Q2 2021 SeaWorld Entertainment Inc Earnings Call
Should you need assistance. Please signal conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then 1 on a touchtone phone to withdraw your question. Please press Star then 2 please note. This event is being recorded I would now like to turn the call.
France over to Matthew Stroud VP of Investor Relations. Please go ahead.
Thank you, Matt and good morning, everyone. Welcome to Seaworld second quarter earnings Conference call today's call is being webcast and recorded.
Our press release was issued this morning and is available on our Investor Relations website at Www Dot Seaworld investors Dot Com <unk>.
Replay information for this call can be found on our press release and will be available on our website following the call.
Joining me this morning on Marc Swanson, Chief Executive Officer, and Elizabeth <unk>, Chief Financial Officer and Treasurer.
This morning, we will review our second quarter financial results and then we will open 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 reports on form 10-Q filed with the Securities and Exchange Commission.
These risk factors may be 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.
In addition on the call we May reference non-GAAP financial measures and other financial metrics, such as adjusted EBITDA and free cash flow.
More information regarding our forward looking statements and reconciliations of non-GAAP measures to the most comparable GAAP measure is included in our earnings release available on our website and can also be found in our filings with the SEC.
Now I'd like to turn the call over to our Chief Executive Officer, Marc Swanson Marc.
Thank you Matthew good morning, everyone and thank you for joining us.
I am pleased to report that despite continuing to operate in a highly challenging and COVID-19 impacted environment momentum from the first quarter continued into the second quarter and we delivered strong second quarter financial results, including record revenue net income and adjusted EBITDA.
Our strong financial performance through the first half of the year underscores the resilience of our business and our ambassadors and our commitment to emerge from this extraordinary environment, and even stronger and more profitable business.
During the second quarter, we also generated record free cash flow debt further bolsters, our already strong balance sheet.
We are particularly pleased to deliver these second quarter financial results, considering we continued to be impacted by the COVID-19 pandemic during the quarter.
All of our parks, who are operating with capacity limitations <unk> modified our limited operations at the beginning of the quarter Bye.
By the end of the second quarter, All 12 parks were open and operating without COVID-19 related capacity limitations.
Our pricing and product strategies, along with the strong consumer demand environment.
Continued to drive higher realized pricing and strong guest spending resulting in record total revenue per capita in the quarter.
We continue to see success with our strategic pricing initiatives and our quarterly events.
Including new or expanded food beverage and entertainment events at some of our parks as.
As well as several new re imagined venues, we have launched during the past few quarters, which also helps give guests more reasons to spend.
On the merchandise side, we have refreshed, our retail offerings by adding new products and improving the product mix.
These and other initiatives have all contributed to the increase in guest spending and we are encouraged by these successes as our guests have been returning to our parks over the last few months.
Looking to July we continued to generate strong performance versus 2019, with our attendance down approximately 7% and revenue up approximately 13%.
We are very proud to have recently received recognition from USA today readers for having some of the best parks and attractions in the country.
Seaworld Orlando.
Was voted best amusement park in the United States.
The Mako Rollercoaster at Seaworld Orlando was voted best Rollercoaster in the United States.
Ah Quantico, Orlando was voted best outdoor waterpark in the United States.
And Celtic fire at Busch Gardens, Williamsburg was voted best amusement Park entertainment in the United States.
Several of our other parks and attractions received top 10 rankings as well.
We are thrilled to receive these awards and proud of the ambassadors and our parks that helped deliver amazing guest experiences.
We are on schedule of our Buildout of Sesame place in San Diego and look forward to opening that park next year.
And Seaworld Abu Dhabi, the first Seaworld park outside of the United States is also on track to complete construction by the end of 2022.
We continue to closely study additional business development opportunities to grow the company, including hotels located on our nearby our existing parks and.
And other potential international development locations.
On the technology front, we have rolled out our new mobile app for the Seaworld and aquatic of parks and the remainder of the parks will be online later this year.
We did extensive testing and received positive feedback from beta users and now guests in our Seaworld and aquatic of parks can use the app to navigate the park.
Order food make purchases are check schedules and wait times.
We expect to expand this capability over time and anticipate positive impacts on in park spending as guests adopt and use the app.
Also we have selected our CRM system provider and are beginning to migrate our data to the new system, which will eventually lead to full CRM capabilities.
Once complete we anticipate that our marketing analytics and business capabilities.
