SeaWorld(SEAS) - 2023 Q1 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section cautions that forward-looking statements are subject to inherent uncertainties and risks, potentially causing actual results to differ - The report contains forward-looking statements based on current expectations, beliefs, estimates, and projections, which are inherently uncertain. Actual results may vary materially[9] - Key risk factors include declines in consumer spending, adverse weather, labor shortages, inflation, regulatory changes, activist pressure, incidents/adverse publicity, technology failures, cybersecurity risks, and inability to compete effectively[10][11][15] Part I. Financial Information This part covers the company's unaudited condensed consolidated financial statements, management's discussion, market risk, and controls Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the company's unaudited condensed consolidated financial statements and explanatory notes Unaudited Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity Balance Sheets Summary | Balance Sheet Item (In thousands) | March 31, 2023 | December 31, 2022 | Change (vs. Dec 31, 2022) | | :-------------------------------- | :------------- | :---------------- | :------------------------ | | Total Assets | $2,353,880 | $2,325,787 | +$28,093 | | Total Liabilities | $2,808,533 | $2,763,451 | +$45,082 | | Total Stockholders' Deficit | $(454,653) | $(437,664) | -$(16,989) | | Cash and cash equivalents | $54,761 | $79,196 | -$(24,435) | | Deferred revenue (current) | $212,799 | $169,535 | +$43,264 | - The company's total stockholders' deficit increased from $(437.66) million at December 31, 2022, to $(454.65) million at March 31, 2023, indicating a further deterioration in equity[18] Unaudited Condensed Consolidated Statements of Operations This section presents the company's unaudited condensed consolidated statements of operations, detailing revenues, expenses, and net loss Statements of Operations Summary | Income Statement Item (In thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Total revenues | $293,346 | $270,693 | +$22,653 | +8.4% | | Operating income | $11,772 | $10,027 | +$1,745 | +17.4% | | Interest expense | $36,401 | $25,370 | +$11,031 | +43.5% | | Net loss | $(16,467) | $(8,987) | -$(7,480) | -83.2% | | Net loss per share, basic | $(0.26) | $(0.12) | -$(0.14) | -116.7% | - Despite an 8.4% increase in total revenues and a 17.4% increase in operating income, the company's net loss significantly widened by 83.2% year-over-year, primarily due to a substantial 43.5% increase in interest expense[20] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Deficit This section presents the company's unaudited condensed consolidated statements of changes in stockholders' deficit, detailing equity movements Statements of Changes in Stockholders' Deficit Summary | Stockholders' Deficit Item (In thousands, except shares) | Balance at Dec 31, 2022 | Equity-based Compensation | Shares Withheld for Tax | Exercise of Stock Options | Net Loss | Balance at Mar 31, 2023 | | :----------------------------------------------------- | :---------------------- | :------------------------ | :---------------------- | :------------------------ | :------- | :---------------------- | | Common Stock (shares) | 96,287,771 | — | (86,914) | 22,793 | — | 96,496,784 | | Common Stock ($) | $963 | — | $(1) | — | — | $965 | | Additional Paid-In Capital | $710,151 | $4,482 | $(5,568) | $565 | — | $709,627 | | Retained Earnings | $175,903 | — | — | — | $(16,467) | $159,436 | | Treasury Stock, at Cost | $(1,324,681) | — | — | — | — | $(1,324,681) | | Total Stockholders' Deficit | $(437,664) | $4,482 | $(5,569) | $565 | $(16,467) | $(454,653) | - The total stockholders' deficit increased by $16.989 million from December 31, 2022, to March 31, 2023, primarily driven by the net loss of $16.467 million during the quarter and shares withheld for tax withholdings[23] Unaudited Condensed Consolidated Statements of Cash Flows This section presents the company's unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Statements of Cash Flows Summary | Cash Flow Item (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :---------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net cash provided by operating activities | $50,296 | $70,794 | -$(20,498) | | Net cash used in investing activities | $(69,758) | $(35,110) | -$(34,648) | | Net cash used in financing activities | $(8,097) | $(99,558) | +$91,461 | | Net decrease in cash and cash equivalents | $(27,559) | $(63,874) | +$36,315 | | Cash and Cash Equivalents, End of period | $54,761 | $380,612 | -$(325,851) | - Net cash provided by operating activities decreased by $20.5 million YoY, while net cash used in investing activities significantly increased by $34.6 million, primarily due to higher capital expenditures[26] - Cash and cash equivalents at the end of the period decreased substantially from $380.6 million in Q1 2022 to $54.8 million in Q1 2023[26] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies and specific line items Note 1. Description of the Business and Basis of Presentation This note describes SeaWorld Entertainment's business operations, seasonal nature, revenue recognition policies, and the Middle East Project - SeaWorld