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spk04: Good morning and welcome to the SeaWorld Parks and Entertainment Q3 2023 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. 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, Investor Relations. Please go ahead.
spk08: Thank you, Chad, 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 Jim Forrester, Interim Chief Financial Officer and Treasurer. This morning we will review our third quarter 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, Mark Swanson. Mark?
spk03: Thank you, Matthew. Good morning, everyone, and thank you for joining us. We are pleased to report another quarter of solid financial results despite the impact of unusual and significantly adverse weather in our peak operating season across most of our markets. Our results during the third quarter continue to demonstrate the resilience of our business, the effectiveness of our strategy, and the tireless efforts of our outstanding team. We are particularly pleased to continue to see strong results from our focus, efforts, and investment in our in-park offerings as we grew in-park per capita spending for the 14th consecutive quarter to a record level during the quarter. We are excited to see the continued results of our ongoing work in this area and in the coming quarters into 2024. Our relentless focus on cost management also continued to deliver as we improved adjusted EBITDA margin on a year-over-year basis for the quarter. We are continuing to execute against our previously discussed cost initiatives and expect to continue to see the results of these efforts in the coming quarters into 2024. I want to thank our ambassadors across our parks for their dedicated efforts to welcome and serve our guests during the busy summer season. We just completed another successful Halloween season at our parks, featuring our award-winning Halloween events. We are pleased to have grown per capita spending in October, and after adjusting for the calendar shift that resulted in one last Saturday compared to prior year, we estimate attendance and revenue would have grown as well. We are proud of the continued strength of our Halloween events and the popularity that they continue to build with our guests. We're also proud of the recognition these events are receiving, as SeaWorld Hollow Scream was voted the best Halloween theme park event by USA Today's 10 Best Reader's Choice Awards. As we enter the holiday season, we will begin our award-winning Christmas events at most of our SeaWorld, Busch Gardens, and Sesame Parks later this week. Our Christmas events feature exciting live entertainment, delicious and unique food and beverage offerings, and holiday shopping for guests of all ages. Looking beyond the holiday season into 2024, we are pleased to see 2024 revenue bookings trending up double digit percentage ahead of prior year for both 2024 groups and our Discovery Cove property. In addition, we recently launched our best past benefits program ever, which we expect will help drive increases in past sales and a strong past space for next year. We continue to make progress on our strategic growth initiatives related to hotels, international expansion, and our digital activities. We also have made meaningful incremental investments across our parks this year that we expect to fully benefit from in the coming quarters. We look forward to sharing more on these exciting value-creating initiatives and investments in the coming quarters into 2024. We have proven quarter after quarter that we have a strong and resilient business model, and we still have significant opportunities to improve and grow our revenue and profitability. 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 park 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 in our business this year and will continue to make investments to improve the guest experience, allowing us to generate more revenue and make us a more efficient and profitable business. We expect these investments to yield highly attractive returns. And we are planning new initiatives for next year that will make us an even stronger, more profitable, and more resilient business that we expect will ultimately lead to meaningful increases in shareholder value. We recently announced our partial lineup of new rides, attractions, events, and upgrades for 2024. This lineup includes, among others, Penguin Truck, an unforgettable family launch coaster adventure at SeaWorld Orlando, Phoenix Rising, A suspended roller coaster at Busch Gardens Tampa Bay. A fully restored Loch Ness Monster Coaster with all new thematic and experiential elements at Busch Gardens Williamsburg. Jewels of the Sea, the Jellyfish Experience. An all new immersive aquarium at SeaWorld San Diego. Catapult Falls. the world's first launch flume coaster at SeaWorld San Antonio. Now, let me update you on the progress of some of our strategic initiatives. First, we are making good progress on our cost and efficiency related work and continue to implement these cost reduction opportunities as evidenced by the third quarter adjusted EBITDA margin of 48.6%, which exceeded the prior year despite lower revenue. The team continues to find ways for us to source and organize more efficiently, better utilize capital and technology, along with scheduling improvements to drive labor efficiencies and eliminate unnecessary and or redundant expenses. We expect and are confident that these cost savings initiatives, along with our revenue enhancements, will lead to increased margins over time. Second, on the digital transformation front, we continue to build out our CRM capabilities, which are still in their infancy, and roll out and improve our mobile app. In regards to the mobile app, we are pleased it is being used by an increasing number of guests in our parks to improve their in-park experience. The app has now been downloaded more than seven and a half million times. up from 6.3 million at the end of Q2. Total revenue generated on the app is up 136% compared to prior year, and we are now seeing a 26% increase in average transaction value for food and beverage purchases made through the app compared to point of sale orders. Mobile ordering is operating at approximately 75% of our target restaurants. We are excited about the potential of the app and its ability to improve in-park guest experience, drive increases in revenue, and decreases in cost. We are continuing to refine current capabilities