SeaWorld Entertainment, Inc. Reports First Quarter 2017 Results
SeaWorld Entertainment, Inc. (NYSE: SEAS), a leading theme park and entertainment company that owns and operates twelve theme parks, today reported its financial results for the first quarter of 2017.
- Total revenues were $186.4 million, compared to $220.2 million in the first quarter of 2016, primarily due to a shift in the timing of the Easter holiday into the second quarter of 2017 which also impacted the timing of spring break for a number of schools.
- Year-to-date attendance through the end of April is essentially flat over the prior year period.
- Exciting lineup of new attractions coming online in the second quarter.
- Season pass sales revenues are up nearly 6% through the end of April compared to the same period of 2016.
- The company remains on pace to achieve its cost optimization program net cost savings targets for the year.
- For the full year of 2017, the company expects Adjusted EBITDA in the range of $330 million to $360 million.
“Given the improving attendance trends we saw in April, and the incredibly robust lineup of new attractions we are launching in the coming weeks, we are well-positioned going into our seasonally important second and third quarters,” said Joel Manby, President and Chief Executive Officer of SeaWorld Entertainment, Inc. “Our season pass sales revenues for 2017 are up nearly 6%; the cost optimization program we initiated in the fourth quarter of 2016 continues to have a positive impact on results; and the successful renewal and increased capacity of our revolving credit facility and refinancing of our existing term debt in late March of 2017 enhances our financial flexibility. Our strategy and progress received a strong vote of confidence with the acquisition by Zhonghong Zhuoye Group of Blackstone’s approximately 21% stake in the company at a significant premium to our current market price per share. Additionally, the advisory and support agreements we entered into in late March of 2017 with Zhonghong Holding give us the opportunity to carefully evaluate new strategic growth opportunities in China, Taiwan, Hong Kong and Macau.”
“Our Board and management are intently focused on increasing value for our shareholders. Looking ahead, our revenue management and cost optimization initiatives, as well as one of the strongest lineups of new attractions we’ve ever offered, give us confidence that we will achieve improved performance in all elements of our five-point plan,” Manby continued. “We expect to drive attendance through the continued introduction of fun and meaningful experiences for our guests, and will work to improve ticket yields through increased use of new strategic and tactical pricing initiatives. We’re very excited about 2017, and look forward to reporting our progress throughout the year.”
First Quarter 2017 Results
Results for the first quarter of 2017 were largely impacted by a shift in the timing of spring break holidays associated with Easter moving into the second quarter of 2017. During the first quarter of 2017, the company generated total revenues of $186.4 million, a decrease of $33.9 million, or 15%, compared to the first quarter of 2016. The company generated a net loss of $61.1 million, or a loss of $0.72 per diluted share compared to a net loss of $84.0 million, or a loss of $1.00 per diluted share, in the first quarter of 2016.
Adjusted EBITDA was a loss of $30.4 million in the first quarter of 2017 compared to an Adjusted EBITDA loss of $5.9 million in the first quarter of 2016. Net cash provided by operating activities was $5.7 million and $32.2 million in the first three months of 2017 and 2016, respectively.
Attendance for the first quarter of 2017 declined by approximately 491,000 guests, or 14.9%, compared to the first quarter of 2016, primarily due to a shift in the timing of the Easter holiday into the second quarter of 2017, which also impacted the timing of spring break for a number of schools in the company’s key source markets. Attendance was also impacted, to a lesser extent, by a decline at the company’s SeaWorld San Diego park where construction of the new Orca Encounter commenced in January for a planned opening this summer. The company believes the decline in attendance during this transition results largely from a lack of new content during the interim period. Latin America attendance for the first quarter of 2017 declined by approximately 24,000 guests compared to the first quarter of 2016. On a year-to-date basis through the end of April, attendance was essentially flat over the prior year period and season pass sales revenues were up nearly 6% compared to the same period of 2016.
Total revenue per capita (total revenue divided by attendance) decreased by 0.6% to $66.41 in the first quarter of 2017 compared to $66.80 in the prior year first quarter, primarily due to a decline in admission per capita (admissions revenue divided by attendance) partially offset by an increase in in-park per capita spending (food, merchandise and other revenue divided by attendance). Admission per capita decreased by 1.2% to $41.01 in the first quarter of 2017 from $41.53 in the prior year first quarter, primarily due to the unfavorable timing of Easter which caused some of the company’s international and domestic attendance to shift from the first quarter to the second quarter of 2017. Admission per capita also declined due to an unfavorable ticket mix driven by increased utilization of season pass products and associated free promotional ticket offerings when compared to the first quarter of 2016. In-park per capita spending increased slightly by 0.5% to $25.40 in the first quarter of 2017, from $25.27 in the prior year first quarter.
Operating expenses for the first quarter of 2017 decreased $23.0 million, or approximately 13%, to $157.3 million as compared to $180.3 million in the first quarter of 2016. The decrease primarily relates to a decline in equity compensation expense and a decrease in asset write-offs when compared to the first quarter of 2016. The first quarter of 2016 included incremental equity compensation expense of $9.0 million associated with certain performance vesting restricted shares which vested on April 1, 2016 and $6.4 million in asset write-offs associated with the canceled Blue World Project. Operating expenses also decreased due to cost savings initiatives which included a reduction in headcount in December 2016 along with a decrease in direct labor costs driven by the decline in volume for the quarter. Selling, general and administrative expenses for the first quarter of 2017 decreased $14.9 million, or approximately 22%, to $52.4 million as compared to $67.4 million in the first quarter of 2016. The decrease primarily relates to a decline in equity compensation expense which was partially offset by an increase in marketing costs due to the timing of advertising promotions versus the prior year period. The first quarter of 2016 included incremental equity compensation expense of $18.5 million associated with certain performance vesting restricted shares which vested on April 1, 2016.