Entertainment, Inc. operates twelve theme parks across the United States, including major brands like SeaWorld, Busch Gardens, Aquatica, Discovery Cove, and Sesame Place[27] - The company typically generates its highest revenues in the second and third quarters and incurs a net loss in the first quarter due to the seasonal nature of its operations, with some parks historically open only part of the year[29] - Revenue from annual/season passes is deferred and recognized over the pass term based on estimated redemption rates, which are adjusted periodically based on historical and forecasted attendance trends[36] - The Middle East Project, related to SeaWorld Abu Dhabi, is on track to open in May 2023, with associated revenue and expenses to be recognized upon substantial completion of services[41][42] Note 2. Recent Accounting Pronouncements This note discusses recent accounting pronouncements and their expected impact on the company's financial statements - No recent accounting pronouncements are expected to have a material impact on the Company's financial statements or disclosures[45] Note 3. Loss Per Share This note details the calculation of basic and diluted loss per share, including the impact of anti-dilutive shares Loss Per Share Data | Loss Per Share (In thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss | $(16,467) | $(8,987) | | Basic Loss Per Share | $(0.26) | $(0.12) | | Diluted Loss Per Share | $(0.26) | $(0.12) | | Weighted Average Common Shares Outstanding Basic | 63,978 | 75,624 | - Approximately 1.2 million and 1.5 million potentially dilutive shares were excluded from diluted EPS calculations for Q1 2023 and Q1 2022, respectively, because their effect would have been anti-dilutive due to the company's net loss[47] Note 4. Income Taxes This note explains the company's income tax benefit and effective tax rate, including factors influencing the rate Income Taxes Data | Income Tax Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Benefit from income taxes | $(8,208) | $(6,344) | | Effective tax rate | 33.3% | 41.4% | - The effective tax rate for Q1 2023 was 33.3%, primarily influenced by tax benefits related to equity-based compensation, differing from the 21.0% statutory federal income tax rate[48] - The company does not anticipate a material impact from the 15% corporate alternative minimum tax or the 1% excise tax on stock repurchases introduced by the Inflation Reduction Act of 2022[51] Note 5. Other Accrued Liabilities This note provides a breakdown of other accrued liabilities, including accrued interest, taxes, and self-insurance reserves Other Accrued Liabilities Data | Other Accrued Liabilities (In thousands) | March 31, 2023 | December 31, 2022 | Change (vs. Dec 31, 2022) | | :--------------------------------------- | :------------- | :---------------- | :------------------------ | | Accrued interest | $13,347 | $18,483 | -$(5,136) | | Accrued taxes | $7,134 | $3,284 | +$3,850 | | Self-insurance reserve | $8,623 | $8,608 | +$15 | | Other | $16,731 | $16,539 | +$192 | | Total other accrued liabilities | $45,835 | $46,914 | -$(1,079) | - Accrued interest decreased by $5.1 million, primarily related to bi-annual interest payments on senior secured notes and senior notes[52][53] Note 6. Long-Term Debt This note details the company's long-term debt structure, including Term B Loans, Senior Notes, and compliance with covenants Long-Term Debt Summary | Long-Term Debt (In thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Term B Loans | $1,182,000 | $1,185,000 | | Senior Notes due 2029 (5.25%) | $725,000 | $725,000 | | First-Priority Senior Secured Notes due 2025 (8.75%) | $227,500 | $227,500 | | Total long-term debt | $2,134,500 | $2,137,500 | | Total long-term debt, net | $2,097,601 | $2,099,059 | - The company's long-term debt primarily consists of Term B Loans ($1.182 billion), Senior Notes ($725 million), and First-Priority Senior Secured Notes ($227.5 million)[54] - As of March 31, 2023, the company was in compliance with all covenants contained in its debt agreements, and the net total leverage ratio was 2.71 to 1.00, well below the permitted maximum of 4.25 to 1.00 for restricted payments[71] - Cash paid for interest increased from $27.6 million in Q1 2022 to $40.0 million in Q1 2023[72] Note 7. Fair Value Measurements This note describes the fair value measurements of the company's financial instruments, categorized by valuation hierarchy - The company's First-Priority Senior Secured Notes and Senior Notes are classified as Level 1 in the fair value hierarchy, meaning their fair value is determined using quoted prices for identical instruments in active markets[75] - Term B Loans are classified as Level 2, with their fair value approximating carrying value due to variable interest rates and frequent resets[75] Note 8. Commitments and Contingencies This note outlines the company's legal proceedings and license commitments, including disputes and ongoing agreements Legal Proceedings This section details ongoing legal disputes, including arbitration with Sesame Workshop and a class action lawsuit - The company is awaiting a decision from an arbitration panel regarding a dispute with Sesame Workshop over an additional royalty payment for 2021[79] - A lawsuit from former employees disputes the vesting