Q3 2020 SeaWorld Entertainment Inc Earnings Call
[music].
Being webcast and recorded.
Press release was issued this morning and is available on our Investor Relations website at Www Seaworld investors Dot com.
Replay information for this call can be found in the press release and will be available on our website following the call.
Joining me this morning, or Mark Swanson interim Chief Executive Officer, and Elizabeth Glassy, Chief Accounting Officer, and interim Chief Financial Officer and Treasurer.
This morning, we will review our third quarter financial results and then we will open up the call to your questions.
Before we begin I would like to remind everyone that our comments today will contain forward looking statements within the meaning of the federal securities laws.
These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward looking statements, including those identified in the risk factors section of our annual report on form 10-K.
And quarterly report on form 10-Q filed with the Securities and Exchange Commission.
These risk factors, maybe updated from time to time and will be included in our filings with the SEC that are available on our website.
We undertake no obligation to update any forward looking statements.
Closed all of our parks effective on March 16th 2020.
In the second quarter, we began the process of reopening some of our parks beginning in Texas on June six and all five of our parks in Florida on June 11th.
In the third quarter, we reopened sesame place in Pennsylvania on July 24th.
Busch Gardens in Virginia on August 5th.
And see World in California exclusively as a zoo on August 28.
Proved throughout the quarter with total consolidated monthly attendance down 89% in July.
Down 80% in August.
And down 61% in September versus the comparable prior year month.
Excluding the Companys, Virginia in California parks.
Which were only partially open and operating with significantly modified and limited operations due to stay imposed restrictions monthly.
Monthly attendance was down 81% in July.
Around 68% in August and down 48% in September.
Monthly attendance trends continue to improve into the fourth quarter with October attendance down 50% on a total consolidated basis.
And down, 40%, excluding Virginia, and California relative to prior year.
Past the limitation per session.
Our Williamsburg team was also very creative in developing a business plan that makes sense, even at those very low capacity levels.
My opening only a portion of the park for two separate sessions for summer operating days during the third quarter.
By offering to separate four hour sessions.
The team was able to increase daily capacity in that park, while staying within the state mandated guidelines for park capacity.
Late last week, the state of Virginia revised its theme park guidance and modified the methodology for calculating restricted capacity at theme parks we.
Elizabeth to discuss our financial results in more detail.
Elizabeth.
Thanks, Mark and good morning, everyone as Mark mentioned or third quarter results were significantly impacted by the COVID-19 global pandemic.
With fewer operating days and hours per week versus the prior year capacity limitations modified are limited operations temporary park closures limited marketing spend in a limited events lineup attendants for the third quarter decreased by approximately six 6 million guests are 81% when compared to the prior year quarter.
We generated revenue of 106 million.
A decrease of $368 million or 78% compared to the third quarter of 2019.
The decrease in revenue results from the decline in attendance and was partially offset by an increase in total revenue per capita.
Third quarter total revenue per capita was $67 94 compared to $58 31 in the third quarter of 2019 and increase of 16.5% driven by strong improvement in both admissions per capita and in part per capita spending.
Admission per capita increased by 22, 4% to $40 39 in the third quarter of 2020, primarily due to the realisation of higher prices across admission products and the impact of add a commitment past revenue and partially offset by the impact of higher season passes pretended Smith.
And part per capita spending increased eight 9% to $27 55 in the third quarter of 2020.
The increase in and parked per capita spending results primarily from higher realized prices and private Smith, particularly from merchandise culinary and other than park services and was partially offset by the impact of visitation mix and limited in park offerings during the quarter.
In summary, we are particularly pleased with our overall per capita performance during the quarter, especially considering are higher mix of season pass attendance.
We generated a net loss of $79 2 million come.
Compared to net income of $98 million in the third quarter of 2019.
Adjusted EBITDA for the third quarter was the loss of 11.2 million.
A decline of $218 million compared to the prior year quarter.