and develop additional capabilities to further increase engagement and optimize the experience. Third, as you know, we strategically increased our park-specific ROI investments this year with the goal of driving incremental revenue and or decreasing costs through expanding enhancing and improving our food and beverage and retail offering, park infrastructure and aesthetics, and generally improving the guest experience and journey around our parks and facilities. As we said last quarter, some of these refurbishments and upgrades took longer than planned, which negatively affected in-park per caps in the third quarter. However, these venues are now open and we are realizing the benefit of these investments. We have additional projects planned in 2024 that will further enhance the guest experience and are expected to yield attractive ROI. As we speak to some of our investors, we have learned that there may be some confusion about this incremental capital spend. As a reminder, we break our capital spending into two categories, core capex and expansion slash ROI capex. Core capex is the amount of capex that we believe we need to spend to maintain our current assets and execute on our annual ride and attraction strategy. For example, opening new rides and attractions across our parks each year. The average amount we estimate we need to spend on core CapEx is approximately $150 million to $180 million annually. We believe this amount of spend is sufficient to allow us to grow our business at a normalized growth rate over time. Expansion ROI CapEx is CapEx related to specific projects that we have high confidence will generate attractive ROI, typically 20% plus cash on cash returns. This is capital spending that we believe will allow us, over time, to grow adjusted EBITDA in excess of normalized growth rates. Historically, we have allocated approximately $25 million to $50 million each year to this type of capital spending. Based on our incremental, I'm sorry, based on our increased cash flow generation in recent This year, our board challenged the management team to identify and present a comprehensive list of the high-confidence ROI projects across the enterprise. Based on discussions with our board, we aligned on spending an additional roughly $80 million this year on such high-confidence projects. We hope this clarifies for people how we think about capital spending, ROI, and uses of excess cash flow. Fourth, on the international front, attendance at SeaWorld Abu Dhabi continues to exceed original expectations. We continue to make progress on discussions related to other international opportunities and expect to have more to share in coming quarters. Fifth, on the hotel front, we also continue to make progress on our plans. As we mentioned last quarter, we are refining our design planning on our first hotels and we expect to begin opening in 2026. We identified the locations of the first two hotels, and we'll be offering more details about these properties soon. We continue to make progress on projects in other markets, and subsequent to opening our first two hotels, we are planning to continue to open additional hotels in the years following. We have also received questions from some of our investors about our hotel strategy. As you all know, we have significant excess land across most of our parks that is currently underutilized. We have a unique opportunity to build highly compelling hotels that will integrate with our parks, allow us to capture profits from our guests that are currently staying at other properties, increase length of stay at our properties, offer more compelling vacation packages, upsell and cross-sell guests, increase loyalty, and generate an attractive ROI. Some investors have asked how we might finance these hotels. While cash is fungible, We have several options given the nature of these projects. We expect to finance these hotels with a combination of debt and cash from our balance sheet. Given our expected cost of capital and the expected returns on these hotel projects, we expect to generate north of 20% returns on equity for these projects. These are highly compelling projects that are long overdue. Many of you are fully aware of the value these types of hotels provide to our peers in our various markets, including in Orlando. I'm very excited about the significant investments we are making and the many initiatives we have underway across our business that we expect will improve the Gust experience, allow us to generate more revenue, and make us a more efficient and more profitable enterprise. We are building an even stronger and more resilient business that we are confident will deliver substantially improved operational and financial results and meaningful increases in shareholder value. Let me briefly comment on our balance sheet, which continues to be strong. Our September 30th, 2023 net total leverage ratio is 2.56 times, and we had approximately $586.8 million of total available liquidity including over $215 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. We have also received questions from some of our investors about our expected use of our free cash flow. As you know, we have the benefit of generating significant free cash flow at our current adjusted dividend generation. We have options on how to use this excess cash flow, including investing in the business, buying back stock, paying a dividend, paying down debt, and making acquisitions. Our board is highly experienced and knowledgeable and very focused on allocating capital to the highest available return opportunities. In recent history, our board has determined that buybacks and investing in our business has been the highest and best use of our excess cash. More recently, we have devoted more capital to investing in the business. You should assume that the board is very focused on allocating capital to the best available opportunities and is working to ensure this outcome. As we have more to share on this, we will communicate this clearly. Looking ahead, we are excited about our award-winning holiday events, which start this week. We expect this year to be our best holiday event yet and expect to finish 2023 strong. Following our holiday events, we will kick off 2024 by returning with many of our popular events, including Inside Look, Mardi Gras, our Seven Seas Food Festival, and our Food and Wine Festival, among others. With that, Jim will discuss our financial results in more detail.
