United Parks & Resorts Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 11 speakers on the call.

Operator

Good morning, and welcome to the SeaWorld Parks and Entertainment Q3 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, There will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Matthew Stroud, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Chad, and good morning, everyone. Welcome to SeaWorld's 3rd quarter earnings conference call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.seaworldinvestors .com. Replay information for this call can be found in the press release and will be available on our website following the call.

Speaker 1

Joining me this morning are Mark Swanson, Chief Executive Officer and Jim Forrester, Interim Chief Financial Officer and Treasurer. This Comments today will contain forward looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties Quarterly reports on Form 10 Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time and will be included in our filings In addition, on the call, we may reference non GAAP financial measures and other financial metrics such as adjusted EBITDA And free cash flow. More information regarding our forward looking statements and reconciliations of non GAAP measures to the most comparable GAAP measure It's included in our earnings release available on our website and can also be found in our filings with the SEC.

Speaker 1

Now, I'd like to turn the call over to our Chief Executive Officer, Mark Swanson. Mark?

Speaker 2

Thank you, Matthew. Good morning, everyone, and thank you for joining us. We are pleased to report another quarter of solid financial results despite the impact of unusual and significantly adverse weather In our peak operating season across most of our markets, our results during the Q3 continue to demonstrate The resilience of our business, the effectiveness of our strategy and the tireless efforts of our outstanding team. We are particularly pleased to continue to see strong results from our focus, efforts and investment in our in park offerings As we grew in park per capita spending for the 14th consecutive quarter to a record level during the quarter, We are excited to see the continued results of our ongoing work in this area and in the coming quarters into 2024. Our relentless focus on cost management also continued to deliver as we improved adjusted EBITDA margin on a year over year basis for the quarter.

Speaker 2

We are continuing to execute against our previously discussed cost initiatives and expect to continue to see the results of these efforts In the coming quarters into 2024, I want to thank our ambassadors across our parks for their dedicated efforts to welcome and serve our guests We just completed another successful Halloween season at our parks, Featuring our award winning Halloween events. We are pleased to have grown per capita spending in October And after adjusting for the calendar shift that resulted in one last Saturday compared to prior year, we estimate attendance and revenue would have grown as well. We are proud of the continued strength of our Halloween events and the popularity that they continue to build with our guests. We're also proud of the recognition these events are receiving as SeaWorld Hollow Scream was voted the best Halloween theme park event by USA TODAY's As we enter the holiday season, we will begin our award winning Christmas events Most of our SeaWorld, Busch Gardens and Sesame Parks later this week. Our Christmas events feature exciting live entertainment, Delicious and unique food and beverage offerings and holiday shopping for guests of all ages.

Speaker 2

Looking beyond the holiday season into 2024, 2024 groups and our Discovery Cove property. In addition, we recently launched our best past benefits program ever, which we expect will help drive increases in pass sales and a strong pass base for next year. We continue to make progress on our strategic growth initiatives related to hotels, international expansion and our digital activities. We also have made meaningful incremental investments across our parks this year that we expect to fully benefit from in the coming quarters. We look forward to sharing more on these exciting value creating initiatives and investments in the coming quarters into 2024.

Speaker 2

We have proven quarter after quarter that we have a strong and resilient business model and we still have significant opportunities to improve and grow our revenue and profitability. We operate in an industry and in markets with growing demand trends over the long term, We have significant available guest capacity across our park portfolio. Our attendance levels are still below the total attendance levels we achieved in 2019 and well below our historical high attendance of approximately 25,000,000 guests recorded in 2,008. We have made significant investments in our business this year and will continue to make investments to improve the guest experience, Allowing us to generate more revenue and make us a more efficient and profitable business, we expect these investments to yield Highly attractive returns. And we are planning new initiatives for next year that will make us an even stronger, more profitable We recently announced our partial lineup of new rides, attractions, events and upgrades for 2024.

Speaker 2

This lineup includes, among others, Penguin Truck, an unforgettable family launch coaster adventure at SeaWorld Orlando Phoenix Rising, a suspended roller coaster at Busch Gardens Tampa Bay A fully restored Loch Ness Monster Coaster with all new thematic and experiential elements at Busch Gardens Williamsburg. Jewels of the Sea, The Jellyfish Experience, An all new immersive aquarium at SeaWorld San Diego. Catapult Falls, the world's 1st launch Flume Coaster at SeaWorld San Antonio. Now, let me update you on the progress of some of our strategic initiatives. First, we are making good progress on our cost and efficiency related work and continue to implement these cost reduction opportunities as evidenced by The 3rd quarter adjusted EBITDA margin of 48.6%, which exceeded the prior year despite lower revenue.

