Business context and reporting period
Unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The filing registrant is SeaWorld Entertainment, Inc., which operated 11 U.S. theme parks and was majority-owned by Blackstone-affiliated partnerships. The request names United Parks & Resorts Inc.; investors should verify the historical issuer and corporate-entity relationship.
Theme parks are seasonal: management says roughly two-thirds of annual attendance and revenue generally occur in the second and third quarters. Accordingly, first-half results are not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $411.3 million | $425.9 million | $649.9 million | $638.3 million |
| Operating income (loss) | $31.0 million | $93.1 million | $(4.9) million | $44.8 million |
| Net income (loss) | $(15.9) million | $39.1 million | $(56.2) million | $(6.0) million |
| Adjusted EBITDA | $127.0 million | $140.4 million | $138.1 million | $134.2 million |
| Operating cash flow | — | — | $97.7 million | $140.9 million |
| Capital expenditures | — | — | $88.0 million | $115.6 million |
Q2 operating margin was approximately 7.5%, versus 21.9% a year earlier; first-half operating margin was approximately negative 0.8%, versus 7.0%. First-half net loss included a $32.4 million debt-extinguishment and financing-cost charge and a $50.1 million advisory-agreement termination expense.
Attendance declined 9% in Q2 to 6.6 million and 6% in the first half to 10.1 million. Revenue per capita increased to $62.67 in Q2 from $58.75, and to $64.59 in the first half from $59.84. Admission per capita rose 8.7% in Q2 and 10.1% in the first half; in-park spending per capita rose 3.5% and 4.5%, respectively.
At June 30, cash was $93.9 million, current assets $222.6 million, and current liabilities $354.5 million, implying a working-capital deficit of about $132 million. Management attributed the recurring deficit partly to advance ticket sales recorded as deferred revenue. Debt principal totaled $1.665 billion: $1.405 billion of Term B-2 loans and $260 million of 11% senior notes. The revolving facility was undrawn, with $192.5 million committed and $18.5 million of letters of credit outstanding. Debt carrying value, net of discounts and current maturities, was $1.632 billion long-term plus $14.1 million current.
For the first half, financing cash flow was $38.8 million, including $253.8 million of net IPO proceeds; cash increased $48.3 million to $93.9 million. The company generated less operating cash than in the prior-year period, in part because of the $46.3 million cash advisory termination fee.
Material changes versus comparable periods
- Q2 revenue fell 3.4% year over year as lower attendance outweighed higher per-capita spending. First-half revenue increased 1.8%, with attendance down but admission pricing and yield-management gains lifting per-capita revenue.
- Operating income declined sharply in Q2 and turned to a first-half loss. Q2 and first-half SG&A increased, including advertising and promotion for the Antarctica opening, equity compensation, and higher corporate costs associated with becoming a public company.
- Interest expense declined to $22.9 million in Q2 and $51.5 million for the first half, reflecting debt repayment and refinancing at lower rates. The refinancing and IPO-related debt redemption also caused the $32.4 million extinguishment charge.
- The April 2013 IPO raised approximately $245.4 million net for the company; selling shareholders received no proceeds for their shares. Proceeds funded debt repayments, a $46.3 million payment to Blackstone’s affiliate to terminate the advisory agreement, and general corporate purposes.
- The board adopted a quarterly dividend policy and declared $0.20 per share, paid July 1, 2013. This contrasts with the $6.07 per share reported for 2012, which reflected a $500 million special dividend.
Outlook, commentary, risks and unusual items
- Management expected moderate improvement in GDP and domestic consumer spending to support performance and said cash, operating cash flow, and available revolver capacity should cover capital expenditures, dividends, and working capital for at least 12 months. No numerical earnings or revenue guidance was provided.
- Management expected 2013 capital expenditures to be funded generally from operating cash flow. First-half capital expenditures were $88.0 million, largely for future attractions.
- Attendance was pressured by adverse weather, Easter timing, and the expected effects of new pricing and yield-management strategies. Higher pricing and fewer promotions increased per-capita spending; management noted that lower attendance can materially affect results given the business’s high fixed-cost structure.
- Debt remains substantial. Term B-2 loans carried a 3.00% LIBOR-based rate at quarter-end and mature in 2020; $260 million of 11% senior notes mature in 2016. A 100-basis-point LIBOR increase was estimated to add about $4.8 million in annual cash interest under the stated borrowing assumptions. The company reported covenant compliance at June 30.
- On August 9, 2013, a subsequent credit amendment permitted the $46.3 million advisory termination fee to be added back in covenant EBITDA. The filing also identifies risks involving consumer spending, weather and attendance, animal-related issues and publicity, regulation and permits, labor, litigation, insurance, seasonality, leverage, covenants, and Blackstone control.
- Management did not expect pending legal matters to have a material adverse effect; no off-balance-sheet arrangements were reported. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Confirm the registrant’s identity and its relationship to the company named in the request; this 2013 filing is for SeaWorld Entertainment, Inc.
- Assess whether attendance declines persist and whether increased ticket pricing and per-capita spending can offset lower guest volume without weakening demand.
- Review the recurring cash-flow and liquidity impact of seasonal operations, the working-capital deficit, capital spending, and the new dividend policy.
- Verify debt maturities, floating-rate exposure, covenant calculations, refinancing terms, and the effect of the August 2013 covenant amendment.
- Evaluate the one-time Blackstone advisory termination payment, IPO proceeds allocation, and the comparability of reported results and Adjusted EBITDA after unusual adjustments.