Earnings Transcript for SEAS - Q4 Fiscal Year 2023

Operator: Good day and welcome to the United Parks & Resorts Q4 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matthew Stroud with Investor Relations. Please go ahead.

Matthew Stroud: Thank you and good morning everyone. Welcome to United Parks & Resorts' fourth quarter and fiscal 2023 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.unitedparksinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call. Also, we have posted a slide presentation on our investor website along with our earnings press release that we will discuss during our prepared remarks. Joining me this morning are Marc Swanson, Chief Executive Officer; and Jim Forrester, Interim Chief Financial Officer and Treasurer. This morning, we will review our fourth quarter and fiscal 2023 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'd like to turn the call over to our Chief Executive Officer, Marc Swanson. Marc?

Marc Swanson: Thank you, Matthew. Good morning everyone and thank you for joining us. I want to welcome you to our first quarterly earnings report under our new company name, United Parks & Resorts Inc. We believe this name change better reflects what we have been and will continue to be a diverse collection of park brands and experiences. The name change affects only the name of the parent company, SeaWorld Entertainment, Inc. Our award-winning portfolio of parks

James Forrester: Thank you, Marc. Good morning, and thank you all for your interest in our company. It's good to be able to join you to report out our quarterly performance. During the fourth quarter, we generated total revenue of $389.0 million, a decrease of $1.6 million or 0.4% when compared to the fourth quarter of 2022. The decrease in total revenue was primarily a result of decreases in admission per capita, partially offset by increases in attendance and in-park per capita spending Attendance increased approximately 23,000 guests when compared to the fourth quarter of 2022, primarily due to an increase in demand, partly from the company's Halloween and Christmas events, partially offset by the impact of adverse weather during peak visitation periods, particularly across our Florida markets and the impact of a calendar shift in the quarter. Total revenue per capita in the quarter decreased slightly to $78.42 compared to $79.10 in the fourth quarter of 2022. Admission per capita decreased 2.6% to $44.46 while in-park per capita spending increased by 1.5% to a record $33.96 in the fourth quarter of 2023 compared to the fourth quarter of 2022. Admission per capita decreased primarily due to the impact of the admissions product mix when compared to the fourth quarter of 2022. In-park per capita spending improved due to pricing initiatives. Operating expenses increased $8.3 million or 4.7% when compared to the fourth quarter of 2022. The increase in operating expenses is primarily due to non-cash expenses related to asset write-offs and costs related to certain rides and equipment, which were moved from service. Selling, general, and administrative expenses increased $0.3 million or 0.7% compared to the fourth quarter of 2022. We generated net income of $40.1 million for the fourth quarter compared to net income of $49.0 million in the fourth quarter of 2022. The decrease in net income was primarily a result of the impact of higher operating expenses. We generated adjusted EBITDA of $150.4 million, a decrease of $3.2 million when compared to the fourth quarter of 2022. Adjusted EBITDA was negatively impacted by a decrease in total revenue. Looking at results for the full year. Total attendance was approximately 21.6 million guests, a decrease of 1.5% versus 2022. Total revenue was $1.73 billion, a decrease of $4.7 million or 0.3% when compared to 2022. Fiscal 2023 total revenue per capita was a record $79.91 compared to $78.91 in 2022, a 1.3% increase, driven by an increase in admissions per capita and in-park per capita spending. Admission per capita increased 0.4% to a record $44.16 compared to $44.0 in 2022. Admission per capita increased primarily due to the realization of higher prices in our admissions products, resulting from our strategic pricing efforts and the impact of the park attendance mix, which was partially offset by the impact of the admissions product mix when compared to 2022. In-park per capita spending improved by 2.4% to a record $35.75 from $34.91 in 2022. In-park per capita spending improved primarily due to pricing initiatives and an increase in revenue related to the company's international services agreements when compared to 2022, partially offset by factors including weather, the admission product mix, closures and disruption related to construction delays at certain in-park locations. Operating expenses increased by $23.2 million or 3.2% when compared to 2022, primarily due to an increase in non-cash asset write-offs and self-insurance reserve adjustments and an increase in costs associated with our international services agreements, partially offset by the impact of implemented structural cost savings initiatives when compared to 2022. Selling, general, and administrative expenses increased by $21.2 million or 10.6% when compared to 2022, primarily due to an increase in third-party consulting costs and legal fees and an increase in labor-related costs, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to 2022. Net income for the year was $234.2 million, a decrease of $57 million. Adjusted EBITDA was $713.5 million, a decrease of $14.8 million when compared to 2022. Net income and adjusted EBITDA were negatively impacted by a decrease in total revenue and increases in operating expenses, selling, general, and administrative expenses and the depreciation expense. Net income was also negatively impacted by higher interest expense. Now, turning to our balance sheet. Our December 31st, 2023, net total leverage ratio was 2.53 times and we had approximately $618.5 million of total available liquidity, including over $246.9 million of cash on the balance sheet. The strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. Just a few weeks ago, we refinanced our Term Loan B, locking in a more favorable interest rate that will save the company approximately $5 million in annual interest expense going forward. Our current deferred revenue balance as of the end of the fourth quarter was $155.6 million. Excluding certain one-time items, deferred revenue decreased approximately 5.3% when compared to December of 2022. As Marc already mentioned, yesterday, our Board of Directors voted to recommend a new $500 million share buyback authorization subject to approval by non-Hill Path shareholders. Through yesterday, our pass base, including all pass products, was down slightly compared to February of 2023. We are pleased that we're seeing high single-digit price increases on our pass products compared to prior year. Last fall, we launched our best pass benefits program ever, which we expect will drive additional increases in pass sales and a strong pass base for this year. We're seeing strong pass sales in recent weeks and are excited about our peak pass selling period coming up during the spring and early summer periods. As a reminder, our deferred revenue balance contains a number of products to include ticketing, vacation packages, annual and seasonal passes and ancillary products. Some of those 2022 ticketing product balances were one-time items, as mentioned last year. We also continue to see an increase in the number of pass holders who have been with us for at least a year who transitioned to month-to-month payments at a higher rate at the completion of their initial pass commitment. This month-to-month revenue does not show up as deferred revenue. As noted, we have a very strong balance sheet position. As of December 31st, 2023, our total available liquidity was $618.5 million including $246.9 million of cash and cash equivalents on our balance sheet and $331.6 million available on our revolving credit facility. We spent $70.6 million on CapEx in the fourth quarter of 2023, of which approximately $25.8 million was on core CapEx and approximately $44.8 million was on expansion and/or ROI projects. For 2023, we spent $304.8 million on CapEx, including $181.8 million on core CapEx and $123 million on high conviction growth and ROI projects. Looking ahead to 2024, we expect to spend approximately $175 million on core CapEx and plan to spend approximately $50 million on CapEx on growth and ROI projects that are a direct result of our 2024 planning process. Now, let me turn the call back over to Marc, who will share some final thoughts. Marc?

