United Parks & Resorts Inc (PRKS) 2014 Q1 法說會逐字稿

Good afternoon and thank you for standing by. Welcome to SeaWorld Entertainment's first-quarter 2014 financial results conference call. My name is Shannon. I will be your conference operator today.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn conference over to Gene Ballesteros, Senior Director of Investor Relations and Corporate Treasurer. Please go ahead, sir.

Thank you, Shannon. Good afternoon, everyone, and welcome to our first-quarter 2014 earnings conference call. Today's call is being recorded and webcast live.

Our first-quarter earnings release was issued this afternoon and is available on the Investor Relations portion of our website at SeaWorldEntertainment.com. Replay information for this call can be found in the press release and will be available on our website following the call.

Joining me this afternoon are Jim Atchison, our President and Chief Executive Officer, and Jim Heaney, our Chief Financial Officer. They will review our financial results and discuss important factors impacting the business.

Before we begin, I'd like to remind everyone that our comments today may contain forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different. And we undertake no obligation to update these statements.

In addition, on the call we may reference certain non-GAAP financial measures. More information regarding our forward-looking statements and reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the earnings release and can also be found in our filings with the SEC.

Now I would like to introduce Jim Atchison. Jim?

Things, Gene. And thank you to everyone for joining us on our call today. I'll focus my comments on some of our recent business achievements, and Jim Heaney will provide details surrounding our first-quarter performance and our 2014 guidance.

The first quarter, which historically represents only 12% to 15% of our full-year attendance, came in as expected, with the shift of Easter and the spring break holiday period into the second quarter. Based on the successful launch of our 50th anniversary celebration, a strong mix of new attractions yet to open, the ongoing benefits of our pricing and yield management strategy, and a strong start to the second quarter, we remain on track to deliver our fourth consecutive year of record financial results.

As you will hear from Jim Heaney in a few minutes, our first-quarter revenue was down 11% compared to the first quarter of 2013. While the shift of Easter and spring break had the expected impact on the first quarter, the month of April was also strong, as expected, with outstanding growth in attendance and per caps. Through April, our year-to-date total revenues are down just 3% to prior year compared to a decline of 11% at the end of the first quarter.

Attendance trends in May are also positive through yesterday. And the majority of the second quarter is still ahead of us, including the busy Memorial Day weekend and the beginning of the summer season in June. These critical periods will benefit from our 2014 lineup of new attractions opening in the coming weeks. We remain confident in growing our attendance and per caps this year, and achieving our full-year guidance numbers.

Yesterday we announced that our Board of Directors approved a 5% increase in our quarterly dividend, and declared our fifth quarterly dividend to be paid on July 1 to all shareholders of record as of June 20. We fill increasing our quarterly dividend in just our second year as a public company is a testament to the strength of our brand and an indicator of our commitment to returning value to our shareholders.

Our international business development efforts continue to move forward. I am happy to announce that the Company recently entered into an exclusive six-month memorandum of understanding for a multi-park development in the Middle East, with a partner who has an established track record of opening and operating world-class attractions.

Our team has worked diligently with our partner to identify the best theme park concepts and potential locations in the region. And we are moving forward into the next stage of this project. I'm excited about this opportunity to expand our theme parks to sites outside the United States. And look forward to revealing more details as we advance this process.

In our media and entertainment business, I am thrilled that our Sea Rescue television series, which has been seen by over 141 million viewers since its debut in 2012, was nominated for a daytime Emmy award in the category of outstanding children's series by the National Academy of Television Arts and Sciences. I'm extremely proud of the work our zoological professionals do each and every day to help ill, injured, orphaned and abandoned animals. It is an honor for their dedication and this effort to be recognized with this nomination.

You may have also seen a new host on Sea Rescue. I'd like to welcome ABC news correspondent Matt Gutman as he joins the Sea Rescue team to help tell the inspiring stories of rescue, rehabilitation and return of sea life back into their natural habitat.

Additionally, The Wildlife Docs continues its successful debut season, taking viewers behind the scenes with the amazing team of veterinarians, technicians and trainers caring for more than 12,000 animals at Busch Gardens Tampa. I am thrilled that together these two shows have surpassed total viewership of over 180 million through April.

