What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-15 · 156 added, 300 removed, 159 unchanged (74% of the section changed)

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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.

You should carefully read “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.

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.

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Impact of Global COVID-19 Pandemic

In response to the global COVID-19 pandemic and 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/or modified/limited operations, which extended through 2020 and into 2021.

By the end of the second quarter of 2021, all of our parks were operating without COVID-19 related capacity limitations.

Our results of operations for the three months ended March 31, 2022 and 2021 continue to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance in both periods.

Additionally, results of operations for the three months ended March 31, 2021 were also significantly impacted by the following factors:

(i) capacity limitations, modified/limited operations and/or temporary park closures;

(ii) decreased demand due to public concerns associated with the pandemic;

and (iii) restrictions on international travel.

See further discussion 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.

Due to the COVID-19 pandemic, we 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.

During the second quarter of 2021, based on revisions to federal, state and local guidelines, we modified some of these protocols.

In particular, we are no longer requiring face coverings outdoors for guests and employees who are fully vaccinated.

We have also discontinued temperature screenings at all of our parks.

Additionally, in July 2021, excluding our reservations-only Discovery Cove park, we suspended the requirement for our guests to use our reservation system, providing guests more flexibility in planning their visit.

We 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 approved vaccines continue to be distributed, public health conditions, the operating environment and capacity limitations have improved;

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, group events, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings .

As approved vaccines continue to be distributed, the operating environment has improved and COVID-19 related capacity limitations have been eliminated;

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, group events and group-related attendance, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings .

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.

Current Operating Environment

Our Board has formed a number of committees designed to provide further assistance by exercising enhanced oversight over the operations of the Company.

Examples of these committees include the Revenue Committee, Cost Committee and CRM Committee.

Our Board has formed a number of committees designed to provide further assistance from Board members with expertise in certain areas by providing enhanced oversight over the operations of the Company.

As a result, in the current operating environment, certain members of our Board, including our Chairman of the Board, are actively involved in overseeing certain key operating activities.

The current condition of the overall labor market, the challenging current operating environment and COVID-19 related factors has led to increased turnover and challenges in meeting our staffing goals.

These staffing challenges have also led to wage pressures for select roles during the second and third quarters of 2021.

Staffing challenges and inflationary pressures in general could continue in this environment;

however, we continue our efforts to recruit and retain talent as well as identify cost reduction and efficiency opportunities.

These staffing challenges have also led to wage pressures and less than optimal staffing levels.

Recently and in 2021, we have also experienced inflationary pressures relating to the costs for labor, goods, services and capital projects.

Less than optimal staffing levels have impacted our ability to open some of our food and beverage outlets, caused us to temporarily close some rides or attractions and/or caused longer wait times in certain areas of our parks, particularly food, beverage and/or retail outlets.

We continue our efforts to recruit and retain talent and identify cost reduction and efficiency opportunities as well as incremental pricing and revenue opportunities to help offset these cost pressures.

For further discussion relating to strategic measures we have taken to operate in the current environment, see the “ Results of Operations ” section which follows.

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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.

Revenue from these admissions products are generally recognized based on attendance.

Certain pass products are purchased through monthly installment arrangements which allow guests to pay over the product’s initial commitment period.

Once the initial commitment period is reached, these products transition to a month-to-month basis providing these guests access to specific parks on a monthly basis with related revenue recognized monthly.

Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:

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Pass visitation rates are the number of visits per pass.

A higher number of visits per pass would yield a lower admissions per capita as the revenue is recognized over more visits.

A higher number of visits per pass would yield a lower admissions per capita as the related revenue is recognized over more visits.

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.

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Food, merchandise and other revenue primarily consists of food and beverage, 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.

In-park per capita spending is primarily driven by pricing changes, new product offerings, the mix of guests (as domestic and international guests typically generate higher in-park per capita spending than local guests or pass holders)), guest 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.

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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 and certain guests has been and will continue to be impacted by 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.

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 and certain guests, 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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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 food and beverage 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 and nine months ended September 30, 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.

For other factors affecting our costs and expenses, see the “ Impact of Global COVID-19 Pandemic ” section and 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.

Additionally, we maintain valuation allowances for certain deferred tax assets which rely on estimates and assumptions on future financial performance, which may need to be adjusted in the future.

See Note 4–Income Taxes in our notes to the unaudited condensed consolidated financial statements for further details.

We 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, including technology initiatives, which we believe will further strengthen our business and, in some instances, improve our guest experiences.

See the “ Impact of Global COVID-19 Pandemic ” and the “ Current Operating Environment” 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.

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.

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 a net loss 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.

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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/or 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 nine months of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days on a year round basis at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania.

Due in part to the temporary park closures, along with capacity limitations and/or modified/limited operations and other COVID-19 related impacts on our attendance, 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 historically seasonal parks, could change the impact of 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 on a year round basis at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania.

Additionally, on March 26, 2022, we opened our Sesame Place San Diego park which is expected to be open more operating days than the Aquatica San Diego park it replaces.

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 and nine months ended September 30, 2021 are not directly comparable to the three and nine months ended September 30, 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 and nine months ended September 30, 2021 due in part to an improving operating environment along with the impact of strategic measures we have taken both before and during the COVID-19 pandemic.

See “ Impact of Global COVID-19 Pandemic ” and “Attendance” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

Our results for the three months ended March 31, 2022 are not directly comparable to the three months ended March 31, 2021 primarily due to COVID-19 related impacts including a temporary park closure and capacity limitations at some of our parks in 2021.

See “ Impact of Global COVID-19 Pandemic ” and “Attendance” for further details.

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.