Marc Swanson: Thanks Jim. Before we open the call to your questions, I have some closing comments. In the fourth quarter of 2023, we came to the aid of 98 animals in need. Over our history, we have helped over 41,000 animals including bottlenose dolphins, manatees, sea lions, seals, sea turtles, sharks, birds and more. I'm really proud of the team's hard work and their continued dedication to these important rescue efforts. I want to thank them and all our ambassadors for all they do to operate our parks. We are excited about 2024. We have some great events going on now, including Seven Seas Food Festival at SeaWorld Orlando, Mardi Gras at SeaWorld San Diego, SeaWorld Texas and both Busch Gardens Parks. We are proud of these events and the event calendar that we have scheduled for the rest of the year, that gives our guests even more reasons to visit. And I want to reemphasize the SeaWorld's 60th anniversary celebration starting on March 21st and going all year at our SeaWorld parks. We are proud to celebrate 60 years of conservation, education and fun for all ages. We continue to strongly believe there are significant additional opportunities to improve our execution, take advantage of clear growth opportunities and continue to drive meaningful long-term growth in both revenue and adjusted EBITDA. We continue to have confidence in our long-term strategy and our ability to drive significantly improved operating and financial results that we expect will lead to meaningfully increased value for stakeholders. Now, let's take your questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Swartz with Truist. Please go ahead.

Michael Swartz: Hey everyone. Good morning. Maybe just to start, Marc, with some of the commentary around the park -- or, sorry, hotel or accommodations development plan. I think in the previous calls, you said you would look to finance some of that. Now, it sounds like you're not looking to finance any of that. I mean maybe help us understand what's changed in your thought process just from the standpoint of appetite to invest in these sorts of things?

