Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to our “theme parks” or “parks” in the discussion that follows includes all of our separately gated parks. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Introduction
The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” section of our Annual Report on Form 10-K for the year ended December 31, 2020.
Business Overview
We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States. Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.
Recent Developments
Impact of Global COVID-19 Pandemic
Since the global COVID-19 pandemic began we have taken proactive measures for the safety of our guests, employees and animals, to manage costs and expenditures, and to provide liquidity. In compliance with government restrictions, we temporarily closed all of our theme parks effective March 16, 2020. Beginning in June 2020, we began the phased reopening of some of our parks with capacity limitations and modified/limited operations. By August 2020, we had reopened 10 of our 12 parks on a limited basis. See further discussion relating to the capacity limitations for some of our parks in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
At the start of the first quarter of 2021, seven of our 12 parks were open, compared to eight of our 12 parks at the start of 2020. At the end of the first quarter of 2021, 10 of our 12 parks were open, compared to all of our parks temporarily closed at the end of the first quarter of 2020. We continue to operate all of our open parks with capacity limitations and modified/limited operations.
In response to the COVID-19 pandemic, we have implemented enhanced health and safety protocols for our parks including capacity limitations, increased cleaning measures, physical distancing practices, face covering requirements and temperature screening of both guests and employees. Additionally, we have managed the number of operating days and operating hours by park to optimize cash flow. We also continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives. Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities which we believe will further strengthen our business as we return to normalized operations.
With approved vaccines being distributed, we anticipate public health conditions, the operating environment and capacity limitations to improve; however, there can be no certainty of the extent and effectiveness of the vaccines or how they will impact these factors and others, including domestic or international travel, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings .
We have also experienced recent challenges in meeting our seasonal staffing goals due in part to COVID-19 related and other factors.
For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section which follows. For other factors concerning the global COVID-19 pandemic, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
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Leadership Changes
On May 6, 2021, we announced our Board of Directors (the “Board”) appointed Marc G. Swanson, who had been serving as the Company’s Interim Chief Executive Officer, to serve as Chief Executive Officer and Elizabeth C. Gulacsy, who had been serving as the Company’s Interim Chief Financial Officer and Treasurer, to serve as our Chief Financial Officer and Treasurer. Both roles are effective immediately. Separately, on April 26, 2021, we announced the appointment of Christopher Yarris as Chief Accounting Officer of the Company effective on such date.
Principal Factors and Trends Affecting Our Results of Operations
Revenues
Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for culinary, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12-month term), season passes (including our fun card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products.
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:
•
Admission Per Capita. We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests. A higher mix of complimentary tickets will lower our admissions per capita. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks.
•
In-Park Per Capita Spending. We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of culinary, merchandise, parking and other in-park products and also includes other miscellaneous revenue, including online transaction fees, not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing changes, new product offerings, the mix of guests (such as local, domestic or international guests), penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors.
See further discussion in the “ Results of Operations ” section which follows and in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For other factors affecting our revenues, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Attendance
The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.
As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets, has been and will continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines for adults and children, and overall public safety sentiment. We continuously monitor factors impacting our attendance, making strategic operations, marketing and sales adjustments as necessary.
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Costs and Expenses
Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels, among other factors. The mix of products sold compared to the prior year period can also impact our costs as generally retail products have a higher cost of sales component than our culinary or other in-park offerings.
As a result of the impact of the COVID-19 pandemic on our business, costs and expenses as a percent of revenue for the three months ended March 31, 2021 and 2020, are not necessarily indicative of costs and expenses as a percent of revenue for any future period, due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, as well as certain costs associated with the COVID-19 pandemic.
See the “ Impact of Global COVID-19 Pandemic ” section for further details. For other factors affecting our costs and expenses, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Seasonality
The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were historically only open for a portion of the year. As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred net losses in the first and fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year. Even for our five theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns. Due in part to the temporary park closures, capacity limitations and modified/limited operations, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future. Furthermore, any changes to the operating schedule of a park such as increasing operating days for our seasonal parks, could impact seasonality in the future. During the first quarter of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania. See ““ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Results of Operations
Our results for the three months ended March 31, 2021 are not directly comparable to the three months ended March 31, 2020 primarily due to temporary park closures, effective on March 16, 2020, capacity limitations, and modified/limited operations associated with the COVID-19 pandemic. Our business continues to be impacted by the COVID-19 pandemic; however, we have seen improvement in operating results during the three months ended March 31, 2021 due in part to strategic measures we have taken both before and during the COVID-19 pandemic.
