What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-06 · 240 added, 130 removed, 185 unchanged (67% of the section changed)

13 unchanged sentences

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:

Our results of operations for the three and six months ended June 30, 2022 continue to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance from historical levels.

Additionally, results of operations for the three and six months ended June 30, 2021 were also significantly impacted by the following factors:

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

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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 .

however, there can be no certainty relating to the impact of new variants and the extent and effectiveness of the vaccines, boosters and/or medications 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.

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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.

Less than optimal staffing levels, particularly in the first quarter of 2022, has 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 have also been impacted by significant inflationary pressures (particularly relating to the costs for labor, goods, freight, services and capital projects), supply chain disruptions and higher interest rates.

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 cost pressures.

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

For other factors concerning the current operating environment or 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.

Principal Factors and Trends Affecting Our Results of Operations

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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.

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 local guests.

A higher mix of complimentary tickets will lower admissions per capita.

Pass visitation rates are the number of visits per pass.

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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.

Food, merchandise and other revenue primarily consists of food and beverage, retail merchandise, parking, other in-park products, and 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, 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 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.

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/or could be impacted by public concerns over the COVID-19 pandemic, the number of reported 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, boosters and/or medications 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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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.

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, park operating hours, new parks and/or incremental operating days, new and/or enhanced events, attendance levels, supply chain issues, and inflationary pressures, among other factors.

The mix of products sold compared to the prior year period can also impact our costs as retail products generally have a higher cost of sales component than our food and beverage or other in-park offerings.

We continue our focus on reducing costs and 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.

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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.

Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were 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.

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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.

During the first six 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.

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 replaced.

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.

Our results for the three and six months ended June 30, 2022 are not directly comparable to the three and six months ended June 30, 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 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:

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table presents key operating and financial information for the three months ended June 30, 2022 and 2021:

For the Three Months Ended

Summary Financial Data:

(In thousands, except per capita data and %)

(In thousands, except per capita data)

Net revenues:

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Total costs and expenses

Operating income (loss)

Operating income

Other (income) expense, net

Interest expense

Loss before income taxes

Benefit from income taxes

Income before income taxes

Provision for income taxes

Total revenue per capita

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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.

Admissions revenue for the three months ended June 30, 2022 increased $32.3 million to $275.5 million as compared to $243.2 million for the three months ended June 30, 2021.

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

Total attendance for the second quarter of 2022 increased approximately 0.5 million guests, or 7.8%, when compared to the prior year quarter.

Attendance benefitted primarily from an increase in demand resulting from a return to more normalized operations when compared to the three months ended June 30, 2021, which included COVID-19 related impacts including restrictions on international travel, modified/limited operations and capacity limitations at some of our parks.

Admission per capita increased by 5.0% to $43.98 for the three months ended June 30, 2022 compared to $41.87 in the three months ended June 30, 2021, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset the impact of the 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.

Food, merchandise and other revenue for the three months ended June 30, 2022 increased $32.8 million to $229.3 million as compared to $196.6 million for the three months ended June 30, 2021.

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

In-park per capita spending increased by 8.2% to $36.61 in the three months ended June 30, 2022 compared to $33.84 in the three months ended June 30, 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 venues and/or other in-park offerings.

These factors were partially offset by the impact of a higher mix of pass attendance when compared to the prior year quarter.

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 .

Costs of food, merchandise and other revenues for the three months ended June 30, 2022 increased by $7.3 million to $41.5 million as compared to $34.2 million for the three months ended June 30, 2021.

These costs represent 18.1% and 17.4% of the related revenue earned for the three months ended June 30, 2022 and 2021, respectively.

The increase as a percent of related revenue partly relates to the impact of inflationary pressures which were 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 $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.

Operating expenses for the three months ended June 30, 2022 increased by $33.2 million, or 21.1% , to $190.5 million as compared to $157.3 million for the three months ended June 30, 2021 .

Operating expenses in the second quarter of 2021 were impacted by limited operating days and capacity limitations due to the COVID-19 pandemic.

As a result, the increase in operating expenses in the second quarter of 202 2 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 attendance .

Operating expenses were also unfavorably impacted by unusually high inflationary pressures.

These factors were partially offset by structural cost savings initiatives when compared to the second quarter of 2021 .

O perating expenses as a percent of revenue were 37.7% and 35.8% for the three months ended June 30, 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.

Selling, general and administrative expenses for the three months ended June 30, 2022 increased $13.0 million, or 30.0%, to $56.2 million as compared to $43.2 million for the three months ended June 30, 2021.

The increase in selling, general and administrative expenses is primarily due to increased marketing-related costs, increased third-party vendor costs, and a legal settlement charge, partially offset by a decrease in non-cash equity compensation expense and the impact of cost savings and efficiency initiatives.

