United Parks & Resorts Inc.

Good day and welcome to the United Parks and Resorts fourth quarter and fiscal year 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Matthew Stroud of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to United Parks and Resorts' fourth quarter and fiscal year 2024 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. Joining me this morning are Mark Swanson, Chief Executive Officer, and Jim Michalczyk, Chief Financial Officer and Treasurer. This morning, we will review our fourth quarter and fiscal year 2024 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, Mark Swanson. Mark?

Thank you, Matthew. Good morning, everyone, and thank you for joining us. I'd like to start today by taking the opportunity to welcome Jim Michalicek, our new CFO, to the team at United Parks and Resorts. Jim has been on board with us for a few months now, and we are pleased to have him here with his strong financial background and experience in the hospitality and leisure industry. I'd also like to thank Jim Forrester for his past service as interim CFO and treasurer I'm glad both gyms are here as the team works to continue to manage this unique company and take advantage of the clear and meaningful opportunities we have to grow the business and realize substantial value for all stakeholders. Before we turn to the quarterly and annual results, I want to point out that we uploaded a presentation to our investor relations site. That includes some supplemental information that covers topics we have heard from our investors that they would like covered, as well as some other important points that we want to get across. I will refer to these slides later in my remarks. With that, let me get into our results. We are pleased to report another quarter and fiscal year of strong financial results. In the fourth quarter, we delivered near record attendance, record in part per capita, and near-record total revenue per capita, despite particularly poor weather impacting the quarter. For the full year, we delivered near-record revenue, record in-park per capita, and record total revenue per capita, despite unfavorable weather during the year. We have now grown in-park per capita for 18 of the last 19 quarters and total revenue per capita for seven straight years. Our revenue strategies are working and continue to demonstrate our pricing power and the strength of consumer spending in our parks. We have had a pretty bad run of unusually poor weather over the last couple of years. Fourth quarter and fiscal year results were impacted by meaningfully worse weather, including hurricanes Debbie in August, Helene in September, and Milton in October. We estimate that the combined impact of the meaningfully worse weather was approximately 167,000 guests in the fourth quarter and 432,000 guests for the fiscal year. Adjusting for these impacts, we estimate that fourth quarter attendance would have increased approximately 2% compared to the prior year quarter, and full year 2024 attendance would have increased approximately 2% compared to 2023. We repurchased 9.4 million shares, or approximately 15% of our total shares outstanding last year, underscoring our history of returning excess cash to our shareholders, our strong belief in the highly compelling value of our shares, and our strong cash flow generation. We are excited about the clear opportunity we have to drive meaningfully more attendance to our parks, grow total per capita spending, manage and reduce cost, and realize significant additional value from our strategic growth initiatives. We have high confidence in our ability to continue to deliver operational and financial improvements that we expect will lead to meaningful increases in shareholder value. We are excited about our plans for 2025, including the meaningful investments we have made across our parks and business, and an incredible lineup of new, one-of-a-kind rides and attractions, popular events, improved in-park venues, and offerings across our parks. We are pleased with our overall 2025 booking trends and are particularly happy to see our 2025 international sales growth up mid-single digits and our 2025 group bookings growth up double digits. Assuming no worse weather than we experienced in 2024, we expect meaningful growth and new records in revenue and adjusted EBITDA in 2025. I want to thank our ambassadors for all their hard work and dedication as we start 2025. In 2024, we received numerous industry accolades, including SeaWorld Orlando being voted as the number three nation's best amusement park by USA Today readers. Aquatica Orlando voted as the number two for the nation's best outdoor water park by USA Today readers. Discovery Cove was awarded the 2024 Best Family Travel Award by Good Housekeeping. And Busch Gardens Williamsburg was named the world's most beautiful theme park for the 34th consecutive year by the National Amusement Park Historical Association. For 2025, we have an outstanding lineup of new rides and attractions, popular events, and new and improved in-park venues and offerings across our parks. Our rides and attractions include the following. At SeaWorld Orlando, a family-friendly, immersive flying experience taking guests on a journey to the top of the world to soar through the skies over the Arctic and dive into the icy depths. In San Diego, we have Jewels of the Sea, a captivating aquarium featuring multiple galleries, including one of the largest jelly cylinders in the country, as well as a multimedia experience. Also, Journey to Atlantis, SeaWorld San Diego's first coaster, will be reinvented. paying tribute to the original beloved version while adding new elements to create a more exciting and immersive experience than before. We have Rescue Junior at SeaWorld San Antonio, an all-new kid-friendly realm featuring animal rescue-themed rides and a water play area. In Busch Gardens Williamsburg, we have The Big Bad Wolf, The Wolf's Revenge, the longest Family Inverted Coaster in North America will take