Comparison of the Three Months Ended September 30, 2021 and 2020

The following table presents key operating and financial information for the three months ended September 30, 2021 and 2020:

For the Three Months Ended

September 30,

Summary Financial Data:

(In thousands, except per capita data)

Net revenues:

Food, merchandise and other

Total revenues

Costs and expenses:

Cost of food, merchandise and other revenues

Operating expenses (exclusive of depreciation and amortization shown separately below)

Selling, general and administrative expenses

Severance and other separation costs

Depreciation and amortization

Total costs and expenses

Operating income (loss)

Other income, net

Interest expense

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Total revenue per capita

Admission per capita

In-park per capita spending

NM – Not Meaningful.

Admissions revenue .

Admissions revenue for the three months ended September 30, 2021 increased $233.6 million to $296.7 million as compared to $63.1 million for the three months ended September 30, 2020.

The increase in admissions revenue was primarily a result of an increase in attendance of approximately 5.7 million guests, along with an increase in admission per capita.

Attendance during the three months ended September 30, 2021 benefitted from an increase in demand and operating days resulting from a return to more normalized operations when compared to the third quarter of 2020, which was significantly impacted by the temporary park closures.

Attendance during the third quarter of 2021 was also unfavorably impacted by weather.

Admission per capita increased by 1.7% to $41.06 for the three months ended September 30, 2021 compared to $40.39 in the three months ended September 30, 2020.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset by the net impact of the admissions product and park mix when compared to the prior year quarter due in part to limited operating days and temporary park closures.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended September 30, 2021 increased $181.5 million to $224.5 million as compared to $43.0 million for the three months ended September 30, 2020.

The increase results primarily from the increase in attendance discussed above, along with an increase in in-park per capita spending.

In-park per capita spending increased by 12.8% to $31.07 in the three months ended September 30, 2021 compared to $27.55 in the three months ended September 30, 2020.

In-park per capita spending improved primarily due to increased guest spending, an improved product mix, higher realized prices, new or enhanced and expanded in-park offerings, and a strong consumer demand environment during the quarter.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended September 30, 2021 increased by $28.7 million to $38.0 million as compared to $9.3 million for the three months ended September 30, 2020, primarily due to the increase in related revenue.

These costs represent 16.9% and 21.6% of the related revenue earned for the three months ended September 30, 2021 and 2020, respectively.

The decrease as a percent of related revenue primarily reflects a return to more normalized operations and the impact of higher realized pricing and product mix, which more than offset inflationary pressures.

Operating expenses.

Operating expenses for the three months ended September 30, 2021 increased by $103.8 million, or 113.6% , to $195.1 million as compared to $91.3 million for the three months ended September 30, 2020 .

Operating expenses in the prior year period were significantly impacted by limited operating days and hours, furloughs and workforce reductions resulting from limited reopenings and temporary park closures due to the COVID-19 pandemic .

As a result, t he in crease in operating expenses during the third quarter of 2021 primarily results from a return to more normalized operations.

In particular, operating expenses increased largely due to labor-related and other operating costs to staff and operate open parks in a more normalized environment , partially offset by structural cost savings initiatives when compared to the prior year quarter .

Operating expenses for the third quarter of 2021 were also impacted by approximately $9.

2 million of nonrecurring contractual liabilities and legal costs resulting from the temporary COVID-19 park closures , operating costs associated with incremental events added in 2021 , an increase of approximately $2.6 million in non-cash equity compensation expenses and the timing of certain maintenance projects .

O perating expenses as a percent of revenue were 37.4% for the three months ended September 30, 2021 and are not comparable to the prior year period primarily due to the impact of certain operating costs in 2020 which are not dependent on attendance levels .

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended September 30, 2021 increased $29.3 million, or 120.3%, to $53.6 million as compared to $24.3 million for the three months ended September 30, 2020.

The increase primarily relates to increased marketing related costs resulting from a return to more normalized operations in the third quarter of 2021 as we substantially reduced marketing related costs due to limited reopenings and temporary park closures in 2020.

Selling, general and administrative expenses were also impacted by an increase of approximately $7.0 million in non-cash equity compensation and an increase in labor-related costs when compared to the prior year quarter, partially offset by the impact of cost savings and efficiency initiatives.

Selling, general and administrative expenses as a percent of revenue were 10.3% for the three months ended September 30, 2021 and is not comparable to the prior year period primarily due to the impact of the limited operations and temporary park closures.

Depreciation and amortization.

Depreciation and amortization expense for the three months ended September 30, 2021 declined by $1.7 million, or 4.6%, to $36.3 million as compared to $38.1 million for the three months ended September 30, 2020.

The decrease primarily relates to a decline in new asset additions along with the impact of asset retirements and fully depreciated assets.

Interest expense.

Interest expense for the three months ended September 30, 2021 increased approximately $0.2 million, or 0.8%, to $28.4 million as compared to $28.1 million for the three months ended September 30, 2020.

The increase primarily relates to interest on the Second-Priority Senior Secured Notes issued in August 2020 and the Senior Notes issued in August 2021, partially offset by the impact of a lower average outstanding balance on our Term Loans and Revolving Credit Facility, which was undrawn in 2021, and 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.

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs.

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs for the three months ended September 30, 2021 primarily relate to a write-off of discounts and debt issuance costs resulting from the Refinancing Transactions during the three months ended September 30, 2021.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q and the “ Our Indebtedness” section which follows for further details.

Provision for (benefit from) income taxes.

Income taxes in the three months ended September 30, 2021 was a provision of $8.9 million compared to a benefit of $8.4 million for the three months ended September 30, 2020.

Our consolidated effective tax rate was 8.0% for the three months ended September 30, 2021 compared to 9.6% for the three months ended September 30, 2020.

The effective tax rate was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits, changes in state tax rates and tax impacts of equity-based compensation.