See “Attendance” for further discussion of the adverse impacts of the COVID-19 pandemic on our business. The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
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Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 20 20
The following table presents key operating and financial information for the three months ended March 31, 2021 and 2020:
For the Three Months Ended
March 31,
Variance
2021
2020
$
%
Summary Financial Data:
(In thousands, except per capita data and %)
Net revenues:
Admissions
$
95,780
$
90,506
$
5,274
5.8
%
Food, merchandise and other
76,140
63,055
13,085
20.8
%
Total revenues
171,920
153,561
18,359
12.0
%
Costs and expenses:
Cost of food, merchandise and other revenues
14,942
13,104
1,838
14.0
%
Operating expenses (exclusive of depreciation and amortization shown separately below)
107,772
132,999
(25,227
)
(19.0
%)
Selling, general and administrative expenses
31,464
26,954
4,510
16.7
%
Severance and other separation costs
86
65
21
32.3
%
Depreciation and amortization
36,558
38,013
(1,455
)
(3.8
%)
Total costs and expenses
190,822
211,135
(20,313
)
(9.6
%)
Operating loss
(18,902
)
(57,574
)
38,672
67.2
%
Other (income) expense, net
174
(12
)
186
NM
Interest expense
30,956
19,153
11,803
61.6
%
Loss before income taxes
(50,032
)
(76,715
)
26,683
34.8
%
Benefit from income taxes
(5,148
)
(20,196
)
15,048
74.5
%
Net Loss
$
(44,884
)
$
(56,519
)
$
11,635
20.6
%
Other data:
Attendance
2,214
2,318
(104
)
(4.5
%)
Total revenue per capita
$
77.63
$
66.25
$
11.39
17.2
%
Admission per capita
$
43.25
$
39.05
$
4.20
10.8
%
In-park per capita spending
$
34.38
$
27.20
$
7.18
26.4
%
NM-Not Meaningful.
Admissions revenue . Admissions revenue for the three months ended March 31, 2021 increased $5.3 million, or 5.8%, to $95.8 million as compared to $90.5 million for the three months ended March 31, 2020. The improvement was a result of an increase in admissions per capita partially offset by a decline in attendance. Admission per capita increased by 10.8% to $43.25 for the first quarter of 2021 compared to $39.05 in the prior year quarter, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter. Total attendance for the first quarter of 2021 decreased by approximately 0.1 million guests, or 4.5%, when compared to the prior year quarter. Attendance declined due to COVID-19 related impacts including capacity limitations and modified/limited operations, partially offset by an increase of 34% more operating days in the first quarter of 2021 compared to the first quarter of 2020 due in part to the temporary park closures which fell during the spring break period in 2020 at most of our parks.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended March 31, 2021 increased $13.1 million, or 20.8%, to $76.1 million as compared to $63.1 million for the three months ended March 31, 2020, primarily as a result of an increase in in-park per capita spending, partially offset by the decline in attendance as discussed above. In-park per capita spending increased by 26.4% to $34.38 in the first quarter of 2021 compared to $27.20 in the first quarter of 2020, primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2021 increased $1.8 million, or 14.0%, to $14.9 million as compared to $13.1 million for the three months ended March 31, 2020, primarily due to the increase in related revenue. These costs represent 19.6% and 20.8% of the related revenue earned for the three months ended March 31, 2021 and 2020, respectively. The decrease as a percent of related revenue partly relates to the impact of higher realized prices on some of our in-park products.
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Operating expenses. Operating expenses for the three months ended March 31, 2021 decreased $25.2 million, or 19.0% , to $107.8 million as compared to $133.0 million for the three months ended March 31, 2020 . The decrease primarily relates to a net reduction in labor-related costs and other operating costs resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations , which more than offset the impact of additional operating days during the first quarter of 2021 and incremental operating expenses associated with our response to the COVID-19 pandemic . Due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses as a percent of revenue are not comparable to the prior year period primarily due to the impact of the temporary park closures in 2020.