Speaker 2

The team continues to find ways for us to source and organize more efficiently, better utilize capital and technology, Along with scheduling improvements to drive labor efficiencies and eliminate unnecessary and or redundant expenses. We expect and are confident that these Cost savings initiatives along with our revenue enhancements will lead to increased margins over time. 2nd, on the digital transformation front, we continue to build out our CRM capabilities, which are still in their infancy And roll out and improve our mobile app. In regards to the mobile app, we are pleased it is being used by an increasing number of guests in our parks Sorry. The app has now been downloaded more than 7,500,000 times, up from 6,300,000 at the end of Q2.

Speaker 2

Total revenue generated on the app is up 136% compared to prior year, and we are now seeing a 26% increase in average transaction value for 75% of our target restaurants. We're excited about the potential of the app and its ability to improve in park guest Drive increases in revenue and decreases in cost. We are continuing to refine current capabilities 3rd, as you know, we strategically increased our Park specific ROI investments this year with the goal of driving Incremental revenue and or decreasing costs through expanding, enhancing and improving our food and beverage and retail offering, Park infrastructure and aesthetics and generally improving the guest experience and journey around our parks and facilities. As we said last quarter, some of these refurbishments and upgrades took longer than planned, which negatively affected in park per caps in the 3rd quarter. However, these venues are now open and we are realizing the benefit of these investments.

Speaker 2

We have additional projects planned in 2024 that will We have learned that there may be some confusion about this incremental capital spend. As a reminder, we break our capital spending into 2 categories, Core CapEx and ExpansionROI CapEx. Core CapEx is the amount of CapEx that we believe We need to spend to maintain our current assets and execute on our annual ride and attraction strategy. For example, opening new rides and attractions across our parks each year. The average amount we estimate we need to spend on core CapEx is approximately $150,000,000 to $180,000,000 annually.

Speaker 2

We believe this amount of spend is sufficient to allow us to grow Our business at a normalized growth rate over time. Expansion ROI CapEx It's CapEx related to specific projects that we have high confidence will generate attractive ROI, typically 20% plus Cash on cash returns. This is capital spending that we believe will allow us over time to grow adjusted EBITDA in excess of normalized growth rates. Historically, we have allocated approximately $25,000,000 to $50,000,000 each year to this type of capital spending. Based on our incremental I'm sorry, based on our increased cash flow generation in recent years, this year, our Board challenged the Management team to identify and present a comprehensive list of the high confidence ROI projects across the enterprise.

Speaker 2

Based on discussions with our Board, we aligned on spending an additional roughly $80,000,000 this year on such high confidence projects. We hope this clarifies for people how we think about capital spending, ROI and uses of excess cash flow. 4th, on the international front, attendance at SeaWorld Abu Dhabi continues to exceed original expectations. Continue to make progress on discussions related to other international opportunities and expect to have more to share in coming quarters. 5th, on the hotel front, we also continue to make progress on our plans.

Speaker 2

As we mentioned last quarter, We are refining our design planning on our first hotels, and we expect to begin opening in 2026. We identified the locations of the first two hotels and we'll be offering more details about these properties soon. We continue to make progress on projects in other markets. And subsequent to opening our first two hotels, we are planning to continue to open Additional hotels in the years following. We have also received questions from some of our investors about our hotel strategy.

Speaker 2

As you all know, we have significant excess land across most of our parks that is currently underutilized. We have a unique opportunity to build highly compelling hotels that will integrate with our parks, allow us to capture profits from our guests That are currently staying at other properties, increased length of stay at our properties, offer more compelling vacation packages, Upsell and cross sell guests, increase loyalty and generate an attractive ROI. Some investors have asked how we might finance these hotels. While cash is fungible, we have several options given the nature of these projects. We expect to finance these hotels with a combination of debt and cash from our balance sheet.

Speaker 2

Given our expected cost of capital and the expected return on the expected returns on these hotel projects, we expect to generate north of These are highly compelling projects that are long overdue. Many of you are fully aware of the value these types of hotels provide to our peers in our various markets, including in Orlando. Very excited about the significant investments we are making and the many initiatives we have underway across our business that we expect will improve the guest experience, Allow us to generate more revenue and make us a more efficient and more profitable enterprise. We are building an even stronger and more resilient business that we are confident will deliver substantially improved operational and financial results and meaningful increases Let me briefly comment on our balance sheet, which continues to be strong. Our September 30, 2023 net total leverage ratio is 2.56 times and we had approximately 580 $6,800,000 of total available liquidity, including over $215,000,000 of cash on the balance sheet.