spk09: Jim? Thank you, Mark. Good morning and thank you for all your interest in our company. It's good to be able to join you to report out on our quarterly performance. During the third quarter, we generated total revenue of $548.2 million, a decrease of $17.0 million, or 3.0%, when compared to the third quarter of 2022. The decrease in revenue was due to a decrease in attendance of 2.8% and a decrease in total revenue per capita of 0.2%. The decrease in attendance was primarily due to significantly adverse weather, including some combination of unusual heat and or rain across most of our markets, including during peak visitation periods. Total revenue per capita in the quarter decreased slightly to $76.90 compared to $77.05 in the third quarter of 2022. Admission per capita decreased 1.6% to $42.05, while in-park per capita spending increased by 1.6% to our record, $34.85 in the third quarter of 2023 compared to the third quarter of 2022. Admission per capita decreased primarily due to the net impact of the admissions product mix, partially offset by the realization of higher prices in our admissions products resulting from our strategic pricing efforts when compared to the prior year quarter. In part per capita, spending improved primarily due to pricing initiatives, partially offset by factors including weather, the emissions product mix, closures and disruptions related to construction delays at certain park and park locations when compared to the third quarter of 2022. Operating expenses decreased $10.1 million or 4.7% when compared to the third quarter of 2022. The decrease in operating expenses is primarily due to decreased labor-related costs, and a decrease in non-recurring legal costs and contractual liabilities resulting from the previously disclosed temporary COVID-19 part closures along with the impact of implemented structural cost savings initiatives when compared to the third quarter of 2022. Selling, general, and administrative expenses increased $6.6 billion or 12.5% compared to the third quarter of 2022. The increase in selling general and administrative expenses is primarily due to a $5.6 million increase in third-party consulting costs and legal fees, including approximately $2.7 million of non-recurring costs, primarily related to an opportunistic loan repricing and strategic initiatives, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to the third quarter of 2022. We generated net income of $123.6 million for the third quarter compared to net income of $134.6 million in the third quarter of 2022. The decline in net income is primarily related to the decrease in total revenue when compared to prior year. We generated adjusted EBITDA of $266.4 million, a decrease of $7.8 million when compared to the third quarter of 2022. The decline in adjusted EBITDA for the third quarter of 2023 was primarily driven by a decrease in revenue when compared to the third quarter of 2022. Looking at our results for the first nine months of 2023 compared to 2022, total revenue was $1.34 billion, a decrease of $3.1 million or 0.2%. Total attendance was 16.6 million guests, a decrease of 356,000 guests or 2.1%. Net income for the period was $194.1 million, a decline of $48 million, and adjusted EBITDA was $563.1 million, a decrease of $11.5 million, or 2.0%. Now turning to our balance sheet, our current deferred revenue balance as of the end of the third quarter was $161.1 million. Excluding certain one-time items, deferred revenue decreased approximately 5.4% when compared to September of 2022. At the end of October 2023, our past base, including all past products, was down slightly compared to October 2022. We're pleased that we are seeing high single-digit percentage price increases on our past products compared to prior year. As Mark said, we just recently launched our best past benefits program ever, which we expect will drive additional increases in past sales and a strong past base for next year. We're excited about our key past selling periods coming up, including during our Black Friday promotion and 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, encouragingly, continue to see an increase in the number of pass holders who have been with us for at least a year who transition 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 September 30, 2023, our total available liquidity was $586.8 million, including $215.2 million of cash and cash equivalents on our balance sheet, and $371.6 million available on our revolving credit facility. We spent $88.6 million on CAPEX in the third quarter of 2023, of which approximately $50.6 million was on core CAPEX, and approximately $38.1 million was on expansion and our ROI projects. For 2023, we expect to spend approximately $285 million to $295 million of CAPEX of which $160 million to $175 million will be spent on core CapEx. We're excited about our ability to make these high-confidence ROI investments and sincerely look forward to the benefits and returns from these investments flowing through to our financial results next year. Now, let me turn the call back over to Mark, who will share some final thoughts. Mark?
spk03: Thank you, Jim. Before we open the call to your questions, I have some closing comments. In the third quarter of 2023, we came to the aid of 56 animals in need. Over our history, we have now helped over 40,000 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 that they do to operate our parks. We are excited about the remainder of 2023 as we start our holiday events. As a reminder, SeaWorld Orlando's Christmas celebration was voted number one best theme park holiday event by USA Today's 10 Best Readers Choice Awards. We're proud of these events and the recognition we have received from our guests, and we expect this year to be our most exciting events yet. 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 deliver significantly improved operating and financial results that we expect will lead to meaningfully increased value for stakeholders. Now, let's open it up for your questions.
