Q3 2021 SeaWorld Entertainment Inc Earnings Call
Turkey, followed by zero.
After they present an opportunity to ask questions. Please note that this event is being recorded.
Now I'd like to turn the call over to Mr. Matthew strong Investor Relations. Please go ahead.
Thank you Nick and good morning, everyone. Welcome to Seaworld third 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 Seaworld investors Dot Com <unk>.
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 are Marc Swanson, Chief Executive Officer, and Elizabeth <unk>, Chief Financial Officer and Treasurer.
This morning, we will review our third 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 would 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 another quarter of strong financial results.
While continuing to operate in a highly challenging and COVID-19 impacted environment.
In the third quarter, we generated among our highest revenue and net income ever reported in.
And another quarter of record adjusted EBITDA.
Our pricing and product strategies, along with the strong consumer demand environment.
<unk> to drive higher realized pricing and strong guest spending in the quarter.
Our third quarter financial performance would have been even better if not for limited international guests and group related attendance.
An unfavorable calendar shift.
And a record number of weather impacted days for our parks during the third quarter.
In fact third quarter of 2021.
Had a record number of weather impacted operating days.
With 18% more severe weather days than what we experienced in the third quarter of 2019, which was the previous record.
Excluding international and group guest.
Tenants decreased by approximately 1% when compared to the third quarter of 2019.
Our record breaking financial performance through the first nine months of the year is a testament to the resiliency of our business.
And the relentless efforts and dedication of our ambassadors.
During the quarter, we took advantage of our improved financial performance and favorable market conditions to refinance our debt, which allowed us to reduce our overall debt.
Meaningfully reduce our go forward interest expense.
Push out maturities and increased our access to liquidity from revolving commitments.
We also resumed our share repurchase activities and opportunistically repurchased 153 million shares during the quarter.
We repurchased an additional 457000 shares totaling $26 $8 million since the end of the quarter.
And we will continue to be opportunistic and purchase shares when we believe it's the best use of our excess cash.
Last week, we concluded another successful Halloween season at our parks, featuring our award winning Halloween events, which contributed to meaningfully positive attendance and revenue growth in October compared to October of 2019.
In fact, we saw record revenue for our Halloween events.
Later this week, we will begin our popular Christmas events at our Seaworld Busch Gardens and <unk>.
SME parks.
Our Christmas events feature exciting entertainment.
Unique food and beverage offerings.
And seasonal merchandise for guests young old and everyone in between.
Turning to other key initiatives.
We've built and successfully launched version one <unk>.
<unk> of our new mobile app across eight of our parks as of the end of the third quarter.
These apps feature interactive maps ride wait times, and importantly, e-commerce capabilities that allow for in park purchases, including food and beverage quick queue and other in park items.
We are pleased with the early feedback adoptions and results.
In restaurants, where mobile food ordering has been rolled out we are seeing a double digit percentage increase in average check size.
We plan to complete the rollout of mobile apps across our entire portfolio by December of 2021.
We also plan to continue to add features to the App.
And enable in App purchases across more in park venues over the next several quarters.
Which we expect to contribute to enhanced guest satisfaction and.
And meaningful incremental revenue opportunities.
We continue to make good progress towards implementing our CRM system.
When 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 better targeting and reduced overall marketing cost increase.
Increased visitation and increased overall revenue opportunities.
We are also making progress on our hotel strategy and we will have more to share about this in the coming quarters.
Internationally Seaworld Abu Dhabi, the first Seaworld park outside of the United States.
It remains on track to complete construction by the end of 2022.
Looking ahead to 2022.
We have announced what we believe is our most significant and exciting lineup of new rides.
Fractions events, and upgrades, including something new and meaningful and every one of our parks.
This includes the ice breaker rollercoaster at Seaworld Orlando.
The iron <unk> roller coaster at Busch Gardens, Tampa Bay.
The pantheon roller coaster at Busch Gardens Williamsburg.
The Emperor roller coaster at Seaworld San Diego.
The Big Birds tour bus ride at Sesame place Philadelphia.
The title search screaming swing at Seaworld San Antonio.
The reef plunge water slide at Aquatica Orlando.
The Rapids racer, and Wahoo remix water slides at adventure Island Tampa.
The ACA was always amped water slide at water country USA.
And the Riptide race water side at our <unk>, Texas.