We ended the quarter was $130.3 million, an increase of approximately 13% from September 2019.
Total deferred revenue related only to our cat products increased approximately 24% from September of 2019.
With respect to our pass products, our annual pass base, which we generally refer to as our premium days was down approximately 28% and our 2021 fund car days, which generally gives an unlimited access to our parks for the rest of 2020 and calendar year 2021 was down 4%.
We are encouraged with the trends we are seeing in pass sales, although still down from prior year levels sales versus the prior year has improved each month since reopening, especially since launching our 2021 products.
Cash equivalents balance was approximately $488 million.
Total liquidity, including are available revolver capacity of $311 million was approximately $800 million as of September 30th 2020.
Are estimated average monthly net cash burn during the quarter was approximately $22 million per month and.
Included in our net cash burn for their quarter or a certain vendor payments, which were previously deferred through extended payment term or payment plans in order to manage liquidity during our temporary park closures and limited reopening.
Providing a safe and fun guest experience, while reintroducing modified special events and creating new events for our pass holders and guest to enjoy our parks, while still complying with state and local health guidelines.
We are also very pleased with our strong per capita growth in the third quarter relative to the prior year in both admissions and in park spending.
While the future remains uncertain. We are encouraged by recent results and we will continue to sensibly navigate the months ahead as we look forward to the time when our parks can return to a more normalized operating environment.
As I've said before we have the right assets.
Team.
Balance sheet and liquidity to navigate through this environment and emerging even stronger and more profitable enterprise we.
We continue to have high confidence in our long term strategy and in our ability to deliver significantly improved operating and financial results that we believe will lead to meaningfully increased value for all stakeholders.
With that let's open up the line to take your questions were.
We will now begin the question and answer session to ask.
A question Press Star one Ron Capstone Tom.
Okay, using a speakerphone please pick up your handset before pressing the.
So we'll try your question Paul Silverstein from to please limit yourself to one question and one follow up please re queue. If you have more questions.
Oh, that's probably will pass momentarily to assemble our roster.
The first question is from Steve Brass Kaminski from Stifling go ahead.
Yeah, Good morning, guys.
So I think the first question is probably for Elizabeth and the little bit like you said that that deferred payments to vendors. The balance there is around 70 million and you're kind of expecting to work through that till April of 21.
I guess the question is how do we think about that 70 million kind of being allocated over the next call. It six or seven months is that can be pretty much straight line and I guess the actual question is or what I'm trying to figure out as maybe what should we be thinking about that monthly you know average kind of cash burn is it closer.
To the $2 million or closer to the 22 million.
Hey, good morning.
The cash burn that I would actually need for it for the next couple of quarters I think we would keep it at the 20 to 25 million dollar range for modeling purposes, and there's a couple of reasons for that one is a the vendor catches that you referenced.
No we didn't we still need to get through we've got that I'm asking it. It keeps you run out and get fully paid off by the end of the on the early April they really mostly by the end of Q1. We also have our senior notes interest coming due on we had painted here in November that went out and then Capex for Q4 resonating between 25 to 30.
5 million in Capex, so factoring all of that in I think the burn rate of 20 to 25 million on for modeling purposes makes sense over the next couple of quarters. What I would say is obviously, we're going to be opportunistic that could be a little higher on if we decided to be more opportunistic in our spending in some of our capex if that makes sense.
Yeah that does thanks, and then I don't know if you have kind of had any chance to think about 21 at this point, but just trying to get an understanding of maybe what that capex spend will look like heading into next year.
Yeah. That's that's a great question and as you can imagine 2021, where it's a bit harder to estimate where we're sitting here today.
On on what I can tell you to give you a little bit of context on how we're thinking about it is.
Italy the rise in her opening in 2021, if you recall they weren't really never close to being finalized when we decided to postpone them into into 2021 right. So we've got those coming online. We obviously want to continue to deploy capital and four for our later years capital plan.
