SeaWorld Entertainment, Inc.

Good day and welcome to the SeaWorld Q3 2022 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 a touch-tone phone. 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 Straud, Head of Investor Relations. Please go ahead.

Thank you, Dave, and good morning, everyone. Welcome to SeaWorld's third quarter earnings conference call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.seaworldinvestors.com. Replay information for this call can be found in the press release, and will be available on our website following the call. Joining me this morning are Mark Swanson, Chief Executive Officer, and Shell Adams, Chief Financial Officer and Treasurer. This morning we will review our third quarter financial results and then we will open up the call to your questions. Also, we have posted a short slide presentation on our investor website along with our earnings press release that we will discuss during our prepared remarks. 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 factor 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. We are pleased to report our sixth consecutive quarter of record financial results. While we achieved records for revenue, net income, and adjusted EBITDA in the quarter, these results still do not reflect a normalized operating environment, and we still have significant scope to improve our execution, and our financial results. We had a meaningful impact from adverse weather in the quarter, including Hurricane Ian, that we estimate led to 90,000 less guest visits during the quarter. International and group visitation are still not back to pre-COVID levels, our staffing is still not at optimized levels, and inflationary pressures continue to impact our costs. We are pleased with the growth in total revenue and total revenue per capita during the quarter, which continued to demonstrate our pricing power and the strength of consumer spending in our parks. Our cost management and flow through to adjusted EBITDA for the quarter could have been better. To this end, we have enhanced and increased our efforts related to monitoring and managing costs throughout the enterprise and our initiatives to reduce costs and increase efficiencies. As we highlighted last quarter, we have several new projects and initiatives in flight that we expect will help us work to offset the unusually high inflationary pressures and become a more efficient and profitable operating business over the coming quarters. While inflationary pressures continue to exist, we expect certain cyclical supply chain related and or temporary cost pressures to moderate over the coming quarters. We recently concluded another successful Halloween season at our parks featuring our award-winning Halloween events, which led to strong revenue growth this October compared to October 2021 and October 2019. Revenue for October was up approximately 13% compared to 2021 and approximately 45% compared to 2019. Over the next few weeks, we will begin our popular Christmas events at our SeaWorld, Busch Gardens, and Sesame Parks. Our Christmas events feature exciting entertainment, unique food and beverage offerings, and seasonal merchandise for guests of all ages. As we have consistently demonstrated, our business model is strong and resilient, and we believe that we have significant opportunities to improve and grow our revenue and profitability. As I've mentioned previously, We operate in an industry and in markets with growing demand trends over the long term, and we have significant available guest capacity across our portfolio. Our attendance levels are still below the total attendance levels we achieved in 2019 and well below our historical high attendance of approximately 25 million guests recorded in 2008. We have made significant investments that we expect. will continue to deliver strong returns, and we have specific plans we are executing on today and plans for the future that give us high confidence in our ability to continue to deliver additional operational and financial improvements that we expect will lead to meaningful increases in shareholder value. Looking ahead, we are very excited about our plans for 2023 and the investments we have made and will be making that we expect will drive meaningful growth and new records in revenue and adjusted EBITDA. We have announced a few of the upcoming new rides, attractions, events, and upgrades, including something new and meaningful in each of our parks. This lineup includes, among others, Pipeline, the surf coaster at SeaWorld Orlando, Serengeti Flyer Swing at Busch Gardens Tampa Bay, Dark Coaster Straddle Coaster at Busch Gardens Williamsburg, Arctic Rescue Roller Coaster at SeaWorld San Diego, Catapult Falls Flume Coaster at SeaWorld San Antonio, Riptide Race Waterslide at WaterCountry USA, and a refresh of Laguna Grill at Discovery Cove. Similar to the previous quarter, we have posted a short presentation on our investor website along with our earnings press release that provides more detail around the visitation of our park portfolio, how our industry and business performed during historical recessions, the value orientation of our offering, our attendance trends and historical peak attendance levels, our cost reduction and efficiency initiatives, and an update on our mobile app. On page four, we show a description of the visitation of each of our markets across our 12 park portfolio and the aggregate statistic for the whole portfolio. As we discussed last quarter, and as you can see from the page, we estimate that approximately 85% of our attendees drive to our parks. Our visitation is more similar to a typical regional amusement park business. At times, people compare our business to destination theme parks like Disney or Universal, but we believe our visitation and business dynamics are more closely comparable to our