Filing summary: SeaWorld Entertainment, Inc. (now United Parks & Resorts Inc.)
Reporting period: Form 10-Q for the quarter and nine months ended September 30, 2022. The filing is by SeaWorld Entertainment, Inc. and covers its 12 U.S. theme parks. Financial statements are unaudited and amounts below are in millions except per-share and per-capita data.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $565.2 | $521.2 | $1,340.7 | $1,132.9 |
| Operating income | $217.6 | $198.2 | $405.7 | $346.7 |
| Net income | $134.6 | $102.1 | $242.2 | $185.0 |
| Diluted EPS | $1.99 | $1.28 | $3.36 | $2.31 |
| Adjusted EBITDA (non-GAAP) | $274.2 | $265.3 | $574.6 | $509.3 |
| Attendance | 7.336 million | 7.226 million | 17.002 million | 15.250 million |
- Q3 revenue rose 8.4%; attendance increased 1.5%. Revenue per capita grew 6.8% to $77.05, comprising admissions per capita of $42.75 (+4.1%) and in-park spending of $34.30 (+10.4%).
- For the first nine months, revenue increased 18.3% and attendance 11.5%. Revenue per capita increased 6.2% to $78.86.
- Approximate operating margin was 38.5% in Q3 2022 versus 38.0% in Q3 2021, and 30.3% for the first nine months of 2022 versus 30.6% in 2021.
- Nine-month operating cash flow was $468.9 million, versus $416.4 million. Capital expenditures were $150.7 million, versus $73.6 million. Free cash flow, calculated as operating cash flow less capital expenditures, was approximately $318.1 million.
- Cash and cash equivalents were $109.6 million at September 30, 2022, down from $443.7 million at year-end 2021; cash including restricted cash was $115.5 million. Current assets were $276.0 million and current liabilities $429.9 million; the reported working-capital ratio was 0.6.
- Debt principal totaled $2.141 billion, including $1.188 billion of variable-rate Term B loans, $725.0 million of 5.25% notes due 2029, and $227.5 million of 8.75% secured notes due 2025. Net debt carrying amount was $2.101 billion. The revolving facility had no borrowings and approximately $370.3 million available after letters of credit. Net total leverage under the debt agreements was 2.71x; the company reported covenant compliance.
Changes and drivers
- Q3 admissions revenue increased 5.7% and food, merchandise and other revenue rose 12.1%. Management attributed the gains to higher pricing, improved in-park offerings and modest attendance growth.
- Hurricane Ian and other adverse weather led to a combined 15 operating-day closures at Florida and Virginia parks; the company estimated approximately 90,000 fewer guests as a result.
- Q3 operating expenses rose 10.7%, faster than revenue, reflecting inflation, new and expanded attractions and events, and higher legal accruals. Nine-month operating expenses rose 21.5%, partly because 2021 included pandemic-related closures and restrictions.
- Q3 interest expense increased 7.7% to $30.6 million, primarily due to higher rates on variable debt. Nine-month interest expense decreased 8.5% to $82.7 million, reflecting lower average variable debt and refinancing effects, partly offset by higher rates.
- Compared with 2021, nine-month results benefited from more normalized operations and the absence of 2021 capacity limits, temporary closures and severe international travel restrictions. Versus the first nine months of 2019, attendance remained 5.1% lower, while revenue was 21.9% higher, mainly from stronger per-capita spending.
- The company repurchased 11.04 million shares for approximately $623.1 million during the first nine months, including $617.8 million of treasury-stock purchases in financing cash flows. Treasury shares totaled 30.99 million at quarter-end.
Outlook, risks and notable items
- No specific revenue or earnings guidance is provided. Management said cash, operating cash flow and available revolving-credit borrowings should cover capital expenditures, debt service and working-capital needs for at least the next 12 months.
- Management cited labor-market tightness, wage and other inflation, supply-chain disruption, higher interest rates, and staffing-related constraints that have at times limited food outlets or attractions and affected guest experience. COVID-19 continued to weigh on international and group attendance compared with historical levels.
- The company reported a material weakness in internal control over financial reporting related to insufficient policies and procedures for Board oversight and engagement. Disclosure controls were deemed ineffective; management said the weakness had not caused a material financial-statement misstatement. Remediation actions were underway, but the weakness was not yet considered remediated.
- Variable-rate debt creates rate exposure: management estimated that a 100-basis-point LIBOR increase would add approximately $11.9 million in annual interest expense with no revolving borrowings, or $15.8 million assuming average revolving borrowings of $390 million.
- The Sesame Workshop royalty dispute was in arbitration; the company said it had accrued its best estimate and did not expect additional exposure beyond accruals to be material. Other disclosed litigation was described by management as not expected to result in a material loss, though outcomes remain uncertain.
- The securities class action concerning statements about the film Blackfish was settled and dismissed with prejudice in 2022; the settlement was paid and described as not material. SeaWorld Abu Dhabi was expected to open in 2023.
- The 2021 comparison includes a $58.8 million debt-extinguishment loss that did not recur in 2022, and the 2022 effective tax rate was materially higher than 2021’s, contributing to year-over-year net-income comparisons.
Investor verification points
- Confirm the issuer and corporate-name transition: this filing is under SeaWorld Entertainment, Inc., although the request identifies United Parks & Resorts Inc.
- Review subsequent attendance, pricing and per-capita spending, especially recovery in international and group visitation and effects of weather and staffing.
- Track liquidity after substantial repurchases, capital spending and the decline in cash, alongside debt maturities, variable-rate exposure and covenant headroom.
- Monitor progress and independent assessment of remediation of the disclosed material weakness.
- Check subsequent developments in the Sesame Workshop arbitration and other litigation, and verify actual opening and financial contribution of SeaWorld Abu Dhabi.