Speaker 2

The strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to Maximize long term value for shareholders. We have also received questions from some of our investors about our Back to the use of our free cash flow. As you know, we have the benefit of generating significant free cash flow at our current adjusted EBITDA generation. We have options on how to use this excess cash flow, including investing in the business, buying back stock, paying a dividend, paying down debt and making acquisitions. Our Board is highly experienced and knowledgeable and very focused on allocating capital to the highest available return opportunities.

Speaker 2

In More recently, we have devoted more capital to investing in the business. You should assume that the Board is very focused on allocating capital to the best available opportunities and is working to ensure this outcome. As we have more to share on this, we will communicate this clearly. Looking ahead, we are excited about our award winning holiday events, which start this week. We expect this year to be our best holiday event yet and expect to finish 2023 strong.

Speaker 2

Following our holiday events, we will kick off 2024 by returning with many of our With that, Jim will discuss our financial results in more detail. Jim?

Speaker 3

Thank you, Mark. Good morning and thank you for all your interest in our company. It's good to be able to join you to report out on our quarterly performance. During the Q3, we generated total revenue of $548,200,000 a decrease of $17,000,000 or 3.0 percent When compared to the Q3 of 2022, the decrease in revenue was due to a decrease in attendance of 2.8% and a decrease in total revenue per capita of 0.2%. The decrease in attendance was primarily due to Total revenue per capita in the quarter decreased slightly to $76.90 compared to $77.05 In the Q3 of 2022, admission per capita decreased 1.6 percent to $42.05 While EnPak per capita spending increased by 1.6 percent to a record $34.85 in the Q3 of 2023 Compared to the Q3 of 2022, admission per capita decreased primarily due to the net impact of the admissions product mix, Partially offset by the realization of higher prices in our admissions products resulting from our strategic pricing efforts when compared The prior year quarter.

Speaker 3

In park per capita spending improved primarily due to pricing initiatives, partially offset by factors including weather, the emissions product mix, Closures and disruptions related to construction delays at certain park and park locations when compared to the Q3 of 2022. Operating expenses decreased $10,100,000 or 4.7 percent when compared to the Q3 of 2022. The decrease in operating expenses is primarily due to decreased labor related costs and a decrease in non recurring legal costs And contractual liabilities resulting from the previously disclosed temporary COVID-nineteen part closures, along with the impact of implemented structural cost Savings initiatives when compared to the Q3 of 2022. Selling, general and administrative expenses increased $6,600,000,000 or 12.5 percent compared to the Q3 of 2022. The increase in selling, general and administrative $2,700,000 of non recurring costs, primarily related to an opportunistic loan repricing and strategic initiatives, Partially offset by the impact of implemented cost savings and efficiency initiatives when compared to the Q3 of 2022.

Speaker 3

We generated net income of $123,600,000 for the 3rd quarter compared to net income of $134,600,000 in the 3rd quarter of 2022. The decline in net income is primarily related to the decrease in total revenue when compared to prior year. We generated adjusted EBITDA of $266,400,000 a decrease of $7,800,000 when compared to the Q3 of 2022. The decline in adjusted EBITDA for the Q3 of 2023 was primarily driven by a decrease in revenue when compared to the Q3 Looking at our results for the 1st 9 months of 2023 compared to 2022, total revenue was $1,340,000,000 A decrease of $3,100,000 or 0.2 percent. Total attendance was 16,600,000 guests, A decrease of 356,000 guests or 2.1 percent.

Speaker 3

Net income for the period was $194,100,000 A decline of $48,000,000 and adjusted EBITDA was $563,100,000 a decrease of $11,500,000 or 2.0 percent. Now turning to our balance sheet. Our current deferred revenue balance as of the end of the 3rd quarter was $161,100,000 Excluding certain one time items, deferred revenue decreased approximately 5.4% when compared to September of 2022. At the end of October 2023, our pass base, including all pass products, was down slightly compared to October 2022. We're pleased that we are seeing high single digit percentage price increases on our PAS products compared to prior year.

Speaker 3

As Mark said, we just recently launched our best PaaS benefits program ever, which we expect will drive additional increase Black Friday promotion and the spring early summer periods. As a reminder, our deferred revenue balance contains a number of products to include ticketing, vacation packages, annual and seasonal passes and ancillary products. Some of those 2022 ticketing product balances were one time items as mentioned last year. We also encouragingly continue to see an increase in the number of pass holders who have been with us for at least a year We transition to month to month payments at a higher rate at the completion of their initial past commitment. This month to month revenue does not show up as deferred revenue.

Speaker 3

As noted, we have a very strong balance sheet position. As of September 30, 2023, our total available liquidity was $586,800,000 including $215,200,000 of cash and cash equivalents on our balance sheet and $371,600,000 available on our revolving credit facility. We spent $88,600,000 on CapEx in the Q3 of 2023, For 2023, we expect to spend approximately $285,000,000 to $295,000,000 of CapEx, Of which $160,000,000 to $175,000,000 will be spent on core CapEx. We're excited about our ability to make these High confidence ROI investments and sincerely look forward to the benefits and returns from these investments flowing through to our financial results next year. Now, let me turn the call back over to Mark, who will share some final thoughts.

Speaker 3

Mark?

Speaker 2

Thank you, Jim. Before we open the call to your questions, I have some closing comments. In the Q3 of 2023, we came to the aid of 56 animals in need. Over our history, we have now helped over 40,000 animals, including bottlenose dolphins, I'm really proud of the team's hard work and their continued dedication to these important rescue efforts. I want to thank them and all our ambassadors for all that they do to operate our parks.

Speaker 2

We are excited about the remainder of 2023 as we start our holiday events. As a reminder, SeaWorld Orlando's Christmas celebration Was voted number 1 best theme park holiday event by USA TODAY's 10 Best Readers' Choice Awards. We're proud of these events and the recognition we have received from our guests, and we expect this year to be our most exciting events yet. We continue to strongly believe there are significant additional opportunities to improve our execution, take advantage of clear growth opportunities and continue to drive meaningful Long term growth in both revenue and adjusted EBITDA. We continue to have confidence in our long term strategy and our ability to deliver significantly Now, let's open it up for your questions.

Operator

Thank you. We will now begin the question and answer session. If you have additional questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. And the first question will be from Steve Wieczynski from Stifel.

Operator

Please go ahead.

Speaker 4

Hey, guys. Good morning. So Mark, obviously weather was impactful during the quarter, maybe not as bad as what you guys witnessed in the Q2 this year, Still seemed like it was impactful and we heard similar comments from some of your peers. So I guess the question is, Do you have a ballpark idea of what the weather impact was on your attendance? And just wondering if, I mean, attendance was down, let's call it, 2.5%, 3%, if you believe attendance would have been positive without the weather headwinds.

Speaker 2

Yes. Thanks, Steve. Appreciate the question. I mean, obviously, as we said, weather was a very significant factor In the quarter, I think, as you noted, that's been pretty well documented by it was in the news Throughout the summer and us and others have talked about it. I don't know that I can give you an exact number.

Speaker 2

I think we would have been Obviously, much better in attendance. I don't know that we would have been positive, but we would have been certainly a lot closer. It is an estimate, But certainly, it would have been down quite a bit less without the impact of weather, obviously.

Speaker 4

Okay. Got you. And then Mark, you mentioned in your prepared remarks, you kind of gave us your updated uses of free cash flow Going forward, but I'm going to try to ask this question the way you might give me an answer. But Just wondering now your appetite, the Board's appetite for acquisitions. And I ask that just given the fact the news that It has come out over the last week or so in the amusement park space.

Speaker 4

So not sure what you can say around that, but any comments around Your appetite for acquisitions would be appreciated.

Speaker 2

Yes, Steve. I'll just refer you back kind of to my comments I made, I mean, obviously, acquisitions is in the consideration set for use of cash, right, along with buybacks, dividends, Capital spend, all the things I listed. And so I don't have any specific comment on any Specific transaction or anything. I think it's just something that the Board obviously considers along with the other uses of cash.

Speaker 4

Okay, understood. Thanks guys. Appreciate it.

Operator

And the next question will be from James Hardiman from Citi. Please go ahead.

Speaker 5

Hey, good morning. Thanks for taking my questions here. So I think versus a lot of our models, the decrease in OpEx was maybe the biggest thing, the most impressive piece here and what stood out. If I look back at last year, I think you talked about labor costs actually being lower. I think you said you were short staffed in last year's 3rd quarter, but it seems like labor is what was called out as maybe the biggest driver there.

Speaker 5

Maybe walk us through Where labor is today, where it's likely to head from here and how we should think about, I guess, OpEx overall, but particularly that labor piece, as we make our way into 2024?

Speaker 2

Yeah. Thanks, James. I can take that question. Look, what I would just call you back to some of my prepared comments that we have a tremendous focus On cost, and that includes labor, but obviously OpEx and other cost areas. So I think we've done A better job of looking at how we staff our parks, how we schedule our hours and Openings and closings and things like that and trying to be the most efficient that we can be in our parks.

Speaker 2

And I think some of that is coming through there. We're obviously, in this business, able With parks being open, some of our parks open almost every day of the year, we're able to test and learn from that as well. So, there's different things we can do Around labor that we feel certainly helped in the quarter. But Jim can give you maybe some more specifics if you'd like on Actual labor costs?