In addition, we are particularly excited to open our newest park.
SME place San Diego in March of 2022.
We look forward to bringing the education fund and in Chapman necessity Street to our guest in Southern California.
Encouraging for 2022.
Season pass sales have been strong and pass base is at a record level for this time of year.
At the end of October of 2021, our pass base was up approximately 25% compared to October of 2019.
And is up approximately 12% higher than the peak pass base, we had in 2019.
We are also still selling 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.
Finally, while the current conditions in the overall labor market have presented staffing and wage challenges.
We continue to identify additional cost reduction and efficiency opportunities.
<unk> continuing to eliminate unnecessary and redundant cost.
Optimizing our spend levels and investing in and leveraging technology.
Our teams continue to work hard to operate our parks in this extraordinary environment.
And better position this company for revenue growth and increased profitability.
As we have demonstrated in the third quarter and throughout the year. We believe the strategies, we have developed and refined over the past few years.
Along with the actions we have taken throughout the past year.
We will continue to lead to significantly improved financial results for the company.
With that I'd like to turn the call over to Elizabeth.
To discuss our financial results in more detail.
Elizabeth.
Thank you Mark and good morning, everyone similar to last quarter due to the disruption we experienced last year.
When we temporarily closed all of our parks on March 16, 2020, I'll provide commentary today around our financial results compared to 2019.
We believe this comparison provides a more meaningful impact on our performance and our operating trajectory.
We provide a comparison versus 2019 and 2020 and our earnings release and will do so as well in our Form 10-Q.
During the quarter, we generated total revenue of 521.
Dollars.
An increase of $47 5 million or 10.
When compared to the third quarter of 2019.
The increase in revenue is primarily due.
An increase in total revenue per capita of 23, 7%.
Partially offset by decline in attendance of 11%.
As Mark mentioned when compared to the third quarter of 2019.
<unk> tended to decline primarily due to reduced international and group attendance.
And this was also impacted by an unfavorable calendar shift and unfavorable weather during the quarter.
Including International and group get attendance declined by approximately 1% compared to the third quarter of 2019.
Our pricing and product strategy, along with the strong consumer demand environment continued to drive higher realized pricing is strong.
Resulting in total revenue per capita in the quarter of $72 13.
Compared to $58 31.
And the third quarter of 2019.
An increase of 23, 7%.
Driven by improvements in both admissions per capita and in park per capita spending.
This is the highest total revenue per capita we have ever reported in third.
Third quarter.
Admissions per capita increased by 24, 4%.
$41.
And in Park per capita spending increased by 22, 8% to $31 seven in the third quarter of 2021 compared to the third quarter of 2019.
The increase in admissions per capita primarily relates to the realization of higher prices and our admission products, resulting from our strategic pricing efforts.
Along with the net impact of these initiatives product mix when compared to the third quarter of 2019.
In Park per capita spending improved primarily due to increased guest spending and improved product mix higher realized prices in key.
Our enhanced and expanded in park offerings.
Strong consumer demand environment during the quarter compared to 2019.
We generated net income of $102 $1 million.
Second highest third quarter net income we have reported.
Compared to net income of $98 million in the third quarter of 2019.
We generated record adjusted EBITDA of $265 $3 million.
An increase of $58 4 million or.
Or 28, 2% when compared to the third quarter of 2019.
The improvement in net income and adjusted EBITDA resulted primarily from a combination of an increase in total revenue and a decrease in selling general and administrative expenses.
Actually offset by an increase in operating expenses, which included certain non recurring operating expenses.
Altogether offsetting the decline in attendance.
The decrease in selling general and administrative expenses.
Due to a reduction in marketing related costs, and the impact of cost savings and efficiency initiatives.
Which was partially offset by an increase in noncash equity compensation.
The increase in operating expenses is primarily due to nonrecurring contractual liabilities and legal costs, resulting from the temporary COVID-19 Park closure.
Costs associated with incremental operating days and events added in 2021.
An increase in noncash equity compensation expenses, and the timing of certain maintenance projects.
These increases were partially offset by net reductions in labor related and other operating costs, primarily resulting from structural cost savings initiatives.
Looking at our results for the first nine months of 2021 compared to 2019 total revenue was $1 one 3 billion in.
An increase of $32 $7 million or 3%.
