United Parks & Resorts - Earnings Call - Q2 2021

Transcript

Speaker 0

Good day, and welcome to the SeaWorld Parks and Entertainment Second Quarter twenty twenty one Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Matthew Stroud, VP of Investor Relations. Please go ahead.

Speaker 1

Thank you, Matt, and good morning, everyone. Welcome to SeaWorld's second quarter earnings conference call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.seaworldinvestors.com. Replay information for this call can be found in the press release will be available on our website following the call.

Joining me this morning are Mark Swanson, Chief Executive Officer and Elizabeth Galaxi, 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 ks 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, Mark Swanson. Mark?

Speaker 2

Thank you, Matthew. Good morning, everyone, and thank you for joining us. I'm pleased to report that despite continuing to operate in a highly challenging and COVID-nineteen 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 an even stronger and more profitable business. During the second quarter, we also generated record free cash flow that 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-nineteen pandemic during the quarter. All our parks were operating with capacity limitations and or modified or limited operations at the beginning of the quarter. By the end of the second quarter, all 12 parks were open and operating without COVID-nineteen 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 well as several new or reimagined venues we have launched during the past few quarters, which also helped 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 roller coaster at SeaWorld Orlando was voted best roller coaster in The United States. Aquatica Orlando was voted best outdoor water park 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 in our parks that help deliver amazing guest experiences. We are on schedule of our build out 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 2022. We continue to closely study additional business development opportunities to grow the company, including hotels located on or nearby our existing parks and other potential international development locations. On the technology front, we have rolled out our new mobile app for the SeaWorld and Aquatica 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 Aquatica parks can use the app to navigate the park, order food, make purchases, or 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 SeaWorld Spooktacular event at the SeaWorld Parks and our nighttime 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.

There will also be craft beer and cultural festivals at several of our parks. We believe there is something for everyone to enjoy this fall. Our teams have worked hard to operate our parks in an extraordinary environment and better position this company for revenue growth and increased profitability. As we have demonstrated in the second quarter, 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, will continue to lead to significantly improved financial results for the company. With that, I would like to turn the call over to Elizabeth to discuss our financial results in more detail.

Elizabeth?

Speaker 3

Thank you, Mark, and good morning, everyone. As you know, we typically discuss our results for each quarter in comparison to the prior year's quarter. Given the disruption we experienced last year when we temporarily closed all of our parks on 03/16/2020, we believe a comparison of our results to the 2019 provides a more meaningful insight on our performance and operating trajectory. As such, like last quarter, I will provide commentary around our financial results compared 2019. For those interested, we provide a comparison versus both 2019 and 2020 in our earnings release and we will do so as well in our Form 10 Q which we plan to file tomorrow.

As Mark mentioned, our second quarter results were impacted by the COVID-nineteen pandemic. However, with the 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 $439,800,000 an increase of $33,800,000 or 8.3 when compared to the 2019. The increase in revenue is primarily due to an increase in total revenue per capita of 20.5% partially offset by a decline in attendance of 10.1%. When compared to the 2019, attendance declined primarily due to COVID-nineteen 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 a decline from international guest visitation and group events. Excluding international and group events, guests attendance would have increased by approximately 3% when compared to the 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 seventy five point seven one dollars compared to $62.82 in the 2019, an increase of 20.5% 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 capita spending increased by 22.7% to $33.84 in the 2021 compared to the 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 the net impact of the admissions product mix when compared to the 2019.

In park per capita spending improved primarily due to increased guest spending, higher realized prices and fees, an improved product mix and new enhanced and or expanded in park offerings. We generated record net income of $127,800,000 compared to net income of $52,700,000 in the 2019. We generated record adjusted EBITDA of $218,800,000 an increase of $69,100,000 or 46.2% when compared to the 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 attendance that occurred primarily as a result of the impact of COVID-nineteen. 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-nineteen for most of the quarter.

Looking at our results for the 2021 compared to 2019, total revenue was $611,700,000 a decrease of $14,900,000 or 2.4%. Total attendance was 8,000,000 guests, a decrease of 1,800,000 guests or 18.1%. Net income for the period was $82,900,000 an improvement of $67,200,000 and adjusted EBITDA was $244,000,000 an improvement of $77,900,000 or 46.9%. Now turning to our balance sheet, our current deferred revenue balance as of the end of the second quarter was 2 and $38,700,000 an increase of approximately 46.3% when compared to June 2019. We continue to be very encouraged with the trends we are seeing in our pass base.

