United Parks & Resorts Inc. — 2020 Q2 Form 10-Q summary
Filing identity: The supplied filing is for SeaWorld Entertainment, Inc. (NYSE: SEAS), not a registrant named United Parks & Resorts Inc. This summary reflects the filing provided. It covers the quarter and six months ended June 30, 2020; filed August 10, 2020. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and reporting period
SeaWorld operated 12 U.S. theme parks. All parks closed temporarily beginning March 16, 2020 in response to COVID-19. A phased reopening began in June, with capacity, hours, and operating-day restrictions. Seven parks had reopened by August 6; California reopening remained uncertain, and the company did not plan to open Aquatica San Diego or Water Country USA in 2020. Results are highly seasonal, with the second and third quarters historically generating the most revenue.
Key financial metrics
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Revenue | $18.0 million, down 95.6% year over year | $171.6 million, down 72.6% |
| Operating income (loss) | $(101.2) million; operating margin approximately -561.6% | $(158.8) million; operating margin approximately -92.5% |
| Net income (loss) | $(131.0) million; diluted EPS $(1.68) | $(187.5) million; diluted EPS $(2.40) |
| Attendance | 272,000, down 95.8% | 2.591 million, down 73.6% |
| Revenue per capita | $66.27, up 5.5% | $66.22, up 3.6% |
| Operating cash flow | The filing does not provide a separate quarterly figure | $(68.3) million, versus $167.4 million provided in 2019 |
| Capital expenditures | The filing does not provide a separate quarterly figure | $53.7 million, versus $112.7 million in 2019 |
At June 30, cash and cash equivalents were $375.7 million; current assets were $459.3 million and current liabilities were $366.9 million, for a 1.3 working-capital ratio. Total debt principal was approximately $2.039 billion, including $1.5 billion of term loans, $311.0 million drawn on the revolver, and $227.5 million of 8.75% first-priority notes. The revolver was fully drawn when outstanding letters of credit are considered, leaving no borrowing availability. Long-term debt, net of discounts and current maturities, was $2.007 billion.
Adjusted EBITDA, a non-GAAP measure as defined under the credit agreement, was $(53.8) million for Q2 and $(84.7) million for the first half; last-twelve-month Adjusted EBITDA was $206.1 million, or $210.6 million including estimated cost savings. Interest expense was $21.9 million in Q2 and $41.1 million for the first half.
Material changes versus the prior comparable period
- Q2 revenue fell from $406.0 million to $18.0 million as attendance dropped by 6.2 million visits; first-half revenue declined from $626.6 million to $171.6 million.
- Despite large reductions in operating and SG&A expenses, lower revenue drove a shift from Q2 operating income of $96.3 million and net income of $52.7 million in 2019 to substantial losses in 2020.
- First-half operating cash flow swung from positive $167.4 million to negative $68.3 million. Financing provided $458.3 million, principally from revolver draws and the April notes issuance; cash increased by $336.2 million including restricted cash.
- Debt increased materially from year-end 2019, when total debt principal was $1.558 billion. The company raised $227.5 million through first-priority notes and drew on its expanded revolving facility.
- Per-capita revenue rose in Q2 as higher realized prices and spending partly offset changes in guest mix and reduced offerings; first-half in-park spending per capita was essentially unchanged.
Outlook, management commentary, risks, and unusual items
- Outlook: The filing gives no formal numerical revenue or earnings guidance. Management said attendance at reopened parks operating for at least 30 days increased 15% on a same-park basis between the week ended June 28 and the week ended August 2. Management expected reintroducing events and in-park offerings, and a measured increase in marketing, to support attendance; these expectations were subject to substantial uncertainty.
- Liquidity actions and subsequent events: On July 29, the company amended its credit agreement, including suspending the first-lien leverage covenant through the end of 2021 and requiring a minimum liquidity test of $75 million through the earlier of September 30, 2022 or an election to use actual Adjusted EBITDA for covenant calculations. On August 5, it issued $500 million of 9.5% second-priority notes due 2025, with approximately $489.7 million of net proceeds intended in part to repay revolver borrowings. These occurred after quarter-end and are not included in June 30 debt or cash balances.
- Operating response: Approximately 95% of employees were initially furloughed; the company cut or deferred nonessential costs, substantially reduced marketing and capital spending, reduced executive base salaries by 20%, and brought some employees back as parks reopened. Rides scheduled for 2020 were postponed to 2021.
- Material uncertainties: Further closures, capacity limits, consumer concern, travel restrictions, changing public-health rules, and weak attendance could continue to materially affect results and liquidity. Management cautioned that the pandemic’s duration and effects were not reliably estimable. The company reported no impairment of goodwill, indefinite-lived intangibles, or other long-lived assets at June 30, but warned future impairment charges could result if assumptions or recovery expectations were not met.
- Unusual items and contingencies: First-half SG&A included a $12.5 million insurance-proceeds gain from a previously disclosed derivative lawsuit settlement. A previously accrued $65 million securities class-action settlement was paid during the first half, net of insurance proceeds; a separate securities lawsuit and an individual consumer matter remained pending, with management not expecting material losses. The company also disclosed up to approximately $45 million of estimated remaining Sesame Workshop license-related commitments, including a second standalone park planned for 2021, whose timing was under review.
- Other changes: CEO Sergio D. Rivera resigned effective April 4; CFO Marc G. Swanson became interim CEO, and Elizabeth C. Gulacsy became interim CFO. The interest-rate swaps expired in May 2020, leaving approximately $1.8 billion of variable-rate debt at June 30; management estimated a 100-basis-point LIBOR increase could raise annual interest expense by about $9.3 million with the revolver drawn as assumed.
Important facts for investors to verify
- Confirm the issuer and ticker: this filing identifies SeaWorld Entertainment, Inc. and SEAS, despite the request metadata naming United Parks & Resorts Inc.
- Track park reopening status, capacity restrictions, attendance, and the potential for renewed closures, especially in California and other key markets.
- Review the post-quarter $500 million notes offering, use of proceeds, revolver repayment, and the resulting debt, interest burden, and available liquidity.
- Monitor compliance with the $75 million minimum-liquidity test and the amended covenant terms, including the leverage covenant’s return in 2022.
- Assess whether attendance recovery and cost controls can restore positive operating cash flow, and whether deferred capital projects or park commitments require additional funding.
- Check for subsequent impairment charges, developments in pending litigation, and changes in the Sesame Place project schedule or related commitments.