Marc Swanson: Hey Michael, I think what we were saying there is that we're looking at all options. So, I don't want to suggest that financing a portion of that is off the table. We're looking at all the different ways we could enter into a hotel structure, whether it's with a partner or licensing, whatever it may be. And we have the land, as we've mentioned, and a lot of different ways we could go about this. I think what we've been hearing from a lot of our shareholders is they wanted to hear more about this. There's multiple ways that people have done this. What is clear is that people are fans of hotels. They recognize the potential of having hotels in our parks. Many other companies have been successful with that, as you know. So, we're just saying, look, we're looking at all the different options. We want to be sure to drive the ROI that I mentioned in the slides, and there's multiple ways we could look at trying to achieve that. And keep in mind, it's not just the hotel itself, the EBITDA from the hotel, you're going to get, we believe, incremental benefit from people being in your parks longer, capturing more of their day, more of their total spend. So, we're excited about hotels. I think we're just trying to be transparent and let you know that we're still looking at different alternatives before we actually go about constructing the hotel.

Michael Swartz: Okay, that's helpful. And then just a second question for me on the commentary around you're expecting meaningful growth in revenue and EBITDA for the year. And I think you went through some of the longer-term opportunities or levers to drive bottom-line growth. But just as we think about the year ahead, what are the primary maybe puts and takes? I understand there's easy comps, so that's probably part of it. But how should we be thinking about the main drivers of growth for the year ahead?

Marc Swanson: Yes, there's a couple of things to think about. One, certainly, we had a pretty significant weather impact in 2023. So I think any sort of weather normalization would be significantly in our favor if that happens. We'll have to see if that happens. The start to this year, if you followed the news has been tough weather comps, especially in Florida with El Niño really since December and into January and February. Having said that, I've been in this industry a long time, a lot of us have been. We expect weather will eventually normalize at some point. We've had good years and bad years and so -- more recently, we've had tougher years, but weather would certainly be one of the factors. And then I talked all about the lineup of attractions, rides, events, new things we have coming into our parks. And certainly, I think the lifeblood of this industry a lot of times is having new things in our parks, new things to talk about. And we have another, I think, really good lineup of new things. And we're getting the ride in Texas, for example, Catapult Falls, just opened last weekend to a select number of people. It will start to open here in March to more people. So, we're excited to get some of these things open and the others will open as we get into the peak summer season or sooner. So, we're excited for the rides and attractions. And then beyond that, you've got the continued execution on our pricing initiatives, our revenue management initiatives. And then I'd say, lastly, the cost work that we have undertaken for some time now and will continue to do that going forward. So, again, we think about those things and put them all together, that leads to, I think, an exciting outlook for not only 2024 but beyond. And I think about the business in a really simple way, as I mentioned, if we can grow our attendance a little bit each year, and I like the markets we're in. We're in Florida. We're in Texas, for example. We're in bigger markets and states that are growing. And then if we can grow our per caps a little bit and then watch our cost each year, that should translate into EBITDA. We've talked about that previously. So, that's how we think about the business here, and we're certainly excited for 2024.

Michael Swartz: Thanks Marc.

Operator: Next question comes from James Hardiman with Citi. Please go ahead.

James Hardiman: Hey good morning. Thanks for taking my questions. So, I wanted to dig into the weather a little bit. I was a bit surprised by the 75,000 weather headwind. Maybe let's just start with is that versus normal weather or versus last year? Because if I remember correctly, last year, you called out 249,000 of weather headwinds. You had some hurricanes in the fourth quarter of last year. So, I guess, same question for the 370,000 you called out for the year, is it versus a normal year? Is it versus last year? I'm just trying to figure out what attendance would ultimately look like if we were to get back to normal weather, even though obviously, that's an elusive concept.

Marc Swanson: Yes. Hey James. No, that is relative to 2022. So I think the way I think about it is we didn't have really good weather in either year. And where I thought we may see some improvement, I think all of us did, some improvement in 2023 really didn't materialize quite as we had expected. So, that is relative to 2022 to be down over 370,000 people. I think it's been pretty well documented, at least in the markets we're in. Keep in mind relative to some of our competitors, we are in Florida. And I think that's been pretty well documented here, especially more recently with December and then even into this year. So, that's the weather and how we think about it.