Our pass base grew approximately 53% between the first quarter and July 2021. At the July 2021, our pass base was up approximately 14% compared to July 2019 and is approximately 12% higher than the peak pass base we had in 2019. We are also seeing a higher mix of premium passes in 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 strategies taking hold with stronger realized prices on our past sales versus 2019 and 2020. As of 06/30/2021, our total available liquidity was approximately $927,800,000 including $615,800,000 of cash and cash equivalents on our balance sheet and $312,000,000 available on our revolving credit facility.

Cash flow from operations was a record $229,700,000 in the second quarter and $248,100,000 for the 2021. Free cash flow was a record $200,000,000 in the second quarter and $203,100,000 for the 2021. We spent $29,700,000 on CapEx in the 2021, of which approximately $20,800,000 was on core CapEx and approximately $8,900,000 was on expansion or ROI projects. For 2021, we still plan on spending between approximately $120,000,000 and $150,000,000 on capital expenditures. Lastly, on 07/14/2021, we redeemed $50,000,000 of our nine point five percent 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. Mark?

Speaker 2

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 have exceeded 39,100 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 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 increased value for stakeholders. Now let's take your questions.

Speaker 0

We will now begin the question and answer session. In the interest of time, please limit yourself to one question and one follow-up. If you have additional questions, you may reenter the queue. Our first question will come from Michael Swartz with Truist. Mark,

Speaker 4

maybe you want to touch on attendance trends during the quarter. I think when we last spoke in April, we had come out of the first quarter with about eight attendance standing somewhere around 80%, 82%, I believe, of 2019 levels. It appears that, that improved materially during the quarter. And in, I think, July, you said attendance was down 7% versus 2,009. I would appears to imply attendance is running over ninety percent two thousand nineteen level.

So help us understand maybe how that trended during the quarter and if those numbers are, in fact, correct.

Speaker 2

Yeah. Hey, Michael. It's Mark. I can I can take that question? I mean, look, I think, as you noted, the the the trends kind of improved, if you will, during the quarter.

So as we moved April to May to June. So we were we were, pleased with that and ultimately where we ended the quarter down, you know, 10%. And then July, as we mentioned, only down 7%. So we're pleased with the the trends we're seeing, in the attendance performance.

Speaker 4

Okay. Great. And I think in the press release, you had mentioned that you're adding a number of operating days to the back half of the year relative to 2019. So maybe help us understand just maybe the magnitude of the operating day increase and and maybe are there incremental special events and and festivals that you are adding to the back half of the year?

Speaker 2

Yeah. So may most of the operating days are gonna be in the in the back half of of the year, and it it's really around, I think, some incremental days around some of our events, around Halloween, around Christmas, but also some other things that, you know, we learned a a good deal of last year, like some of our drive through experiences, for example. So we're gonna take advantage of of some of those opportunities and and drive some additional days, in in the quarter, obviously. And, you know, we're also excited about adding, the the the nighttime Halloween experience, Halloween, to SeaWorld Orlando and SeaWorld San Diego.

Speaker 4

Okay. Thank you.

Speaker 0

Our next question will come from Steven Wieczynski with Stifel. Please go ahead.

Speaker 5

Yes. Hey, guys. Good morning. So Mark, I want to ask about the margin opportunity moving forward. I mean, you just posted a I think it's about a 1,300 basis point improvement relative to the in the 2019.

How should we think about the gives and takes of margin acceleration or pressures moving forward? I mean 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?

Speaker 2

Yeah. Hey, Steve. We what I'll say is I think, you know, we have a tremendous focus on on cost and and and operating the business in in an efficient manner, and we're very committed to that. And we'll we'll continue to do that as 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 the work we've done on per caps has really shined through here here the last several quarters, especially this quarter. So we're gonna continue to do our to do our part to grow grow margin as much as we can. We're we're not obviously, we're gonna be very careful, obviously, to to, protect the guest experience and and look. Our goal is to have a good guest experience in our park. Having said that, we think the combination of revenue enhancements and cost efficiencies, you know, can do some good things for our margin, and you saw that here in the second quarter.