of approximately 300,000 performance-vesting restricted shares, with oral arguments held in March 2023[81] - A purported class action lawsuit alleges racial discrimination, with the company having filed motions to dismiss and strike class certification, believing the lawsuit is without merit[82] License Commitments This section outlines the company's significant license agreements, including those with Sesame Workshop and Anheuser-Busch - The company's License Agreement with Sesame Workshop has an estimated remaining liability of up to $25.0 million over its term, which extends through December 31, 2031, with potential extensions[86] - SeaWorld holds a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark from Anheuser-Busch, Incorporated[87] Note 9. Equity-Based Compensation This note details equity compensation expense, available shares for issuance, and the structure of long-term incentive grants Equity Compensation Expense Summary | Equity Compensation Expense (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Operating expenses | $534 | $1,965 | -$(1,431) | -72.8% | | Selling, general and administrative expenses | $3,948 | $5,017 | -$(1,069) | -21.3% | | Total equity compensation expense | $4,482 | $6,982 | -$(2,500) | -35.8% | - Total equity compensation expense decreased by 35.8% year-over-year to $4.5 million in Q1 2023[89] - Approximately 7.3 million shares are available for future issuance under the Omnibus Incentive Plan as of March 31, 2023[90] - The 2023 Long-Term Incentive Grant will include nonqualified stock options (vesting over three years) and performance-vesting restricted units (vesting over a three-year performance period based on goal achievement)[92][93][94] Note 10. Stockholders' Deficit This note provides details on common stock, treasury stock, and the company's share repurchase program - As of March 31, 2023, the company had 96,496,784 shares of common stock issued, including 32,376,539 shares held as treasury stock[98] - A new $250.0 million share repurchase program, approved in August 2022, had approximately $56.4 million remaining as of March 31, 2023[100] - Subsequent to March 31, 2023, the company repurchased an additional 235,000 shares for approximately $13.9 million, leaving $42.4 million available under the program as of May 4, 2023[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, capital resources, and non-GAAP measures Introduction This introduction sets the context for management's discussion and analysis, highlighting forward-looking statements and required disclosures - The discussion contains forward-looking statements and should be read with the unaudited condensed consolidated financial statements and the Annual Report on Form 10-K[103][104] Business Overview This section provides an overview of SeaWorld Entertainment's theme park operations, zoological collection, and guest experience focus - SeaWorld Entertainment is a leading theme park and entertainment company with a diversified portfolio of 12 differentiated theme parks across the U.S[105] - The parks feature a one-of-a-kind zoological collection, thrill and family-friendly rides, educational presentations, and shows, aiming to inspire guests to protect animals and wild wonders[105] Recent Developments This section discusses recent operational challenges, including wage inflation, staffing shortages, and broader inflationary pressures - The Board of Directors is actively involved in overseeing key operating activities and decisions[106] - The company faces challenges from wage inflationary pressures and staffing shortages, impacting operations, guest experience, and leading to temporary closures of outlets or rides[107] - Significant inflationary pressures on labor, goods, freight, services, and capital projects, along with supply chain disruptions, are impacting the business, prompting a focus on cost reduction and pricing initiatives[107] Principal Factors and Trends Affecting Our Results of Operations This section outlines key factors and trends influencing the company's revenues, costs, expenses, and operational seasonality Revenues This section explains the primary drivers of revenue, including attendance, per capita spending, ticket pricing, and product mix - Revenues are primarily driven by attendance and per capita spending, which includes admission per capita and in-park per capita spending[110] - Admission per capita is influenced by ticket pricing, admissions product mix (e.g., single-day vs. passes), and park attendance mix, with higher pass visitation rates generally lowering admission per capita[111] - In-park per capita spending is driven by pricing, product offerings, guest mix (domestic/international vs. local/pass holders), and guest penetration levels[111] Costs and Expenses This section details key operating costs, factors influencing them, and the company's cost reduction initiatives - Key operating costs include employee wages and benefits, advertising, maintenance, animal care, utilities, property taxes, and insurance[114] - Costs are influenced by fixed operating costs, competitive wage pressures, commodity prices, construction costs, park operating hours, and inflationary pressures[114] - The company is actively pursuing cost reduction, operating margin improvement, and labor structure