riders through over 2,500 feet of track at speeds of up to 40 miles per hour. We have Wild Oasis at Busch Gardens Tampa Bay, an all-new realm featuring the sights and sounds of the rainforest, a newly reimagined drop tower featuring digital sound effects, and an interactive water play wonderland. a multi-level climbing canopy, and an all-new multi-species animal habitat for up-close encounters. At Sesame Place in Langhorne, Pennsylvania, we will be celebrating the 45th birthday celebration. This birthday celebration will kick off in the spring of 2025, featuring furry birthday fun all spring and summer long. Fan favorite entertainment across the park will be transformed with birthday-themed visits, including the return of the spectacular fan-favorite Sesame Street Birthday Parade. And finally, at WaterCountry USA, we have High Tide Harbor, an all-new multi-level water play structure designed for families to explore together. This exciting area features over 100 interactive water elements, including cannons, sprayers, and tipping fountains, ensuring endless fun for kids of all ages. With vibrant and dynamic water activities, High Tide Harbor promises to be the ultimate family-friendly destination for staying cool. During the fourth quarter, we repurchased 0.8 million shares for an aggregate total of approximately $37.7 million. In 2024, we repurchased 9.4 million shares of common stock, or approximately 15%, of total shares outstanding at a total cost of approximately $482.9 million. The board and company strongly believe our shares continue to be materially undervalued. We have confidence in our business, our growth prospects, and the value of our assets. Any reasonable way you look at it, we feel we are materially undervalued and that there is significant upside opportunity in our current share price. Our balance sheet continues to be strong. Our December 31st, 2024 net total leverage ratio is 2.94 times, and we had approximately $798.4 million of total available liquidity, including approximately $115.9 million of cash on the balance sheet. This strong balance sheet gives us flexibility to continue to invest in and grow our business and to operate it and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. Now, turning our attention to the slides that we posted, as I mentioned earlier, we have created a presentation that addresses certain topics we have heard from our shareholders that they would like to be covered and some important points that we would like to get across. So going to slide five, the disciplined capital allocation strategy, On this slide, we have outlined our capital allocation strategy, which is consistent with what we shared last year. We have a thoughtful and clear capital allocation philosophy, where we consider the highest and best use for our excess capital across four buckets. The first bucket, investing in the business. The second bucket, debt pay down. The third bucket, M&A. And the fourth bucket, return capital to shareholders. Investing in the business is focused on three areas, continuing our ongoing maintenance spend to ensure our parks are well-maintained, continuing our cadence of new rides, attractions, shows, and events in our parks, creating new reasons to visit, and identifying and executing on high-conviction, high-ROI initiatives. As you see on the next page, we expect to typically spend approximately $150 million to $175 million per year on core capex and up to $50 million per year on expansion and ROI capex. Looking at debt paydown, we are comfortable with current leverage levels and expect further deleveraging from future EBITDA growth. Given our low leverage levels and the current cost of debt, paying down debt is not a current priority. Regarding M&A, we will opportunistically pursue M&A when attractive opportunities present themselves, but at present, no M&A opportunities are currently contemplated. The company has and will continue to aggressively return capital to shareholders when it makes sense to do so in the form that makes the most sense. We have repurchased over $1.5 billion in shares since January of 2019, which is about 32 million shares, about 38% of the shares outstanding. For the avoidance of doubt, the Board, the larger shareholder, and management believe our shares are materially undervalued and that buybacks remain attractive. The Board is working through governance and other related dynamics to allow for a potential new buyback authorization. Finally, as you know, the Board is highly aligned with shareholder interest. Turning to the next slide, slide number six, disciplined capital spend strategy. We have a clear and disciplined capital spend philosophy that is also consistent with what we presented last year. As a reminder, we think about capital spending in two buckets, the first bucket being core capex and the second being bucket being expansion and ROI CapEx. We estimate that our core CapEx will typically run between $150 and $175 million on an annual basis. This is spend that we estimate supports growth in revenue and EBITDA in line with long-term base business expected growth rates. This amount includes maintenance CapEx and new rides and attractions CapEx. We estimate that our expansion and ROI capex will run between approximately zero and $50 million on an annual basis. This is the spend that supports growth in excess of normalized levels and includes high conviction projects with 20% plus ROI unlevered cash on cash returns, including revenue generating and cost savings projects, park expansions, new properties, et cetera. In total, we expect normalized capex of approximately $150 million to $225 million on an annual basis. Turning to slide seven, capital spend update. This slide provides some more color on our 2024 capital spend and on our expected 2025 capital spend. As discussed in prior calls, given our significant excess cash flow generation in recent years, Our board challenged us to pursue more than our normal cadence of ROI projects in 2023. As such, we spent