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. And the first question will be from Steve Wasinski from Stiefel. Please go ahead.
spk07: Hey, guys. Good morning. So, Mark, obviously weather was impactful during the quarter. Maybe not as bad as what you guys witnessed in the second quarter this year, but still seemed like it was impactful. And we heard similar comments from some of your peers. So I guess the question is, do you have a ballpark idea of what the weather impact was on your attendance? And just wondering if I mean, attendance was down, let's call it 2.5%, 3%, if you believe attendance would have been positive without the weather headwinds.
spk03: Yeah, thanks, Steve. Appreciate the question. I mean, obviously, as we said, weather was a very significant factor in the quarter. I think, as you noted, that's been pretty well documented by what's in the news throughout the summer and us and others. have talked about it. I don't know that I can give you an exact number. I think we would have been obviously much better in attendance. I don't know that we would have been positive, but we would have been certainly a lot closer. It is an estimate, but certainly would have been down quite a bit less without the impact of weather, obviously.
spk07: Okay, gotcha. And then, Mark, you mentioned in your prepared remarks that You kind of gave us your updated uses of free cash flow going forward. But I'm going to try to ask this question in a way you might give me an answer. But just wondering now your appetite, the board's appetite for acquisitions. And I ask that just given the fact, the news that you know, has come out over the last week or so in the amusement park space. So not sure, you know, what you can say around that, but any comments around your appetite for acquisitions would be, you know, would be appreciated.
spk03: Yeah, Steve, I'll just refer you back kind of to my comments I made. I mean, obviously acquisitions is in the consideration set for use of cash, right, along with, you know, buybacks, dividends, capital spend, all the things I listed. And so I don't have any specific comment on any specific transaction or anything. I think it's just something that the board obviously considers along with the other uses of cash.
spk07: Okay, understood. Thanks, guys. Appreciate it.
spk04: And the next question will be from James Hardiman from Citi. Please go ahead.
spk02: Hey, good morning. Thanks for taking my questions here. I think versus a lot of our models, the decrease in OPEX was maybe the biggest thing, the most impressive piece here and what stood out. If I look back at last year, I think you talked about labor costs actually being lower. I think you said you were short-staffed in last year's third quarter, but it seems like labor is what was called out as maybe the biggest driver there. Maybe walk us through where labor is today, where it's likely to head from here, and how we should think about, I guess, OPEX overall, but particularly that labor piece as we make our way into 2024. Yeah, thanks, James.
spk03: I can take that question. Look, what I would just call you back to some of my prepared comments that we have a tremendous focus on costs. And that includes, you know, labor, but obviously OPEX and other cost areas. So, you know, I think we've done a better job of looking at how we staff our parks, how we schedule our, you know, our hours and openings and closings and things like that and trying to be the most efficient that we can be in our parks. And I think some of that is coming through there. We're obviously... you know, in this business able to, you know, with parks being open, you know, some of our parks open almost every day of the year, you know, we're able to test and learn from that as well. So there's different things we can do around labor that, you know, we feel certainly helped in the quarter. But Jim can give you maybe some more specifics if you'd like on actual labor costs.
spk09: Yeah, James, I think what we found last year is that with that shorter staffing period, The result of that was the need to pay some higher wages in certain cases to attract and retain individuals, uh, that incentives to again, attract individuals. And we were running some overtime that we didn't want to necessarily run to staff our parks and provide service to our guests and drive revenue. Um, Bureau of Labor Statistics would say that over the past year, you would have seen a four and a half percent increase in leisure and hospitality wage rates. I'm pleased to report that we're actually opposite of that. We actually are probably down close to in excess of 2.5% of wage rate improvement because we are no longer having to offer as many incentives as we once did. And we've actually looked at specific labor wages and where we are seeing a good amount of interest in these positions, we are no longer having to pay as high a starting wage rate as we had in the past. And lastly, we are reducing that overtime, as I mentioned, because we are better staffed.