The company remains on pace to achieve its targets for its previously announced cost optimization program which is expected to result in $40.0 million in net savings by the end of 2018.
Debt Refinancing Transaction
On March 31, 2017, the company entered into a refinancing amendment, Amendment No. 8 (the “Amendment”), to its existing senior secured credit facilities. In connection with the Amendment, the company borrowed $998.3 million of additional term loans (the “Term B-5 Loans”) of which the proceeds, along with cash on hand, were used to refinance the entire amount of the existing Term B-3 loans with a principal amount of $244.7 million, and a portion of the outstanding principal of the Term B-2 loans, with a principal amount of $753.6 million, and pay other fees, costs and expenses in connection with the Amendment and related transactions. Additionally, pursuant to the Amendment, the company terminated the existing revolving credit commitments and replaced them with a new tranche with an aggregate commitment amount of $210.0 million. As a result of the Amendment, the company recorded $8.0 million as a loss on early extinguishment of debt and write-off of discounts and debt issuance costs during the first quarter of 2017. This refinancing extended the company’s debt maturities with only a modest additional spread-related interest expense of approximately $5.0 million per year.
On March 24, 2017, the company announced that an affiliate of Zhonghong Zhuoye Group Co., Ltd. (“ZHG”) would acquire approximately 21% of the outstanding shares of common stock of the company (the “Sale”) from affiliates of The Blackstone Group L.P. (“Seller”), pursuant to a Stock Purchase Agreement between ZHG and Seller for $23.00 per share. The Sale closed on May 8, 2017.
Also on March 24, 2017, the company entered into a Park Exclusivity and Concept Design Agreement (the “ECDA”) and a Center Concept & Preliminary Design Support Agreement (the “CDSA”) with Zhonghong Holding, Co. Ltd. (“Zhonghong Holding“), an affiliate of ZHG Group, providing design, support and advisory services for various potential projects and granting exclusive rights in China, Taiwan, Hong Kong and Macau (the “Territory”). Under the terms of the ECDA, the company will work with Zhonghong Holding to create and produce concept designs and development analysis for theme parks, water parks and interactive parks in the Territory. Under the terms of the CDSA, the company will provide guidance, support, input, and expertise relating to the initial strategic planning, concept and preliminary design of Zhonghong Holding’s family entertainment and other similar centers.
The following guidance is based on current management expectations. All financial guidance amounts are estimates subject to change, including as a result of matters discussed under the “Forward-Looking Statements” caption below and the company undertakes no obligation to update its guidance. For the full year of 2017, the company expects Adjusted EBITDA in the range of $330 million to $360 million.
The financial statement tables that accompany this press release include a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the applicable most comparable GAAP financial measure for the three months ended March 31, 2017 and 2016. However, the company has not reconciled the forward-looking Adjusted EBITDA guidance range included in this press release to the most directly comparable GAAP financial measure because this cannot be done without unreasonable effort due to the seasonal nature of the company’s business and the high variability, complexity, and low visibility with respect to amounts for impairments and disposition of assets, income taxes and other non-cash expenses and adjustment items which are excluded from the calculation of Adjusted EBITDA. For the same reasons, the company is unable to address the probable significance of the unavailable information, which could have a potentially unpredictable, and potentially significant, impact on its future GAAP financial results.
The company will hold a conference call today, Tuesday, May 9, 2017 at 9 a.m. Eastern Time to discuss its first quarter 2017 financial results. The conference call will be broadcast live on the Internet and the release and conference call can be accessed via the company’s website at www.seaworldentertainment.com by clicking on the “Investor Relations” link located on the upper right corner of that page. For those unable to participate in the live call, a replay of the webcast will be available after 12 p.m. Eastern Time May 9, 2017 via the “Investor Relations” section of www.seaworldentertainment.com. A replay of the call can also be accessed telephonically from 12 p.m. Eastern Time on May 9, 2017 through 11:59 p.m. Eastern Time on May 23, 2017 by dialing (800) 585-8367 from anywhere in the U.S. or (416) 621-4642 from international locations, and entering conference code 4788832.
Statement Regarding Non-GAAP Financial Measures
This earnings release and accompanying financial statement tables include Adjusted EBITDA and Free Cash Flow, which are supplemental non-GAAP financial measures. Adjusted EBITDA and Free Cash Flow are not recognized terms under GAAP, should not be considered in isolation or as a substitute for a measure of financial performance or liquidity prepared in accordance with GAAP and are not indicative of net income or loss or net cash provided by operating activities as determined under GAAP. Adjusted EBITDA, Free Cash Flow and other non-GAAP financial measures have limitations that should be considered before using these measures to evaluate a company’s financial performance or liquidity. Adjusted EBITDA and Free Cash Flow, as presented, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.
Management believes the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. Management uses Adjusted EBITDA in connection with certain components of its executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA-related measures in the company’s industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. The presentation of Adjusted EBITDA also provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the company’s Senior Secured Credit Facilities. Adjusted EBITDA is a material component of these covenants.
The financial statement tables that accompany this press release include a reconciliation of historical non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures.