Business context and reporting period
SeaWorld Entertainment, Inc. (ticker: SEAS) filed this 10-K for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter report. The filing predates the company’s later United Parks & Resorts name. The company operated 12 U.S. theme parks, with revenue primarily from admissions and in-park food, merchandise and other purchases.
All 12 parks were open by the end of the second quarter of 2021, without COVID-related capacity limits. The year nevertheless included pandemic-related effects on travel, group attendance and park operations.
Key financial and operating metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $1.504 billion | $431.8 million |
| Operating income (loss) | $432.0 million | $(241.7) million |
| Operating margin | 28.7% | Not meaningful due to operating loss |
| Net income (loss) | $256.5 million | $(312.3) million |
| Diluted EPS | $3.22 | $(3.99) |
| Adjusted EBITDA | $662.0 million | $(73.2) million |
| Attendance | 20.203 million | 6.373 million |
| Revenue per capita | $74.43 | $67.75 |
| Cash from operating activities | $503.0 million | $(120.7) million |
| Capital expenditures | $128.9 million | $109.2 million |
Food, merchandise and other revenue was $651.8 million; admissions revenue was $851.9 million. Operating cash flow less capital expenditures was approximately $374.2 million.
- Liquidity: Cash and cash equivalents were $443.7 million. The working-capital ratio was 1.5. The $385.0 million revolver had no borrowings outstanding, with approximately $364.5 million available after letters of credit.
- Debt: Total principal debt was $2.150 billion, or approximately $1.706 billion net of cash. Debt included $1.197 billion of variable-rate term loans, $725 million of 5.25% senior notes due 2029 and $227.5 million of 8.75% first-priority secured notes due 2025. The company reported covenant compliance and a 2.48-to-1 net total leverage ratio under its debt agreements.
- Share repurchases: The company repurchased 3.693 million shares for approximately $215.7 million in 2021; $21.8 million remained under the authorization at year-end. It paid no dividend.
Material changes versus comparable periods
Revenue and operating results rebounded sharply from 2020, when all parks had temporarily closed beginning in March and reopenings were limited. Attendance rose by 13.830 million visits year over year, alongside approximately 90% more operating days. Admission per capita increased 5.2% to $42.17, and in-park per capita spending rose 16.5% to $32.26.
Compared with pre-pandemic 2019, 2021 revenue was up 7.5%, but attendance remained 10.7% lower. Per-capita revenue was up 20.4%; management said attendance excluding international and group-related visits increased approximately 2% from 2019. Operating expenses were 4.2% below 2019 and selling, general and administrative expenses were 29.4% lower, reflecting cost and efficiency measures as well as differences in marketing and legal costs.
Interest expense increased to $116.6 million from $100.9 million in 2020. A $58.8 million loss on debt extinguishment and write-offs arose from 2021 refinancing. The company issued $725 million of 5.25% senior notes and refinanced its term loans, while redeeming its 9.50% second-priority notes.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no quantified 2022 revenue, earnings or attendance guidance. Management expected multiple new rides and attractions to open in 2022, including Sesame Place San Diego, then expected to open in March, and said SeaWorld Abu Dhabi construction was on track for completion by year-end 2022.
- Operating pressures: Management cited labor shortages, turnover and wage pressure that affected staffing, availability of some food and beverage outlets and rides, and guest wait times. Inflation and supply-chain constraints could add costs. The parks’ high fixed-cost base increases the impact of attendance declines.
- Pandemic and seasonality: Renewed closures, restrictions, changing consumer behavior, reduced travel or group attendance could harm results. Attendance and revenue are typically concentrated in the second and third quarters; weather and regional disruptions are significant exposures.
- Debt and rates: Approximately $1.2 billion of debt was variable rate and unhedged. Management estimated a 100-basis-point LIBOR increase would add about $7.2 million in annual interest expense with no revolver borrowing, or $11.0 million assuming a fully drawn revolver.
- Tax item: The company reversed approximately $60.8 million of deferred-tax valuation allowances based on its assessment of future realizability. The reported income-tax benefit was only $0.2 million, and future realizability remains dependent on taxable income and estimates.
- Controls: Management and Deloitte identified a material weakness concerning insufficient policies and procedures for Board oversight of certain Board engagement in the control environment. Management said it did not cause a material misstatement in the presented financial statements, which received an unqualified audit opinion; Deloitte gave an adverse opinion on internal control effectiveness. Remediation was ongoing.
- Legal and other contingencies: A securities lawsuit disclosed claimed damages of $30 million to $35 million before interest; the company said it believed the case was without merit and any potential loss would not be material. A separate dispute involved approximately 300,000 shares claimed by former employees. The company also reported approximately $10.8 million of accrued amounts primarily related to deferred 2020 rent on its San Diego land lease.
Important facts for investors to verify
- Whether post-2021 attendance, per-capita spending and operating margins were sustained as pandemic-related effects and park operations normalized.
- Actual staffing, wage, inflation and supply-chain trends, and whether these affected park capacity or guest experience.
- Progress and realized returns from the 2022 attraction openings and SeaWorld Abu Dhabi project.
- Debt service, variable-rate exposure, refinancing terms and remaining liquidity under the revolver.
- Remediation progress and subsequent auditor conclusions regarding the material weakness in internal control.
- Developments in the disclosed litigation, deferred San Diego lease payments and tax-asset realizability.