Total attendance was $15 2 million guests.
A decrease of $2 7 million guests or 14, 9%.
Excluding international and group guests.
Attendance declined by approximately 3% when compared to the first nine months of 2019.
Net income for the year to date period with a record of $185 million, an improvement of $71 $3 million.
And adjusted EBITDA was a record of $509 3 million and.
An improvement of $136 3 million or 36, 5%.
Now turning to our balance sheet.
Our current deferred revenue balance as of the end of the third quarter was $173 4 million.
An increase of approximately 51, 4% when compared to September of 2019 due in part to our strong pass sales.
As we have discussed earlier this year and as Mark mentioned.
We continue to be very encouraged with the trends we're seeing in our past.
Our pass base grew approximately 15% between the second quarter and October 2021.
At the end of October 2021, our pass base was up approximately 25% compared to October 2019.
And is approximately 12% higher than the peak tax base, we had in 2019.
We are also seeing still seeing a higher mix of premium passes and our pathway and our pass holders continue to realize.
The value and benefits of our higher tiered product.
Additionally, we continue to see the impact of our pricing strategy with stronger realized prices on our pass sales versus 2019 and versus 2020.
Based on our improved financial performance and favorable market conditions, we took the opportunity during the quarter to reduce and refinance our debt.
In particular in July we partially redeemed $50 million of our nine 5% second priority senior secured notes due in 2025.
And in August we completed a refinancing of our debt by issuing $725 million.
A five 5% senior notes due in 2029.
And $1 $2 billion in term loan.
We use the proceeds of these issuances.
Along with the cash on our balance sheet to redeem the remaining $450 million of our nine 5% second priority senior secured notes.
And to repay our then existing term be five loans.
We also refinanced and increased our revolving credit facility to $385 million.
Also we opportunistically repurchased shares during the quarter Brian.
<unk> approximately 153 million shares of common stock at a total cost of approximately $82 7 million.
Leaving approximately $154 9 million available for future repurchases under our previously authorized repurchase program.
As of September 32021.
Our total available liquidity was approximately $918 $1 million.
Including $553 $6 million of cash and cash equivalents on our balance sheet.
And $364 5 million.
Available on our revolving credit facility, which was undrawn.
Cash flow from operations was $168 4 million for the third quarter of 2021, and a record $416 4 million for the nine months period.
Free cash flow was it was $139 7 million for the third quarter 2021.
And a record $342 8 million for the nine months period.
We spent $28 6 million on Capex in the third quarter of 2021 of which approximately $12 $4 million was on core capex and approximately $16 $2 million was on expansion ROI projects.
For the 2021, we now expect on spending between 100 between approximately $110 million and $125 million on capital expenditures.
Now, let me turn the call back over to Mark who will share some final thoughts Marc.
Thank you Elizabeth.
Before we open the call to your questions I have some closing comments.
In the third quarter, we helped rescue almost 400 animals.
And have exceeded 39500 animal rescues over the company's history.
We are one 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 ambassadors for their continued dedication and efforts to operate our parks in this current environment.
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.
Okay.
Yeah.
Thank you.
I will begin the question and answer session.
You May press Star then one on your thoughts going forward.
Speakerphone, please pick up your handset before pressing the keys.
Your question. Please press Star then two.
No, but limit yourself to one question and one follow up at a time with your labor join the queue.
Pause momentarily to assemble the roster.
First question come from.
Please go ahead.
Hey, guys good morning.
So if I hear you right attendance was down about 1% relative to 19, and when you exclude international and group guests.
The question here is.
Can you maybe help us understand what that attendance would have looked like in a more normalized weather.
In calendar environment or maybe what you think you lost from a weather and calendar perspective, and then also if you could help us think a little bit more about October the words I think you used the word meaningfully.
That means a lot of things to a lot of different people. So just want to understand a little bit more.
What October really look like thanks.
Yeah, Hey, Steve It's Marc I can take that question. So certainly we called out the calendar shift and the weather impacts because because they are meaningful.
It was record weather impacted days, so we would've been up probably low to mid <unk> I think low low single digits in attendance growth. There. If you were to factor those back in.
And as far as.
The October performance, we did say meaningful what I can tell you I think.
You can infer an attendants they're up.
Mid single digits, probably in revenue would be would be would be better than that so we're very pleased with our with our Halloween performance.