So right now if you think through we typically estimate around 150 or so in core capex I'm going into our each year for to keep up with our cadence of new rides and attractions across our parks. So I I don't I'm not prepared to give you a number just yet but hopefully that gives you some color.
Capex and how we're thinking about it and obviously it might be a little less than that when when we're looking at 2021 in particular, yes, Steve I would just add this is mark I would just add on those on those rides you remember we thought we had the best lineup of new attractions coming into 2020 very few of them opened and so most of them.
Plan would be to open next year, so we're going to have a.
Robust lineup of attractions for 2021 that is like Elizabeth mentioned that is largely the construction on those is largely complete.
Just just a little bit left to go on most of those so we're really excited about that it's going to be a great lineup.
Our next question is from Tyler Perrys from Janney capital markets go ahead.
Hi, Good morning. This is Jonathan on for Tyler. Thanks for taking our questions first one from me I'm Elizabeth I believe you touched on this but.
But was wondering if you could provide some additional color on the ticket prices and promotions right. Now you know what are you guys doing there and how does that compare to prior years.
Yeah. So I think you referred to it he didn't increase that we had in admissions per capita which obviously were quite pleased to see the growth I'm, especially considering that we had a higher mix of season pass visitation during the quarter, which as you know typically put pressure on our admissions per capita what I would say there is in in our admissions per capita.
And and I references during our prepared remarks, we did have a portion of ADHD commitment revenue that was recognized during the quarter, but even if we peel that out we still would have been up about 10% and that is what we attribute to higher realized prices across across our admission product, which is really good to see we've we've got.
Focused on our pricing strategies, even before we went into this current environment, we've been focused on pricing and God. We've been building out an internal team that that's really focused on on revenue management and also communicating better communicating the benefits that our passes and our experiences offer. So I think were starting to really see some of that take hold across all of our products.
Which is which is good to see now I would also caution you on a going forward basis, although we'd love to see that type of growth in admissions per capita we've always focused on total revenue per capita.
As far as the business is concerned as far as growth is concerned with Lilly targeted between low to mid single digit growth. There. So for modeling purposes, I think that that would be reasonable on to continue to expect to see.
Okay, Great. That's very helpful. And then switching gears a little I was wondering if you could provide some color on how the drive to range that's changed throughout the summer and as we move into the fall months and kind of a two part.
I know, it's probably difficult to judge but are you seeing a meaningful pickup and apply to guests in the park.
Hey, Jonathan This Mark you know what I can tell you is I mean, if you look across the company we've seen not surprisingly.
An increase in local attendance and that coincides as Elizabeth mentioned with our increase in past visitation. So so not a surprise there, but if you look across the rest of the markets in the United States outside of the local area. You know those have held pretty consistent in Q3 on a combined basis from year over.
Here. So one of the things that I think where we have an advantage is as weve you've heard US mentioned, we estimate across our whole company about 85% of our guest drive to our parks and I think thats really benefiting US right now so if our local attendance is is in north of 50% or so.
On average, we're still getting just under 50% from from other markets in the United States that are largely driving in so we're excited about that and I think I will continue to utilize that to our advantage. Our parks are easy to access and a lot of cases, so thats something we will continue to leverage.
Okay, Great I appreciate all that detail that's all for me. Thank you Sir.
Our next question today will come from Steven.
Family of Goldman Sachs. Please go ahead.
Hey, good morning, two quick follow ups.
First what with all the cost cuts what do you think annual EBITDA and free cash flow breakeven attendance levels are and how do you think about where margins could end up as attendance levels recover more fully and I asked another way is there any way to help side the permanent cost outs.
Yeah, Hey, Hey, Steven its Mark I can I can take I can take this question so.
A couple of things on EBITDA breakeven, you know look theres going to be a lot of a lot of factors that influence that.
Mix of parks time of year that type of thing, but on up to give you a range that you could use you know we estimate we could be down about 60% or so and it tenants and have breakeven EBITDA and what I will tell you is we were down in September.
