Business context and reporting period
SeaWorld Entertainment, Inc. (the registrant named in this filing) reported unaudited results for the three months ended March 31, 2017, compared with the same period in 2016. The company operated 12 U.S. theme parks. The request metadata names United Parks & Resorts Inc.; that name does not match the registrant identified in this 2017 filing.
First-quarter results are seasonally weak: the company historically generates most revenue in the second and third quarters and typically records a first-quarter loss. Amounts below are converted from the filing’s thousands to millions unless otherwise indicated.
Financial and operating results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Attendance | 2.806 million | 3.297 million | Down 14.9% |
| Admissions revenue | $115.1 million | $136.9 million | Down 15.9% |
| Food, merchandise and other revenue | $71.3 million | $83.3 million | Down 14.5% |
| Total revenue | $186.4 million | $220.2 million | Down 15.4% |
| Operating loss | $(76.7) million | $(119.6) million | Loss narrowed $42.8 million |
| Net loss | $(61.1) million | $(84.0) million | Loss narrowed $22.9 million |
| Adjusted EBITDA | $(30.4) million | $(5.9) million | Declined $24.4 million |
| Operating cash flow | $5.7 million | $32.2 million | Down $26.5 million |
| Capital expenditures | $56.9 million | $47.8 million | Up $9.0 million |
Operating cash flow less capital expenditures was approximately negative $51.2 million, versus negative $15.6 million in Q1 2016; this is a simple calculation from reported figures, not a company-defined measure. Revenue per capita was $66.41, down 0.6%; admission per capita was $41.01, down 1.2%, while in-park spending per capita rose 0.5% to $25.40.
Cash and cash equivalents were $33.2 million at March 31, down from $69.0 million at year-end 2016. Working capital was negative $231.8 million, which management attributed partly to seasonality and deferred revenue from advance ticket sales. Total debt principal was $1.631 billion, including $65.0 million drawn on a $210.0 million revolving facility; approximately $126.0 million remained available after letters of credit. Current maturities were $91.5 million. The company reported a 5.20-to-1.00 covenant total net leverage ratio and compliance with debt covenants.
Cash dividends were suspended in 2016; none were declared per share in Q1 2017. The company reported no share repurchases under its public program during the quarter; shares withheld to cover employee tax obligations were not program repurchases.
Material changes versus the prior comparable period
- Attendance and revenue fell, primarily because Easter and related spring breaks shifted into Q2 2017. The company also cited weaker attendance during the SeaWorld San Diego transition from its One Ocean show to a planned new Orca Encounter.
- The operating loss narrowed substantially, but the comparison benefited from Q1 2016 unusual costs: $33.7 million of accelerated depreciation on removed orca-habitat lifting floors, $6.4 million of Blue World Project asset write-offs, and substantial performance-share compensation. These items make the reported improvement less representative of underlying operating trends.
- Adjusted EBITDA worsened despite the smaller GAAP net loss, reflecting weaker revenue and the effect of the prior-year adjustments excluded from this non-GAAP measure.
- Interest expense increased 25.2% to $18.3 million. The company recorded an $8.0 million loss on debt extinguishment and related write-offs in connection with its March 31 refinancing.
- Operating cash flow decreased while capital expenditures increased, primarily for future attractions; cash declined by $35.7 million during the quarter.
Outlook, management commentary, risks and unusual items
Management gave no specific full-year revenue, earnings or attendance guidance in the supplied filing text. It described 2017 as one of the largest new-attraction years in company history and cited planned projects including a virtual-reality experience in Orlando, a new San Diego orca presentation, and roller coasters in Williamsburg and San Antonio. It also planned promotions and pricing initiatives and continued cost controls. A broader cost-optimization program targeted approximately $65 million of cost reductions and $40 million of net savings by the end of 2018; about 320 positions had been eliminated under the 2016 restructuring program.
Management attributed ongoing business risk to public perceptions and adverse publicity, consumer spending and confidence, weather and seasonality, international attendance and currency movements, competition, labor and operating costs, animal-care regulation, and the company’s substantial leverage. The company said attendance from Latin America was improving from prior-year declines but remained affected by Brazil’s economic and political conditions and a strong U.S. dollar. It expected the new San Diego attraction to address the interim content gap, but that outcome was not assured.
Debt refinancing on March 31 replaced the prior revolving facility with a $210 million facility and added $998.3 million of Term B-5 loans, partly used to repay Term B-3 loans and Term B-2 loans. Term B-5 loans mature in 2024; remaining Term B-2 loans mature in 2020. The company subsequently repaid $30 million on the new revolving facility. As of March 31, the covenant-calculated leverage ratio limited 2017 restricted payments to $25 million, subject to covenant terms.
After quarter-end, the sale of approximately 21% of the company’s shares by Blackstone affiliates to an affiliate of Zhonghong closed on May 8, 2017, at $23 per share. The company also entered agreements with Zhonghong affiliates for design and advisory work and exclusive rights in China, Taiwan, Hong Kong and Macau; related Q1 revenue was not material. The filing cautions that potential international projects, including SeaWorld Abu Dhabi (then expected to open by 2022), remained subject to conditions and might not proceed.
Contingencies include a securities class action that the company said it would defend, consumer class-action litigation, and an EZPay plan class action. In the EZPay matter, the court certified a class and granted summary judgment on liability against the company; damages had not been determined, and the company’s appeal of class certification was pending. The company stated that other known legal and regulatory matters were not expected to materially affect its financial position, results or cash flows, but litigation outcomes remain uncertain.
Other unusual or forward-looking items include an expected approximately $8.4 million non-cash compensation charge and approximately $1.3 million cash payment of accumulated dividends in Q2 2017 following modification and vesting of certain performance shares after the Zhonghong transaction. Interest-rate swaps fixed rates on $1.0 billion of debt; management estimated a 100-basis-point increase in three-month LIBOR would add about $6.1 million in annual cash interest, assuming average revolver borrowings of $40 million.
Important facts for investors to verify
- Whether the Q1 attendance and revenue decline reversed in Q2 as Easter and spring-break visits shifted later, and whether San Diego attendance recovered after the new attraction opened.
- Underlying operating performance excluding prior-year unusual depreciation, asset write-offs and equity-compensation expense; also review the company’s non-GAAP Adjusted EBITDA reconciliation.
- Cash generation, capital-spending levels, and liquidity through the seasonally weaker quarters, including the use and repayment of revolving-credit borrowings.
- Debt covenant headroom, refinancing terms, required debt service and the ability to reduce leverage while funding planned attractions.
- Developments, potential damages and appeal outcomes in the EZPay, securities and consumer litigation matters.
- Costs and governance implications of the Zhonghong transaction, related-party agreements, director appointments and performance-share modifications.
- Progress toward the stated cost-savings target, new-attraction execution and the conditions, funding and timing for international development projects.