Speaker 3

Yes, James, I think what we found last year is that with that shorter staffing, the result of that was the need to pay Higher wages in certain cases to attract and retain individuals, that incentives to again attract individuals and we were running some overtime that we didn't want to necessarily run to staff our parks and provide service to our guests and drive revenue. Bureau of Labor Statistics would say that over the past year, you would have seen a 4.5% increase in leisure and hospitality wage rates. I'm pleased to report that we're actually opposite of that. We actually are probably down close to in excess of 2.5% of wage rate Improvement, because we are no longer having to offer as many incentives as we once did. And we've actually looked at higher starting wage rate as we had in the past.

Speaker 3

And lastly, we are reducing that over time, as I mentioned, because we are better staffed.

Speaker 5

Got it. That's actually a really good color. And then I guess secondly, maybe help us with any quantification You can provide in terms of where we are in terms of the 2024 passes and In units and dollars ideally, but I think a lot of people are trying to sort of bridge that gap between deferred revenue being down 12%, but group bookings and Discovery Cove up double digits. I think in your prepared remarks, you talked a lot about some of the One time issue or non comparable items, but maybe the most important piece that I think people care about is just the passes and where we stand versus last year.

Speaker 2

Yes. Let me start and then Jim can add anything that he'd like to add. So I think you heard in his Prepared remarks, the pass base is down slightly as of the end of October. And keep in mind, our when we say pass base, That includes passes, fun cards, teacher pass, preschool pass, all the different kind of pass items That are passes. And so, the mix of those passes This can certainly impact your deferred revenue, obviously.

Speaker 2

And then, you mentioned already some of the one time adjustments That Jim talked about, if you normalize those out, obviously, that decline, I think, was around 5.5%. And then you also heard Jim talk a little bit about people that are in the out of commitment time period. So they are in a period where they are a month to month Payer, almost like a gym membership. And those are we love customers like that when they get to that month to month after 12 months. The accounting treatment on that, it does not flow through deferred revenue.

Speaker 2

It just flows right from the payment to revenue. So, it bypasses deferred revenue. So, that might be a little more color. Deferred revenue. So that might be a little more color and I think that's kind of what Jim said, anything you want to add?

Speaker 3

Yes. The only thing I would add to that is a reminder for those who follow this industry, unlike many who are more seasonal in nature, we have actually the majority of our passes are sold in this April to July timeframe as well as the Black Friday promotional period. So if you look at those, more than half of our passes will be sold more next year than they were would be this year. And I know a lot of again those in the space really focus on this Fall period is getting most of their passes sold. We're a little bit different.

Speaker 2

Yes, that's a really important point that Jim just mentioned. Certainly, We sell passes year round, right? And as he noted, a lot of those are sold in that spring, early summer time period when we're opening our rides and things like that. So, Perhaps a little bit different than some of the others. And certainly, I think the peak selling season is still ahead of us.

Speaker 2

And we just rolled out, As I mentioned, our best benefits ever just rolled out here in the last few days. And so we're optimistic that that will be another reason that people will have To buy a pass or retain their existing pass. So, we're excited about the opportunities That hopefully has ahead of us.

Operator

And our next question will come from Michael Swartz from SunTrust. Please go ahead.

Speaker 6

Hey, guys. Good morning. Maybe just one quick question, broader level. The Six Flags and Cedar Fair One of the rationale that they are using for the transaction is just increased diversification, limiting the impact of Weather variability in different markets. I guess, as you take a step back and think about this from a high level, I mean, what are you doing internally, strategically Really maybe reduce or lessen the impact of weather.

Speaker 6

Obviously, there's been a big, big issue with all operators this year.

Speaker 2

Yes. Hey, Michael, I can help you out there. So, look, certainly one of the things we just talked about a little bit is Building a pass base, certainly that helps insulate you from weather. And I think you'll see our efforts around that and you'll continue To see us push that program, that kind of locks in that commitment and we still want those people to come, but if For some reason, the weather is bad and they can't come, you still have that commitment from them. But beyond that, really, it's taking a look at Different things in our parks.

Speaker 2

We've talked a little bit about some of this aesthetic capital that we've deployed. And so that can be around like shade structures, For example, where like in where particularly hot or unshady part of the park, we try to put more shade there to make if you're I think the other thing we've looked at What are the opportunities to do some more things indoors? And so, next year, We look at shows like we've got an indoor aquarium jellyfish experience coming to San Diego, for example. So there's indoor opportunities as well that can be good. So we recognize it's something that we'll continue to work With the various initiatives we have, we have to keep going here, we have programs around Drink refills and things like that, that people can avail themselves of.

Speaker 2

They can buy a refillable cup for a certain price and they get Refills are very low cost refills. So just things to try to make guests more comfortable while they're here.