61% as we mentioned and we have less than a million dollar EBITDA loss for that month. So we were pretty much almost at breakeven in the month of September on EBITDA.
And then you know as you as you move up the chain, obviously to cover debt service and Capex you would you would add add to those numbers as far as the <unk>.
The margin improvement I'm really proud of the work we've done in this area. We've been at this for a couple of years, but then we also spent a lot of time.
As with Covance, we had.
You had the most visibility you ever going to get into your cost and so we were down to the most essential costs and we've been very careful and sensible as weve added costs back and so we have more visibility than ever and one thing I'd like to point out is if you look at our our revenue of just over just over $100 million one.
Hundred $6 million for the quarter and then you look at to an EBITDA loss of just about $11 million. I mean, we're we're we're maximizing that revenue. We're we're being very careful on our cost and when I look across you know others. In this space I think our performance stands out in that regard so on a on a on a go forward basis getting.
And to your question.
I think the opportunity is.
Is several hundred basis points, when we get when we get to a more normalized environment, where we're back to do and hopefully 22 23 million in attendance. We think we can with this new cost structure with the work we've done on labor and and vendor spend and operating expenses marketing et cetera. We think we can flow through several hundred basis points.
More in margin.
Okay. That's super helpful. And then you mentioned the increase in local attendance can you see what are the customers coming back or new or repeat customers and has a demographic change.
Changed at all I just sequentially in a more limited options for media and entertainment spend for them.
I think what I would tell you is but I think we you know we are a favorite and a lot of our markets right. So for example, you know here in Orlando, we know aquatic those wedded.
Couple of years ago USA today's number one waterpark.
A lot of locals like sea World. Obviously, so we are getting I think what you know local.
Local guests, who like to come out and.
Have a good time I think there is as I mentioned in the press release, we view this as people increasingly desire and willing to visit our parks. We've proven we can operate them.
Safely and we're also providing a great experience we've re imagined events and these are things that people want to do I would also tell you I think one huge advantage. We have is our parks are outdoors in most cases very much outdoors just about the whole experience in many cases is outdoors and I think that is helping us and I will continue to.
Yes, So I think we'll continue to attract of wide variety of people.
Going forward and we're seeing not unlike said local visitation up but also those markets that can drive that are holding on a combined basis pretty pretty steady to what we've seen in prior years.
Our next question today will come from Chad Beynon of Macquarie. Please go ahead.
Okay.
This is Paul going on.
So.
I was wondering if you could walk us through the the marketing cadence here for reintroducing costs in understanding how you're thinking of approaching that as we get into 2021.
Given the yesterday.
Benefit from from a low marketing costs.
Yes, so I think.
There's a couple of ways to look at it one we have you know.
When I talked about the cost initiatives that would definitely apply.
To marketing and I think we've we've been that work at that for some time. We also have some some new folks in on our team who I think are going to bring some.
Some good insights into that area as well so I think we'll find efficiencies in our marketing spend going forward and we're doing some things differently, perhaps a little bit now than than we've done in the past and so I think we'll continue to do that so.
Ultimately look over time as we get back to normal we would we would expect to probably spend more in marketing, but I think we're going to find more efficiencies in that span and I'm confident of that work and that's work that's ongoing right now.
Great and did you have to do any any re tooling of sort of the marketing mechanism here in the interim that's baked into into cost of all you pivoted to a zoo experiences in California, and a limited experience is elsewhere.
Well certainly we've had to do a lot of communication and I think you know Elizabeth kind of alluded to that with I think our communication has gotten better but yes. It's a it's a little bit of a different experience going into a theme park now one thing that hasn't changed is it's a lot of fun and but there's some communications we had to make and we've done.
On that through email and digital channels and Facebook things like that that Weve I think done a pretty good job of of communicating all the different things going on at our parks. So some.