See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Supplemental comparison of the three months ended September 30, 2021 to the three months ended September 30, 2019

We believe a comparison of selected financial results for the three months ended September 30, 2021 to the three months ended September 30, 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 September 30, 2021 compared to the three months ended September 30, 2019.

The selected summary financial data for the three months ended September 30, 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended September 30, 2019.

Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 20 2 1

The following table presents key operating and financial information for the three months ended March 31, 2022 and 2021:

For the Three Months Ended

September 30,

Summary Financial Data:

(In thousands, except per capita data)

Net revenues:

Food, merchandise and other

Total revenues

Selected Costs and expenses:

Cost of food, merchandise and other revenues

Operating expenses (exclusive of depreciation and amortization)

Selling, general and administrative expenses

Total revenue per capita

Admission per capita

In-park per capita spending

Admissions revenue .

Admissions revenue for the three months ended September 30, 2021 increased $28.6 million, or 10.7%, to $296.7 million as compared to $268.0 million for the three months ended September 30, 2019.

The increase in admissions revenue was primarily a result of an increase in admissions per capita, partially offset by a decrease in attendance of approximately 0.9 million guests, or 11.0%.

Attendance declined when compared to 2019 primarily due to a decline from international guest visitation and group-related attendance.

Attendance was also impacted by an unfavorable calendar shift and weather during the quarter.

Admission per capita increased by 24.4% to $41.06 in 2021 compared to $33.00 in 2019.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix when compared to the third quarter of 2019.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended September 30, 2021 increased $18.9 million, or 9.2%, to $224.5 million as compared to $205.6 million for the three months ended September 30, 2019, primarily as a result of an increase in in-park per capita spending, partially offset by a decrease in attendance as discussed above.

In-park per capita spending increased by 22.8% to $31.07 in the third quarter of 2021 compared to $25.31 in the third quarter of 2019.

In-park per capita spending improved primarily due to increased guest spending, an improved product mix, higher realized prices and fees, new or enhanced and expanded in-park offerings and a strong consumer demand environment during the quarter.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended September 30, 2021 increased $0.1 million, or 0.4%, to $38.0 million as compared to $37.8 million for the three months ended September 30, 2019.

These costs represent 16.9% and 18.4% of the related revenue earned for the three months ended September 30, 2021 and 2019, respectively.

The decrease as a percent of related revenue partly relates to the net impact of sourcing cost savings initiatives combined with higher realized prices on some of our in-park products, which more than offset inflationary pressures.

Operating expenses.

Operating expenses for the three months ended September 30, 2021 increased $19.5 million, or 11.1%, to $195.1 million as compared to $175.6 million for the three months ended September 30, 2019.

Operating expenses for the third quarter of 2021 increased primarily due to approximately $9.2 million of nonrecurring contractual liabilities and legal costs resulting from the temporary COVID-19 park closures.

Operating expenses also increased due to incremental operating days and events added in 2021, an increase of $2.6 million in non-cash equity compensation expenses, and the timing of certain maintenance projects.

These increases were partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives.

Operating expenses were 37.4% of total revenues for the three months ended September 30, 2021 compared to 37.1% for the three months ended September 30, 2019.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended September 30, 2021 decreased $11.0 million, or 17.0% , to $53.6 million as compared to $64.6 million for the three months ended September 30, 2019.

The decrease primarily relates to a targeted reduction in marketing related costs and the impact of cost savings and efficiency initiatives partially offset by a $9.2 million increase in non-cash equity compensation .

As a percentage of total revenue, selling, general and administrative expenses were 10.3% for the three months ended September 30, 2021 compared to 13.6% for the three months ended September 30, 201 9 .

Comparison of the Nine Months Ended September 30, 2021 and 2020

The following table presents key operating and financial information for the nine months ended September 30, 2021 and 2020:

For the Nine Months Ended

September 30,

Summary Financial Data:

(In thousands, except per capita data)

(In thousands, except per capita data and %)

Net revenues:

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Operating income (loss)

Other expense (income), net

Other (income) expense, net

Interest expense

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Loss before income taxes

Benefit from income taxes

Total revenue per capita

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Admissions revenue .

Admissions revenue for the nine months ended September 30, 2021 increased $472.3 million to $635.7 million as compared to $163.4 million for the nine months ended September 30, 2020.

The improvement was a result of an increase in attendance and in admissions per capita.

Total attendance for the first nine months of 2021 increased by approximately 11.1 million guests when compared to the first nine months of 2020.

Attendance improved primarily due to an increase in demand and operating days resulting from a return to more normalized operations in the first nine months of 2021 compared to the first nine months of 2020, which was significantly impacted by the temporary park closures.

Attendance during the first nine months of 2021 was also unfavorably impacted by weather.

The increase in operating days more than offset unfavorable impacts on attendance from COVID-19 related impacts including capacity limitations and/or modified/limited operations for some of the first nine months of 2021.

Admission per capita increased by 6.0% to $41.69 for the nine months ended September 30, 2021 compared to $39.34 for the nine months ended September 30, 2020, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, partially offset by the net impact of the park and admissions product mix when compared to the prior year period.

Admissions revenue for the three months ended March 31, 2022 increased $55.1 million, or 57.5%, to $150.9 million as compared to $95.8 million for the three months ended March 31, 2021.

The improvement was a result of an increase in attendance and an increase in admissions per capita.

Total attendance for the first quarter of 2022 increased by approximately 1.2 million guests, or 53.7%, when compared to the prior year quarter.

Attendance benefitted from an increase in demand and operating days resulting from a return to more normalized operations when compared to the first quarter of 2021, which included COVID-19 related impacts including limited operating days, a temporary park closure and capacity limitations at some of our parks.