Will significantly improve allowing us to better understand and engage with our guests.
Which we expect to lead to reduced overall marketing cost increased visitation and increased overall revenue opportunities.
Looking to the next few months, we have an outstanding lineup of fall events.
Next month, we will begin our award winning Halloween events.
Including our daytime family oriented.
The World Scoop tackler event at the Seaworld parks.
And our night time Hollow Scream event at all our Busch Gardens, and Seaworld parks.
Including for the first time ever.
Seaworld, Orlando and Seaworld San Diego.
We are excited about adding this event for our thrill seeking adult guests in Orlando and San Diego.
Operating trajectory.
As such like last quarter I'll provide commentary around our financial results compared to 2019.
For those interested we provide a comparison versus both 2019 and 2020 and our earnings release and will do so as well on our form 10-Q, which we plan to file tomorrow.
As Mark mentioned, our second quarter results were impacted by the COVID-19, pandemic, however, with a return to more normalized operations towards the end of the quarter along with the work we have done in both revenue management and our cost savings initiatives, we reported record total revenue.
Record net income and record adjusted EBITDA for the quarter.
During the quarter, we generated record total revenue of $439.8 million, an increase of $33.8 million or 8.3% when compared for the second quarter of 2019.
The increase in revenue is primarily due to an increase in total revenue per capita of 25% partially offset by a decline in attendance of 10, 1%.
When compared for the second quarter of 2019.
<unk> declined primarily due to COVID-19 related impacts, including capacity limitations and or modified or limited operations at our parks for some of the second quarter.
Attendance was also impacted by declines from international guest visitation and group events.
Including international and group events guests.
Guests.
Attendance would have increased by approximately 3% when compared to the second quarter of 2019.
Our pricing and product strategies, along with the strong consumer demand environment continued to drive higher realized pricing and strong guest spending resulting in record total revenue per capita in the quarter of $75 and 71.
Compared to $62.82 in the second quarter of 2019.
An increase of 25%.
Driven by improvements in both admissions per capita and in park per capita spending.
Admissions per capita increased by 18, 8% to $41.87.
And in Park per capita spending increased by 22, 7% to $33.84 in the second quarter of 2021 compared to the second quarter of 2019.
The increase in admissions per capita primarily relates to the realization of higher prices in our admissions products, resulting from our strategic pricing efforts along with a net impact of the admissions product mix when compared to the second quarter of 2019.
In Park per capita spending improved primarily due to increased guest spending.
Higher realized prices and fees and improved product mix and new enhanced <unk> expanded in park offerings.
We generated record net income of $127.8 million compared to net income of $52.7 million in the second quarter of 2019.
We generated record adjusted EBITDA of $218.8 million.
An increase of $69.1 million or <unk> 46, 2% when compared to the second quarter of 2019.
The improvement in adjusted EBITDA resulted primarily from a combination of increased total revenue and a decrease in both operating expenses and selling general and administrative expenses, which together offset the decline in revenue and attendance that occurred primarily as a result of the impact of Covid 9.
<unk>.
The decrease in these expenses primarily related to reduction in labor related costs as well as marketing and other operating costs, resulting from structural cost savings initiatives.
And the impact of modified or limited operations due to COVID-19 for most of the quarter.
Looking at our results for the first half of 2021 compared to 2019 total revenue was $611.7 million, a decrease of $14.9 million or 2.4%.
Total attendance was 8 million guests.
A decrease of $1.8 million guests or 18, 1%.
Net income for the period was $82.9 million.
An improvement of $67.2 million and adjusted EBITDA was $244 million and.
An improvement of $77.9 million or 46, 9%.
Now turning to our balance sheet, our current deferred revenue balance as of the end of the second quarter was $238.7 million.
An increase of approximately 46, 3% when compared to June of 2019.
We continue to be very encouraged with the trends, we're seeing in our pass base.
Our pass base grew approximately 53% between the first quarter and July of 2021.
At the end of July of 2021, our pass base was up approximately 14% compared to July of 2019.
And is approximately 12% higher than the peak pass space, we had in 2019.
We are also seeing a higher mix of premium passes and our pass base as our pass holders continue to recognize the value and benefits of our higher tiered products.
Additionally, we continue to see the impact of our pricing strategy is taking hold with stronger realized prices on our pass sales versus 2019 and 2020.