streamlining initiatives, including technology initiatives[115] Seasonality This section describes the seasonal nature of the theme park industry and its impact on attendance and revenues - The theme park industry is seasonal, with the company historically generating two-thirds of its attendance and revenues in the second and third quarters, typically incurring a net loss in the first quarter[117] - The timing of Easter and spring break holidays can shift revenues between Q1 and Q2, while holiday breaks around Christmas and New Year can affect Q1 and Q4[117] - Increased operating days, such as with Sesame Place San Diego, are expected to drive incremental attendance and revenue and may change future seasonality impacts[118] Results of Operations This section provides a detailed comparison of the company's financial performance for the three months ended March 31, 2023, versus 2022 Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022 This section provides a detailed comparison of financial performance metrics for Q1 2023 versus Q1 2022 Financial Performance Comparison (Q1 2023 vs. Q1 2022) | Financial Metric (In thousands, except per capita) | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :----------------------------------------------- | :----------- | :----------- | :----------- | :----------- | | Total revenues | $293,346 | $270,693 | +$22,653 | +8.4% | | Admissions revenue | $163,863 | $150,862 | +$13,001 | +8.6% | | Food, merchandise and other revenue | $129,483 | $119,831 | +$9,652 | +8.1% | | Operating expenses | $172,674 | $152,925 | +$19,749 | +12.9% | | Selling, general and administrative expenses | $48,281 | $46,059 | +$2,222 | +4.8% | | Interest expense | $36,401 | $25,370 | +$11,031 | +43.5% | | Net Loss | $(16,467) | $(8,987) | -$(7,480) | -83.2% | | Attendance (in thousands) | 3,378 | 3,403 | (25) | (0.7%) | | Total revenue per capita | $86.84 | $79.54 | +$7.30 | +9.2% | | Admission per capita | $48.51 | $44.33 | +$4.18 | +9.4% | | In-park per capita spending | $38.33 | $35.21 | +$3.12 | +8.9% | - Admissions revenue increased by 8.6% due to higher admissions per capita (+9.4%), despite a 0.7% decrease in attendance, primarily caused by adverse weather in California and timing of new ride openings[122] - Operating expenses increased by 12.9% due to higher costs from international services agreements, increased labor-related costs, and legal costs (including $3.5 million related to COVID-19 park closures)[125] - Interest expense rose significantly by 43.5% to $36.4 million, primarily due to increased interest rates on variable rate debt[128] Liquidity and Capital Resources This section discusses the company's liquidity position, working capital, cash flow activities, capital expenditures, and debt compliance - The company typically operates with a working capital ratio of less than 1 due to significant deferred revenue and high turnover of in-park products[130] - Net cash provided by operating activities decreased by $20.5 million to $50.3 million in Q1 2023, primarily due to increased interest payments[135] - Capital expenditures significantly increased to $69.8 million in Q1 2023 (from $35.1 million in Q1 2022), largely for future attractions[136][137] - As of March 31, 2023, the company had $371.6 million available under its $390.0 million Revolving Credit Facility and was in compliance with all debt covenants[143][145] Adjusted EBITDA This section presents the company's Adjusted EBITDA and Covenant Adjusted EBITDA, non-GAAP measures used for performance and covenant compliance Adjusted EBITDA Reconciliation | Non-GAAP Financial Measure (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Last Twelve Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------------- | | Net (loss) income | $(16,467) | $(8,987) | $283,710 | | Adjusted EBITDA | $72,412 | $65,940 | $734,717 | | Covenant Adjusted EBITDA | N/A | N/A | $767,359 | - Adjusted EBITDA increased by 9.8% to $72.4 million in Q1 2023 compared to $65.9 million in Q1 2022[152] - Covenant Adjusted EBITDA for the last twelve months ended March 31, 2023, was $767.4 million, which is used for compliance with certain financial covenants in debt agreements[152] Contractual Obligations This section notes that there were no material changes to contractual obligations compared to the Annual Report on Form 10-K - No material changes to contractual obligations were reported as of March 31, 2023, compared to the Annual Report on Form 10-K[154] Critical Accounting Policies and Estimates This section highlights significant accounting estimates and assumptions, noting no material changes from the Annual Report on Form 10-K - Significant estimates and assumptions are made for long-lived assets, income taxes, self-insurance, and revenue recognition[155] - No material changes to critical accounting policies were reported compared to the Annual Report on Form 10-K[155] Off-Balance Sheet Arrangements This section confirms that no material off-balance sheet arrangements were reported as of March 31, 2023 - No material off-balance sheet arrangements were reported as of March 31, 2023[156] Recently Issued Financial Accounting Standards This section refers to Note 2 for details on recently issued financial accounting standards, indicating no material impact - Refer to Note 2 for