Speaker 3

The only thing I might in addition to that, I don't think some of our guests are fully appreciative that some of our water parks are heated, for example. So we're doing some nice capital investment to share. We've got boilers Keep people warm when the weather is colder. And we also look at our park operating hours to ensure that if we've got consistent, let's say, afternoon thunderstorms in We will now

Speaker 5

begin the question and answer session.

Speaker 7

We will now begin the question and

Speaker 3

answer session. We will now begin the question and answer session. The traditional storms to allow for that.

Speaker 6

Okay, great. And just I know you don't give guidance, but just in terms of the 4th Quarter, obviously, you've said that October, excluding the extra Saturday from last year, is up low single digits. Is that maybe the right way to think about How November, December should play out? I know there's probably some calendar differences in weather differentials, Maybe even easier comps, but any general commentary you can provide about maybe how to frame the entire quarter?

Speaker 2

Yes. Hey, Michael. I mean, look, what I would tell you is, we're excited about The rest of the year, I mean, we're starting our Christmas events in some of our parks this week. And I think Somewhat like Halloween, we have found those to be pretty popular and things that people like to Come and do, and in some cases, people who come annually to visit as a tradition with their family or something. So I feel good about our product.

Speaker 2

I feel good about like the passes that are on sale now to enjoy that product. And we have obviously a lot more than just pass holders that come. Pass Only a component of our attendance, it's a big one, but certainly we have other ticket types as well and we'll have other Reasons for people to buy certain tickets and come and visit. So, I think there's a lot of reason to come. I'm not sure I can guide you to anything other than Last year, obviously, there was some weather in Q4 that we talked about on the Q4 earnings call.

Speaker 2

Hopefully, that doesn't repeat, who knows. But I think we like the product and I think that's a big reason that we have confidence.

Operator

And our next question will come from Chris Woronka from Deutsche Bank. Please go ahead.

Speaker 8

Hey, good morning, guys. Thanks for all the details so far. Mark, I was hoping maybe we could drill down a little bit just Some

Speaker 7

of the

Speaker 8

attendance, I guess, issues in the quarter, you covered weather for

Speaker 6

a lot. But do you think there's any of it

Speaker 8

that just relates to maybe Orlando Seeing a broader slowdown and whether that relates to Disney or something else, I mean, I think we've started to hear that a little bit from some of The hotel people down there, just curious as whether you have any thoughts on that?

Speaker 2

Yes. So Chris, look, I don't know that I can comment On the other parts, I mean, you can read up on like Orlando tourist tax collections and things like that, Which to your point had been negative for, I think, a couple of months. But in general, We have a lot of factors that impact our attendance. Certainly, weather is one that is probably A little more quantifiable, and then you have calendar impacts and other things. But there's a lot of factors.

Speaker 2

I think in general, when I look at our Orlando parks, yes, we'd like to be obviously Do a little bit better, but I don't think we're at all like down On the market or our parks or anything like that, I think we offer a very compelling product here. And as I've said Previously, we get a lot of our attendance in the Orlando market from the state of Florida. So, I think as people .:] Maybe if you're alluding to like taking closer in trips, I think that is helpful to parks like ours, whether it's Orlando specifically or even down in Tampa. But we're working hard to make sure between the concluded Halloween events And then our Christmas events that we give people reason to come and visit, even if to your point, maybe the Tourism into that destination is down. We want to make sure we capture more locals and people that are nearby as much as we can.

Speaker 8

Okay. Thanks for that, Mark. And then follow-up is on the hotel strategy. You gave a lot of details already. I know there's more to come.

Speaker 8

My question would be, It sounds like you know what you want to do and it sounds like as of now you would go on balance sheet. Is there any thought Longer term to either working with a partner or really just kind of getting those off of the balance sheet, are there any

Speaker 2

Yes. Chris, what I would just I mean, I think in my prepared remarks, I alluded to that there's several options when we look at How you would approach the hotels from a funding standpoint. So I don't I think there's multiple ways you could do it. You've kind of alluded to one already. So I think we're like anything else, we would work together and with our Board to determine what is the best option for us at the time.

Speaker 2

I said you can kind of assume we would probably do some sort of debt and internal cash combination. Again, I think we're open to looking at other options, in which there are several, as you noted.

Operator

Thank you. And our next question is from Thomas Yih from Morgan Stanley. Please go ahead.

Speaker 7

Thanks so much. Just following up on that last question, is one of the alternatives still also just owning the hotels outright? And maybe at a broader level, whether it's thinking about M and A or organic investments, what's the right leverage target that you're comfortable with as we think about maybe financing I'm a bit

Speaker 2

through that. Yes. I appreciate the question, Thomas. I mean, look, I think we're comfortable where we are now and not to say that, as we've said in the past that we wouldn't be comfortable at something Higher than that. But again, I think it just that's sitting here today and given the markets today and things like that.

