United Parks & Resorts Inc. 10-Q

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” included elsewhere 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, 2021. 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 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. 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 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 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. 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. 19 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 food and beverage, 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. 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: • 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 (including the impact of pass visitation rates), 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. 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 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. • 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 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 (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. 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 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. 20 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 food and beverage or other in-park offerings. 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. 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 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. 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, 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 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. 21 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 March 31, Variance 2022 2021 $ % Summary Financial Data: (In thousands, except per capita data and %) Net revenues: Admissions $ 150,862 $ 95,780 $ 55,082 57.5 % Food, merchandise and other 119,831 76,140 43,691 57.4 % Total revenues 270,693 171,920 98,773 57.5 % Costs and expenses: Cost of food, merchandise and other revenues 23,040 14,942 8,098 54.2 % Operating expenses (exclusive of depreciation and amortization shown separately below) 152,925 107,772 45,153 41.9 % Selling, general and administrative expenses 46,059 31,464 14,595 46.4 % Severance and other separation costs 30 86 (56 ) (65.1 %) Depreciation and amortization 38,612 36,558 2,054 5.6 % Total costs and expenses 260,666 190,822 69,844 36.6 % Operating income (loss) 10,027 (18,902 ) 28,929 NM Other (income) expense, net (12 ) 174 (186 ) NM Interest expense 25,370 30,956 (5,586 ) (18.0 %) Loss before income taxes (15,331 ) (50,032 ) 34,701 69.4 % Benefit from income taxes (6,344 ) (5,148 ) (1,196 ) (23.2 %) Net Loss $ (8,987 ) $ (44,884 ) $ 35,897 80.0 % Other data: Attendance 3,403 2,214 1,189 53.7 % Total revenue per capita $ 79.54 $ 77.63 $ 1.91 2.5 % Admission per capita $ 44.33 $ 43.25 $ 1.08 2.5 % In-park per capita spending $ 35.21 $ 34.38 $ 0.83 2.4 % NM-Not Meaningful. Admissions revenue . 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 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. 22 Costs of food, merchandise and other revenues. 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 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 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 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 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. 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. 23 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, Variance 2022 2019 $ % Selected Summary Financial Data: (In thousands, except per capita data and %) Net revenues: Admissions $ 150,862 $ 128,913 $ 21,949 17.0 % Food, merchandise and other $ 119,831 $ 91,662 $ 28,169 30.7 % Total revenues $ 270,693 $ 220,575 $ 50,118 22.7 % Selected costs and expenses: Cost of food, merchandise and other revenues $ 23,040 $ 17,213 $ 5,827 33.9 % Operating expenses (exclusive of depreciation and amortization) $ 152,925 $ 149,885 $ 3,040 2.0 % Selling, general and administrative expenses $ 46,059 $ 42,764 $ 3,295 7.7 % Other data: Attendance 3,403 3,340 63 1.9 % Total revenue per capita $ 79.54 $ 66.04 $ 13.50 20.4 % Admission per capita $ 44.33 $ 38.60 $ 5.73 14.8 % In-park per capita spending $ 35.21 $ 27.44 $ 7.77 28.3 % Admissions revenue . 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 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. 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 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 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 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 24 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 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), share repurchases and/or other return of capital to stockholders, when permitted. 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. 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 our 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 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. 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, 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 Three Months Ended March 31, 2022 2021 (In thousands) Net cash provided by operating activities $ 70,794 $ 18,393 Net cash used in investing activities (35,110 ) (15,298 ) Net cash used in financing activities (99,558 ) (5,612 ) Net decrease in cash and cash equivalents, including restricted cash $ (63,874 ) $ (2,517 ) Cash Flows from Operating Activities 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 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. 25 The following table presents detail of our capital expenditures for the periods indicated: For the Three Months Ended March 31, 2022 2021 Capital Expenditures: (Unaudited, in thousands) Core (a) $ 23,020 $ 10,883 Expansion/ROI projects (b) 12,090 4,415 Capital expenditures, total $ 35,110 $ 15,298 (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. Cash Flows from Financing Activities 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. 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, 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 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 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 (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. 26 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. Cost savings represent annualized estimated savings expected to be realized over the following 24 month period related to certain specified actions including restructurings and cost savings initiatives, net of actual benefits realized during the last twelve months. Other adjustments include (i) recruiting and retention costs, (ii) public company compliance costs, (iii) litigation and arbitration costs, and (iv) other costs and adjustments as permitted by the Debt Agreements. 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, 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 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. Adjusted EBITDA, Covenant 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 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 (loss) income 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, 2022 2021 2022 (Unaudited, in thousands) Net (loss) income $ (8,987 ) $ (44,884 ) $ 292,410 Benefit from income taxes (6,344 ) (5,148 ) (1,360 ) Loss on early extinguishment of debt and write-off of discounts and debt issuance costs (a) — — 58,827 Interest expense 25,370 30,956 111,056 Depreciation and amortization 38,612 36,558 150,714 Equity-based compensation expense (b) 7,877 4,473 44,422 Loss on impairment or disposal of assets and certain non-cash expenses (c) 4,604 608 11,095 Business optimization, development and strategic initiative costs (d) 3,604 512 11,851 Certain investment costs and other taxes 401 87 1,144 COVID-19 related incremental costs (e) 350 2,176 20,736 Other adjusting items 453 (149 ) 1,904 Adjusted EBITDA (f) $ 65,940 $ 25,189 $ 702,799 Items added back to Covenant Adjusted EBITDA, as defined in the Debt Agreements: Estimated cost savings (g) 6,300 Other adjustments as defined in the Debt Agreements (h) 20,674 Covenant Adjusted EBITDA (i) $ 729,773 27 (a) 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. (b) 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. ( c ) 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. ( d ) 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. ( e ) 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. ( f ) 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. ( g ) 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 (loss) income. ( h ) 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. (i) 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 (g) and (h) above. 28 Contractual Obligations 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 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 28, 2022 . Off-Balance Sheet Arrangements We had no material off-balance sheet arrangements as of March 31, 2022. 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.