Admission per capita increased by 2.5% to $44.33 for the first quarter of 2022 compared to $43.25 in the prior year quarter, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was largely offset by the impact of the admissions product mix, due in part to an increase in pass visitation, and the impact of park mix when compared to the prior year quarter.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the nine months ended September 30, 2021 increased $382.9 million to $497.2 million as compared to $114.3 million for the nine months ended September 30, 2020 .

The in crease largely results from the increase in attendance discussed above .

In-park per capita spending increased by 18.5% to $32.61 for the nine months ended September 30, 2021 compared to $27.53 for the nine months ended September 30, 2020 .

In park per capita increased due to increased guest spending, an improved product mix , higher realized prices , the impact of new or enhanced and expanded in-park offerings , and a strong consumer demand environment when compared to the prior year period .

Food, merchandise and other revenue for the three months ended March 31, 2022 increased $43.7 million, or 57.4%, to $119.8 million as compared to $76.1 million for the three months ended March 31, 2021, primarily as a result of an increase in attendance, as discussed above, along with an increase in in-park per capita spending.

In-park per capita spending increased by 2.4% to $35.21 in the first quarter of 2022 compared to $34.38 in the first quarter of 2021.

In park per capita spending improved due to a combination of factors including, pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded in-park offerings, partially offset by a higher mix of pass attendance and the impact of park mix when compared to the first quarter of 2021.

In-park per capita spending was also impacted by less than optimal staffing during the first quarter of 2022, that impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the nine months ended September 30, 2021 increased $63.5 million to $87.1 million as compared to $23.6 million for the nine months ended September 30, 2020.

The increase primarily relates to the increase in attendance as discussed above.

These costs represent 17.5% and 20.6% of the related revenue earned for the nine months ended September 30, 2021 and 2020, respectively.

The decrease as a percent of related revenue primarily reflects a return to more normalized operations and the impact of sourcing cost savings initiatives combined with higher realized prices on some of our in-park products, which more than offset inflationary pressures.

Costs of food, merchandise and other revenues for the three months ended March 31, 2022 increased $8.1 million, or 54.2% , to $23.0 million as compared to $14.9 million for the three months ended March 31, 2021 , primarily due to the inc rease in related revenue .

These costs represent 19.2% and 19.6% of the related revenue earned for the three months ended March 31, 2022 and 2021 , respectively.

The decrease as a percent of related revenue partly relates to higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives , partially offset by inflationary pressures .

Operating expenses.

Operating expenses for the nine months ended September 30, 2021 increased by $176.8 million, or 62.4%, to $460.2 million as compared to $283.4 million for the nine months ended September 30, 2020.

The increase primarily relates to a net increase in labor-related and other operating costs resulting from the impact of additional operating days due to a return to more normalized operations in 2021, approximately $9.2 million of certain nonrecurring contractual liabilities and legal costs resulting from the temporary COVID-19 park closures and an increase of approximately $6.2 million in non-cash equity compensation expenses, partially offset by structural cost savings initiatives.

Operating expenses as a percent of revenue were 40.6% for the nine months ended September 30, 2021 and are not comparable to the prior year period primarily due to the impact of certain operating costs in 2020 which are not dependent on attendance levels.

Operating expenses for the three months ended March 31, 2022 increased $45.2 million, or 41.9%, to $152.9 million as compared to $107.8 million for the three months ended March 31, 2021.

Operating expenses in the first quarter of 2021 were significantly impacted by limited operating days, a temporary park closure and capacity limitations due to the COVID-19 pandemic.

As a result, the increase in operating expenses in the first quarter of 2022 primarily results from an increase in labor-related costs and other operating costs due to a return to more normalized operations and an increase in operating days.

Operating expenses were also impacted by a non-cash increase in self-insurance reserve adjustments, partially offset by structural cost savings initiatives when compared to the first quarter of 2021.

Operating expenses as a percent of revenue were 56.5% and 62.7% for the three months ended March 31, 2022 and 2021, respectively.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the nine months ended September 30, 2021 increased $55.9 million, or 77.2%, to $128.3 million as compared to $72.4 million for the nine months ended September 30, 2020.

Excluding the impact of certain legal settlement proceeds in the prior year period, selling, general and administrative expenses increased by approximately $43.4 million primarily due to increased marketing-related costs, an increase of $13.8 million in non-cash equity compensation expense, and increased labor-related costs resulting from the impact of furloughs in the prior year period, partially offset by the impact of cost savings and efficiency initiatives.

The legal settlement proceeds in the prior year period related to approximately $12.5 million received associated with 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.

Selling, general and administrative expenses as a percent of revenue were 11.3% for the nine months ended September 30, 2021 and is not comparable to the prior year period primarily due to the impact of the temporary park closures.

Selling, general and administrative expenses for the three months ended March 31, 2022 increased $14.6 million, or 46.4%, to $46.1 million as compared to $31.5 million for the three months ended March 31, 2021.

The increase in selling, general and administrative expenses is primarily due to increased marketing-related costs, partially offset by the impact of cost savings and efficiency initiatives.

The increased marketing-related costs result from a return to more normalized operations as we substantially reduced marketing-related costs in the prior year quarter.

Selling, general and administrative expenses as a percent of revenue were 17.0% and 18.3% for the three months ended March 31, 2022 and 2021, respectively.

Depreciation and amortization.

Depreciation and amortization expense for the nine months ended September 30, 2021 decreased $4.9 million, or 4.3%, to $109.1 million as compared to $114.0 million for the nine months ended September 30, 2020.

The decrease primarily relates to a decline in new asset additions along with the impact of asset retirements and fully depreciated assets.

Depreciation and amortization expense for the three months ended March 31, 2022 increased $2.1 million, or 5.6%, to $38.6 million as compared to $36.6 million for the three months ended March 31, 2021.

