Business context and reporting period
SeaWorld Entertainment, Inc. (the filing entity; the request names United Parks & Resorts Inc.) filed this unaudited Form 10-Q for the three months ended March 31, 2018. The company operated 12 U.S. theme parks. Results are seasonal: management says roughly two-thirds of annual attendance and revenue typically occur in the second and third quarters, and first-quarter losses are usual.
Financial performance and liquidity
Amounts are in millions of dollars except per-share and per-capita figures. Revenue was $217.2, up 16.5% from $186.4. Admissions revenue rose 13.0% to $130.0; food, merchandise and other revenue increased 22.3% to $87.2. Attendance grew 14.9% to 3.224 million, while total revenue per guest rose 1.4% to $67.36.
Operating loss narrowed to $66.1 from $76.7; operating margin improved to approximately negative 30.5% from negative 41.2%. Net loss was $62.8, compared with $61.1, and diluted loss per share was $0.73 versus $0.72. Interest expense increased 9.0% to $19.9. Adjusted EBITDA, a non-GAAP measure, was negative $0.1 versus negative $30.4.
Operating cash flow was $20.3, compared with $5.7; capital expenditures were $45.8, leaving operating cash flow less capital expenditures of negative $25.5. Cash and cash equivalents were $39.3 at quarter-end. Gross debt was $1,594.1, including $55.0 drawn on the revolving facility; $133.7 of revolver capacity remained after letters of credit. The working-capital ratio was 0.4, which management says is typical for its business. The company reported compliance with debt covenants; its covenant-calculated total leverage ratio was 4.70x.
Material changes versus the prior comparable period
- Attendance and revenue increased, which management attributed to marketing initiatives, new attractions and events, promotional pricing, and the earlier Easter holiday.
- Admission revenue per guest declined 1.7% to $40.32, while in-park spending per guest rose 6.4% to $27.04.
- Operating expenses fell 1.2%, but SG&A rose 21.2% to $63.5, including legal-related accrual expense and higher equity compensation. Restructuring and separation costs were $8.8, including severance following executive departures.
- Cash flow from operations improved, while capital spending declined from $56.9 to $45.8. The 2017 comparison included an $8.0 debt-extinguishment loss that did not recur.
Outlook, commentary, risks and unusual items
Management reported encouraging attendance, revenue and season-pass sales through April, and described a strong 2018 lineup of rides, attractions and events. It expected to deliver the remaining portion of its previously announced $40.0 million net cost-savings target and an additional $25.0 million of savings by year-end 2018. It stated that cash, operating cash flow and available revolver borrowings should meet operating, capital expenditure and working-capital needs for at least 12 months. No specific full-year revenue or earnings guidance was provided.
Key uncertainties include seasonal and weather-related attendance, consumer spending, brand perception and negative publicity, international attendance (including continued weakness from the U.K.), animal-related regulation and litigation, and substantial leverage. The company disclosed an April 2018 SEC Wells notice recommending consideration of an enforcement action; it said the notice is not a formal allegation or finding and that it would respond. A proposed $11.5 million EZPay class-action settlement remained subject to documentation and court approval; the company accrued that amount. Other litigation included a securities class action set for trial in 2019 and consumer cases with uncertain exposure.
Other notable items: the CEO and two other senior executives stepped down; the former CEO received approximately $6.7 million in severance, and approximately $4.5 million of equity compensation was accelerated. The company reported $1.0 billion of debt effectively fixed through interest-rate swaps; it estimated a 100-basis-point LIBOR increase would add approximately $5.8 million to annual cash interest costs, assuming average revolver borrowings of $40.0 million. Subsequent to quarter-end, it borrowed $10.0 million and repaid $25.0 million on the revolver. A new Sesame Place park and Sesame Land commitments could require up to approximately $150 million over the license term; the Orlando Sesame Land opening was announced for spring 2019.
Important facts for investors to verify
- Confirm the filing’s issuer identity: it is SeaWorld Entertainment, Inc., not an entity named United Parks & Resorts Inc.
- Track attendance and per-capita trends, including whether first-quarter growth persists beyond Easter-related timing and into peak season.
- Review the SEC investigation and litigation, including potential outcomes and the status of the proposed $11.5 million settlement.
- Monitor debt, covenant headroom, revolver use and sensitivity to interest rates, as well as the company’s ability to fund capital spending and meet savings targets.
- Assess the financial condition and performance of strategic partners, including ZHG affiliates, and the progress and funding of international projects.