Some of that some of that kind of you know is reflected in the dollars you know digital spend and things like that but.
We'll continue to watch that going forward.
Our next question will come from Alexia Quadrani of JP Morgan. Please go ahead.
Hi, This is Anna on for Alexia. Thank you. So much for the question just wondering if you could comment a little more on their restrictions for Seaworld, San Diego operating as a do it and what that means for your attendance on it then that park and on the other hand are there any markets, where you saw better capacity from the east restrictions.
On attendance such as in the Florida market.
Yes, Hi, Ana so what I'll tell you in Sandy in San Diego, Yeah. I mean, we are open as as the zoo. We're obviously they do have an accretive to do so we're we're pleased that we're open and offering and experience. What we're we're limited there is you know.
The capacity to see some of the presentations we have there is.
Is limited and then the there's no rights, obviously and then there's no nothing any sort of shows that we'd be non animal related weren't we would not have so you know that that.
It's hard to give you an exact number but it's a pretty significant reduction and until we're able to open up fully as a theme park us and others in the state I think thats going to be pretty limited capacity.
What I will tell you is.
On your on kind of the rest of the markets, we alluded or we didn't allude, we specifically mentioned.
Williamsburg the capacity there just recently here was allowed to go up to about 4000 people per session. So that should be a positive for us what I'm excited about with that is we have a gray.
Great Christmas event, they're called Busch Gardens Christmas town, and a very popular and I'm excited that we are going to be an offer that even more people and so you outside of that the steady improvement in the attendance that you've seen we gave you the numbers without California, and Virginia as you could get a sense of the others continue to steadily.
For the most part increase.
Through through the through the quarter and then into October So we're going to keep operating safely, but I can tell you as we hope that that will always be a what we do but we're excited that more and more people are coming out to see our events, we'll be starting Christmas events and some of our parks next week and we're excited about that.
Thank you.
Sure.
Our next question is from Brett Andress from Keybanc capital markets go ahead.
Hi, good morning.
Hi, My first question is what did the local visitation mix look like in Florida versus destination. During the quarter is that the 50% that you referenced earlier and I guess, what I'm getting at is I mean, how much more local head room do you think you have without a meaningful destination recover.
In that market, Yeah, Hey, Brad its mark so yeah, I mean in so to take Seaworld Orlando for example, you know the the local visitation there.
Was about 55% for the quarter in that range and so that you can take the math from there that 45% whats coming from other non local markets. So people people driving in from other areas. Other states you know there.
There is really no international attendance. So you know as far as the the headroom I mean.
I think we offer a great value I think we're we're I'm, even if it's not local if you just look at the state of Florida, It's a big state I mean, there's there's people moving here every day and so I think we will you will continue to focus on on those markets are pass program.
His tailored very well to obviously local or nearby guess, so I you know I don't I don't know what the limit would be but we're not planning.
We're planning to just continue to move forward to try to attract more and more more visitation.
Got it Okay, and then just drilling down into the in park per caps strong there again, but have you learned anything during this pandemic in terms of what customers are willing to pay for or what events. There they're willing to attend I guess, just anything that might carry into periods when things maybe stock.
The return to normal.
Sure. So I think you know we have a look I think we learned things every year, but I think right now I think people are.
As I as we mentioned they have a desire and a willingness to get out and visit theme parks and I think that includes doing experiences you know we've had.
Focus for for a while now on.
More more interactions with with some of our animals better.
Better food and drinks in our parks a more compelling merchandise for example.
What's what's kind of impressive about the in park is you know with higher local and passes notation that that kind of depressed as a little bit your parking per cap. So.
You know I think I think we're going to continue we just opened for example, like a new a new venue here in Orlando at Sea World called Glacier Bar and that's you know.
An example of a of a bar area that has just a lot of coolness to it.
That people can come out and if your local you can go and hang out and visit and have a good time, even if you're not a local its unique place to stop and have some D or something to drink. So I think people in summary, I think people are willing to pay.