As of June 32021, our total available liquidity was approximately $927.8 million, including $615.8 million of cash on cash equivalents on our balance sheet and $312 million available on our revolving <unk>.
Credit facility.
Cash flow from operations was a record $229.7 million in the second quarter and $248.1 million for the first 6 months of 2021.
Free cash flow was a record $200 million in the second quarter and $203.1 million for the first 6 months of 2021.
We spent $29.7 million on Capex in the second quarter of 2021 of.
Of which approximately $28 million was on core capex and approximately $8.9 million when it's on an expansion or R. I projects.
For 2021, we still plan on spending between approximately $120 million and $150 million on capital expenditures.
Lastly on July 14th 2021, we redeemed $50 million of our 9.5% second priority senior secured notes.
Together with our board, we continually evaluate the company's capital structure with an objective of maximizing shareholder value.
Now, let me turn the call back over to Mark who will share some final thoughts.
Yeah.
Thank you Elizabeth before we open the call to your questions I have some closing comments.
In the second quarter, we helped rescue over 500 animals.
And has exceeded 39100 animal rescues over the company's history.
We are 1 of the world's leading animal rescue organizations and we are proud of our efforts to protect and save wildlife.
We want to thank our employee passengers for their continued dedication and effort to welcome guests, while operating our parks in accordance with the latest health and safety protocols.
As always we are focused on providing a safe and fun guest experience, while continuing to offer innovative special events and creating new events for our guests to enjoy our parks.
Despite the progress we have made we continue to believe there are significant additional opportunities to improve our execution.
Take advantage of clear growth opportunities.
And continue to drive meaningful growth in both revenue and adjusted EBITDA.
We continue to have high confidence in our long term strategy.
And in our ability to deliver significantly improved operating and financial results.
That will lead to meaningfully increase value for stakeholders.
Now, let's take your questions.
We will now begin the question and answer session.
Ask a question you May press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time your question that's been addressed and you would like to withdraw. Your question. Please press Star then 2 in the interest of time. Please limit yourself to 1 question and 1 follow up if you have additional questions you may reenter the queue. At this time, we will pause momentarily to assemble our roster.
Our first question will come from Michael Swartz with Truest. Please go ahead.
Yeah, Hey, good morning, everyone.
Mark maybe you want to touch on attendance trends during the quarter I think when we last spoke in April we would come out of the first quarter with about a tenant staying somewhere around 80% to 82% I believe of 2019 levels.
It appears that that has improved materially during the quarter and in July you said attendance was down 7% versus 2009.
Curious to imply tenants just wondering over 90% for 2019 levels. So help us understand maybe how that trended during the quarter on if those numbers are correct.
Yeah, Hey, Michael It's Marc I can take that question I mean look I think.
As you noted the trends kind of improved if you will during the quarter. So as you move to April to May to June. So we were we were pleased with that and ultimately where we ended the quarter down 10% and then July as we mentioned on the down 7%. So we're pleased with the trends we're seeing.
And the attendants performance.
Okay, Great and I think in the press release, you had mentioned that Youre, adding a number of operating days for the back half of the year relative to 2019, So maybe help us understand just maybe the magnitude of the operating day increase and maybe are there incremental special events in first.
The wells that you are adding to the back half of the year.
Yes.
Most of the operating days, we're gonna be.
In the back half of the year on it's really around I think some incremental days around some of our events around Halloween around Christmas, but also some other things that we learned a good deal of last year like some of our drive for your experiences. For example, so we're going to take advantage of of some of those opportunities and drive some additional days.
In the quarter. Obviously, we're also excited about adding the nighttime Halloween experience Hello, Scream to Seaworld Orlando in Seaworld San Diego.
Okay.
Okay. Thank you.
Okay.
Our next question will come from Stephen <unk> with Stifel. Please go ahead.
Yeah, Hey, guys good morning.
So mark when I ask about the margin opportunity moving forward I mean, you just closed today I think it's about a 300 basis point improvement relative to the second quarter of 2019. So.
How should we think about the gives and takes of.
Margin acceleration or pressures moving forward.
And this is even with a super tight labor market right now so how have you been able to combat labor.
While at the same time not impacting the guest experience.
Yeah, Hey, Steve what I'll say is I think you know we have a tremendous focus on cost and operating.
The business in an efficient manner, and we're very committed to that.
