SeaWorld Entertainment, Inc.

Hello, and welcome to the SeaWorld Parks Q4 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 your touchtone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to your host today, Matthew Stroud. Mr. Stroud, please go ahead.

Thank you, and good morning, everyone. Welcome to SeaWorld's fourth quarter fiscal 2022 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 Jim Forrester, Interim Chief Financial Officer and Treasurer. This morning, we will review our fourth quarter and fiscal 2022 financial results, and then we will open 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 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 measures 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 seventh consecutive quarter of record financial results. In the fourth quarter, we delivered record revenue, our second highest net income, and record adjusted EBITDA. For fiscal 2022, we delivered record revenue, record net income, and record adjusted EBITDA. Results for the fourth quarter versus the prior year would have been even better if it weren't for significant adverse weather impacts in most of our markets during the November and December holiday period and the negative impact of Hurricane Ian in October and Hurricane Nicole in November. We estimate that these combined weather-related impacts reduce attendance by approximately 249,000 guest visits during the quarter. We continue to drive growth in total per caps, including during our Halloween and Christmas events during the quarter, demonstrating the effectiveness of our revenue strategies, our pricing power, and the strength of consumer spending in our parks. I want to thank our ambassadors for their continued dedication, efforts, and contributions, without which these strong results would not have been possible. As I've said before, we have a strong and resilient business model, and we believe that we have significant opportunities to continue to improve and meaningfully grow our revenue and profitability. Our attendance levels for fiscal 2022 were below levels achieved in 2019, primarily due to a decline in both international and group-related attendance, which we expect will eventually recover to and surpass pre-COVID levels. Also, as we have discussed, we are still more than 3 million visitors below our historical high attendance of approximately 25 million guests achieved in 2008. This represents a clear opportunity to recapture lost attendance we once achieved. Furthermore, our pricing power strategies investments, and opportunities around revenue management, in-park food and beverage, retail, and other in-park guest spending give us confidence in our ability to continue to grow total per caps. These factors, along with the work we are doing to better manage and reduce costs, combined with the significant investments we are making across our parks and business, give us 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 pleased with the start to 2023, and looking forward, we are very excited about our plans with an exceptional lineup of new rides, attractions, events, and new and improved in-park venues and offerings. Given the investments that we have made and will be making, the continued success of our strategies, and our strong financial position, we expect to continue We continue to expect meaningful growth and new records in revenue and adjusted EBITDA for 2023. For 2023, we have an outstanding lineup of new rides, attractions, and events, and new and improved in-park venues and offerings with something new and meaningful in each of our parks. Our new rides and attractions include the following. Pipeline, the surf coaster at SeaWorld Orlando, the first of its kind surf coaster with seats in a surfing position that rise and fall to mimic the sensation of riding a wave. The coaster will accelerate riders to 60 miles per hour through five airtime moments and an innovative wave curl inversion. Arctic Rescue at SeaWorld San Diego. The fastest and longest straddle coaster on the West Coast takes riders through three launches at speeds up to 40 miles per hour. Catapult Falls at SeaWorld San Antonio. The world's first launched flume coaster features the world's steepest flume drop. North America's only flume with a vertical lift and the tallest flume drop in Texas. Dark Coaster at Busch Gardens Williamsburg. The first all-indoor straddle coaster in North America. Riders experience four launches at speeds up to 36 miles per hour through over 2,400 feet of track. Serengeti Flyer at Busch Gardens Tampa Bay, the world's tallest and fastest screaming swing, will take riders up 135 feet at speeds reaching 68 miles per hour. Terese Kid's Cove at Aquatico Orlando. This all-new water play area will feature watering palms, tipping buckets, spraying jets, water bottles, and more. Plus, kids can grab a tube and slide into fun on the all-new kid-size wave slide. Shakalaka Shores at Adventure Island, the new splash and play zone located in the heart of Adventure Island, will feature an area with over 25 spray elements and a central kid-friendly play structure bound to entertain and engage even the youngest of guests. Riptide Race at Water Country USA, the first dueling pipeline slide in Virginia that will send riders through over 500 feet of slide, all while navigating high-speed tunnels and tight turns alongside their opponents. Bert and Ernie's Splashy Shores at Sesame Place, Philadelphia, a water play area featuring water umbrellas, tipping buckets, spraying jets, water bubbles, and a spraying water tower. And finally, the Counts Splash Castle at Sesame Place, San Diego, an enhanced water play area and expanded play structure which features three tipping buckets, four water slides, and over 100 other water play elements. As we have done in previous quarters, we have posted a short presentation on our investor website along with our earnings press release that provides a summary illustration of our earnings potential and some updates on our cost initiatives. Slide number four is titled SeaWorld Illustrative Adjusted EBITDA. This presentation 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 the 2008 historical peak attendance levels while growing our total per capita revenue along with the cost savings opportunities we have identified. Importantly, this analysis does not reflect the impact of cost inflation or pressure on the business over time. To be clear again, this is not guidance and we are not projecting when we will again achieve our 2019 attendance levels or our 2008 peak attendance levels, or the total per cap growth and cost savings noted on the slide. This is just an illustration of the earnings potential of this business