United Parks & Resorts Inc. (filed as SeaWorld Entertainment, Inc.) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The filing covers a U.S. operator of 12 theme parks. Results are unaudited and were materially affected by COVID-19 park closures beginning March 16, 2020.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $153.6 million | $220.6 million | Down 30.4% |
| Operating loss | $57.6 million | $31.3 million | Loss widened $26.3 million |
| Net loss | $56.5 million | $37.0 million | Loss widened $19.5 million |
| Diluted loss per share | $0.72 | $0.44 | Loss per share increased |
| Operating margin | (37.5%) | (14.2%) | Lower |
| Net margin | (36.8%) | (16.8%) | Lower |
| Operating cash flow | $(40.8) million | $37.7 million | Declined $78.5 million |
| Capital expenditures | $49.2 million | $47.9 million | Up $1.4 million |
Attendance fell 30.6% to 2.318 million. Revenue per capita was nearly flat at $66.25, up 0.3%; admission per capita rose 1.2% to $39.05, while in-park spending per capita fell 0.9% to $27.20. The company reported Q1 Adjusted EBITDA of negative $30.9 million, versus positive $16.4 million a year earlier; last-twelve-month Adjusted EBITDA was $409.7 million, or $416.9 million including specified estimated cost savings.
Liquidity, debt and cash flow
- Cash and cash equivalents were $192.8 million at March 31, versus $39.9 million at year-end 2019. The increase reflected financing, not positive operating cash flow.
- Total debt was $1.817 billion, including $312.5 million drawn on the revolving facility; the company also had $19.9 million of letters of credit and no remaining revolver availability at quarter-end. The reported total leverage ratio was 3.89x.
- On March 10, the revolving-credit commitment was increased to $332.5 million. Subsequent to quarter-end, the company issued $227.5 million of 8.75% secured notes due 2025, with approximately $220.1 million net proceeds.
- On April 19, a credit amendment waived the first-lien leverage covenant for Q2–Q4 2020 and introduced a $75 million quarterly minimum liquidity requirement through the earlier of September 30, 2021 or a specified covenant election. Restricted payments, including share repurchases, are limited through Q3 2021 unless conditions are met.
- Working capital was negative $33.0 million (current ratio 0.9). Management said this was typical for the business, partly because of advance ticket receipts and inventory turnover.
Material changes and unusual items
- Before closures, attendance for January and February reached a record 1.9 million, up 9%, and revenue was approximately $120.6 million, up 12%. Closures then curtailed spring-break business and drove the quarterly decline.
- The company estimated net cash outflows of up to approximately $25 million per month while parks remained closed. It furloughed about 95% of employees, cut executive base salaries 20%, deferred most capital projects and nonessential costs, and largely halted marketing.
- Q1 SG&A included a $12.5 million insurance-related settlement gain. A prior-year international-agreement revenue item and lower equity-compensation expense also affected comparisons. The company paid the previously accrued legal settlement during Q1.
- No impairment was recorded after an interim review, but management cautioned that future impairment charges could arise if reopening, attendance or financial assumptions are not achieved.
- The CEO resigned effective April 4, 2020; the CFO became interim CEO and the chief accounting officer became interim CFO. The company also approved approximately 1.17 million restricted stock units on April 12.
Outlook, risks and contingencies
The filing gave no quantified reopening date or full-year earnings guidance. Reopening timing, attendance recovery, guest behavior and the duration of closures remained uncertain. Management stated it believed cash and financing sources would meet needs for at least 12 months, while warning that prolonged closures or weak post-reopening demand could materially harm results and liquidity.
Key risks include ongoing COVID-19 effects, high fixed operating costs, seasonality, leverage and limited revolver availability at quarter-end, covenant requirements, and possible vendor payment deferrals or demands for accelerated payment. The proposed $65 million securities class-action settlement remained subject to court approval; the company had recorded the related charge in 2019 and paid it in Q1. A separate derivative settlement involved $12.5 million of insurance proceeds and governance changes, also subject to final documentation and court approval. The Sesame Workshop license includes a commitment to open a second standalone park by mid-2021; construction at Aquatica San Diego was paused and the opening timing was under review.
Most important facts to verify
- Current park operating status, reopening restrictions, attendance recovery and actual cash burn versus the stated estimate of up to $25 million per month.
- Use of the senior-note proceeds, liquidity against the $75 million covenant floor, and compliance with amended debt covenants.
- Debt balances, interest costs and refinancing or repayment needs, including the expiration of the $1.0 billion interest-rate swaps in May 2020.
- Approval and final terms of the securities and derivative settlements, and any further legal or regulatory developments.
- Revised timing and remaining costs for the Sesame Place project, and whether the COVID-related assumptions used in impairment testing remain supportable.