We'll continue to do that as you've as you've witnessed we're also obviously getting a lot of margin expansion from from the revenue side as well and I think the work we've done.
On per caps.
It's really shine through here for the last several quarters, especially this quarter. So we're going to continue.
To do or to do our part to.
Grow grow margin as much as we can we're not obviously, we're going to be very careful obviously to protect the guest experience and look our goal is to have a good guest experience in our part having said that we think the combination of of revenue enhancements and cost efficiencies.
Can do some good things for our margin and you saw that here in the second quarter.
So.
A follow up on that day.
On a labor perspective.
In terms of what you guys are seeing today is the labor market.
No.
<unk> is it kind of staying the same.
Or is it getting better.
Yeah, Hey, Steve I would say look labor.
For many companies have talked about labor labor continues to be a challenge having said that we're working hard too.
Control, we can control and attract people to come to come work here on our environment. We think we have a fun environment working working at a theme park and so we'll continue to do that and we have a lot of focus on on.
Doing just that going forward.
Okay, maybe if I can ask 1 more quick 1 on just obviously you guys are now.
Generating a pretty significant amount of free cash flow at this point. So can you just help us understand.
Your current uses for.
Cash at this point.
Yes, it's a good question. So certainly we're pleased with the cash flow generation in the quarter. As you mentioned there was a record free cash flow so very very pleased with that.
We've been working through a list of items with our board that we can deploy that cash from some quick hitting items around capex in our parks some venue refreshment.
Some some upgrades on some areas of the park and then also some ROI type items on expenses, where we can from utility savings things that we can invest in and we will drive expense improvements. So we've been deploying that list and continue to review that list. So those are kind of making investments in the business. If you will.
And then there'll be on beyond that we also as you heard Elizabeth mentioned, we did pay down some of the notes.
In July.
Beyond that we're certainly open to M&A opportunities.
Hotels, the things I mentioned in my prepared remarks, we certainly find those things intriguing and should the right thing come along I think we are in a position.
To be able to evaluate that and see what might make sense for us.
So those are kind of investing in the business over the over the kind of longer term. If you will I can tell you that we certainly have frequent communication with our board on.
On the best ways to deploy cash and we will continue to do that we will be opportunistic and we'll make sure to deploy that in a way that we believe is best for shareholders. So the good news is in general we're very pleased with the generation we have the cash flow generation we have.
A number of opportunities ahead of us I think about our debt a compelling uses of that cash.
Okay, great. Thanks, guys appreciate it.
Our next question will come from James Hardiman with Wedbush Securities. Please go ahead.
Hey, good morning.
And congrats on a great quarter here just to follow up on Steve's question is there any way to quantify the labor piece, whether it would be.
Yes.
Dollars on incremental inflation versus where we were in 2019 or incremental versus how you thought it would be heading into and through 2021.
Yes, Hey, James.
We're focused on on on labor I'm, not I'm not going to provide a number obviously.
You know there is there is inflation in those numbers, but I think as I said earlier, we're committed to the cost.
Savings and efficiencies on our business and our goal obviously is to when we have inflationary increases at or above kind of the norm and many companies have this year. Our goal is to offset as much of that as we can with additional efficiencies and additional automation efforts in the business and that's what we're that's what we're attempting to do.
Dave.
Okay fair enough.
And then.
As I think about you talked about in the prepared remarks, how significant of a drag.
Group sales and international sales were.
Can you maybe key for those 2 out to the extent you feel comfortable.
Or maybe order of magnitude between those 2.
And what's your debt and I guess secondly was it a similar drag in the month of July.
Which would suggest ex those numbers you'll have some some nice growth in.
In July.
And then I get for lastly, just the pace of recovery of those 2 buckets.
National Pizza and a group sales piece.
Sure so.
In regards to July it was.
A similar a similar trend we would've been up.
2% without kind of international and group impacts in there. So it's a it's a good.
Good.
Backdrop, if you will.
On that those as those.
Hopefully.
<unk> in the future. So we know we don't know when but at some point international attendance.
We'll come back and we're also optimistic that that group events will come back over time. So those are going to be those are going to be tailwind for us I think between our prepared remarks, and what I. Just commented on about July you can see that the business.
For those things is growing or attendance is growing.
And those will just be tailwind as we move forward.
And recover from those whenever they do recover.
Is there a way to think about those versus 2019 levels.