For quality products, and compelling products and and one of its one of a kind experiences, which we offer all of those things so.
Our next question is from Brendan Kelly Kim from Credit Suisse go ahead.
Hey, How's it going thanks.
Thanks for taking my question I guess, you said there was several hundred basis points of margin opportunity and I think my interpretation was when volumes come back I guess the question would be is that with the current cost cuts or does that assume incremental cost cuts and then just kind of like related to that I guess in the release.
You guys have been helpful and give us some color and I think in there that there's 1.9 million remaining on the EBITDA on that on a cost saving side at the same time I think you had a head count reduction of close to 3000 employees. So I'm just trying to gauge where those anticipated or do you think or do you see incremental cost.
Got it and the business just to add any color there would be helpful. Thanks, a lot hey, benchmark I can take that so look I think it's a it's a combination of things. One is we as I mentioned, we spent a tremendous amount of time looking at our labor models operating models, when we were closed and as Weve reopened.
We've we've deployed those obviously and as we as we grow and to your point, what I was trying to say there is when we get back to the normal attendance that we've seen like 2019 2018, yes, that's where you're going to get the margin expansion I was alluding to but look we're not going to stop you know even while we're on them.
Right now at a lower level, we're going to continue to.
Fine new savings as well so I think it's a combination of executing on what we're doing now and also additional efficiencies and I think as far as your question on head Count specifically you know I think we're always looking for opportunities to operate in the most efficient manner and I think certainly get to a more variable labor.
Model that we can more easily flux to our tenants.
Got it I appreciate it thanks.
Our next question is from Michael Schwartz from Suntrust Go ahead.
Yes.
Hey, good morning, guys.
Follow up question.
Marketing <unk>.
The marketing spend.
Actually ramp up marketing during the quarter.
Oh.
Yeah, Hey, Michael we're having a hard time hearing you, but I think you were asking a little bit about marketing spend in and whether that was was ramped up like there's there's a I guess a thoughtful increase in that but you know I would say still relative to prior years still down.
Significantly so we're we're going to look at that like I said I think weve have found efficiencies in that model.
In our marketing spend I think we will continue to do that and where it makes sense to pulse and spend a little bit more we will because we feel we've got visibility into and do a higher ROI, but I think.
We're learning a lot and you are seeing the efforts of some of that kind of come through.
Okay, Great and then just a second question on I think you you announced that you won't be officially opening the new Sesame place from the San Diego until 2022, and I believe the terms of the original agreement that that was to be opened in 2021 were there any financial penalties or anything of that nature in terms of.
Moving that back a year.
Yeah look there's a what I would tell you first off we have a really good relationship with Sesame workshop and so you can you can dive into our footnotes in our Q, but yeah. There is a a penalty it's I think about $2000 a day.
And so were you know we'll address that I think we are very confident though that we can work with our partners to come to a resolution that makes sense for both of US again, its a great relationship more importantly, we're just excited to get that park opened and I think the the delay.
Will allow us to open and hopefully win.
Things are at a better spot in California, I mean, right now we we can't even really open a theme park. There rightfully we can operate as a zoo. So I think this delay makes a lot of sense and I know, there's going to be more information in our 10-Q regarding the penalty that I talked about.
[noise].
Okay.
Hey, Michael just one.
Additional point on Sesame before I get to our closing comments I made in the 10-K is where you will actually find more information about that that contract not the 10-Q, sorry about that.
So thanks.
Thanks, Kate I think we're done with the questions and on behalf of Elizabeth and the rest of the management team here at Sea World want to thank you all for joining US. This morning as you are.
Her today, we're confident in our business strategy and we look forward to continuing to come out of this crisis and and drive improved operating and financial results and long term value for all stakeholders. So thanks for joining and we look forward to speaking with you next quarter.
The conference has now concluded thank.
Thank you for attending today's presentation you may now disconnect.