Across a number of our parks and so the momentum we saw in October we were certainly very pleased with.
And did you see any material change in attendance whether that was late August early September around Delta fears.
Yes, Hey, Steve So what I can kind of unpack our tenants I mean, certainly.
There's a lot of factors that impact our tenants as you know.
What we saw was.
<unk> was down more than July and then September September was better than August and then obviously October was positive like like <unk>.
Mentioned to you so yes.
We know.
We know it's on People's minds, and it ebbs and flows.
As cases riser or go down.
So.
I'm sure there was.
At times people, who who maybe who maybe didn't come.
I would say like you were saying probably in the later timeframe in August and September but hard to know it's hard for us to tease that out when we look at things Theres a lot of other factors that we see that appear to be more impactful. The good news is we have a lot of momentum now coming into October with the increase in attendance.
Okay got you and then second question would be the decision to start returning capital to shareholders here and I guess can you help us think about how you're balancing that decision now to buyback stock versus maybe going down the dividend path.
Sure I can take that question so look we.
You've heard us talk about it in the past I mean, we work closely with our board to evaluate what's the best use of cash and we do that on a regular basis and we'll continue to do that and so.
Certainly.
In this quarter and into October buybacks.
Were something that we pursued and we believe those have are a good way to return cash to shareholders.
And so we did that obviously, we also deployed our cash to work on our capital structure, which you heard Elizabeth talk a little bit about we've also been opportunistic with some capital deployments into our parks around new venues and some aesthetic updates and things like that so we're always looking for the highest and best use of cash certainly.
Yes.
We do consider.
Like all uses of cash we would consider dividends transactions paying down debt all sorts of things but for now.
The things I mentioned buying back shares capital structure investing.
Investing capex into parks are the things that we're pursuing but not to say that we would never look at a dividend or anything like that.
Again, if you have a question. Please press Star then one.
Our next question will come from Michael Swartz with Suntrust. Please go ahead.
Hey, good morning, maybe just a little more clarification, Mark if you don't mind on the calendar shifts that you spoke about that impacted the third quarter was that just operating day shifting from the third quarter into the fourth quarter and if so.
And then for.
I grew up I think you said mid single digit for October is that on a like for like operating day basis or is that kind of.
The all in number.
Yeah, Let me, let me kind of.
Pack, which yes, there so.
Look the the shift we mentioned in the third quarter is really around.
The timing of certain days within the quarter.
Especially in the months of August and September and then the timing of some of those around our events as well.
And keep in mind, we you know we operate on a on a on a date to date quarter. So we always start the quarter on July one and we ended on September 30th regardless of what they are weak it as I know.
I think some of our competitors.
On a Sunday all the time, so we tend to have.
More I think kind of calendar shift issues, if you will.
But we would that we would unpack.
As far as October we were pleased with the attendance there.
We did add Halloween, Hello, Scream in California, and in Orlando, but even when you when you adjust for that we were still positive on attendance for the for the month.
Okay, great. Thank you for that and then maybe just with the some of the international travel restrictions being relaxed I believe yesterday can you maybe give us any sense of.
Al The international Visitation business has look are you seeing bookings come back since that's been announced.
Yes, that's a good question we're excited to have you.
International opening again.
As you've heard US mentioned, it's about 10% of our tenants.
On a given year, so that'll that'll be in 19. It was at least that will hopefully be a tailwind for us. So the one park, where we do get advanced bookings as discovery Cove and Thats a park, that's generally been pretty popular with international guests and what I can tell you is is the trend there that we've seen on bookings.
Has has gotten better.
As the announcements about the borders Rio.
Reopening and people being able to travel again, so I don't think it's all going to come back at once.
May take some time, obviously, but certainly I think we're pleased that things are moving in a better direction than they were obviously before.
Before things opened up.
Okay, great. Thank you.
We have a question. Please press Star then one.
Okay.
This concludes our question and answer questions I will now turn the call back over to Martin.
For closing remarks. Please go ahead.
Thank you Nick.
A elizabeth and the rest of the management team at Seaworld Entertainment one of thank you for joining us this morning.
As you heard today, we have in our long term strategy, which we will believe will drive improved operating and financial results and long term value for stakeholders.
Thank you we look forward to speaking with you next quarter.
Okay.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.