Selling, general and administrative expenses . Selling, general and administrative expenses for the three months ended March 31, 2021 increased $4.5 million, or 16.7%, to $31.5 million as compared to $27.0 million for the three months ended March 31, 2020. Excluding the impact of certain legal settlement proceeds in the prior year period, selling, general and administrative expenses decreased by approximately $8.0 million primarily related to a reduction in marketing related costs due in part to cost savings initiatives and the impact of COVID-19 modified/limited operations and a decrease in legal costs. The legal settlement proceeds in the prior year period related to approximately $12.5 million received related to a legal matter. See Note 9–Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
Depreciation and amortization. Depreciation and amortization expense for the three months ended March 31, 2021 decreased $1.5 million, or 3.8%, to $36.6 million as compared to $38.0 million for the three months ended March 31, 2020. The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.
Interest expense. Interest expense for the three months ended March 31, 2021 increased $11.8 million, or 61.6%, to $31.0 million as compared to $19.2 million for the three months ended March 31, 2020. The increase primarily relates to interest related to the Senior Notes issued in April 2020 and the Second-Priority Senior Secured Notes issued in August 2020, partially offset by the impact of decreased LIBOR rates. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “ Our Indebtedness ” section which follows for further details.
Benefit from income taxes. Benefit from income taxes in the three months ended March 31, 2021 was $5.1 million compared to $20.2 million for the three months ended March 31, 2020. Our consolidated effective tax rate was 10.3% for the three months ended March 31, 2021 compared to 26.3% for the three months ended March 31, 2020. The effective tax rate decreased primarily due to non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation.
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Supplemental Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2019
We believe a comparison of selected financial results for the three months ended March 31, 2021 to the three months ended March 31, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business. As such, the following supplemental discussion provides an analysis of selected operating results for the three months ended March 31, 2021 compared to the three months ended March 31, 2019. The selected summary financial data for the first quarter of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for three months ended March 31, 2019. The following table presents selected key operating and financial information for the three months ended March 31, 2021 and 2019:
For the Three Months Ended March 31,
Variance
2021
2019
$
%
Selected Summary Financial Data:
(In thousands, except per capita data and %)
Net revenues:
Admissions
$
95,780
$
128,913
$
(33,133
)
(25.7
%)
Food, merchandise and other
76,140
91,662
(15,522
)
(16.9
%)
Total revenues
$
171,920
$
220,575
$
(48,655
)
(22.1
%)
Selected costs and expenses:
Cost of food, merchandise and other revenues
$
14,942
$
17,213
$
(2,271
)
(13.2
%)
Operating expenses (exclusive of depreciation and amortization)
$
107,772
$
149,885
$
(42,113
)
(28.1
%)
Selling, general and administrative expenses
$
31,464
$
42,764
$
(11,300
)
(26.4
%)
Other data:
Attendance
2,214
3,340
(1,126
)
(33.7
%)
Total revenue per capita
$
77.63
$
66.04
$
11.59
17.6
%
Admission per capita
$
43.25
$
38.60
$
4.65
12.0
%
In-park per capita spending
$
34.38
$
27.44
$
6.94
25.3
%
Admissions revenue . Admissions revenue for the three months ended March 31, 2021 decreased $33.1 million, or 25.7%, to $95.8 million as compared to $128.9 million for the three months ended March 31, 2019. The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 1.1 million guests, or 33.7%, partially offset by an increase in admission per capita. Attendance declined when compared to 2019 due to COVID-19 related impacts including capacity limitations and modified/limited operations at all of our open parks. Admission per capita increased by 12.0% to $43.25 in 2021 compared to $38.60 in 2019. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the first quarter of 2019.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended March 31, 2021 decreased $15.5 million, or 16.9%, to $76.1 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of a decrease in attendance as discussed above, partially offset by an increase in in-park per capita spending. In-park per capita spending increased by 25.3% to $34.38 in the first quarter of 2021 compared to $27.44 in the first quarter of 2019. In-park per capita spending improved primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2021 decreased $2.3 million, or 13.2%, to $14.9 million as compared to $17.2 million for the three months ended March 31, 2019, primarily due to the decrease in volume. These costs represent 19.6% and 18.8% of the related revenue earned for the three months ended March 31, 2021 and 2019, respectively. The increase as a percent of related revenue partly relates to a higher mix of retail products sold, which generally have a higher cost of sales component than our culinary or other in park products.
Operating expenses. Operating expenses for the three months ended March 31, 2021 decreased $42.1 million, or 28.1%, to $107.8 million as compared to $149.9 million for the three months ended March 31, 2019. The decrease largely results from a reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations, partially offset by incremental operating expenses associated with our response to the COVID-19 pandemic.