Selling, general and administrative expenses as a percent of revenue were 11.1% and 9.8% for the three months ended June 30, 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.

Depreciation and amortization expense for the three months ended June 30, 2022 increased by $2.3 million, or 6.4%, to $38.6 million as compared to $36.2 million for the three months ended June 30, 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.

Interest expense for the three months ended June 30, 2022 decreased approximately $4.3 million, or 13.9%, to $26.8 million as compared to $31.1 million for the three months ended June 30, 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.

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,

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details.

Provision for income taxes.

Provision for income taxes for the three months ended June 30, 2022 was $34.6 million compared to $8.5 million for the three months ended June 30, 2021.

Our consolidated effective tax rate was 22.9% for the three months ended June 30, 2022 compared to 6.2% for the three months ended June 30, 2021.

The effective tax rate in the three months ended June 30, 2022 was primarily impacted by state income taxes and other compensation items, partially offset by a tax benefit related to equity-based compensation which vested during the quarter.

The effective tax rate in the three months ended June 30, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss, 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 June 30, 2022 to the three months ended June 30, 2019

We believe a comparison of selected financial results for the three months ended June 30, 2022 to the three months ended June 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 June 30, 2022 compared to the three months ended June 30, 2019.

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

For the Three Months Ended

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 June 30, 2022 increased $47.7 million, or 20.9%, to $275.5 million as compared to $227.8 million for the three months ended June 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 0.2 million guests, or 3.1%.

Admission per capita increased by 24.8% to $43.98 in 2022 compared to $35.25 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 second quarter of 2019.

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

Excluding international guest visitation and group-related attendance, attendance increased by approximately 3.3% when compared to the second quarter of 2019.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended June 30, 2022 increased $51.1 million, or 28.7%, to $229.3 million as compared to $178.2 million for the three months ended June 30, 2019, primarily as a result of an increase in in-park per capita spending, partially offset by a decrease in attendance.

In-park per capita spending increased by 32.8% to $36.61 in the second quarter of 2022 compared to $27.57 in the second 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 venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance during the quarter when compared to the second quarter of 2019.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended June 30, 2022 increased $9.5 million, or 29.7%, to $41.5 million as compared to $32.0 million for the three months ended June 30, 2019.

These costs represent 18.1% and 18.0% of the related revenue earned for the three months ended June 30, 2022 and 2019, respectively.

The increase as a percent of related revenue partly relates to the impact of unusually high inflationary pressures which were largely 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 June 30, 2022 increased $20.1 million, or 11.8%, to $190.5 million as compared to $170.4 million for the three months ended June 30, 2019.

The increase primarily results from operating costs associated with incremental operating days, venues, events and attractions when compared to 2019, an increase in non-cash fixed asset write-offs, and inflationary pressures, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives.

Operating expenses were 37.7% of total revenues for the three months ended June 30, 2022 compared to 42.0% for the three months ended June 30, 2019.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended June 30, 2022 decreased $11.0 million, or 16.4%, to $56.2 million as compared to $67.2 million for the three months ended June 30, 2019.

The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives, partially offset by a legal settlement charge.

As a percentage of total revenue, selling, general and administrative expenses were 11.1% for the three months ended June 30, 2022 compared to 16.6% for the three months ended June 30, 2019.

Comparison of the Six Months Ended June 30, 2022 and 2021

The following table presents key operating and financial information for the six months ended June 30, 2022 and 2021:

For the Six Months Ended

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

Other (income) expense, net

Interest expense

Income before income taxes

Provision for income taxes

Total revenue per capita

Admission per capita

In-park per capita spending

NM-Not Meaningful.

Admissions revenue .

Admissions revenue for the six months ended June 30, 2022 increased $87.4 million to $426.4 million as compared to $339.0 million for the six months ended June 30, 2021.

The improvement was largely a result of an increase in attendance along with an increase in admissions per capita.

Total attendance for the first six months of 2022 increased by approximately 1.6 million guests when compared to the first six months of 2021.

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

Admission per capita increased by 4.4% to $44.11 for the six months ended June 30, 2022 compared to $42.25 for the six months ended June 30, 2021, 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 park mix when compared to the prior year period.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the six months ended June 30, 2022 increased $76.4 million to $349.1 million as compared to $272.7 million for the six months ended June 30, 2021.

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

In-park per capita spending increased by 6.3% to $36.12 for the six months ended June 30, 2022 compared to $33.99 for the six months ended June 30, 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/or expanded venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance and the impact of park mix when compared to the prior year period.

In-park per capita spending was also unfavorably impacted by less than optimal staffing, particularly 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 six months ended June 30, 2022 increased $15.4 million to $64.6 million as compared to $49.1 million for the six months ended June 30, 2021.