James Hardiman: So, I should be adding the 75,000 this year in the 249,000 last year for the fourth quarter to get to something like 324,000 if we were to -- versus call it, normal or I guess that would be versus fourth quarter of 2021, technically. But is that how to think about it?

Marc Swanson: Yes, I mean the way I think about it, it was -- again, it's an estimate, but we said over 370,000 for the year. So that's for the full year. 75,000 of that was in the fourth quarter, and that's relative to 2022. So I think you have it right, just make sure you adjust the quarter correctly and the year correctly. And keep in mind, it is an estimate, but we try to do the best we can on that, obviously.

James Hardiman: Okay. And then on the margin front, I guess this illustrative EBITDA walk certainly isn't guidance, but it says -- would seem to suggest that something north of 50% margins is on the table. But margins the last two years have moved in the wrong direction. And then we've got the hotel business which I assume is likely to be margin dilutive to certainly 40%-plus margin. So, help me to connect the dots there. What do you think is the long-term margin potential for this business? Obviously, you guys went from being a 20-something percent margin business to being a 40-something-percent margin business, but then there's been some retrenchment. So, help us think through sort of what the -- I don't know, near and medium-term outlook is for margins.

Marc Swanson: Sure. I mean I think what I would point out, you kind of alluded to it, is look, if you look at where we are here at the end of 2023 and where we were back in like 2019, 2018, there's been tremendous expansion in the margin. And that's even with this year all the weather impacts that we had. And the way I think about it, I think the way as a company, we think about it is if we had gotten some of that weather-impacted attendance, that flows through at a very high rate, right? So, I don't think you would have had a whole lot of incremental costs for those incremental people that we lost to weather. And so if you kind of do that math, I think you get margins that obviously would have been better than what we've shown here in 2023. But I don't have anything to guide you to. What I think about, the way we think about it, the way the Board thinks about it, it's kind of what I said, grow attendance a little bit a year, grow our pricing on admissions and in-park a little bit a year, have some new initiatives in there that, hopefully, more people are buying the product, that type of thing, to maybe be even a little stronger on the pricing and then just watch our costs. And if we do that, margins should expand. I don't know how high they could ultimately go, but that's how we think about the business.

James Hardiman: And that's even contemplating hotels, which I'm assuming would be, to some degree, margin dilutive, but maybe not enough to really move the needle?

Marc Swanson: Well, the point I wanted to get across on hotels is look, we know for hotels that the margin is a little lower like you said. Now I think the big difference for us is these are hotels that are on our property, adjacent to our parks, connected to our parks, however you want to think about it. And I think there's benefit from that, that clearly, others in the industry have seen. We're going to be careful and work with the Board, and we're talking to different people, as I noted, to make sure we structure however we end up structuring any sort of hotel construction that it makes sense We want to target that 20%-plus cash-on-cash return. We know that's high or higher than others. But you got to -- we're pulling into that number people visiting the park, people staying longer in the park, capturing more of their share of time and spending. So, you got to kind of look at it holistically, and there's multiple ways we can, I think, construct that. We'll see. But I mean if the return is not there, obviously, we wouldn't move forward with something that we didn't feel good about.

Operator: Our next question comes from the line of Thomas Yeh with Morgan Stanley. Please go ahead.

Thomas Yeh: Thanks so much. Yes. Can you help us unpack the missing piece on the group and international visitation? Just help us think through what possibly could stimulate that return? And what you're kind of seeing in terms of the dynamics that might be keeping it below 2019 levels?

Marc Swanson: Sure Thomas. So, when you -- and we had a slide on this, right? So, international, in particular, is down and group is down as well, down quite a bit, less than international. I think the group business -- we have some -- a dedicated team focused on that, and we're seeing better bookings in 2024 relative to 2023. And then also seeing more revenue out of those bookings. So, I think our group business, I feel, is probably more near-term potential than the international. And some of the group things we're doing around even new venues and switching up some venues. We have just, I think, tremendous locations in our parks to host group events, corporate events or whatever, your church group or whatever it may be to come out to our park and have a really good time, and we can do some really special things that others -- that are one-of-a-kind with some of our experiences. On the international, obviously, there's certainly some macro factors. I think others have talked about that as well. And obviously, we can't control airlift and exchange rates and things like that. But what we are investing in 2024 is some more resources in this area. We have a team that's going to be heading over to United Kingdom here this year to sit down and really make sure where people understand our parks and understand what we offer and how we can better connect with people, for example, in that country on a go-forward basis. But we're going to, I think, do our part to try to drive more work in this area, and it will have to depend on some macro factors as well internationally. So, I don't know when that will return, obviously. But I think we're confident over some period of time here that it eventually will and certainly, most of our international is in the state of Florida. And I think with all the things there are to do here in the state of Florida, it will continue to be an attractive market for international visitation. I just don't know when it will actually return to 2019 levels.

Thomas Yeh: Okay, that's helpful. Yes and then on Slide 13, 14, you referenced targeting per caps growing 2% to 5% per year. Is it fair to say that this year you were managing the weather headwinds and it led to greater promotional activity, maybe some pressure on the -- even on the per caps in addition to the attendance? And how much of that do you think, I guess, is in your control relative to outside competitor promotional activity and how you might respond to that?

Marc Swanson: Yes. Good question. Look, on per caps, there's a couple of things. One, we're going to target -- as we noted on the slide, we're going to target pricing growth each year, and that's kind of a tenet of our strategy. Having said that, we're also targeting total revenue. So, at the end of the day, total revenue is ultimately what matters, right? So, there's going to be times where we may run offers or promotions or do things that might be at odds with the per cap, but drive a greater amount of total revenue. But I will say over the course of long term or near term, however you want to think about it, we do believe we can continue to grow pricing. That is the strategy of ours, but we're going to take advantage of times where we want to test and learn or, to your point, maybe we have to react to some weather impacts and run an offer to generate some additional visitation. But that's all tied because we think it's going to generate more total revenue. So total revenue is the key equation there, but with the goal of maximizing price along the way.

Thomas Yeh:

Operator: Our final question today comes from Robert Aurand with KeyBanc. Please go ahead.

Robert Aurand: Hi, thank you for taking my questions. I wanted to ask about the $85 million in cost savings and the $50 million in 2024. I think the slides indicate that's a gross number. Can you give us any color on how you're thinking about maybe the net cost savings there?

James Forrester: Yes, as far as the debt cost savings, again, we've illustrated that we think we're going to achieve about $50 million of that $85 million in 2024. We think a large portion of that is going to flow through, and that's what we're planning on as far as our budget for this year. While there is a little bit of increase due to inflation or expansion, we think an appreciable amount of that will actually flow through the bottom-line.

Marc Swanson: Yes. And Robert, I mean, we have, as Jim noted, a lot of efforts around cost efficiencies. But look, there's still at times pressures, right? So utilities and insurance costs, things like that. Those are things that we are working on plans to try to mitigate that as much as we can, obviously. But there's going to be some pressures against that number as you noted, but we're going to -- we have a tremendous amount of focus on those things.

James Forrester: And I think the other thing to that is we did some investment in 2023 to set us up for success in 2024 to mitigate costs, especially in cost of sales and some of our contracts to be renegotiated at better rates. So, that's why we feel more confident in the ability to deliver this number in 2024 and beyond.

Robert Aurand: Okay. And maybe one follow-up on the cost savings then. The $85 million, yes, I think, in previous calls, you've been talking about a $60 million number. And I was hoping you could kind of just bridge the two, maybe what's incremental between the two?

James Forrester: Yes, I know we -- this time last year, we provided a $50 million illustration, and we increased it to $60 million over the summer and now we're at $85 million. I would say that we believe $40 million to $45 million of that was achieved in 2023. And therefore, there's an incremental, let's say, $15 million that's part of this $85 million that will be achieved over a given period of time. Again, we haven't identified the full extent of that. But you can see we've already achieved or we're planning to achieve a lot of that by the end of 2024.

Operator: This concludes the question-and-answer session. I would now like to turn the conference back over to Marc Swanson for any closing remarks.

Marc Swanson: Thank you, Scott. Look, thanks, everyone, for letting us walk you through those slides. If you do have questions, follow-up questions, reach out to Matthew or myself or Jim, and we're happy to answer any additional questions you may have. I know it was a little long, but we wanted to get some information out there. So, just reach out if you do have any follow-up. So, on behalf of Jim and myself and the rest of the team here at United Parks & Resorts, we want to thank you for joining us this morning. 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. So, thank you, and we look forward to speaking next quarter.

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