Selling, general and administrative expenses . Selling, general and administrative expenses for the three months ended March 31, 2021 decreased $11.3 million, or 26.4%, to $31.5 million as compared to $42.8 million for the three months ended March 31, 2019. The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives.
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Liquidity and Capital Resources
Overview
Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and could include share repurchases, when permitted. As of March 31, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.4, due in part to our outstanding cash balance at March 31, 2021. Historically, we typically operate with a working capital ratio less than 1 due to significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances. Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs. See the “ Impact of Global COVID-19 Pandemic ” section and the “ Our Indebtedness ” section for further details concerning the proactive measures we have taken to address liquidity in response to the COVID-19 pandemic.
As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.
Share Repurchases
See Note 11–Stockholders’ Deficit in our notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Share Repurchase Program.
Other
We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our revolving credit facility will be adequate to meet the capital expenditures and working capital requirements of our operations for at least the next 12 months.
The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:
For the Three Months Ended March 31,
2021
2020
(In thousands)
Net cash provided by (used in) operating activities
$
18,393
$
(40,767
)
Net cash used in investing activities
(15,298
)
(49,249
)
Net cash (used in) provided by financing activities
(5,612
)
242,819
Net (decrease) increase in cash and cash equivalents, including restricted cash
$
(2,517
)
$
152,803
Cash Flows from Operating Activities
Net cash provided by operating activities was $18.4 million during the three months ended March 31, 2021 as compared to net cash used in operating activities of $40.8 million during the three months ended March 31, 2020. The change in net cash provided by (used in) operating activities was primarily impacted by improved operating performance including increased sales of admission products, partially offset by the impact of increased interest payments and deferred vendor payments in the first quarter of 2021 when compared to the first quarter of 2020, which was impacted by the temporary park closures. The deferred vendor payments in the first quarter of 2021 relate to certain vendor payments during the period, which were previously deferred in order to manage liquidity in response to the temporary park closures and limited re-openings related to the COVID-19 pandemic.
Cash Flows from Investing Activities
Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the three months ended March 31, 2021 consisted of capital expenditures of $15.3 million largely related to future attractions. Net cash used in investing activities during the three months ended March 31, 2020 consisted of $49.2 million of capital expenditures.
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The following table presents detail of our capital expenditures for the periods indicated:
For the Three Months Ended March 31,
2021
2020
Capital Expenditures:
(Unaudited, in thousands)
Core (a)
$
10,883
$
44,518
Expansion/ROI projects (b)
4,415
4,731
Capital expenditures, total
$
15,298
$
49,249
(a)
Reflects capital expenditures for park rides, attractions and maintenance activities.
(b)
Reflects capital expenditures for park expansion, new properties, and revenue and/or expense return on investment (“ROI”) projects.
The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements. Historically, we generally expect to fund our capital expenditures through our operating cash flow. See the “ Impact of Global COVID-19 Pandemic ” section for further details regarding proactive measures we have taken starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides.
Cash Flows from Financing Activities
Net cash used in financing activities during the three months ended March 31, 2021 results primarily repayments on long-term debt of $3.9 million. Net cash used in financing activities during the three months ended March 31, 2020 results primarily from net draws of $262.5 million on our revolving credit facility, partially offset by share repurchases of $12.4 million and net repayments on long-term debt of $3.9 million. See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements for further details.
Our Indebtedness
We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below. As of March 31, 2021, our indebtedness consisted of senior secured credit facilities, first-priority senior secured notes (“Senior Notes”) and second-priority senior secured notes (“Second-Priority Senior Notes”).
See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details concerning our long-term debt.
Senior Secured Credit Facilities
SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement (the “Amended Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time (the “Senior Secured Credit Facilities”).
As of March 31, 2021, our Senior Secured Credit Facilities consisted of $1.489 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which had no amounts outstanding as of March 31, 2021. As of March 31, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $312.0 million available for borrowing under the Revolving Credit Facility. See “Covenant Compliance” discussion which follows for information regarding our required quarterly liquidity test which could impact amounts available for borrowing.
Senior Secured Notes
On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% Senior Notes and on August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% Second-Priority Senior Notes.
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Covenant Compliance
As of March 31, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.