These costs represent 18.6% and 18.0% of the related revenue earned for the six months ended June 30, 2022 and 2021, respectively.

The increase as a percent of related revenue partly relates to the impact of unusually high inflationary pressures which were 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 six months ended June 30, 2022 increased by $78.3 million, or 29.6% , to $343.4 million as compared to $265.1 million for the six months ended June 30, 2021 .

Operating expenses in the first six months 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 six months of 202 2 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 attendance .

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

Operating expenses as a percent of revenue were 44.3% for the six months ended June 30, 2022 and 43.3% for the six months ended June 30, 2021 .

Selling, general and administrative expenses .

Selling, general and administrative expenses for the six months ended June 30, 2022 increased $27.6 million, or 36.9%, to $102.2 million as compared to $74.7 million for the six months ended June 30, 2021.

The increase is primarily due to increased marketing-related costs, increased third-party vendor costs and a legal settlement charge, partially offset by the impact of cost savings and efficiency initiatives.

Selling, general and administrative expenses as a percent of revenue were 13.2% for the six months ended June 30, 2022 and 12.2% for the six months ended June 30, 2021.

Depreciation and amortization.

Depreciation and amortization expense for the six months ended June 30, 2022 increased $4.4 million, or 6.0%, to $77.2 million as compared to $72.8 million for the six months ended June 30, 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 six months ended June 30, 2022 decreased $9.9 million, or 16.0%, to $52.2 million as compared to $62.1 million for the six months ended June 30, 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 for further details.

Provision for income taxes.

Provision for income taxes for the six months ended June 30, 2022 was $28.3 million compared to $3.3 million for the six months ended June 30, 2021.

Our consolidated effective tax rate was 20.8% for the six months ended June 30, 2022 compared to 3.8% for the six months ended June 30, 2021.

The effective tax rate in the six months ended June 30, 2022 was primarily impacted by a tax benefit related to equity-based compensation which vested during the period, partially offset by state income taxes and other compensation related items.

The effective tax rate in the six months ended June 30, 2021 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 six months ended June 30, 2022 to the six months ended June 30, 2019

We believe a comparison of selected financial results for the six months ended June 30, 2022 to the six months ended June 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 six months ended June 30, 2022 compared to the six months ended June 30, 2019.

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

For the Six Months Ended

Selected Summary Financial Data:

(In thousands, except per capita data and %)

(In thousands, except per capita data)

Net revenues:

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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.

Admissions revenue for the six months ended June 30, 2022 increased $69.6 million, or 19.5%, to $426.4 million as compared to $356.7 million for the six months ended June 30, 2019.

The increase in admissions revenue was primarily a result of an increase in admissions per capita which offset a decrease in attendance of approximately 0.1 million guests, or 1.4%.

Admission per capita increased by 21.2% to $44.11 in the 2022 period compared to $36.39 in the 2019 period.

Attendance declined primarily due to 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 7.7% when compared to the first six months 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.

Food, merchandise and other revenue for the six months ended June 30, 2022 increased $79.3 million, or 29.4%, to $349.1 million as compared to $269.8 million for the six months ended June 30, 2019, primarily as a result of an increase in in-park per capita spending, offset by a decrease in attendance.

In-park per capita spending increased by 31.2% to $36.12 in the first six months of 2022 compared to $27.53 in the first six months 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/or expanded venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance during the first six months of 2022 when compared to the first six months of 2019.

In-park per capita spending was unfavorably impacted by less than optimal staffing, particularly 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.

Costs of food, merchandise and other revenues for the six months ended June 30, 2022 increased $15.3 million, or 31.2%, to $64.6 million as compared to $49.2 for the six months ended June 30, 2019.

These costs represent 18.6% and 18.2% of the related revenue earned for the six months ended June 30, 2022 and 2019, respectively.

The increase as a percent of related revenue partly relates to unusually high 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.

Operating expenses for the six months ended June 30, 2022 increased $23.1 million, or 7.2%, to $343.4 million as compared to $320.3 million for the six months ended June 30, 2019.

The increase primarily results from operating costs associated with incremental operating days, venues, events and attractions added in 2022, an increase in self-insurance reserve adjustments, an increase in non-cash fixed asset write-offs, and inflationary pressures, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives.

Operating expenses were 44.3% of total revenues for the six months ended June 30, 2022 compared to 51.1% for the six months ended June 30, 2019.

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

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.

Selling, general and administrative expenses for the six months ended June 30, 2022 decreased $7.8 million, or 7.0%, to $102.2 million as compared to $110.0 million for the six months ended June 30, 2019.

The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives, partially offset by a legal settlement charge.

As a percentage of total revenue, selling, general and administrative expenses were 13.2% for the six months ended June 30, 2022 compared to 17.6% for the six months ended June 30, 2019.

