SeaWorld Entertainment Inc (SEAS) Q3 2021 Earnings Call Transcript

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SeaWorld Entertainment Inc (SEAS)
Q3 2021 Earnings Call
Nov 9, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome the SeaWorld Parks & Entertainment Third Quarter 2021 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

Now I'd like to turn the call over to Mr. Matthew Stroud, Investor Relations. Please go ahead.

Matthew Stroud -- Investor Relations

Thank you, Nick, and good morning, everyone. Welcome to SeaWorld's third 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 and will be available on our website following the call.

Joining me this morning are Marc Swanson, Chief Executive Officer; and Elizabeth Gulacsy, 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?

Marc Swanson -- Chief Executive Officer

Thank you, Matthew. Good morning, everyone, and thank you for joining us. I'm 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 and another quarter of record adjusted EBITDA. Our pricing and product strategies along with the strong consumer demand environment continued 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 attendants, an unfavorable calendar shift and a record number of weather-impacted days for our parks during the third quarter. In fact, the 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 guests, attendance 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 increase our access to liquidity from revolving commitments.

We also resumed our share repurchase activities and opportunistically repurchased 1.53 million shares during the quarter. We repurchased an additional 457,000 shares, totaling $26.8 million, since the end of the quarter and 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 a record revenue for our Halloween events. Later this week, we will begin our popular Christmas events at our SeaWorld, Busch Gardens and Sesame 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 1.0 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 meaningful incremental revenue opportunities.

We continue to make good progress toward 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 costs, 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, 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, attractions, events and upgrades, including something new and meaningful in every one of our parks. This includes the Ice Breaker rollercoaster at SeaWorld Orlando; the Iron Gwazi rollercoaster at Busch Gardens Tampa Bay; the Pantheon rollercoaster at Busch Gardens Williamsburg; the Emperor rollercoaster at SeaWorld San Diego; the Big Bird's Tour Bus ride at Sesame Place Philadelphia; the Tidal Surge screaming swing at SeaWorld San Antonio; the Reef Plunge waterslide at Aquatica Orlando; the Rapids Racer and Wahoo Remix waterslides at Adventure Island Tampa; the Aquazoid Amped waterslide at Water Country USA; and the Riptide Race waterslide at Aquatica Texas.

In addition, we are particularly excited to open our newest park, Sesame Place San Diego in March of 2022. We look forward to bringing the education, fun and enchantment of Sesame Street to our guests 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 in 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, including 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 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?

Elizabeth Castro Gulacsy -- Chief Financial Officer and Treasurer

Thank you, Marc, 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 16th, 2020. I'll provide commentary today around our financial results, compared to 2019. We believe this comparison provides a more our meaningful insight on our performance and our operating trajectory. For those interested, we provide a comparison versus both 2019 and 2020 in our earnings release and will do so as well in our Form 10-Q.

During the quarter, we generated total revenue of $521.2 million, an increase of $47.5 million or 10%, when compared to the third quarter of 2019. The increase in revenue is primarily due to an increase in total revenue per capita of 23.7%, partially offset by a decline in attendance of 11%.

As Marc mentioned, when compared to the third quarter of 2019, attendances declined primarily due to reduced international and group attendance. Attendance was also impacted by an unfavorable calendar shift and unfavorable weather during the quarter. Including international and group guests, attendance declined by approximately 1%, compared to the third 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 total revenue per capita in the quarter of $72.13, compared to $58.31 in 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 a third quarter.

Admissions per capita increased by 24.4% to $41.06 and in-park per capita spending increased by 22.8% to $31.07 in the third quarter of 2021, compared to the third quarter of 2019. The increase in admission per capita primarily relates to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix, when compared to the third quarter of 2019.

In-park per capita spending improved primarily due to increased guest spending, an improved product mix, higher realized prices and fees, new or enhanced and expanded in-park offerings and a strong consumer demand environment during the quarter, compared to 2019.

We generated net income of $102.1 million, the 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 28.2%, when compared to the third quarter of 2019. The improvements 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, partially offset by an increase in operating expenses, which included certain non-recurring operating expenses, all together, offsetting the decline in attendance.

The decrease in selling, general and administrative expenses is primarily due to reduction in marketing related costs and the impact of cost savings and efficiency initiatives, which was partially offset by an increase in non-cash equity compensation. The increase in operating expenses is primarily due to non-recurring contractual liabilities and legal costs resulting from the temporary COVID-19 park closures, costs associated with incremental operating days and events added in 2021, an increase in non-cash equity compensation expenses, and the timing of certain maintenance projects. These increases were partially offset by net reductions and labor related in 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 $1.13 billion, 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%. Including 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 was a record of $185 million, an improvement of $71.3 million and adjusted EBITDA was a record of $509.3 million, 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 Marc mentions, we continue to be very encouraged with the trends we're seeing in our pass base. 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 of 2019 and is approximately 12% higher than the peak pass base we had in 2019.

We are also seeing -- still seeing a higher mix of premium passes in our pass base as our pass holders continue to realize the value and benefits of our higher tiered products. Additionally, we continue to see the impact of our pricing strategies 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 9.5% second-priority senior secured notes due in 2025. And in August we completed a refinancing of our debt by issuing $725 million of 5.25% senior notes due in 2029 and $1.2 billion in term loans.

