United Parks & Resorts Inc. — 2019 Q2 filing summary
Filing identity: The supplied Form 10-Q is filed by SeaWorld Entertainment, Inc. (ticker SEAS), not under the name United Parks & Resorts Inc. It reports unaudited results for the quarter and six months ended June 30, 2019. Dollar amounts below are in U.S. dollars.
Business context and reporting period
SeaWorld operated 12 U.S. theme and water parks, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Results are highly seasonal: management says roughly two-thirds of annual attendance and revenue typically fall in the second and third quarters, and seven parks operate seasonally.
Key financial and operating metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $406.0 million | $391.9 million | $626.6 million | $609.1 million |
| Operating income (loss) | $96.3 million | $55.2 million | $65.0 million | $(10.9) million |
| Net income (loss) | $52.7 million | $22.7 million | $15.6 million | $(40.1) million |
| Diluted EPS | $0.64 | $0.26 | $0.19 | $(0.47) |
| Attendance | 6.463 million | 6.414 million | 9.802 million | 9.638 million |
| Operating cash flow | Not stated separately | Not stated separately | $167.4 million | $126.8 million |
| Capital expenditures | Not stated separately | Not stated separately | $112.7 million | $97.4 million |
Q2 operating margin was approximately 23.7%, versus 14.1% a year earlier; net margin was approximately 13.0%, versus 5.8%. For the first half, operating margin was approximately 10.4%, compared with negative 1.8% in 2018. First-half operating cash flow less capital expenditures was approximately $54.6 million, compared with $29.4 million.
Q2 revenue per capita increased 2.8% to $62.82. Admission per capita was nearly flat at $35.25, while in-park spending per capita rose 6.4% to $27.57. For the first half, total revenue per capita rose 1.1% to $63.92; admission per capita fell 1.4% to $36.39, offset by a 4.8% increase in in-park spending per capita to $27.53.
Financial position and liquidity
- At June 30, cash and cash equivalents were $43.6 million. Current assets were $168.3 million and current liabilities were $496.3 million; management reported a 0.3 working-capital ratio, noting deferred advance admissions and inventory turnover contribute to its typically low ratio.
- Total debt was $1.661 billion, including $1.516 billion of term loans and $145 million drawn on the revolving facility. The term loans mature in 2024. The company reported $44.6 million of remaining revolver availability after letters of credit.
- Net leverage under the credit agreement was 3.55x, and the company was in compliance with its covenants. After June 30, it repaid $115 million on the revolving facility.
- First-half financing included a $150 million share repurchase, largely funded by a net $115 million revolver draw. The Board replenished the repurchase authorization after quarter-end.
Material changes versus the prior comparable period
- Q2 revenue increased 3.6%, with attendance up 0.8%; first-half revenue increased 2.9%, with attendance up 1.7%.
- Q2 operating income rose $41.1 million. Management attributed the improvement principally to lower labor costs, cost efficiencies and fewer non-cash fixed-asset write-offs. First-half operating results also improved substantially from a loss to income.
- First-half SG&A declined 18.3%, partly reflecting lower legal and executive-separation costs than in 2018. The 2019 period included $4.3 million of expenses related to the share transfer and Hill Path agreements.
- Interest expense increased 5.3% in the first half, primarily due to higher LIBOR, the 2018 credit agreement amendment and greater revolver borrowings, partly offset by interest-rate swaps.
- The company adopted lease accounting guidance in January 2019, recording $144.6 million of operating right-of-use assets and $131.2 million of operating lease liabilities.
Outlook, commentary, risks and unusual items
- No quantitative full-year revenue or earnings guidance is provided in the supplied filing text. Management stated that cash, operating cash flow and available revolver borrowings should meet operating, capital expenditure and working-capital needs for at least the next 12 months.
- Management cited unfavorable weather, particularly in June, as an offset to attendance gains; the later Easter and spring-break calendar, pricing and marketing strategies, and new attractions supported attendance. The company remains exposed to seasonality, weather, discretionary spending and its concentration in Florida, California and Virginia.
- SeaWorld Abu Dhabi was expected to be completed in 2022, but the project remained subject to conditions and completion was not assured. The company terminated its China-related ZHG agreements in April 2019 for non-payment.
- Hill Path’s ownership rose to 34.6%. Agreements provide for up to three Hill Path board designees and voting and other governance arrangements; the filing warns that Hill Path may significantly influence company decisions.
- The $150 million repurchase involved 5.616 million shares at $26.71 per share. The company had substantial leverage, and its credit facilities restrict certain actions. Its $1.0 billion interest-rate swap protection matures in May 2020; management estimated a 100-basis-point LIBOR increase would raise annual cash interest by about $5.6 million under stated assumptions.
- Legal matters include a securities class action scheduled for trial in January 2020, a separate securities lawsuit stayed pending that action, and an individual consumer case scheduled for trial in April 2020. The company funded an $11.5 million EZPay settlement in 2019. Management said it did not expect known claims and regulatory matters to materially affect consolidated results, but outcomes remain uncertain.
- The filing identifies cybersecurity and website availability as risks and reports recent short-lived website performance and availability issues that did not materially affect results. It also describes a new CEO appointed in February 2019 and the COO’s resignation in March 2019.
Important facts for investors to verify
- Confirm the issuer and ticker: this filing is for SeaWorld Entertainment, Inc. (SEAS), notwithstanding the request metadata naming United Parks & Resorts Inc.
- Check subsequent attendance, per-capita spending and weather trends, especially whether higher in-park spending and cost reductions continued.
- Review the use of adjusted EBITDA and credit-agreement add-backs; reported first-half Adjusted EBITDA was $166.1 million, while covenant EBITDA after estimated cost savings was $455.6 million for the last twelve months.
- Track revolver balances, debt repayment, liquidity and the effect of the 2020 swap maturity, alongside the company’s further share-repurchase activity.
- Monitor the securities and consumer litigation, the Abu Dhabi project’s progress, and Hill Path’s governance influence.