spk02: Got it. That's actually a really good color. And then I guess secondly, maybe help us with any quantification you can provide in terms of where we are in terms of the 2024 passes and in units and dollars, ideally. But I think a lot of people are trying to sort of bridge that gap between deferred revenue being down 12%, but group bookings and Discovery Cove up double digits. I think in your prepared remarks, you talked a lot about some of the one-time-ish or non-comparable items. But maybe the most important piece that I think people care about is just the passes and where we stand versus last year.
spk03: Yeah, let me start, and then Jim can add anything that he'd like to add. I think you heard in his prepared remarks, the pass base is down slightly as of the end of October. And keep in mind, when we say pass base, that includes passes, fund cards, teacher pass, preschool pass, all the different kind of pass items that are passes. And so the mix of those passes can certainly impact your deferred revenue, obviously. And then you mentioned already some of the one-time adjustments that Jim talked about. If you normalize those out, obviously that decline, I think, was around 5.5%. And then you also heard Jim talk a little bit about people that are in the out-of-commitment time period. So they are in a period where they are a month-to-month payer, almost like a gym membership member. And, you know, those are – you know, we love customers like that when they get to that month-to-month after 12 months. The accounting treatment on that, it does not flow through deferred revenue. It just flows, you know, right from the payment to revenue. So it bypasses deferred revenue. So that might be a little more color, and I think that's kind of what Jim said. Is there anything you want to add?
spk09: Yeah, the only thing I would add to that is just a reminder for those who follow this industry – Unlike many who are more seasonal in nature, we have actually the majority of our passes are sold in this April to July timeframe, as well as the Black Friday promotional period. So if you look at those more than half of our passes will be sold more next year than they would be this year. And I know a lot of, again, those in the space really focus on this fall period as getting most of their passes sold. We're a little bit different.
spk03: Yeah, that's a really important point that Jim just mentioned. Certainly, we sell passes year-round, right? And as he noted, a lot of those are sold in that spring, early summertime period when we're opening our rides and things like that. So, perhaps a little bit different than some of the others. And certainly I think the peak selling season is still ahead of us. And we just rolled out, as I mentioned, our best benefits ever, just rolled out here in the last few days. And so we're optimistic that that will be another reason that people will have to buy a pass or retain their existing pass. So we're excited about the opportunities that that hopefully has ahead of us.
spk04: And our next question will come from Michael Swartz from SunTrust. Please go ahead.
spk10: Hey, guys. Good morning. Maybe just one quick question, broader level. You know, the six flags in Cedar Fair acquisition, one of the rationale that they are using for the transaction is just increased diversification, limiting the impact of weather variability in different markets. I guess, as you take a step back and think about this from a high level, I mean, what are you doing internally, strategically, to really maybe reduce or lessen the impact of weather? Obviously, that's been a big, big issue with all operators this year.
spk03: Yeah, hey, Michael, I can help you out there. So, look, certainly one of the things we just talked about a little bit is, you know, building a pass space. You know, certainly that That helps insulate you from weather and I think you'll see our efforts around that and you'll continue to see us push that program. That kind of locks in that commitment and we still want those people to come, but if for some reason the weather is bad and they can't come, you still have that commitment from them. But beyond that, really, it's taking a look at different things in our parks. We've talked a little bit about some of this aesthetic capital that we've deployed. And so that can be around shade structures, for example, where particularly hot or unshady part of the park, we try to put more shade there to make, if you're visiting on a hotter day, it can make that visit more comfortable for you. I think the other thing we've looked at is what are the opportunities to do some more things indoors? And so next year, we look at shows Like we've got an indoor aquarium jellyfish experience coming to San Diego, for example. So there's indoor opportunities as well that can be good. So we recognize it's something that we'll continue to work on with the various initiatives we have. We have, to keep going here, we have programs around like drink refills and things like that that people can avail themselves of, you know, they can buy a refillable cup for a certain price and they get, you know, refills, you know, or very low cost refills. So just things to try to make guests more comfortable while they're here.
spk09: The only thing I might, you know, in addition to that, I don't think some of our guests are fully appreciative that some of our water parks are heated, for example. So we're doing some nice capital investment this year. We've got boilers to keep people warm when the weather's colder. And we also look at our park operating hours to ensure that if we've got consistent, let's say, afternoon thunderstorms in certain locations, that we provide an opportunity for guests to get a full day experience by ensuring that we're providing enough hours before and after the traditional storms to allow for that.