The increase primarily relates to new asset additions partially offset by the impact of asset retirements and fully depreciated assets.

Interest expense.

Interest expense for the nine months ended September 30, 2021 increased $21.2 million, or 30.7%, to $90.5 million as compared to $69.2 million for the nine months ended September 30, 2020.

The increase primarily relates to interest on the Second-Priority Senior Secured Notes issued in August 2020, the First-Priority Senior Secured Notes issued in April 2020, and the Senior Notes issued in August 2021, partially offset by the impact of a lower average outstanding balance on our Revolving Credit Facility, which was undrawn in 2021 and the impact of decreased LIBOR rates.

Interest expense for the three months ended March 31, 2022 decreased $5.6 million, or 18.0%, to $25.4 million as compared to $31.0 million for the three months ended March 31, 2021.

The decrease primarily relates to the net impact of lower interest as a result of the Refinancing Transactions.

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.

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs.

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs for the nine months ended September 30, 2021 primarily relate to a write-off of discounts and debt issuance costs resulting from the Refinancing Transactions during the nine months ended September 30, 2021.

Provision for (benefit from) income taxes.

Income taxes for the nine months ended September 30, 2021 was a provision of $12.2 million compared to a benefit of $20.7 million for the nine months ended September 30, 2020.

Our consolidated effective tax rate was 6.2% for the nine months ended September 30, 2021 compared to 7.2% for the nine months ended September 30, 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, changes in state tax rates and tax impacts on equity-based compensation.

See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Supplemental comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2019

We believe a comparison of selected financial results for the nine months ended September 30, 2021 to the nine months ended September 30, 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 nine months ended September 30, 2021 compared to the nine months ended September 30, 2019.

The selected summary financial data for the first nine months of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended September 30, 2019.

For the Nine Months Ended

September 30,

Benefit from income taxes.

Benefit from income taxes in the three months ended March 31, 2022 was $6.3 million compared to $5.1 million for the three months ended March 31, 2021.

Our consolidated effective tax rate was 41.4% for the three months ended March 31, 2022 compared to 10.3% for the three months ended March 31, 2021.

The effective tax rate in the three months ended March 31, 2022 was primarily impacted by a tax benefit related to equity-based compensation which vested during the quarter.

The effective tax rate in the three months ended March 31, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards.

Supplemental Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2019

We believe a comparison of selected financial results for the three months ended March 31, 2022 to the three months ended March 31, 2019 may provide additional insight due to the impact of the COVID-19 pandemic on our business in 2021.

As such, the following supplemental discussion provides an analysis of selected operating and financial results for the three months ended March 31, 2022 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.

For the Three Months Ended March 31,

Selected Summary Financial Data:

(In thousands, except per capita data)

(In thousands, except per capita data and %)

Net revenues:

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Admissions revenue .

Admissions revenue for the nine months ended September 30, 2021 increased $10.9 million, or 1.7%, to $635.7 million as compared to $624.8 million for the nine months ended September 30, 2019.

The increase in admissions revenue was primarily a result of an increase in admissions per capita which more than offset a decrease in attendance of approximately 2.7 million guests, or 14.9%.

Admission per capita increased by 19.6% to $41.69 in 2021 compared to $34.86 in 2019.

Attendance declined when compared to 2019 primarily due to COVID-19 related impacts including capacity limitations and/or modified/limited operations at our parks for most of the first nine months of 2021.

Attendance was also impacted by a decline from international guest visitation and group-related attendance when compared to 2019.

Admissions revenue for the three months ended March 31, 2022 increased $21.9 million, or 17.0%, to $150.9 million as compared to $128.9 million for the three months ended March 31, 2019.

The increase in admissions revenue was primarily a result of an increase in admissions per cap along with an increase in attendance.

Admission per capita increased by 14.8% to $44.33 in the first quarter of 2022 compared to $38.60 in the first quarter of 2019.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset by the impact of the admissions product mix when compared to the first quarter of 2019.

Attendance increased when compared to the first quarter of 2019 due to increased demand and more operating days at some of our parks.

Attendance in 2022 was also impacted by a decline from international guest visitation and group-related attendance when compared to 2019.

Excluding international guest visitation and group-related attendance, attendance increased by approximately 16.4% when compared to the first quarter of 2019.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the nine months ended September 30, 2021 increased $21.8 million, or 4.6%, to $497.2 million as compared to $475.4 million for the nine months ended September 30, 2019, primarily as a result of an increase in in-park per capita spending, offset by a decrease in attendance as discussed above.

In-park per capita spending increased by 23.0% to $32.61 in the first nine months of 2021 compared to $26.52 in the first nine months of 2019.

In-park per capita spending improved primarily due to increased guest spending, an improved product mix, higher realized prices and fees, new, enhanced or expanded in-park offerings and a strong consumer demand environment when compared to the first nine months of 2019.

Food, merchandise and other revenue for the three months ended March 31, 2022 increased $28.2 million, or 30.7%, to $119.8 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of an increase in in-park per capita spending along with an increase in attendance as discussed above.

In-park per capita spending increased by 28.3% to $35.21 in the first quarter of 2022 compared to $27.44 in the first quarter of 2019.

In-park per capita spending improved primarily due to pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded in-park offerings, partially offset by a higher mix of pass attendance during the quarter when compared to the first quarter of 2019.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the nine months ended September 30, 2021 remained relatively flat at $87.1 million as compared to the nine months ended September 30, 2019.

These costs represent 17.5% and 18.3% of the related revenue earned for the nine months ended September 30, 2021 and 2019, respectively.

The decrease as a percent of related revenue relates to the impact of sourcing cost savings initiatives combined with higher realized prices on some of our in-park products, which more than offset inflationary pressures.