Speaker 2

I think you also got to think a little bit about our ability to generate cash flow, as I noted, I think it's strong. So I think between some combination of cash flow and debt financing, I think we feel Comfortable where that would put us from a leverage ratio sitting here today.

Speaker 7

Okay. I appreciate that. And then on the Abu Dhabi contribution, it sounds like it's trending better. Can you maybe just help us with 3Q, how much it contributed to In part per cap and what it might have looked like excluding it?

Speaker 2

I mean, look, we're pleased with The performance of as I noted, the performance, the attendance there is above original expectations. I think I gave you Some color in the past on how to think about that. So, I don't know that it's anything that We're going to guide to a whole lot. I would just leave it at that.

Operator

Thank you. And the next question will be from Barton Crockett From Rosenblatt, please go ahead.

Speaker 9

Hi. I'm going to go ahead and just ask a question about just the obvious Just to make sure that we get as clear on this as we can. So with the proposal of the mergers of Cedar Fair and Six Flags. You guys have in the past had some interest in Cedar Fair that you pulled back from. This merger has been announced.

Speaker 9

There's been a somewhat kind of real estate driven activist and investor of some sort at 6 Flags I said they kind of vote against the merger. And you guys have said really you've been very silent on this. I'm just wondering, Is it reasonable for your shareholders to assume right now that you guys are closing the door on making a run at 1 or the other company in that merger process? Or is that not the case right now?

Speaker 2

Yes, Barton. I mean, what I'll tell you is, obviously, we're not going to really comment On M and A, I mean, I think what you can assume is that our Board is aware of the is aware and have studied the transaction, but Beyond that, we're not going to comment on it.

Speaker 9

Okay. All right. And then you made the comment about Back to your business, the double digit rise in Group and Discovery Cove, it's kind of a positive indicator for next year. To what extent historically has that been predictive? Is that really a good data point to tell you what's going to happen or not?

Speaker 9

It's a particular small part of your business, but how good of an indicator is that?

Speaker 2

I mean, what I would tell you is, it's obviously, I think, a positive, stating the arbiter, A positive that those things are doing what I said they were doing. It's just one of many things we look at. I don't know that we've ever looked at like How predictive it is, but certainly, I guess, my point is, if people were suddenly not Interested in our parks or pulling back, not wanting to go to Discovery Cove or not wanting to hold their group event At one of our parks, I mean, I would think that would show up in the numbers. So, the fact that those things are moving On a revenue basis, up double digits percentages, I think it's a positive indicator.

Operator

Thank you. And the next question will be from Matt Fassler from Goldman Sachs. Please go ahead.

Speaker 10

It's actually Lucy Dove from Goldman Sachs. But thank you for taking the question. I wanted to see just see your thoughts on CapEx, Especially, you have Universal opening Epic in the summer of 2025. You've got Disney announcing that They'd spend an extra $60,000,000,000 on its parks and resorts over the next 10 years, which I imagine a decent chunk of that is going to go to Orlando. So In light of all that, how does that kind of change how you allocate your CapEx in terms of the new rides that you've talked about versus hotels or all of those different things?

Speaker 2

Yes, let me take that question. I mean, a couple of things. One, I think we've been Pretty clear that our goal is to have something new in each of our parks. And certainly, that would include SeaWorld Orlando each year going forward. So, we'll continue to obviously invest In Orlando and in our other parks.

Speaker 2

But just a reminder on Orlando, because occasionally people do ask this question. I really like being in Orlando, right? It's the largest tourism market in the United States. We've been here since the early 1970s. And if you think about it, we had 1 SeaWorld Park.

Speaker 2

If you think about all the parks that have opened since that time, including us, we opened 2 others, Aquatica and Discovery Cove, and then you got all the Disney parks that came, all the Universal parks that have come, all the other ancillary things, whether it's LEGOLAND Papa the pig, whatever it may be, there's been a lot of investment in the market and I think we've obviously continued, I think to benefit from that. So we welcome the investment. We have a differentiated product. I think that That's us apart in a lot of ways from our competitors. So we'll continue to, I think, benefit from being in a market that's growing And we'll continue to find ways to take advantage of that like we have over the last 50 years.

Speaker 2

I mean, it's pretty remarkable when you look at the investment Into this market, over that time since we opened SeaWorld in the early 1970s, and I think we've continued to be Performing in this market and well enough that obviously we're hoping 2 additional parks that we are really proud of. So We like the investment. We welcome the investment. We're glad we're in Orlando.