spk10: Okay, great. I know you don't give guidance, but just in terms of the fourth quarter, obviously you've said that October, excluding the extra Saturday from last year, is up low single digits. Is that maybe the right way to think about how November, December should play out? I know there's probably some calendar differences and weather differentials, maybe even easier comps, but any general commentary you can provide about maybe how to frame the entire quarter?
spk03: Yeah, hey, Michael. I mean, look, what I would tell you is we're excited about the rest of the year. I mean, we're starting – our Christmas events in some of our parks this week. And I think somewhat like Halloween, we have found those to be pretty popular and things that people like to come and do. And in some cases, people who come annually to visit as a tradition with their family or something. So I feel good about our product. I feel good about the passes that are on sale now to enjoy that product. And we have obviously a lot more than just pass holders that come. Pass is only a component of our attendance. It's a big one, but certainly we have other ticket types as well, and we'll have other reasons for people to buy certain tickets and come and visit. So I think there's a lot of reason to come. I'm not sure I can guide you to anything other than last year, obviously there was some weather in Q4 that we talked about on the Q4 earnings call. You know, hopefully that doesn't repeat. Who knows? But, you know, I think we like the product, and I think that's a big reason that we have confidence.
spk04: And our next question will come from Chris Woronka from Deutsche Bank. Please go ahead.
spk06: Hey, good morning, guys. Thanks for all the details so far. Mark, I was hoping maybe we could drill down a little bit, just, you know, some of the attendance issues. I guess issues in the quarter, you covered weather for a lot, but do you think there's any, any of it that just relates to maybe Orlando, um, you know, seeing a broader slowdown and whether that relates to Disney or something else? I mean, I think we've, we've started to, you know, hear that a little bit from some of the hotel people down there. Just curious as whether you have any thoughts on that.
spk03: Yeah. So Chris, look, I don't know that I can comment on, on, on, on the other parts. I mean, um, You know, you can read up on like Orlando tourist tax collections and things like that, which, you know, to your point, had been negative for I think a couple months. But, you know, in general, we have a lot of factors that impact our attendance. You know, certainly weather is one that is probably a little more quantifiable. And then you have calendar impacts and other things. But, you know, there's a lot of factors. I think in general, when I look at our Orlando parks, yeah, we'd like to be, obviously, do a little bit better, but I don't think we're, you know, at all like down on the market or our parks or anything like that. I think we offer a very compelling product here. And as I've said previously, you know, we get a lot of our attendance directly in the Orlando market from the state of Florida. So I think as people continue to look, maybe if you're alluding to taking closer in trips, I think that is helpful to parks like ours, whether it's in Orlando specifically or even down in Tampa. But we're working hard to make sure between the concluded Halloween events and then our Christmas events that we give people reason to come and visit, even if, to your point, You know, maybe the tourism end of that destination is down. We want to make sure we capture more locals and people that are nearby as much as we can.
spk06: Okay. Thanks for that, Mark. And then follow-up is on the hotel strategy, and you gave a lot of details already. I know there's more to come. My question would be, you know, it sounds like you know what you want to do, and it sounds like as of now, you know, you would go on balance sheet. Is there any thought longer term to – you know, either working with a partner or really just kind of getting those off of the balance sheet? Are there any, you know, structural reasons why you couldn't consider it or why you might consider it?
spk03: Yeah, Chris, what I would just tell you, I mean, I think in my prepared remarks, you know, I alluded to that there's several options when we look at how you would approach the hotels from, you know, a funding standpoint. So I don't, you know, I think there's multiple ways you could do it. You've kind of alluded to one already. So I think like anything else, we would work together with our board to determine what is the best option for us at the time. I said you can kind of assume we would probably do some sort of debt and internal cash combination. But again, I think we're open to looking at other options, which there are several, as
spk04: Thank you. And our next question is from Thomas Yeh from Morgan Stanley. Please go ahead.
spk01: Thanks so much. Just following up on that last question, is one of the alternatives still also just owning the hotels outright? And maybe at a broader level, whether it's thinking about M&A or organic investments, what's the right leverage target that you're comfortable with as we think about maybe financing some of it through debt?
spk03: You know, it's I appreciate the question, Thomas. I mean, look, we're, you know, I think we're comfortable where we are now and not to say that, as we've said in the past, that we wouldn't be comfortable at something higher than that. But, again, I think it just, you know, that's sitting here today and, you know, given the markets today and things like that. So, you know, I think you also got to think a little bit about, you know, Our ability to generate cash flow, as I noted, I think is strong. So I think between some combination of cash flow and debt financing, I think we feel comfortable where that would put us from a leverage ratio sitting here today.