Costs of food, merchandise and other revenues for the three months ended March 31, 2022 increased $5.8 million, or 33.9%, to $23.0 million as compared to $17.2 million for the three months ended March 31, 2019, primarily due to the increase in related revenue.

These costs represent 19.2% and 18.8% of the related revenue earned for the three months ended March 31, 2022 and 2019, respectively.

The increase as a percent of related revenue partly relates to inflationary pressures, partially offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.

Operating expenses.

Operating expenses for the nine months ended September 30, 2021 decreased $35.7 million, or 7.2%, to $460.2 million as compared to $495.9 million for the nine months ended September 30, 2019.

The decrease is primarily due to a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of modified/limited operations due to COVID-19, partially offset by approximately $9.2 million of certain nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures, operating costs associated with incremental operating days and events added in 2021 and an increase of approximately $3.1 million in non-cash equity compensation expense.

Operating expenses were 40.6% of total revenues for the nine months ended September 30, 2021 compared to 45.1% for the nine months ended September 30, 2019.

Operating expenses for the three months ended March 31, 2022 increased $3.0 million, or 2.0%, to $152.9 million as compared to $149.9 million for the three months ended March 31, 2019.

The increase primarily results from operating costs associated with incremental operating days and attractions added in 2022 and an increase in self-insurance reserve adjustments, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives.

Operating expenses as a percent of revenue were 56.5% and 68.0% for the three months ended March 31, 2022 and 2019, respectively.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the nine months ended September 30, 2021 decreased $46.3 million, or 26.5% , to $128.3 million as compared to $174.6 million for the nine months ended September 30, 2019.

The decrease primarily relates to a targeted reduction in marketing related costs and the impact of cost savings and efficiency initiatives , partially offset by an increase of $11.6 million in non-cash equity compensation expense .

As a percentage of total revenue, selling, general and administrative expenses were 11.3% for the nine months ended September 30, 20 21 compared to 15.9% for the nine months ended September 30, 201 9 .

Selling, general and administrative expenses for the three months ended March 31, 2022 increased $3.3 million, or 7.7%, to $46.1 million as compared to $42.8 million for the three months ended March 31, 2019.

Selling, general and administrative expenses increased primarily due to an increase in non-cash equity compensation expense along with other

labor-related costs due in part to centralization efforts , partially offset by the impact of cost savings and efficiency initiatives.

Selling, general and administrative expenses as a percent of revenue were 17.0 % and 19.4% for the three months ended March 31, 2022 and 2019, respectively.

Liquidity and Capital Resources

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Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), share repurchases and/or other return of capital to stockholders, when permitted.

As of September 30, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.7, due in part to our outstanding cash balance at September 30, 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.

As of March 31, 2022, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.1, due in part to our outstanding cash balance at March 31, 2022.

Historically, we typically have operated with a working capital ratio of less than 1 due to a 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 “ 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 such purchases may be funded by incurring new debt, including additional borrowings under our Senior Secured Credit Facilities.

Any new debt may also be secured debt.

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Share Repurchases

See Note 11–Stockholders’ Equity (Deficit) in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Share Repurchase Program.

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.

See Note 10–Stockholders’ Deficit in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Share Repurchase Program.

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, debt service obligations 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 Nine Months Ended September 30,

(Unaudited, in thousands)

Net cash provided by (used in) operating activities

For the Three Months Ended March 31,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net increase in cash and cash equivalents, including restricted cash

Net cash used in financing activities

Net decrease in cash and cash equivalents, including restricted cash

Cash Flows from Operating Activities

Net cash provided by operating activities was $416.4 million during the nine months ended September 30, 2021 as compared to net cash used in operating activities of $107.6 million during the nine months ended September 30, 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 in the nine months ended September 30, 2021 when compared to the nine months ended September 30, 2020, which was impacted by the temporary park closures.

Net cash provided by operating activities was $70.8 million during the three months ended March 31, 2022 as compared to $18.4 million during the three months ended March 31, 2021.

The change in net cash provided by operating activities was primarily impacted by improved operating performance including increased sales of admission products and the impact of decreased interest payments.

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 nine months ended September 30, 2021 consisted primarily of capital expenditures of $73.6 million largely related to future attractions.

Net cash used in investing activities during the nine months ended September 30, 2020 consisted primarily of $75.7 million of capital expenditures.

Net cash used in investing activities during the three months ended March 31, 2022 consisted of capital expenditures of $35.1 million largely related to future attractions.

Net cash used in investing activities during the three months ended March 31, 2021 consisted of $15.3 million of capital expenditures.

The following table presents detail of our capital expenditures for the periods indicated:

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Capital Expenditures:

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Historically, we generally expect to fund our capital expenditures through our operating cash flow.

Due to the COVID-19 pandemic, we took proactive measures 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 nine months ended September 30, 2021 results primarily from net debt repayments of $130.6 million, which includes the Refinancing Transactions and payments on the Second-Priority Senior Secured Notes, $77.6 million used to repurchase shares and the payment of tax withholdings on equity-based compensation through shares withheld of $12.7 million.

The Refinancing Transactions primarily consisted of $1,934.6 million in repayments of our Term B-5 Loans and Second-Priority Senior Secured Notes, approximately $34.3 million related to a premium paid for redemption of our Second-Priority Senior Secured Notes, and approximately $23.1 million in debt issuance costs partially offset by net proceeds from our Term B Loans and the Senior Notes of $1,922.2 million.

Net cash provided by financing activities during the nine months ended September 30, 2020 results primarily from net proceeds from our First-Priority Senior Secured Notes and our Second-Priority Senior Secured Notes offering of $713.7 million, partially offset by net repayments on our revolving credit facility of $50.0 million, $12.4 million used to repurchase shares and repayments of $11.6 million on our long-term debt.

