Business context and reporting period
The filing is SeaWorld Entertainment, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2016, signed May 6, 2016. The company operated 12 U.S. theme parks. The filing describes highly seasonal operations: historically, roughly two-thirds of attendance and revenue occur in the second and third quarters. The registrant named in the filing is SeaWorld Entertainment, Inc.; the request metadata uses United Parks & Resorts Inc.
Key financial metrics
Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $220.2 | $214.6 |
| Operating loss | $(119.6) | $(50.2) |
| Net loss | $(84.0) | $(43.6) |
| Net loss per diluted share | $(1.00) | $(0.51) |
| Operating margin | (54.3%) | (23.4%) |
| Net margin | (38.2%) | (20.3%) |
| Adjusted EBITDA (non-GAAP) | $(5.9) | $(3.8) |
| Cash from operations | $32.2 | $37.7 |
| Capital expenditures | $47.8 | $40.7 |
- Attendance was 3.297 million, up 2.6%; total revenue per guest was $66.80, essentially flat.
- Admissions revenue was $136.9 million, nearly unchanged. Admissions spending per guest fell 2.5% to $41.53; food, merchandise and other spending per guest rose 4.5% to $25.27.
- At March 31, cash was $41.5 million, the working-capital deficit was approximately $249.7 million, and total debt was $1,657.1 million before discounts and issuance costs. The company reported $100.3 million available on its revolving facility after letters of credit.
- Cash increased $22.5 million during the quarter, supported by $60.0 million of revolving-credit borrowings. Operating cash flow less capital expenditures was negative $15.6 million.
- The company declared quarterly dividends of $0.21 per share twice in the quarter; $17.7 million of dividends were paid during Q1. The debt covenant restricted-payment capacity remaining for 2016 was approximately $51 million at quarter-end.
Material changes versus the prior comparable period
- Revenue increased 2.6%, as attendance growth and higher in-park spending were partly offset by lower admission spending per guest.
- Operating loss widened by $69.4 million. Costs and expenses rose 28.3%, substantially faster than revenue, including higher labor and benefits, equity compensation, and depreciation.
- Net loss nearly doubled. Interest expense declined 27.7% to $14.6 million, primarily because higher-rate senior notes were redeemed in 2015 and replaced with lower-rate term loans.
- Operating cash flow decreased $5.5 million; capital expenditures increased $7.2 million. Financing cash flow rose, mainly reflecting greater revolving-credit draws.
Outlook, commentary, risks and unusual items
- Management said available cash, operating cash flow and revolver borrowings should meet operating, capital expenditure, dividend and working-capital needs for at least the next 12 months. It expected 2016 capital expenditures to be funded generally from operating cash flow; no numerical full-year guidance was provided.
- Management attributed attendance improvement partly to earlier Easter timing and additional Virginia operating days. Florida attendance faced pressure from wet weather, fewer international visitors—particularly from Latin America—and lower SeaWorld Orlando passholder attendance. New Florida attractions Mako and Cobra’s Curse were expected to open late in Q2 2016.
- In March, the company announced it would end orca breeding, phase out theatrical orca shows, and not proceed with the Blue World Project as originally planned. It recorded $33.7 million of accelerated depreciation for removing deep-water lifting floors and about $6.4 million of Blue World Project asset write-offs.
- Equity-compensation expense rose to $29.6 million from $1.9 million, including $27.5 million related to performance shares that vested after the April 1 dividend payment. This is a significant unusual, non-cash expense.
- Key risks include adverse publicity and consumer perceptions, attendance and guest-spending sensitivity to weather and economic conditions, concentration in Florida, California and Virginia, seasonality, high fixed costs, animal-care regulation, and substantial leverage. Proposed federal marine-mammal rules were under review; their ultimate business impact was not yet known.
- Pending matters included securities and consumer class actions. The securities class-action complaint was dismissed without prejudice on March 31, 2016, with plaintiffs permitted to amend. Management said it intended to defend the matters and did not expect known claims to materially adversely affect financial position, results or cash flows; outcomes remain uncertain.
- The company reported compliance with debt covenants at quarter-end. It had $75.0 million drawn on the revolver at March 31 and borrowed an additional $10.0 million after quarter-end for working capital. A hypothetical 100-basis-point LIBOR increase was estimated to add about $3.3 million in annual cash interest costs.
Important facts for investors to verify
- Whether attendance and admission spending improve after Q1, particularly in Florida and among international visitors, and whether the new attractions contribute as expected.
- How much of the reported loss and cost growth reflects non-recurring depreciation, asset write-offs and equity compensation versus recurring operating trends.
- Cash generation, capital spending, revolver usage and debt covenant headroom through the seasonally stronger quarters; confirm the post-quarter $10 million borrowing is reflected in subsequent reporting.
- Dividend sustainability given leverage, working-capital deficits, cash needs and restricted-payment limits.
- Developments in animal-care regulations and litigation, including any changes to expected costs, operations or potential liabilities.