spk01: Okay, I appreciate that. And then on the Abu Dhabi contribution, it sounds like it's trending better. Can you maybe just help us with 3Q, how much it contributed to in part per cap and what it might have looked like excluding it?
spk03: You know, I mean, look, we're pleased with the performance of, you know, as I noted, the performance, the attendance there is above original expectations. I think I gave you some color in the past on how to think about that. So, you know, I don't know that it's anything that we're going to guide to a whole lot. You know, I would just leave it at that.
spk04: Thank you. And the next question will be from Barton Crockett from Rosenblatt. Please go ahead.
spk11: Hi. You know, I'm going to go ahead and just ask a question about just the obvious point here, just to make sure that we get as clear on this as we can. So, you know, with the proposal of the mergers of, you know, Cedar Fair and Six Flags, you know, you guys have in the past, you know, had some interest in Cedar Fair that you pulled back from. You know, this merger has been announced. There's been a somewhat kind of real estate-driven activist and investor of some sort at Six Flags that said to kind of vote against the merger. And you guys have said really you've been very silent on this. I'm just wondering, is it reasonable for your shareholders to assume right now that you guys are closing the door on making a run at one or the other company in that merger process, or is that not the case right now?
spk03: Yeah, Barton, I mean, what I'll tell you is, you know, obviously we're not going to really comment on M&A. I mean, I think what you can assume is that, you know, our board is aware and has studied the transaction. But, you know, beyond that, you know, we're not going to comment on it.
spk11: Okay. All right. And then, you know, you made the comment about, back to your business, the double-digit rise in group and Discovery Cove, you know, is kind of a positive indicator for next year. To what extent historically has that been predictive? You know, is that really a good data point to tell you what's going to happen or not? You know, it's a particular small part of your business, but, you know, how good of an indicator is that?
spk03: I mean, you know, what I would tell you is it's obviously, you know, I think a positive, you know, state in the atmosphere. a positive that those things are doing what I said they were doing. It's just one of many things we look at. I don't know that we've ever looked at how predictive it is, but certainly I guess my point is if people were suddenly not interested in our parks or pulling back, not wanting to go to Discovery Cove or not wanting to hold their group event at one of our parks, I would think that would show up in the numbers. The fact that those things are moving on a revenue basis up double digits, percentages, I think is a positive indicator.
spk04: Thank you. And the next question will be from Matt Fassler from Goldman Sachs. Please go ahead.
spk00: It's actually Lizzie Dove from Goldman Sachs, but thank you for taking the question. I wanted to just see your thoughts on CapEx, especially You know, you have Universal opening Epic in the summer of 2025. You've got Disney announcing that, you know, they'd spend an extra $60 billion on its parks and resorts over the next 10 years, which I imagine a decent chunk of that is going to go to Orlando. So in light of all that, how does that kind of change how you allocate your capex in terms of, you know, the new rides that you've talked about versus hotels or all of those different things?
spk03: Yeah, let me take that question. I mean, you know, a couple things. One, I think we've been pretty clear that our goal is to have something new in each of our parks, and certainly that would include SeaWorld Orlando each year going forward. So we'll continue to obviously invest in Orlando and in our other parks. But just a reminder on Orlando, because occasionally people do ask this question. I really like being in Orlando, right? You know, it's the largest tourism market, you know, in the United States. We've been here, you know, since the early 1970s. And if you think about it, we had one SeaWorld Park. And if you think about all the parks that have opened since that time, including us, we opened two others, Aquatica and Discovery Cove. And then you got all the Disney parks that came, all the Universal parks that have come, you know, all the other, you know, other ancillary things, whether it's Legoland or Peppa the Pig, whatever it may be. There's been a lot of investment in the market, and I think we've obviously continued, I think, to benefit from that. So we welcome the investment. We have a differentiated product. I think that sets us apart in a lot of ways from our competitors. So we'll continue to, I think, benefit from being in a market that's growing, and we'll continue to find ways to take advantage of that like we have over the last 50 years. I mean, it's pretty remarkable when you look at the investment into this market over that time, you know, since we opened SeaWorld in the early 1970s. And I think, you know, we've continued to be, you know, performing in this market and, you know, well enough that obviously we hope in two additional parks that we are really proud of. So we like the investment. We welcome the investment. We're glad we're in Orlando.