Net cash used in financing activities during the three months ended March 31, 2022 results primarily from share repurchases of $89.7 million and payment of tax withholdings on equity-based compensation through shares withheld of $7.7 million.

Net cash used in financing activities during the three months ended March 31, 2021 results primarily from 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.

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We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below.

As of September 30, 2021, our indebtedness consisted of Senior Secured Credit Facilities, 8.75% first-priority senior secured notes (“First-Priority Senior Secured Notes”) and 5.25% senior notes due 2029 (the “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 and related debt transactions which occurred during the three and nine months ended September 30, 2021.

As of March 31, 2022, our indebtedness consisted of senior secured credit facilities, 5.25% senior notes (the “Senior Notes”) and 8.75% first-priority senior secured notes (the “First-Priority Senior Secured Notes”).

See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details related to our long-term debt.

Senior Secured Credit Facilities

SeaWorld Parks & Entertainment, Inc.

(“SEA”) is the borrower under the senior secured credit facilities, as amended and restated pursuant to a credit agreement (the “Amended and Restated Credit Agreement”) dated August 25, 2021 (the “Senior Secured Credit Facilities”).

As of September 30, 2021, our Senior Secured Credit Facilities consisted of $1.200 billion in Term B Loans which will mature in August 2028, along with a $385.0 million Revolving Credit Facility, which will mature in August 2026, which was not drawn upon as of September 30, 2021.

As of September 30, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $364.5 million available for borrowing under the Revolving Credit Facility.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for information.

First-Priority Senior Secured Notes and Senior Notes

On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% First-Priority Senior Secured Notes.

On August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% Second-Priority Senior Secured Notes, which were fully redeemed during the three months ended September 30, 2021.

On August 25, 2021 SEA closed on a private offering of $725.0 million aggregate principal amount of 5.250% senior notes due 2029 (the “Senior Notes”).

(“SEA”) is the borrower under the senior secured credit facilities, as amended and restated pursuant to a credit agreement (the “Amended and Restated Credit Agreement”) dated as of August 25, 2021 (the “Senior Secured Credit Facilities”).

As of March 31, 2022, our Senior Secured Credit Facilities consisted of $1.194 billion in Term B Loans which will mature in August 2028, along with a $385.0 million Revolving Credit Facility, which had no amounts outstanding as of March 31, 2022 and will mature in August 2026.

As of March 31, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $365.3 million available for borrowing under the Revolving Credit Facility.

Senior Notes and First-Priority Senior Secured Notes

As of March 31, 2022 , SEA had outstanding $725.0 million in aggregate principal amount of Senior Notes due on August 15, 2029 and $227.5 million in aggregate principal amount of First-Priority Senior Secured Notes, due on May 1, 2025.

Covenant Compliance

As of September 30, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes.

As of March 31, 2022, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) plus (i) income tax provision (benefit) (ii) interest expense, consent fees and similar financing costs (iii) depreciation and amortization (iv) equity-based compensation expense (v) loss on extinguishment of debt (vi) non-cash charges/credits related to asset disposals (vii) certain business optimization, development and strategic initiative costs (viii) merger, acquisition, integration and certain investment costs and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.

Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), 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 as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).

We define Adjusted EBITDA as net (loss) income plus (i) income tax (benefit) provision, (ii) interest expense, consent fees and similar financing costs, (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) loss on extinguishment of debt, (vi) certain non-cash charges/credits including those related to asset disposals, (vii) certain business optimization, development and strategic initiative costs, (viii) merger, acquisition, integration and certain investment costs, and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.

Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), 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 Covenant Adjusted EBITDA as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).

Covenant Adjusted EBITDA, is defined as Adjusted EBITDA plus certain other items as defined in the Debt Agreements, including estimated cost savings among other adjustments.

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In addition, we believe the presentation of Covenant Adjusted EBITDA for the last twelve months is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Debt Agreements.

See the “Our Indebtedness-Covenant Compliance” section for further details.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA and Covenant Adjusted EBITDA are not recognized terms 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 are not indicative of income or loss from operations as determined under GAAP.

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Adjusted EBITDA and Covenant Adjusted EBITDA as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net income (loss) for the periods indicated:

The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net (loss) income for the periods indicated:

SEAWORLD ENTERTAINMENT, INC.

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UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Last Twelve Months Ended

September 30,

For the Three Months Ended March 31,

Last Twelve Months Ended March 31,

(Unaudited, in thousands)

Net income (loss)

Provision for (benefit from) income taxes

Net (loss) income

Benefit from income taxes

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs (a)

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Business optimization, development and strategic initiative costs (d)

Certain investment costs and other taxes (e)

COVID-19 related incremental costs (f)

Other adjusting items (g)

Adjusted EBITDA (h)

Certain investment costs and other taxes

COVID-19 related incremental costs (e)

Other adjusting items

Adjusted EBITDA (f)

Items added back to Covenant Adjusted EBITDA, as defined in the Debt Agreements:

Estimated cost savings ( i )

Other adjustments as defined in the Debt Agreements ( j)

Covenant Adjusted EBITDA ( k)

Reflects a loss on early extinguishment of debt and write-off of discounts and debt issuance costs primarily associated with the Refinancing Transactions.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Reflects non-cash equity compensation expenses and related payroll taxes incurred during the period.

For the three and nine months ended September 30, 2021, includes equity compensation expense related to certain performance vesting restricted awards which were previously not considered likely of vesting.

For the nine months ended September 30, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which were no longer considered likely of vesting.

Estimated cost savings (g)

Other adjustments as defined in the Debt Agreements (h)

Covenant Adjusted EBITDA (i)

Reflects a loss on early extinguishment of debt and write-off of discounts and debt issuance costs associated with the Refinancing Transactions.