significantly more on ROI CapEx in 2023 than we would normally spend and took on more projects than we would typically take on. Some of these projects were completed on schedule and delivered the expected ROI. Others were delayed due to some combination of weather and us taking on more projects than we probably should have. As discussed on previous calls, this led to certain operational disruptions in certain periods in some of our parks and was a headwind to performance in certain parks at certain times. Good news is we learned from our experience in 2023 and we adjusted our approach in 2024. There were some remaining planned projects that we committed to in 2023 that we finished up in 2024 that took our 2024 ROI CapEx roughly $20 million above the high end of our normalized ROI spend target. In 2025, we currently expect to spend approximately $225 million of capex split between $175 million of core capex and $50 million of expansion and ROI capex. We feel very good about these ROI projects and have high conviction on their impact in 2025 and beyond. Turning to slide eight, our 2025 attraction lineup. On this page, we highlight our new ride and attraction lineup for 2025 that we are particularly excited about. It's among one of the best lineups we have ever had. On slide nine, capital spend significant free cash flow generation. We lay out the significant discretionary free cash flow generation of our business. The slide speaks for itself. and shows the high free cash flow conversion of our business and over $400 million of normalized levered free cash flow that this business should be expected to generate on an annual basis. Turning to slide 10, strategic initiatives update. Let me speak to some of our current strategic initiatives. First, on hotels, we continue to be excited about the opportunity we have and have discussions with and have ongoing discussions with potential partners you're taking our time to make sure we optimize the outcome here and no longer expect to have our first hotel open in 2026 we will keep you updated on the status of discussions and timing in the coming quarters second point is on real estate monetization as you know we own over 2,000 acres of valuable land and including approximately 400 acres of unused land. There are discussions with potential partners on ways to unlock and or monetize this land so as to realize appropriate value for shareholders. We will update you on our progress over the coming quarters. The third point is around sponsorships. We have been working over the past several months on various sponsorship opportunities that leverage our valuable assets and customer database. We expect this opportunity could eventually exceed $20 million in high margin revenue, of which we expect to realize mid to high single digits in 2025. The fourth point is on international. We continue to be in discussions with partners on this front in various geographies and look forward to sharing more with you in the near future. The fifth point is around IP partnerships. We are in discussions with various partners to bring globally recognized IP to our parks via new rides, attractions, and or exciting activations. And finally, the sixth initiative is around a variety of other areas, including our mobile app, CRM, park enhancements, and technology investments all which we expect will help drive growth in the near term and over the coming years. Turning to the next slide, titled Epic, this next slide is a slide that covers a recent favorite topic of discussion, the coming opening of Universal's Epic Universe Park in May of this year. First off, we're excited about the opportunity related to the opening of Epic Universe and welcoming our new neighbor. Second, we expect the park to be a great park and a great addition to the Orlando market. Third, we expect the opening of the park to lead to strong visitation to the Orlando market. Fourth, as we have indicated in the past, we welcome investment in the Orlando market, which we believe in benefits the entire market. It is because of this type of investment that Orlando is the most visited city in the United States. attracting approximately 75 million visitors annually, up from approximately 40 million visitors 25 years ago. And fifth, like others, we have been preparing for the opening of EPIC and are confident in our ability to get our fair share of visitors in the market. Lastly, we are really excited about our new revolutionary immersive arctic flying experience attraction we will be opening this year in Orlando, and our other planned new and exciting elements we will be introducing to our Orlando park and announcing soon. Turning to slide 12, this next page shows how we have grown our EBITDA over the last 50 plus years as more capital was invested in the Orlando market and more and more parks were built and opened. Again, we welcome investment and we expect more investment in the coming decade and more visitation to the market and will be a benefit for market participants. Turning to slide 13, this is around the meaningful opportunity to grow attendance by returning to historical levels. We have shown this slide before. If we return total attendance to 2019 levels, that would be approximately 5 percent growth in attendance compared to 2024. If we return attendance to 2008 levels, our historical high, that would represent approximately 18% growth in attendance compared to 2024. If we achieve attendance levels where each park returns to its historical high level of attendance, that would represent a 25% increase in attendance compared to 2024. The point here is we have clear and ample opportunity to grow attendance just by returning to levels we have previously achieved, ignoring population growth, sector share gains, et cetera. Slide 14, drivers of future attendance growth. On this slide, we lay out a roadmap of how we think about attendance growth beyond returning to historical levels. We have several ways we plan to grow attendance. First, one would be benefiting from population