SeaWorld Entertainment, Inc. (now United Parks & Resorts Inc.) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The filing is under the company’s historical name, SeaWorld Entertainment, Inc. The company operated 12 U.S. parks and reported one operating segment. Results are unaudited and the first-quarter comparison is affected by COVID-19 closures and operating restrictions in both periods.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $171.9 million | $153.6 million | +12.0% |
| Operating loss | $18.9 million | $57.6 million | Improved $38.7 million |
| Net loss | $44.9 million | $56.5 million | Improved $11.6 million |
| Operating cash flow | $18.4 million | $(40.8) million | Improved $59.2 million |
| Capital expenditures | $15.3 million | $49.2 million | Down $33.9 million |
| Attendance | 2.214 million | 2.318 million | Down 4.5% |
Admissions revenue rose 5.8% to $95.8 million; food, merchandise and other revenue rose 20.8% to $76.1 million. Revenue per capita increased 17.2% to $77.63, including admission per capita of $43.25 (+10.8%) and in-park spending of $34.38 (+26.4%). Management attributed higher per-capita results to pricing, guest spending and product mix.
Operating expenses declined 19.0% to $107.8 million, reflecting cost savings and restricted operations. SG&A increased 16.7% to $31.5 million, but excluding prior-year legal settlement proceeds, it decreased by approximately $8.0 million. Interest expense rose 61.6% to $31.0 million, mainly due to notes issued in 2020. The operating loss was approximately 11.0% of revenue, versus 37.5% in Q1 2020.
Balance sheet, debt and liquidity
At March 31, 2021, cash and cash equivalents were $430.6 million (cash including restricted cash: $432.7 million), versus $433.9 million at year-end 2020. Current assets were $532.3 million and current liabilities $371.3 million; the reported working capital ratio was 1.4. Total debt principal was $2.216 billion, comprising $1.489 billion of Term B-5 loans, $500 million of 9.50% second-priority notes and $227.5 million of 8.75% senior notes. The revolving facility was undrawn; approximately $312 million remained available after letters of credit. Stockholders’ deficit was $145.8 million.
Operating cash flow benefited in part from a $66.4 million increase in deferred revenue, including advance sales, and cash collections; the company also cited increased interest payments and deferred vendor payments. Management stated existing cash, operating cash flow and available revolving borrowings were expected to cover capital expenditure and working-capital needs for at least 12 months. The company was in compliance with its debt covenants at quarter-end.
Material changes and outlook
- Versus Q1 2020, revenue increased despite lower attendance. The prior-year period included park closures beginning March 16, 2020, while Q1 2021 continued to face capacity limits and modified operations. The company reported 34% more operating days year over year.
- Against Q1 2019, revenue remained 22.1% lower and attendance 33.7% lower, while revenue per capita was 17.6% higher. This highlights the continuing attendance impact of the pandemic.
- At the start of Q1 2021, seven parks were open, compared with eight at the start of Q1 2020; ten of twelve were open at Q1 2021 quarter-end. California’s SeaWorld park resumed theme-park operations with restricted capacity on April 12, 2021, and Virginia capacity increased in April. Both dates are after the reporting period.
- The company expected its California water park to operate in 2021 and planned to open it as a second Sesame Place park in 2022, subject to conditions and restrictions. Construction of the Middle East project was described as on track for completion by the end of 2022, with no assurance it would be completed or open to the public.
- No numerical full-year financial guidance was provided. Management anticipated public-health conditions and capacity restrictions might improve with vaccine distribution, but emphasized substantial uncertainty. It also reported difficulty meeting seasonal staffing goals.
Risks, contingencies and unusual items
- COVID-19 remains a material risk through potential closures, capacity limits, travel restrictions, consumer sentiment, staffing and operating costs. The business is seasonal, with historically stronger revenue in the second and third quarters.
- Debt is substantial and partly variable-rate. Approximately $1.5 billion was variable-rate debt; a 100-basis-point LIBOR increase was estimated to raise annual interest expense by about $5.4 million without revolving borrowings, or $8.5 million assuming $312 million of average revolving borrowings. Interest-rate swaps had expired in May 2020.
- A $75 million minimum-liquidity test applies under the credit agreement through the earlier of September 30, 2022 or the company’s election to use actual Adjusted EBITDA for covenant calculations. Leverage-covenant compliance resumes in Q1 2022; restricted payments, including share repurchases, are limited through Q3 2022 unless conditions are met.
- A securities class action alleges losses of $30–35 million before interest; the company said it intends to defend the case and believes any potential loss would not be material. It also disclosed an employment-related equity dispute involving approximately 300,000 shares. Management did not expect known legal or regulatory matters to materially affect results.
- The Sesame Workshop license includes an estimated remaining commitment of up to approximately $40 million over the agreement term; the company was discussing the agreement in light of COVID-19 effects.
- Adjusted EBITDA was $25.2 million for Q1 2021 versus negative $30.9 million in Q1 2020; last-twelve-month Adjusted EBITDA was negative $17.1 million. This is a non-GAAP measure and should not be treated as a substitute for GAAP results.
Investor facts to verify
- Current park openings, capacity restrictions, attendance trends and seasonal staffing, including changes after March 31, 2021.
- Whether pricing and per-capita spending gains can persist as attendance recovers, and how they translate into operating profit and cash flow.
- Liquidity, debt-service costs and compliance with the $75 million minimum-liquidity test and the leverage covenant when testing resumes.
- Timing and costs of planned attractions and the second Sesame Place park, plus progress and risks for the Middle East project.
- Developments in the disclosed legal matters and the Sesame Workshop license discussions.