spk00: I appreciate that. That's helpful. And just one follow-up, if I may. Earlier in the year, you talked about expecting a record year in EBITDA. I think you had not fully committed to that last quarter. I'm curious how you're thinking about that. Obviously, you've had some challenges with the weather and also kind of the outlook for 2024, especially when you have seen some improvements on the OPEC side, which James called out earlier.
spk03: Yeah, look, I don't have anything to guide you to other than, I mean, you can see what our LTM number is. But look, we're going to work our hardest to finish this year. I already, you know, in a strong fashion, I like our lineup of events with Christmas that we've talked about. So, you know, we're going to finish as strong as we can here for the rest of the year. We'll see where that, you know, ultimately lands in total for the year. You know, as far as like, again, I'm not going to give you guidance for 2024 or anything like that. But, you know, just, you know, I kind of mentioned this in my prepared remarks, how we think about growing the business, and it's, I think, a pretty simple formula. If you can grow your attendance 1% or so, if you can grow your per caps 2%, 3%, 4% or so, and if you manage your costs well while you're doing that, you can expand your adjusted EBITDA probably in the 5% range. And I'm certainly not guiding you to anything, but that's how we think about it on a normalized basis. And then if you think about where we once were as a company, we did over 25 million in attendance back in 2008. So we still have a lot of runway left to get back to that. So that gives me confidence that we've achieved something in the past. And there's reasons that if we achieved it in the past, why can't we achieve it again in the future? So that's kind of how we think about the business going forward. And then you layer on, you know, really the efficiency efforts that you've talked about, the pricing efforts, all the other things that we've talked about. So, again, not guiding you to anything, but just giving you some color on how we think about the go forward. Still a lot of opportunity, especially to get back attendance that we once achieved, whether it's 2008 or, you know, other years. So a lot to think about there.
spk04: And the next question is from Robert Arand from KeyBank. Please go ahead.
spk05: Thank you for taking my question. I wanted to follow up around the group bookings commentary. You had set up double digits. Can you just remind us, is there any kind of easy comp dynamic playing into that? And maybe you could give us kind of how group bookings compare to 2019 at this time of year?
spk03: Well, what I would tell you, Robert, is that was the revenue trends that we talked about. I don't know that we have back to 2019, but what I would tell you is we feel on the revenue trend there, the group business we feel has come back in a lot of ways from a revenue standpoint versus the dramatic slowdown after COVID. So I think we're optimistic that we can continue to grow that part of our business. We have a great product to showcase at our parks. We have opportunities for groups to come in here and do things that, again, like I've said, are differentiated and unique to us and that you're not going to find in other parks. We're going to, I think, showcase that better and try to do a better job of that on a go-forward basis.
spk05: All right. Just as my follow-up, I wanted to ask about October per caps you had for them to release up low single digits. Can you give us any kind of color there, kind of breaking that between, you know, admissions versus in-park and then kind of how you're thinking about those buckets into 24? I mean, it sounds like you want to grow both those buckets, but maybe where you'd expect kind of more of the growth to come from?
spk03: Yeah, so just a little bit of color on per caps in October. I mean, you know, I think... You know, admissions and MPARC were both positive for the month, and that gave you the total increase that we talked about, I think, in the low single digits we said. So that's hopefully helpful. And really, the way we think about it is kind of what I already said, but, you know, if you can grow your pricing a little bit each year, you know, on the admissions, you don't have to grow per capita more than, you know, a couple percentage points, right, 2%, 3%, 4%. And if you can grow your attendance a little bit and manage your costs well, that can drive an increase in EBITDA that I've already talked about. So again, that's how we think about it going forward. I think what else we add into that is some of the venue refreshes that we're doing, some of the new additions in our parks, whether it's getting things open that were under construction previously or new venues. I was just down in Tampa a couple weeks ago, Busch Gardens Tampa, and they just opened a refurbished pizza venue that's really well done. And I think it's new, and then the bathrooms adjacent to it are all redone. So it's very nice, and I think those are the type of things that we'll continue to do. And typically, when we do refreshed venues, we do see good returns, as we've talked about. That's why we do them. So we're going to continue to make the investments in those type of things. But then we'll also look for kind of other opportunities to take pricing or get more penetration as well on a go-forward basis.
spk04: This concludes our question and answer session. I would like to turn the conference back over to Mark Swanson, CEO, for any closing remarks.
spk03: Thank you, Chad. On behalf of Jim and the rest of the management team here at SeaWorld Entertainment, I 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 with you next quarter.
spk04: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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