growth. with our addressable markets growing in excess of U.S. national average. The second one would be improving our marketing effectiveness, including growing awareness, increasing conversion, and optimizing our media spend. Third, creating new reasons for people to visit, such as new and expanded rides, attractions, events, and shows. Fourth, growing our season pass base and visitation per member. Fifth, realize the benefits of our CRM build-out and optimize the strategy around that. Sixth, increase our focus on group sales across youth, corporate, and other buyouts. Seven, renewed focus on international sales and the continued recovery in international visitation. Eighth, developing and growing our loyalty program And finally, number nine, executing on our strategic initiatives. Overall, we have confidence in our near-, mid-, and long-term strategy with respect to these drivers. Slide 15 talks about the drivers of per-cap growth. On this slide, we show expected growth for admissions and in-park per-caps. You can study these slides on your own as they are fairly self-explanatory. The takeaway is that we have We are confident and believe our current per caps are sustainable and have further upside. We think about growing our per caps in line with inflation and then beyond inflation through our inherent pricing power and the various initiatives we lay out on these pages. Importantly, on the admissions per cap slide, while we expect to grow admissions per cap at these rates over time, we are first and foremost targeting total revenue growth. As such, there may be from time to time times when we choose to focus on growing attendance versus growing admissions per caps. The next slide, slide 16, talks about cost efficiency and cost reductions, and it outlines our current cost efficiency and reduction initiatives. As you can see on this page, we have currently identified approximately $75 million of cost efficiency and reduction initiatives, which includes $40 million that we have identified in prior years and are working on in 2025, and $35 million in new initiatives we will work on in 2025. Of this $75 million, we expect $50 million of realized cost savings in 2025, with the remaining cost savings being achieved in 2026. along with other cost initiatives we develop over the course of this year. As you know, cost discipline and management has been and will continue to be a relentless focus of our management team, and we have a track record of delivering on these activities. Slide 17 is the United Parks and Resorts Illustrative Adjusted EBITDA. This is a slide we've previously discussed in past years. As a reminder, this illustration is not meant to be guidance. It is just meant as a simple illustration to show what we believe the earnings power of this business would be at 2019 attendance levels and if we return to 2008 historical peak attendance levels while growing our total per capita revenue along with the cost-saving opportunities and strategic initiative opportunities we have noted. As you can see from the illustration, this business has the potential to do between $1 billion and $1.2 billion of adjusted EBITDA under those scenarios excluding cost inflation. Again, just a reminder, this is not guidance, but rather a simple illustration. As we have said before, Our business model is fairly simple and not complicated. If we get a little attendance growth, a little per cap growth, and we remain disciplined and focused on cost management, the EBITDA potential of this business is substantially higher than what we achieved in 2024. The next slide, United Parks Valuation Overview, outlines the current public market valuation of our shares. As you can imagine, this page makes us quite frustrated. Public market is currently valuing our company at around seven times forward EBITDA and around 11 times forward unlevered free cash flow and at around a 12% levered free cash flow yield. We operate in an industry that historically was valued at over 11 times EBITDA and we strongly believe And we strongly believe we deserve to trade at a much higher multiple than seven times EBITDA. Also, we should note these forward multiples are based off of Wall Street consensus estimates, which are below our internal plans and expectations. The next slide talks about trading at significant discount despite outperformance. And on this slide, I think it points out something that continues to be frustrating, our performance compared with leisure, hospitality, and entertainment company peers. As you can see, we have outperformed, in many cases significantly so, our peer groups, and yet trade at the lowest multiple of any of our peers. Again, this continues to be incredibly frustrating to us. The next slide talks about the implied future stock price. We simply show here what our implied share price would be if we traded in line with our peer groups or at discounts to our peer groups. Any reasonable way you look at it, we feel we are materially undervalued and that there is significant upside opportunity in our current share price. So, let's go to slide 21, the key takeaways, and I'll close with those. The first one, we had strong 2024 performance despite unusually bad weather. The second one, we have a disciplined capital spend strategy with approximately $150 million to $225 million in normalized annual CapEx spend. Third, we have significant discretionary free cash flow generation. Fourth, we have meaningful upside opportunity from executing on strategic initiatives such as hotels, real estate, international licensing, IP partnerships, and sponsorships. Five, we are positioned to opportunistically benefit from increased visitation to the Orlando market. Six, we see a path to $1 billion in adjusted EBITDA with multiple levers to drive value and further upside. And seven, we believe the company is extremely undervalued despite significant outperformance relative to peers. So with that, I'm going to turn it over to Jim to discuss our financial results in more detail. Jim.