The Revolving Credit Facility requires that we comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed $30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility. Pursuant to Amendment No. 12, among other terms, SEA is exempt from complying with its first lien secured leverage ratio covenant through the end of 2021, after which SEA will be required to comply with such covenants starting at the first quarter of 2022. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to the calculation beginning in the first quarter of 2022. In addition, SEA will be required to comply with a quarterly minimum liquidity test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date on which we elect to use actual Adjusted EBITDA for purposes of calculating our financial maintenance covenant.
Adjusted EBITDA
Under the credit agreement governing the Senior Secured Credit Facilities, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on “Adjusted EBITDA”. The Senior Secured Credit Facilities defines “Adjusted EBITDA” as net income or loss before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude certain unusual, non-cash, and other items permitted in calculating covenant compliance under the Senior Secured Credit Facilities, subject to certain limitations. Adjusted EBITDA as defined in the Senior Secured Credit Facilities is consistent with our reported Adjusted EBITDA.
We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, the presentation of Adjusted EBITDA for the last twelve months provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Senior Secured Credit Facilities. See the “Our Indebtedness-Covenant Compliance” section for further details.
Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States of America (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and is not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.
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The following table reconciles Adjusted EBITDA, as defined in the Amended Credit Agreement, to net loss for the periods indicated:
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Three Months Ended March 31,
Last Twelve Months Ended March 31,
2021
2020
2021
(Unaudited, in thousands)
Net loss
$
(44,884
)
$
(56,519
)
$
(300,686
)
Benefit from income taxes
(5,148
)
(20,196
)
(15,477
)
Interest expense
30,956
19,153
112,710
Depreciation and amortization
36,558
38,013
149,091
Equity-based compensation expense (a)
4,473
(3,601
)
15,541
Loss on impairment or disposal of assets and certain non-cash expenses (b)
608
385
7,410
Business optimization, development and strategic initiative costs (c)
512
2,035
5,745
Certain investment costs and other taxes (d)
87
102
1,029
Other adjusting items (e)
2,027
(10,225
)
7,493
Adjusted EBITDA (f)
$
25,189
$
(30,853
)
$
(17,144
)
Items added back to Adjusted EBITDA, after cost savings, as defined in the Amended Credit Agreement:
Estimated cost savings (g)
—
Adjusted EBITDA, after cost savings (h)
$
(17,144
)
(a)
Reflects non-cash equity compensation expenses associated with the grants of equity compensation. For the three months ended March 31, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which were no longer considered probable of vesting. See Note 10–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details.
(b)
Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals. For the twelve months ended March 31, 2021, reflects asset write-offs primarily related to certain rides and equipment which were removed from service.
(c)
For the three months ended March 31, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $1.8 million of third party consulting costs. For the twelve months ended March 31, 2021, reflects business optimization, development and other strategic initiative costs primarily related to $2.8 million of severance and other employment costs and $1.4 million of third party consulting costs.
(d)
For the twelve months ended March 31, 2021, includes costs associated with a Registration Statement on Form S-3 filed in 2020.
(e)
Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. For the three months ended March 31, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures.
For the three months ended March 31, 2020, includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed .
For the twelve months ended March 31, 2021, includes approximately $11.0 million of incremental non-recurring costs associated with the COVID-19 pandemic, partially offset by approximately $4.4 million related to the return of funds previously paid for a legal settlement. See Note 9–Commitments and Contingencies in our notes to the unaudited condensed consolidated financial statements for further details. The costs associated with the COVID-19 pandemic primarily relate to incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures, incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, legal costs related to COVID-19 related matters, and temporary or initial purchases of safety monitoring and personal protective equipment.
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(f)
Adjusted EBITDA is defined as net loss before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items permitted in calculating covenant compliance under the credit agreement governing our Senior Secured Credit Facilities.
(g)
The Senior Secured Credit Facilities permits the calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings we expect to realize over the following 18 month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact our reported GAAP net (loss) income. The Amended Credit Agreement limits the amount of such estimated savings which may be reflected to 25% of Adjusted EBITDA, calculated for the last twelve months before the impact of these estimated cost savings.
(h)
The Senior Secured Credit Facilities permits our calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings as described in footnote (g) above.
Contractual Obligations
There have been no material changes to our contractual obligations as March 31, 2021 from those previously disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived tangible and intangible assets, the valuation of goodwill and other indefinite-lived intangible assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on February 26, 2021 .
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of March 31, 2021.
Recently Issued Financial Accounting Standards
Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.