details on recently issued financial accounting standards, which indicated no material impact[157] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including inflation and interest rate fluctuations, and their potential financial impact Inflation This section discusses the impact of inflation on the company's operations and various cost components - Inflation significantly affects operations, impacting costs of food, merchandise, fuel, construction, repairs, maintenance, labor, freight, utilities, and insurance[158] Interest Rate Risk This section details the company's exposure to interest rate fluctuations and its strategies for managing this risk - The company is exposed to market risks from fluctuations in interest rates, with approximately $1.2 billion of outstanding long-term debt being variable-rate as of March 31, 2023[160] - A hypothetical 100 basis point increase in LIBOR would increase annual interest expense by approximately $11.8 million (assuming no revolving credit borrowings)[160] - The company currently manages interest rate risk by managing the amount, sources, and duration of its debt funding, having no interest rate swap agreements outstanding as of March 31, 2023[160] Item 4. Controls and Procedures This section details the effectiveness of disclosure controls and procedures, noting a material weakness in internal control over financial reporting and ongoing remediation Evaluation of Disclosure Controls and Procedures This section presents management's conclusion on the effectiveness of disclosure controls and procedures, including any identified material weaknesses - Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to a material weakness in internal control over financial reporting[163] - Despite the control deficiency, management believes the consolidated financial statements fairly present the company's financial position, results of operations, and cash flows[164] Changes in Internal Control over Financial Reporting This section reports on any changes in internal control over financial reporting during the quarter - No changes in internal control over financial reporting occurred during Q1 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting, other than those disclosed in the status update[165] Status Update This section provides an update on the previously disclosed material weakness and ongoing remediation efforts - The material weakness stems from a lack of sufficient policies and procedures regarding the frequency, manner, and extent of Board members' engagement with management[166] - Remediation efforts include updating policies on Board/management interactions, enhancing fraud risk assessment, naming a lead director, implementing regular sessions, increasing testing of controls, and providing training[167] - The material weakness will not be considered remediated until these efforts have operated for a sufficient period and management concludes the weakness is resolved[167] Part II. Other Information This part includes legal proceedings, risk factors, equity security sales, defaults, and exhibits Item 1. Legal Proceedings This section refers to Note 9–Commitments and Contingencies for details on legal proceedings - Refer to Note 9–Commitments and Contingencies for details on legal proceedings[169] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K were reported, except for factual updates provided elsewhere in this Quarterly Report - No material changes to risk factors were reported from the Annual Report on Form 10-K, other than factual updates within this report[170] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered sales of equity securities and the company's share repurchase program activities Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (In millions) | | :----- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------------------------------------------------- | | Jan 2023 | — | — | $56.4 | | Feb 2023 | — | — | $56.4 | | Mar 2023 | 86,914 | $64.08 | $56.4 | | Total Q1 2023 | 86,914 | N/A | $56.4 | - The company repurchased 86,914 shares in March 2023 at an average price of $64.08 to satisfy tax withholding obligations on equity-based compensation[171] - Approximately $56.4 million remained available under the share repurchase program as of March 31, 2023, with $13.9 million in additional repurchases made subsequent to quarter-end, leaving $42.4 million available under the program as of May 4, 2023[171][172][175] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[173] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[174] Item 5. Other Information This item is not applicable to the company - This item is not applicable to the company[175] Item 6. Exhibits This section lists all exhibits filed or furnished as part of the report, including employment letters, stock ownership guidelines, certifications, and XBRL documents - The report includes various exhibits such as employment letters, stock ownership guidelines, certifications (CEO, CFO), and XBRL instance documents[178] Signatures This section contains the official signatures of the interim Chief Financial Officer and Chief Accounting Officer - The report was signed by James W. Forrester, Jr., Interim Chief Financial Officer and Treasurer, and Shekufeh Shirazi Boyle, Chief Accounting Officer, on May 10, 2023[181]