I would think that group, maybe pacing ahead on international but as a way to quantify that in any way.
I think the way I would think about it is look theres very little as you would expect international attendance and that'll that'll.
While it's.
Overall to our company about 10% of our tenants in 2019.
That gives you some order of magnitude there.
Groups.
Yeah.
School groups and church groups in camps and stuff are certainly not traveling and you've heard others talk about this dynamic as well so that'll that will return as well, but I think between.
You said in July we were down 7 we would have been up low single digits absent those things that gives you kind of some some order of magnitude on that.
Again, if you have a question. Please press Star then 1 our next question will come from Brett Andrews with Keybanc capital markets. Please go ahead.
Hi, good morning.
So when when you gave the illustrative targets Youre per GAAP assumption I think was.
10% growth above 19, and here we are through July youre tracking I think it implies 20% above 19 so.
I guess, how has your thinking evolved around those per cap targets right is the GAAP between that 10, and 20% right now just macro factors like higher consumer demand that you expect to roll off or do you think youre doing anything specifically that would drive upside to that 10% increase you gave us.
And the targets.
Yeah, Hey, Brian Let me, let me kind of unpack that a little bit I'll start with your your per cap question look certainly we recognize we are operating in a in a strong demand environment, having said that we are doing a lot of things are much better than we have before and I think the the fruits of all the efforts that we've had over the last couple of years.
On a really kind of shining through.
With our revenue management team a group of people, who are looking at our pricing and products and.
How do we position those things.
On a regular basis in a lot of the work they're doing has benefited us in the per cap area. We're also as I mentioned.
On the mix of product in our park, whether it's the merchandize mix upgrading some of our food and beverage menus or a rebranding them.
Redoing them has been beneficial as well along with the new venues. We've opened in a number of our parks. So we have a number of new kind of embarked venues from ice cream parlor to a coffee shop to several new bar venues in a number of our parks. So we are there.
These things are all benefiting us.
Clearly in the per cap area.
So that's just.
Something we feel good about going forward is it always going to grow at 20% or something.
So there would be some normalization, but are we going to be able to get more than inflationary growth.
More than that I think so because keep in mind, our mobile app just rolled out.
And.
That is going to continue to expand and it's not even in all of our parks yet that'll that'll help in park spending and then we also have the CRM system, which still little ways away, but when that does rollout. We think that's going to allow us to be a lot more targeted to our guests a lot more.
Target events in ticket offers to them that type of thing again, which we think will be a benefit to to spending. So those are also tailwind not to mention on the international visitation that we know at some point, we will come back we don't know when but when it does we know those folks are generally higher per cap spenders so feel.
About the per cap position as far as your kind of question as far as.
The $6.90, I think you were alluding to the per cap assumptions and that obviously, we're well ahead of the day.
Per cap assumption or illustration that we gave you in that 690.
Illustration and so certainly our goal would be to do better than what we laid out an illustration in that illustration certainly was not guidance. It was not a goal. It assumes we don't grow any attendance from 2019 and certainly our expectation is that we will.
Row attendance over time. This collection of parks has done much more attendance than we did in 2019 in its history. So our goal would be obviously to do more attendance and then obviously you are outperforming the per caps that we illustrated and then as I mentioned the other component of that and I've mentioned earlier was on the cost.
We're committed to.
Driving efficiencies in the business and achieving cost savings so that.
I think we feel pretty good about the outlook for this business and we will.
It will probably come back at some point in the future with with how we're viewing that as we move through we want to get through this year, obviously, so but that gives you a little bit of a flavor for where things stand.
Got it that's helpful. And then obviously a lot of delta fears out there, but maybe more specifically on on Florida, which I think is the you know.
Unique maybe approach down there pluses a destination market.
I mean have you seen any trend changes on the ground in Orlando and the most recent week.
Or days and I know you also have some booking visibility discovery Cove, just just curious if anything.
Real time there.
Hey, Brett look obviously, we know it's out there the media has been talking about it it's on People's minds, having said that we don't see an impact to or a change in our attendance trends that we can attribute to the delta variant.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mark Watson CEO for any closing remarks.
Thank you Matt on behalf of Elizabeth and the rest of the management team at Seaworld Entertainment 1 on thank you for joining us this morning.
As you heard today, we are confident in our long term strategy, which we believe will drive improved operating and financial results and long term value for stakeholders.
And we look forward to speaking with you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.