SeaWorld Entertainment, Inc. (SEAS) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The filing is under SeaWorld Entertainment, Inc., the predecessor name associated with the company identified in the request as United Parks & Resorts Inc. Unless noted otherwise, amounts below are in millions of dollars.
Business context and results
The company operated 12 U.S. theme parks. Results remain seasonal, with the second and third quarters typically strongest. Comparisons with 2021 are affected by COVID-related closures, capacity limits and operating restrictions in the prior-year period; all parks were operating without COVID-related capacity limits by the end of Q2 2021. Attendance in 2022 continued to be below historical levels for international and group visits.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $504.8 | $439.8 | $775.5 | $611.7 |
| Operating income | $178.0 | $167.4 | $188.0 | $148.5 |
| Net income | $116.6 | $127.8 | $107.6 | $82.9 |
| Diluted EPS | $1.62 | $1.59 | $1.45 | $1.03 |
| Attendance (millions) | 6.264 | 5.809 | 9.666 | 8.023 |
Key financial metrics and changes
- Q2 revenue grew 14.8%. Attendance rose 7.8%; total revenue per guest increased 6.4% to $80.59. Admission revenue per guest rose 5.0% to $43.98 and in-park spending per guest rose 8.2% to $36.61, reflecting pricing, product mix and expanded offerings.
- Q2 operating income increased 6.4%, but net income fell 8.7%. Operating margin was approximately 35.3%, versus 38.1% a year earlier. Higher operating costs and a rise in income tax expense to $34.6 million (from $8.5 million) more than offset revenue growth; the effective tax rate was 22.9%, versus 6.2%.
- Six-month revenue and net income increased 26.8% and 29.9%, respectively. Operating income rose 26.7%. Six-month operating margin was approximately 24.2%, broadly in line with the prior year. The period benefited from more normalized operations compared with early 2021 restrictions.
- Costs rose quickly: Q2 operating expenses increased 21.1% and SG&A increased 30.0%. Management cited labor and operating costs, inflation, marketing and third-party vendor costs; SG&A also included a legal settlement charge. Six-month food, merchandise and other revenue costs were 18.6% of that revenue, up from 18.0%.
- Cash flow: Six-month operating cash flow was $299.6 million, compared with $248.1 million. Capital expenditures were $101.0 million, versus $45.0 million; operating cash flow less capital expenditures was approximately $198.6 million. Financing used $481.8 million, primarily for $454.8 million of share repurchases. Cash and cash equivalents ended at $160.8 million, down from $443.7 million at year-end 2021.
- Debt and liquidity: Debt principal totaled $2.144 billion, including $1.191 billion of variable-rate Term B loans, $725 million of 5.25% senior notes due 2029 and $227.5 million of 8.75% secured notes due 2025. The $390 million revolving facility was undrawn; $370.3 million remained available after letters of credit. Working-capital ratio was 0.7. The company reported a 2.67x net total leverage ratio under its debt agreements and compliance with covenants.
- Capital returns: The company repurchased approximately $454.8 million of shares in the first half. It announced a new $250 million repurchase authorization on August 4, 2022, after the May program was fully used following quarter-end.
Management outlook, risks and unusual items
- Management said existing cash, operating cash flow and available revolving borrowings should cover capital expenditures, debt service and working-capital needs for at least the next 12 months. No numerical earnings or revenue guidance was provided.
- Staffing shortages and turnover, particularly in Q1, constrained some food, beverage and retail outlets and temporarily affected rides or attractions; management cited wage pressure, inflation, supply-chain disruption and higher interest rates. It is pursuing recruitment, retention, cost savings, efficiency and pricing measures.
- COVID-19, potential new variants, reduced international and group attendance, weather, consumer spending, labor availability, inflation, supply constraints and interest-rate exposure remain risks. A 100-basis-point LIBOR increase was estimated to raise annual interest expense by about $11.9 million with no revolver borrowings, or $15.8 million assuming average revolver borrowings of $390 million.
- A previously disclosed material weakness in internal control over financial reporting remained unresolved. It concerned insufficient policies and procedures for Board oversight and engagement with management. Management said the weakness had not caused a material financial-statement misstatement; remediation actions were underway, but controls were not yet considered effective.
- Legal matters included a securities class action settled and dismissed in May 2022 (settlement paid and described as not material), a Sesame Workshop royalty arbitration initiated in June, and other claims management said it would defend. A purported race-discrimination class action was filed July 27, after quarter-end; the company said it had not been served and considered the claim without merit.
Important facts for investors to verify
- Whether attendance, especially international and group visitation, continues to recover and whether per-guest spending gains persist.
- How staffing, wage inflation, other operating costs and supply constraints affect margins and park operations.
- Cash use and liquidity following substantial repurchases, alongside planned capital spending and debt service.
- Variable-rate debt exposure, interest costs and continued compliance with debt covenants.
- Progress and independent assessment of remediation of the material weakness in internal controls.
- Developments and financial exposure, if any, from the Sesame Workshop arbitration and other legal proceedings.