We use the proceeds of these issuances along with the cash on our balance sheet to redeem the remaining $450 million of our 9.5% second-priority senior secured notes, and to repay our then existing two term B-5 loans. We also refinanced and increased our revolving credit facility to $385 million.

Also we opportunistically repurchased shares during the quarter buying approximately 1.53 million shares of common stock at a total cost of approximately $82.7 million, leaving approximately $154.9 million available for future repurchases under a previously authorized repurchase program.

As of September 30th, 2021, our total available liquidity was approximately $918.1 million, including $553.6 million of cash and cash equivalent 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 month period. Free cash flow 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 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 Marc, who will share some final thoughts. Marc?

Marc Swanson -- Chief Executive Officer

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 animal and have exceeded 39,500 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 increased value for stakeholders.

Now, let's take your questions.

Questions and Answers:

Operator

Thank you. We'll now begin the question-and-answer sessions. [Operator Instructions] First question comes from Steve Wieczynski, Stifel. Please go ahead.

Steve Wieczynski -- Stifel -- Analyst

Yes. 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. And I guess, the question here is, can you maybe help us understand what that attendance would've looked like in a more normalized weather and 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 and that means a lot of things to a lot of different people. So just want to understand a little bit more what October really looked like? Thanks.

Marc Swanson -- Chief Executive Officer

Yes. Hey Steve, It's Marc. I can take that question. So certainly we called out the calendar shift and the weather impacts, because they were meaningful, the weather was record weather impacted days. So we would've been up probably low to mid -- I think, 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 on attendance there up kind of mid single-digits probably and revenue would be better than that. So we were very pleased with our Halloween performance across a number of our park. And so the momentum we saw in October, we were certainly very pleased with.

Steve Wieczynski -- Stifel -- Analyst

And did you see any material change in attendance, whether that was late August or early September around Delta fears?

Marc Swanson -- Chief Executive Officer

Yes. Hey, Steve, so what I can kind of unpack our attendance. I mean, certainly we -- there's a lot of factors that impact our attendance as you know. What we saw was August was down more than July and then, September was better than August. And then obviously October was positive like I mentioned to you. So, we know it's on people's minds and it ebbs and flows as cases rise or go down.

So I'm sure there was a time for people 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, there's 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 increased in attendance.

Steve Wieczynski -- Stifel -- Analyst

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 buy back stock versus maybe going down the dividend path?

Marc Swanson -- Chief Executive Officer

Sure. I can take that question. So look, we -- as you've heard us talk about 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, 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 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.

Operator

[Operator Instructions] Our next question comes from Michael Swartz of SunTrust. Please go ahead.

Michael Swartz -- SunTrust -- Analyst

Hey, good morning. Maybe just a little more clarification, Marc, if you don't mind, on the calendar shift that you spoke about that impacted the third quarter. Was that just operating days shifting from the third quarter into the fourth quarter? And if so, that attendance figure 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?

Marc Swanson -- Chief Executive Officer

Let me kind of unpack what you asked there. So look, 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 operate on a day-to-date quarter. So we start the quarter on July 1, and we ended on September 30, regardless of what day or week it is. I know I think some of our competitors end on a Sunday all the time. So we tend to have more, I think, kind of calendar shift issues, if you will, that we would unpack.

As far as October, we're pleased with the attendance there. And we did add Howl-O-Scream in California and in Orlando. But even when you adjust for that, we were still positive on attendance for the month.

Michael Swartz -- SunTrust -- Analyst

Okay. Great. Thank you for that. And then maybe just with some of the international travel restrictions being relaxed, I believe, yesterday. Can you maybe give us any sense of how the international visitation business has looked? Are you seeing bookings come back since that's been announced?

Marc Swanson -- Chief Executive Officer

Yes, it's a good question. We're excited to have international opening again. As you've heard us mention, it's about 10% of our tenants on a given year. So that will be -- in 2019, it was at least that will hopefully be a tailwind for us. So the one part where we do get advanced bookings is Discovery Cove, and that's a park that's generally been pretty popular with international guests. And what I can tell you is the trend there that we've seen on bookings has gotten better as the announcements about the borders reopening and people being able to travel again. So I don't think it's all going to come back at once. It 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 things opened up.

Michael Swartz -- SunTrust -- Analyst

Okay, great. Thank you.

Operator

[Operator Instructions] This concludes our question-and-answer session. We'll now turn the call back over to Mr. Marc Swanson for closing remarks. Please go ahead.

Marc Swanson -- Chief Executive Officer

Thank you, Nick. On behalf of Elizabeth and the rest of the management team at SeaWorld Entertainment, I want to thank you for joining us this morning. As you heard today, we are confident in our long-term strategy, which we will 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.

Operator

[Operator Closing Remarks]

Duration: 31 minutes

Call participants:

Matthew Stroud -- Investor Relations

Marc Swanson -- Chief Executive Officer

Elizabeth Castro Gulacsy -- Chief Financial Officer and Treasurer

Steve Wieczynski -- Stifel -- Analyst

Michael Swartz -- SunTrust -- Analyst

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