Speaker 5

So follow-up to on that, you know, from a a labor perspective, you know, in terms of what you guys are seeing today, is is the labor market, you know, intensifying? Is it kind of staying the same? Or, you know, is it is it getting better?

Speaker 2

Yeah. Hey, Steve. I I would say, look, labor, you know, like many companies have have talked about, labor labor continues to be a challenge. You know, having said that, we're we're working hard to, you know, control we can control and and attract people to come to come work here in our environment. We think we we have a fun environment working at working at a theme park.

And so we'll continue to do that, and we have a lot of focus on on, you know, doing just that

Speaker 5

Okay. Maybe if I can ask one more quick one. It's just, you know, obviously, you guys are now, you know, generating a a pretty significant amount of of free cash flow, you know, at this point. So can you just help us understand, you know, your current uses for, you know, cash at this point?

Speaker 2

Yeah. It's a good question. So, we're we're pleased with the cash flow generation in in the quarter. As you mentioned, it was a record free cash flow. So very, very pleased with that.

And we've, you know, we've been working through a list of items with with our board that we can deploy that cash. Some some quick hitting items around CapEx in our parks, some venue refreshments, some some upgrades in some some areas of the park, and then also some ROI type items on expenses, you know, where we can some utility savings, things that we can invest in and and will will drive expense improvement. So we've been, you know, deploying that list and continue to review that list. So those are kinda, you know, making investments in the business, if you will. And beyond beyond that, we also as you heard Elizabeth mention, you know, we did pay down some of the notes in July.

Beyond that, we're we're we're certainly open to m and a opportunities, hotels, you know, the things I mentioned in my prepared remarks. We we we certainly find those things intriguing and and, you know, should the right thing come along, I think we're in a position, you know, that to to be able to evaluate that and and see what might make sense for us. So those those are kind of investing in the business. You know, 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'll continue to do that. We'll be opportunistic, and and we'll we'll we'll make sure to deploy that in in a way that we believe is best for 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 a a number of opportunities ahead of us, I think, that are that are compelling uses of that cash.

Speaker 5

Okay, great. Thanks guys. Appreciate it.

Speaker 0

Our next question will come from James Hardiman with Wedbush Securities. Please go ahead.

Speaker 2

Hey, good morning

Speaker 6

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 be dollars of incremental inflation versus where we were in 2019 or incremental versus how you thought it would be heading into into 2021?

Speaker 2

Yeah. Hey, James. Look. We're focused on on on labor. I I'm not I'm not gonna provide a a number.

Obviously, you know, there is there is inflation in those numbers. But I think as as I said earlier, we're committed to the cost savings and and and efficiencies in our business. And our goal, obviously, is to when we have inflationary increases that are above kind of the norm and and and and 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 and that's what we're that's what we're attempting to do.

Speaker 6

Okay. Fair enough. And then as I think about and you you talked about in prepared remarks how significant of a drag group sales and international sales were. Can you maybe tease those two out to to the extent you feel comfortable, or at least maybe order of magnitude between those two? And and was it a and and, I guess, secondly, was it a similar drag in the month of July, which would suggest, you know, ex those numbers, you know, you had some some nice growth, in July?

And then I guess, lastly, just the pace of recovery of of those two buckets, the the international piece and the and the group sales piece. Thanks.

Speaker 2

Sure. So, you you know, in regards to July, it was a, you know, a similar a similar trend. We would have been up, 2% without, you know, kinda international and and group impacts in there. So it's a, you know, it's a good a good, you know, backdrop, if you will, that those as those, you know, hopefully, become tailwinds in the future. So, you know, we know we don't know when, but at some point, international attendance, will will come back.

And and we're also optimistic that, you know, that group events will will come back over time. So those are gonna be those are gonna be tailwinds for us. I think between our prepared remarks and what I just commented on about July, you know, you you can see that the business, you know, absent those things, is is growing or attendance is growing. And, those will just be tailwinds as we move forward, and and recover from those whenever they do recover.

Speaker 6

Is there a way to think about those versus 2019 levels? I would think that group is maybe pacing ahead of international, but but is there way to quantify that in any way?

Speaker 2

I think I think the way I think about it is, look, there's there's very little, as you would expect, international attendance, and that'll that'll, you know, while it's, you know, overall to our company about 10% of our attendance in 02/2019, you know, that gives you some some order of magnitude there. You know, groups yeah. Again, you know, school groups and and church groups and camps and stuff are certainly not traveling, and you've heard others talk about this dynamic as well. That'll return as well. I think between, like I said, in July we were down seven, we would have been up low single digits absent those things.