Speaker 10

I appreciate that. That's helpful. And just one Follow-up, if I may. Earlier in the year, you talked about expecting a record year in EBITDA. I think you had not fully committed to that Last quarter, I'm curious how you're thinking about that.

Speaker 10

Obviously, you've had some challenges with the weather and also kind of the outlook for 2024, especially when you have seen some improvements on the OpEx side, which James called out earlier.

Speaker 2

Yes. Look, I don't have anything to guide you to other than, I mean, you can see what our LTM number is. But look, we're going to work our hardest to finish this year already in a strong fashion. I like our lineup of events with Christmas that we've talked about. So, we're going to finish as strong as we can For the rest of the year, we'll see where that ultimately lands in total for the year.

Speaker 2

As far as like again, I'm not going to give you guidance for 20 It's, I think, a pretty simple formula. If you can grow your attendance 1% or so, if you can grow your per caps 2%, 3%, 4% or so, And if you manage your costs well while you're doing that, you can expand your EBITDA, your adjusted EBITDA probably in the 5% range. And that's I'm certainly not guiding you to anything, but that's how we think about it on a normalized basis. And then if you think about where we once were as a company, we did over $25,000,000 in attendance back in 2,008. We still have a lot of runway left to get back to that.

Speaker 2

So that gives me confidence That we can we've achieved something in the past and there's reasons that if we achieved it In the past, why can't we achieve it again in the future? So, that's kind of how we think about the business going forward. And then you layer Really, the efficiency efforts that you've talked about, the pricing efforts, all the other things that we've talked about. So Again, not guiding you to anything, but just giving you some color on how we think about the go forward. Still a lot of opportunity, especially to get back attendance that we once Whether it's 2,008 or other years, so a lot to think about there.

Operator

And the next question is from Robert Arond from KeyBanc. Please go ahead.

Speaker 8

Hi. Thank you for taking my question. Wanted to follow-up around the group bookings commentary you had set up double digits. Can you just remind us, is there any kind of easy comp dynamic playing into that? Maybe you could give us kind of how group bookings compare to 2019 at this time of year?

Speaker 2

Well, what I would tell you, Robert, is that was the revenue trends that we talked about. I don't know that we have back to 2019, But what I would tell you is, we feel on the revenue trend there, the group business, We feel this has come back in a lot of ways from a revenue standpoint versus the Dramatic slowdown after COVID. So, I think we're optimistic that we can continue to grow that part of our business. And we have a great product to showcase at our parks. We have opportunities for groups to come in here and do things that, Again, like I've said, are differentiated and unique to us and that you're not going to find another park.

Speaker 2

So we're going to, I think, Showcase that better and try to do a better job of that on a go forward basis. All right. And then just as

Speaker 8

my follow-up, I wanted to ask about October per caps you had said in the release, up low single digits. Can you give us any kind of color there kind of breaking that between Admissions versus in park and then kind of how you're thinking about those buckets into 'twenty four. I mean it sounds like you want to grow both those Maybe where you'd expect kind of more of the growth to come from?

Speaker 2

Yes. So just a little bit of color on Per caps in October, I mean, I think admissions and in park were both positive for the month and that Gave you the total increase that we talked about in the low I think in the low single digits we said. So that's hopefully helpful. And really the way we think about it is kind of what I already said, but if you can grow your pricing a little bit each year On the admissions, you don't have to grow per capita more than a couple of percentage points, right, 2%, 3%, 4%. And If you can grow your tenants a little bit and manage your costs well, that can drive an increase in EBITDA that I've already talked about.

Speaker 2

So Again, that's how we think about it going forward. I think what else we add into that is some of the venue refreshes that we're doing, some of the new additions in our parks, whether it's Getting things open that were under construction previously or new venues. I was just down in Tampa A couple of weeks ago, Busch Gardens Tampa, and they just opened a refurbished pizza venue that's really well done. And I think it's new and then the bathrooms adjacent to it are all redone. So it's very nice and I think those are the type of things That will continue to do.

Speaker 2

And typically, when we do refresh venues, we do see good returns as we've talked about. That's why we do them. So We're going to continue to make the investments in those type of things, but then we'll also look for kind of other opportunities To take pricing or get more penetration as well on a go forward basis.

Operator

This concludes our question and answer Session, I would like to turn the conference back over to Mark Swanson, CEO for any closing remarks.

Speaker 2

Thank you, Chad. On behalf of Jim and the rest of the management team here at SeaWorld Entertainment, I want to thank you for joining us this morning. As you heard today, we are confident in our long term strategy, which we believe will drive improved operating and financial results and long term value for stakeholders. So thank you and we look forward to speaking with you next quarter.

Operator

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
United Parks & Resorts Q3 2023
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