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Reflects non-cash equity compensation expenses and related payroll taxes associated with the grants of equity-based compensation.

For the twelve months ended March 31, 2022, includes equity compensation expense related to certain performance vesting restricted awards which were previously not considered probable of vesting .

See Note 9–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals.

For the three, nine and twelve months ended September 30, 2021, primarily reflects asset write-offs and certain costs related to certain rides and equipment which were removed from service.

For the three and nine months ended September 30, 2021, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $1.7 million and $2.2 million, respectively of third-party consulting costs;

(ii) $1.6 million of severance and other separation costs in the nine months ended September 30, 2021 associated with positions eliminated and (iii) $1.0 million and $2.1 million, respectively of other business optimization costs and strategic initiative costs.

For the three and nine months ended September 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $2.6 million and $2.7 million, respectively, of severance and other separation costs primarily related to the 2020 Restructuring Program and (ii) $0.5 million and $2.4 million, respectively, of third party consulting costs.

For the twelve months ended September 30 , 202 1 , reflects business optimization, development and other strategic initiative costs primarily relate d to:

( i ) $ 2.9 million of third-party consultin g costs ( ii) $2.5 million of other business optimization costs and strategic initiative costs and (iii) $1.8 million of severance and other separation costs .

For the three and nine months ended September 30, 2020, includes costs associated with a Registration Statement on Form S-3 filed in 2020.

For the three and nine months ended September 30, 2021, includes approximately $9.2 million and $10.4 million, respectively, of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures.

For the three and nine months ended September 30, 2021, also includes approximately $4.1 million and $6.9 million, respectively, of incremental temporary labor-related costs incurred to prepare and staff the parks and certain incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.

For the three and nine months ended September 30, 2020, primarily includes incremental labor-related costs to prepare and temporarily operate the parks with enhanced safety measures, nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and initial purchases of safety monitoring and personal protective equipment.

For the nine months ended September 30, 2020, also includes incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies.

For the twelve months ended September 30, 2021, includes approximately (i) $10.6 million of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures (ii) approximately $9.3 million of incremental labor-related costs to prepare and temporarily operate the parks with enhanced safety measures and certain incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment and (iii) initial purchases of safety monitoring and personal protective equipment.

For the nine months ended September 30, 2020, includes approximately $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed.

For the twelve months ended September 30, 2021, includes 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 on Form 10-Q for further details.

Adjusted EBITDA is defined as net income (loss) before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above.

Our Debt Agreements permit the calculation of certain covenants to be based on Covenant 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 24 month period related to certain specified actions, including restructurings and cost savings initiatives.

For the three and twelve months ended March 31, 2022, includes approximately $3.9 million related to non-cash self-insurance reserve adjustments.

For the three months ended March 31, 2022 and 2021 and for the twelve months ended March 31, 2022, also includes non-cash expenses related to asset write-offs and costs related to certain rides and equipment which were removed from service.

For the three months ended March 31, 2022, reflects business optimization, development and other strategic initiative costs primarily related to $2.2 million of third-party consulting costs.

For the twelve months ended March 31, 2022, reflects business optimization, development and other strategic initiative costs primarily related to;

(i) $6.4 million of third-party consulting costs;

(ii) $4.0 million of other business optimization costs and strategic initiative costs and (iii) $1.5 million of severance and other separation costs associated with positions eliminated.

For the three months ended March 31, 2022, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic .

For the three months ended March 31, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, including incremental labor-related costs incurred to prepare and staff the parks and other incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.

For the twelve months ended March 31, 2022, includes approximately $12.0 million of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and approximately $7.3 million of incremental temporary labor-related costs incurred to prepare and staff the parks and certain incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.

Adjusted EBITDA is defined as net (loss) income before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above.

Our Debt Agreements, which were effective for the twelve months ended March 31, 2022, permit the calculation of certain covenants to be based on Covenant 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 24-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 Debt Agreements and does not impact our reported GAAP net income (loss).

The Debt Agreements permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs.

Covenant Adjusted EBITDA is defined in the Debt Agreements as Adjusted EBITDA for the last twelve-month period further adjusted for net annualized estimated savings among other adjustments as described in footnotes (i) and (j) above.

These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Debt Agreements and does not impact our reported GAAP net (loss) income.

The Debt Agreements, which were effective for the twelve months ended March 31, 2022, permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs, if any.

Prior to the Debt Agreements, these costs were not permitted adjustments in the calculation, as such, these adjustments are not applicable to the prior years.

Contractual Obligations

There have been no material changes to our contractual obligations as of September 30, 2021 from those previously disclosed in our Annual Report on Form 10-K other than the debt and interest obligations pursuant to the Refinancing Transactions (see Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details).

As a result, our total long-term debt obligations as of September 30, 2021, not including any possible prepayments, are as follows for the remainder of 2021, 2022-2023, 2024-2025, and thereafter, respectively (in thousands):

and $1,874,000.

Our estimated future interest payments based on interest rates in effect at September 30, 2021 are as follows for the remainder of 2021, 2022-2023, 2024-2025, and thereafter, respectively (in thousands):

and $262,163.

Interest obligations also include letter of credit and commitment fees for the used and unused portions of our Revolving Credit Facility assuming payoff at maturity and excluding any possible principal prepayments.

There have been no material changes to our contractual obligations as March 31, 2022 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.

Significant estimates and assumptions include the valuation and useful lives of long-lived assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition.

Actual results could differ from those estimates.

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Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2021.

We had no material off-balance sheet arrangements as of March 31, 2022.

Recently Issued Financial Accounting Standards

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Item 2. Management’s Discussion and Analysis