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 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.

As of June 30, 2022, we had a working capital ratio (defined as current assets divided by current liabilities) of 0.7.

Historically, we typically have operated with a working capital ratio of less than 1.0 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.

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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.

On August 4, 2022, we announced that our Board approved a new $250.0 million share repurchase program (the “Share Repurchase Program”).

Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.

The Share Repurchase Program has no time limits and could be suspended or discontinued completely at any time.

The number of shares to be purchased and the timing of purchases will be based on the Company’s trading windows and available liquidity, general business and market conditions, and other factors, including legal requirements, share ownership thresholds, debt covenant restrictions and alternative investment opportunities.

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,

(In thousands)

For the Six Months Ended June 30,

(Unaudited, in thousands)

Net cash provided by operating activities

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Net cash used in financing activities

Net decrease in cash and cash equivalents, including restricted cash

Net (decrease) increase in cash and cash equivalents, including restricted cash

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.

Net cash provided by operating activities was $299.6 million during the six months ended June 30, 2022 as compared to $248.1 million during the six months ended June 30, 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 in the six months ended June 30, 2022 when compared to the six months ended June 30, 2021.

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.

Net cash used in investing activities during the six months ended June 30, 2022 consisted primarily of capital expenditures of $101.0 million largely related to future attractions.

Net cash used in investing activities during the six months ended June 30, 2021 consisted primarily of $45.0 million of capital expenditures.

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

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Capital Expenditures:

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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.

Net cash used in financing activities during the six months ended June 30, 2022 results primarily from share repurchases of $454.8 million and payment of tax withholdings on equity-based compensation through shares withheld of $22.1 million.

Net cash used in financing activities during the six months ended June 30, 2021 results primarily from payment of tax withholdings on equity-based compensation through shares withheld of $12.5 million and repayments on long-term debt of $7.8 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 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”).

As of June 30, 2022, our indebtedness consisted of senior secured credit facilities, 5.25% unsecured 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.

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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.

(“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 June 30, 2022, our Senior Secured Credit Facilities consisted of $1.191 billion in Term B Loans which will mature in August 2028, along with a $390.0 million Revolving Credit Facility, which had no amounts outstanding as of June 30, 2022 and will mature in August 2026.

As of June 30, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $370.3 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.

As of June 30, 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.

As of June 30, 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.

We define Adjusted EBITDA as net income plus, (i) income tax 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”).

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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 (loss) income for the periods indicated:

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

SEAWORLD ENTERTAINMENT, INC.

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UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Three Months Ended March 31,

Last Twelve Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Last Twelve Months Ended

(Unaudited, in thousands)

Net (loss) income

Benefit from income taxes

Provision for income taxes

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

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COVID-19 related incremental costs (e)

Other adjusting items

Adjusted EBITDA (f)

Other adjusting items (f)

Adjusted EBITDA (g)

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

Estimated cost savings (g)

Other adjustments as defined in the Debt Agreements (h)

Covenant Adjusted EBITDA (i)

Estimated cost savings (h)

Other adjustments as defined in the Debt Agreements ( i )

Covenant Adjusted EBITDA ( j)

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 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 associated with grants of equity-based compensation.

For the twelve months ended June 30, 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.

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.

Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals including asset write-offs and costs related to certain rides and equipment which were removed from service.

For the six and twelve months ended June 30, 2022, includes approximately $3.9 million related to non-cash self-insurance reserve adjustments.

For the three and six months ended June 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $2.9 million and $5.1 million, respectively of third-party consulting costs and (ii) $2.5 million and $3.9 million, respectively of other business optimization costs and strategic initiative costs.

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

(i) $1.5 million and $1.6 million, respectively, of severance and other separation costs associated with positions eliminated and (ii) $0.4 million and $0.5 million, respectively, of third-party consulting costs.

For the twelve months ended June 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $8.9 million of third-party consulting costs and (ii) $5.8 million of other business optimization costs and strategic initiative costs.

For the three and six months ended June 30, 2022 and 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff, and operate the parks with enhanced safety measures and costs associated with COVID-19 related legal matters.

For the twelve months ended June 30, 2022, includes approximately $11.1 million of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and approximately $6.8 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.

Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items.

For the three, six and twelve months ended June 30, 2022, includes $3.6 million related to a legal settlement.

Adjusted EBITDA is defined as net 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 June 30, 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.

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.

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.

The Debt Agreements, which were effective for the twelve months ended June 30, 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.

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.

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.

There have been no material changes to our contractual obligations as June 30, 2022 from those previously disclosed in our Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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Off-Balance Sheet Arrangements

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

We had no material off-balance sheet arrangements as of June 30, 2022.

Recently Issued Financial Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis