latin American visitation, softer Orlando demand and Tropical Storm Colin; the second-quarter calendar shift also reduced operating days at seasonal parks.
- First-half operating costs rose 10.2%, while operating results worsened to an $81.5 million loss. This included $33.7 million of accelerated depreciation on removed orca-habitat lifting floors and $6.4 million of Blue World Project asset write-offs. Equity compensation was $32.1 million for the half, including $27.5 million related to performance shares that vested in April.
- Interest expense declined 18.8% in the first half after the 2015 refinancing of 11% senior notes with lower-rate term loans. The prior-year period included a $20.3 million debt-extinguishment loss; no such loss was recorded in 2016.
- Operating cash flow decreased $30.3 million, while capital expenditures increased $19.7 million. Cash increased by $10.3 million in the first half, partly reflecting net revolver borrowings.
Outlook, risks and unusual items
- No quantified full-year revenue, attendance or earnings guidance is provided. Management said existing cash, operating cash flow and available revolver borrowings should cover capital expenditures, dividends and working capital needs for at least 12 months; this is subject to business conditions and financing constraints.
- Management’s stabilization plan includes refreshed guest experiences and marketing, targeted attractions, cost discipline, seasonal events and a simplified pricing approach. Mako and Cobra’s Curse opened in mid-June; management also introduced Orlando summer promotions and planned an aggressive fourth-quarter season-pass promotion.
- The March 2016 announcement ended orca breeding; current orcas are expected to be the last generation at SeaWorld. New orca encounters were planned to begin in San Diego in 2017 and reach all three SeaWorld parks by 2019. The Blue World Project as originally designed was abandoned.
- Risks highlighted include attendance and discretionary spending, adverse publicity, animal-treatment regulation and litigation, seasonality, weather, foreign-currency movements, labor costs, high fixed costs, substantial leverage and debt-covenant restrictions. Proposed federal marine-mammal rules had not been finalized.
- Dividend declarations were $0.21 per share each quarter, or $0.63 per share for the first half. Debt covenants left approximately $33 million of 2016 restricted-payment capacity at June 30, subject to leverage tests and quarterly recalculation. The company stated that dividends remain at the board’s discretion.
- Material legal matters included a securities class action that remained pending after a renewed complaint and motion to dismiss, and consumer class-action litigation on appeal. Management said it intended to defend the cases and could not assure outcomes; it did not expect known matters to materially affect financial position, results or cash flows.
- Subsequent to June 30, the company borrowed $15 million and repaid $80 million under its revolver, a net $65 million reduction.
Most important facts for investors to verify
- Confirm that this SeaWorld Entertainment filing is the intended historical issuer for the requested United Parks & Resorts summary.
- Assess whether attendance trends, especially in Florida and among international visitors, improved after the reported period and whether per-capita gains can offset visitation weakness.
- Review the adjusted EBITDA reconciliation and the effects of accelerated depreciation, project write-offs and performance-share compensation on reported earnings.
- Monitor cash generation against capital spending, debt service and dividends, including leverage, revolver usage and remaining covenant capacity.
- Check subsequent developments in the securities and consumer lawsuits, proposed animal regulations, and the announced orca-program transition.