Filing summary
Entity and period: The supplied filing is SeaWorld Entertainment, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. This differs from the “United Parks & Resorts Inc.” company name in the request metadata. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context and financial performance
SeaWorld operated 11 U.S. theme parks. The business is seasonal, with its highest revenues typically in the second and third quarters. For Q3 2013, the company reported approximately 8.9 million visits; for the first nine months, approximately 18.9 million visits.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $538.4m | $522.3m | $1,188.3m | $1,160.6m |
| Operating income | $205.6m | $183.9m | $200.7m | $228.7m |
| Net income | $120.2m | $92.3m | $64.0m | $86.2m |
| Adjusted EBITDA (non-GAAP) | $254.4m | $231.6m | $392.5m | $365.7m |
| Operating cash flow | Not separately presented | Not separately presented | $276.3m | $302.6m |
| Capital expenditures | Not separately presented | Not separately presented | $125.9m | $155.0m |
Q3 operating margin was approximately 38.2% versus 35.2% a year earlier; net margin was 22.3% versus 17.7%. For the nine-month periods, operating margin was approximately 16.9% versus 19.7%, and net margin was 5.4% versus 7.4%. These are calculated from reported figures. Q3 diluted EPS was $1.33 versus $1.11; nine-month diluted EPS was $0.73 versus $1.04.
Material changes and drivers
- Q3 revenue increased 3.1%, while attendance declined 3.6%. Admissions revenue rose 5.1%, supported by a 9.1% increase in admission per capita to $38.38; food, merchandise and other revenue was nearly flat. Total revenue per capita rose to $60.74 from $56.80.
- For the first nine months, revenue increased 2.4% despite a 4.7% attendance decline. Admission per capita increased 9.6% to $39.50 and in-park spending per capita increased 4.0% to $23.28. Total revenue per capita rose to $62.79 from $58.43.
- Management attributed lower attendance partly to pricing and yield-management changes that reduced lower-yielding and free visits, adverse weather, and—year to date—the timing of Easter and school breaks. Q3 also included above-normal July precipitation in operating regions.
- Nine-month net income declined partly because of $50.1m in advisory-agreement termination expense and $32.4m in debt-extinguishment and financing-cost write-offs. The company reported these as expenses; Adjusted EBITDA excludes specified items and is non-GAAP.
- Interest expense fell to $72.6m from $86.3m for the nine months, following debt refinancing and repayment. Operating cash flow decreased to $276.3m, partly due to the $46.3m cash advisory termination payment. Adjusted EBITDA increased 7.3% year over year for the nine-month period.
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $210.5m, current assets $316.4m and current liabilities $271.8m; reported working capital was approximately $44.6m. Management noted it typically operates with a working-capital deficit, partly due to deferred revenue from advance ticket sales.
- Debt principal was approximately $1.661bn: $1.401bn in Term B-2 loans and $260m in 11% Senior Notes due 2016. The balance sheet reports $1.629bn of long-term debt net of discounts and current maturities, plus $14.1m of current maturities. The company had no revolving-credit borrowings and approximately $174m available, after letters of credit.
- The Term B-2 loans mature in May 2020 and bore a 3.00% LIBOR-based rate at quarter-end. Two swaps covered $550m of variable-rate debt. A hypothetical 100-basis-point increase in 30-day LIBOR, assuming the stated average revolver borrowing, was estimated to add about $4.6m of annual cash interest costs.
- Cash increased by $164.8m during the nine months, substantially reflecting $253.8m of net IPO proceeds. The company used IPO proceeds in part to repay $37m of term debt, redeem $140m of Senior Notes at a premium, and pay the advisory termination fee. Capital expenditures were $125.9m.
- The board adopted a quarterly dividend policy; two $0.20-per-share dividends were declared in 2013. The filing states future dividends remain at the board’s discretion. Management believed cash, operating cash flow and available borrowing capacity would cover capital expenditures, dividends and working capital needs for at least 12 months. The company reported material compliance with debt covenants.
Outlook, risks and unusual items
No numerical revenue, earnings or attendance guidance is provided. Management expected moderate improvements in GDP and domestic consumer spending to support future performance, while cautioning that actual results could differ materially. The filing identifies discretionary spending, attendance and guest spending, weather, seasonality, high fixed operating costs, leverage, debt restrictions, labor and operating costs, animal-related issues, litigation, insurance and geographic concentration among key risks. Six parks were seasonal; historically, roughly two-thirds of attendance and revenue fell in the second and third quarters.
Other notable items include the April 2013 IPO, the termination of the Blackstone-affiliate advisory agreement for a $46.3m fee plus a $3.8m prepaid-fee write-off, and the May 2013 refinancing of term loans. The company said it had no off-balance-sheet arrangements and did not expect known legal proceedings to materially affect its financial position, results or cash flows. Blackstone affiliates remained majority owners.
Investor verification points
- Confirm the reporting entity: this filing identifies SeaWorld Entertainment, Inc., not United Parks & Resorts Inc.
- Assess whether higher per-capita spending can offset attendance declines, and distinguish pricing-driven lower-yield visit reductions from weather and calendar effects.
- Review the non-GAAP Adjusted EBITDA reconciliation, including permitted add-backs, alongside GAAP operating income, cash flow and the one-time IPO-related expenses.
- Verify debt terms, floating-rate exposure, scheduled maturities, covenant headroom and the company’s ability to sustain capital spending and dividends.
- Evaluate seasonality, geographic concentration, animal-related and reputational risks, and Blackstone’s control and related-party history.