regional theme park peers as opposed to our destination theme park peers. On page five of the presentation, we show an industry graph that shows the growth of the industry over the last 20 years and the resiliency of the industry during the last two U.S. recessions. On page six, we show our specific performance during the last two U.S. recessions. As you can see, we believe our business demonstrated resiliency in both 2001-2002 recession and the 2008-2010 recession. As we have discussed before, we offer tremendous value to our customers, and given our attractive value proposition and the drive-to nature of our parks and how our business has performed in past recessionary periods, we expect it will perform relatively well in future recessionary environments. On page seven, we show the value proposition of our park offering versus other entertainment offerings. This slide underscores the incredible value we provide to our guests and not only highlights the opportunity to continue to grow pricing, but also helps explain the resiliency of our business during economic downturns. Page eight shows our latest LTM attendance of approximately 22 million visitors and a potential for where our attendance can go by returning to historical levels. As we have discussed, and you can see, we are still below 2019 levels, and we are well below 2008 peak attendance. We also show what our attendance would be if we achieved peak attendance at all of our parks in the same year. The punchline is that we have significant potential to achieve meaningfully higher attendance by getting back to historical levels. As you can imagine, we recognize this opportunity and we are working on plans to recapture lost attendance. Page nine of the presentation, we present an updated target for our cost efficiency and reduction initiatives. As we highlighted, we have enhanced our efforts around these initiatives and have teams dedicated to realize these and additional opportunities. As we highlighted last quarter, this is just a select list and does not necessarily reflect everything we are working on or will work on over the coming months and quarters. On page 10, we provide an update on our mobile app. As you can see, we continue to make good progress rolling our new value-enhancing features and gaining adoption and usage. As of September, the app had 3.4 million downloads and was used by more than 50% of guest parties visiting our parks. We are capturing up to 15% of in-park revenue on the app, and for certain products, it's 30% or more. Mobile ordering has been expanded to additional restaurants and is now operating at about half of our target restaurants. We continue to see increases in average transaction value for food and beverage purchases made through the app compared to a point-of-sale order. We are excited about the potential of the app and its ability to improve the in-park guest experience, drive increases in revenue, and decreases in cost. We hope this helps everyone better understand the drive-to and regional theme park nature of our park portfolio, the resiliency and attractive relative value of our industry overall and our business in particular, our attendance potential, our cost reduction and efficiency efforts, and our mobile app. Before moving to Shell and her update on financial performance, let me comment on a few more items in greater detail. First, let me speak to our balance sheet, which continues to be strong. Our LTM September 2022 net total leverage ratio is 2.71 times, and we have approximately $480 million of total available liquidity, including almost $110 million of cash. This strong balance sheet gives us flexibility to continue to invest in and grow our business, make opportunistic investments, and to thoughtfully return capital to our shareholders. Second, we continue to make progress with our plans to build hotels to complement our park offerings. We have identified possible sites, continued our design and planning efforts, and have hired a dedicated, experienced leader to help drive this effort. We look forward to sharing more specifics in future quarters. Third, our partner in Abu Dhabi announced it has reached 90% construction completion of the next generation marine life theme park, SeaWorld Abu Dhabi. This park is expected to open in 2023 and will include the UAE's first dedicated marine research, rescue, rehabilitation, and return center. We continue to progress discussions related to other international opportunities and expect to have more to share in coming quarters. Finally, we continue to aggressively repurchase shares during the third quarter and into the fourth quarter as we repurchase approximately 3.6 million shares of common stock at a total cost of approximately $183.9 million from August 2022 through October 2022. Year-to-date through October, we have repurchased 12.3 million shares of common stock, or approximately 16% of total shares outstanding, at a total cost of approximately $683.9 million. We have a strong balance sheet and financial position, a clear belief in our go-forward prospects, and we believe the markets have offered us an extremely attractive value this year in regards to share repurchases. Overall, we are proud to report record net income on a trailing 12-month basis of $313.7 million and record adjusted EBITDA on a trailing 12-month basis of over $727 million, which was achieved with attendance of 22 million guests, which is still below our 2019 attendance and well below our historical high of over 25 million guests we achieved in 2008. These achievements reflect the extraordinary efforts of our teams to operate our parks, despite the challenging environment we faced, and continue to position this company for revenue growth and increased profitability. With that, I would like to turn it over to Shell to discuss our financial results in more detail.