under these scenarios. As you can see from this illustration, this business has the potential to do between $964 million and $1,156,000,000 of adjusted EBITDA under these scenarios, excluding cost, inflation, or pressure. Slide 5 shows our latest 2022 attendance of approximately 22 million visitors and the 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. As we have said, we have significant potential to achieve meaningfully higher attendance by getting back to historical levels. Slide six shows the multiple opportunities we see to grow total revenue per capita. The opportunities include growing group and international demand, continued revenue management optimization, investments in new and improved venues, continued rollout and improvement of our mobile app, among other things. We also see future opportunities to grow total revenue per cap from our growth initiatives. Slide seven of the presentation presents an update in more detail about our cost efficiency and reduction initiatives that we shared last quarter. As we highlighted, we have enhanced our efforts around these initiatives and we have teams dedicated to realize these and additional opportunities. As we highlighted last quarter, this is just a select list It does not necessarily reflect everything we are working on or will work on over the coming months and quarters. Again, this is not guidance and we are not projecting when we will achieve our 2019 attendance levels or 2008 attendance levels or the total per cap growth and cost savings noted on the slide or when we will achieve this level of adjusted EBITDA. This analysis does not include or estimate the impact of any cost inflation and it assumes the attendance and park mix of 2022. It is simply meant to show the potential adjusted EBITDA we could achieve with the growth in attendance, the revenue per capita improvements, and the cost reductions that we have identified. Before moving to Jim and his 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 fiscal 2022 year-end net total leverage ratio is 2.78 times, and we had approximately $451 million of total available liquidity, including over $79 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 opportunistically allocate capital with the goal to maximize long-term value for shareholders. In the fourth quarter, we repurchased approximately 1.4 million shares of common stock at a total cost of approximately $70.6 million. In 2022, we repurchased 12.4 million shares of common stocks, or approximately 16% of total shares outstanding, at a total cost of approximately $693.6 million. We also continue to benefit from the rollout of our mobile app, which is used by an increasing number of guests in our parks and has been downloaded more than 4.5 million times. As of the end of January, mobile ordering has been expanded to additional restaurants and is now operating at over 50% of our target restaurants. We are very 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. Let me spend a few minutes talking about our inorganic growth plans. On the international front, SeaWorld Abu Dhabi is due to open later this year. In advance of the official opening of the SeaWorld Park, the UAE's first dedicated marine Research, Rescue, Rehabilitation, and Return Center was recently opened, which I will discuss more later in my remarks. SeaWorld Abu Dhabi is a custom-built 183,000 square meters facility that will feature over 68,000 marine animals, the world's largest aquarium, and six different realms that showcase the complexity, interconductivity, and beauty of life under the sea. We're very proud of this project and along with our partners in Abu Dhabi are excited about introducing a new region of the world to the wonders of SeaWorld and introducing a next generation SeaWorld Park, the first new SeaWorld Park in 34 years. We continue to progress discussions related to other international opportunities and expect to have more to share in coming quarters. On the Sesame Street Park front, we continue our work towards opening our third Sesame Place Park and we will update you on more specifics when possible. On the hotel front, we continue to make progress with our plans to build hotels and complement our park offerings. Based on current plans and expectations, we expect to have our first hotel opened in 2025 followed by our second hotel in 2026. We are working on design and planning for these two hotels and onsite selection for additional hotels across our park portfolio. We look forward to sharing more specifics in future quarters. Before I turn the call over to Jim, I want to take a few minutes to discuss our recently announced organizational changes and related new positions. We've promoted Shell Adams, our former CFO, to the role of Chief Transformation Officer, where she will be responsible for streamlining and reengineering organizational processes, implementing high-value initiatives, and overseeing our business development and growth activities. We also promoted Kyle Miller, our former Orlando Parks President, and Byron Surrett, our former Texas Parks President, to the roles of Co-Chief Parks Operations Officers, where each will be responsible for the operations of specific regions of the country. Kyle will oversee the Florida parks and Byron will oversee the non-Florida parks. In these new roles, they will be responsible for operational activities across our parks, including driving strong and consistent operating standards across our parks, improving profitability, planning, park quality, and guest experience. Together, Kyle and Byron have approximately 75 years of park operating experience with the company. Our team and our stakeholders will really benefit from having these two outstanding individuals in these roles. I cannot be more excited. Overall, we are proud to report record net income for fiscal 2022 of $291.2 million and record adjusted EBITDA of $728.2 million which was achieved with attendance of 21.9 million guests, which, as I mentioned, is still below our 2019 attendance and well below our historical high of over 25 million guests we achieved in 2008. I want to thank our ambassadors for their hard work this past quarter and fiscal year. Without their continued dedication and efforts, these strong results would not have been possible. With that, I'm happy to introduce you all to Jim Forrester, our interim CFO, to discuss our financial results in more detail. Jim has an impressive background, including over two decades of experience in the theme park space, and most recently, leading finance operations for our Orlando parks, which as you know, are among our strongest performing and largest parks. We are very fortunate to have Jim on our team. Jim?