That gives you kind of some order of magnitude on that.

Speaker 0

Our next question will come from Brett Andress with KeyBanc Capital Markets. Please go ahead.

Speaker 7

Hey, good morning. So when you gave the illustrative targets, you know, your per cap assumption, I think, was 10% growth above 'nineteen. And, you know, here we are through July, you know, you're tracking, I think, it implies 20%, you know, above '19. So, I I guess, how has your thinking evolved, around those per cap targets? Right?

Is is the gap between that 1020% right now just macro factors like higher consumer demand that you expect to roll off? Or do you think you're doing anything specifically that would drive upside, you know, to that 10% increase you gave us in the in the targets?

Speaker 2

Yeah. Hey, Brett. Let me let me kinda unpack that a little bit. I'll I'll start with your your per cap question. Look.

Certainly, we we recognize we're we're operating in a in a strong demand environment. Having said that, we are doing a lot of things, much better than than we have before, and I think the the fruits of all the efforts that we've had over the last couple years are are really kinda shining through. I'll start with our our revenue management team, a group of people who who are looking at our pricing and products and and how we position those things, you know, on a on a regular basis. And and a lot of the work they're doing has benefited us in the per cap area. We're also, as I mentioned, you know, the the mix of the product in our park, whether it's the merchandise mix, upgrading some of our food and beverage menus, or or rebranding them or re re re redoing them has been 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 in park venues from ice cream parlor to a coffee shop to several new bar venues in in a number of our parks. So we are you know, those things are all benefiting us clearly in the per cap area. So that's just, you know, something we we feel good about going forward. Is it always gonna grow at 20% or something? I I I don't think so.

There would be some normalization, but are we gonna be able to get more than, you know, inflationary growth or or, you know, more than that? I I think so. Because keep in mind, our mobile app just rolled out, and and it you know, that is going to continue to expand, and it's not even in all our parks yet. That'll that'll help in park spending. And then we also have the CRM system, which still a little ways away, but when that does roll out, we think that's gonna allow us to be a lot more targeted to our guests, a lot more, you know, target events and ticket offers to them, that type of thing, again, which we think will be a benefit to to spending.

So those are also tailwinds, not to mention the international visitation that we know, at some point will come back. We don't know when, but when it does, we know those folks are generally higher, per cap spenders. So feel, you know, good about the per cap position. As far as your your your kind of a question as far as, you know, the the $6.90, I think you were alluding to the per cap assumptions in that. Obviously, we're we're well ahead of the, you know, the per cap assumption or illustration that we gave you in that 06/1990 illustration.

And so, certainly, our goal would be to do better than than than what what we laid out in an illustration. And and that illustration certainly was not guidance. It was not a goal. It it assumes we don't grow any attendance from 02/2019, and certainly our expectation is that we will grow 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, we're outperforming the per caps that we illustrated. And then as I mentioned, the other component of that, I've mentioned earlier was on the cost savings. We're committed to driving efficiencies in the business and achieving cost savings. That, I think we feel pretty good about the outlook of this business and we will, you know, probably come back at some point in the future with with how we're viewing that, you know, as we move through.

We wanna get through this year, obviously. So but, that gives you a little bit of flavor for where things stand.

Speaker 7

Got it. That's helpful. And then obviously a lot of delta fears out there, but maybe more specifically on Florida, which I think is a unique approach down there plus it's a destination market. I mean, have you seen any trend changes on the ground in Orlando in the most recent week, you know, or or days? And and I know you also have some, you know, booking visibility at Discovery Cove.

Just just curious if anything, you know, real time there.

Speaker 2

Hey, Brett. Look. Obviously, we know it's out there. The media has been talking about it. It's on people's minds.

You know, 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.

Speaker 5

Thank you.

Speaker 0

This concludes our question and answer session. I would like to turn the conference back over to Mark Swanson, CEO for any closing remarks.

Speaker 2

Thank you, Matt. On behalf of Elizabeth and the rest of the management team at SeaWorld Entertainment, I wanna thank you for joining us this morning. You know, 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. Thank you and we look forward to speaking with you next quarter.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.