I also want to welcome Bindi Irwin to the SeaWorld family. Bindi and thousands of young children worldwide are becoming game changes for nature through our Generation Nature and SeaWorld Kids platforms. Together they are learning about new ways to protect and care for wild animals in their natural habitat. This movement is all about youth, energy, action and making a difference, all while having a great deal of fun.

Finally, before I turn the call over to Jim Heaney to provide more detail on our first-quarter financial results, and our outlook for the remainder of the year, I would like to update you on important developments in our corporate partnerships and strategic alliances area. I am extremely pleased to announce that we've signed a multi-year agreement with American Express, which has become the official card of SeaWorld Entertainment.

American Express is a global leader in innovative payment products, travel-related services, and customer service. American Express will be the card of choice at all 11 of our parks and through our online and mobile ticket sales channels. We are excited about and look forward to executing this important strategic alliance with American Express.

Now, I'll turn the call over to Jim Heaney, our Chief Financial Officer.

Thanks, Jim. And good afternoon, everyone. I will briefly touch on our results from the first quarter and then review our guidance for 2014.

For the first quarter of 2014 the Company generated revenue of $212.3 million, a decrease of 11% over the first quarter of 2013. This decrease in revenue was driven by a 13% decrease in attendance, partially offset by an increase in total revenue per capita from $68.19 in 2013 to an all-time record $69.72 in 2014. The growth of per capita is especially encouraging given we are comparing against a prior number per cap which grew by a strong 10%.

The shortfall in attendance is attributable to the shift of Easter and spring break into the second quarter, as well as adverse weather and fewer operating days in 2014. Prior years where Easter was in late April, the Company experienced a similar shift in first-quarter attendance.

Cost of food, merchandise and other revenue decreased by 15% from $19.8 million in 2013 to $16.8 million in 2014. As a percent of related revenue, these costs decreased from 23% in 2013 to 22.4% in 2014.

Operating expenses decreased by 3% from $173.3 million in 2013 to $167.9 million in 2014. Operating expenses decreased due to a reduction in variable costs from lower attendance, partially offset by costs related to launching the 50th anniversary celebration at our three SeaWorld parks in March.

SG&A expense increased by 13% from $40 million in 2013 to $45.1 million in 2014. The increase was primarily related to higher marketing costs driven by the launch of our 50th anniversary celebration, partially offset by cost savings from the elimination our advisory fee agreement with Blackstone in 2013.

Adjusted EBITDA, a non-GAAP financial measure as defined and reconciled in our earnings release, decreased from $11.1 million in the first quarter of 2013 to a loss of $15.8 million in 2014. The decline in adjusted EBITDA is primarily related to the decrease in revenue from the shift of Easter and spring break out of the first quarter in 2013 to the second quarter in 2014.

Depreciation and amortization expense was essentially flat, decreasing slightly from $41.4 million in the first quarter of 2013 to $41.3 million in 2014. The decrease was due to the impact of fully depreciated assets offset by the impact of new asset additions.

Interest expense decreased by 38% from $28.6 million in 2013 to $20 million in 2014. The interest expense reduction was result of redeeming $140 million of our senior notes and repaying $37 million of our term loan facility with the net proceeds from our initial public offering last April. In addition the Company amended our credit facility last May, which reduced the interest rate and pushed out maturities to May 2020.

GAAP net loss increased from a loss of $40.4 million during the first quarter of 2013 to a loss of $49.4 million in 2014. Diluted earnings per share decreased from a $0.49 loss in 2013 to a $0.56 loss in 2014.

We ended the quarter with $61.2 million of cash and cash equivalents, with no draw on our revolving credit facility. Total long-term debt, including current maturities, was $1.654 billion, which equates to a 3.87 times net leverage ratio. In April we drew $40 million on our credit facility to partially fund a share repurchase. We have since paid that down to $15 million and expect to have it fully paid down by June.

Before we open up the line for questions I will provide an update on our guidance for 2014. The following estimates are based on current management expectations. Please refer to the discussion of forward-looking statements on our earnings release and related SEC filings. For 2014, we are reaffirming our previously announced guidance for adjusted EBITDA in the $450 million to $465 million range, and revenue guidance in the $1.49 billion to $1.52 billion range.

With that, I'll turn the call back over to Shannon so we can open up the line for questions.

(Operator Instructions)

Tim Nollen, Macquarie.

Hi, thank you. A couple of things. First, I may have missed it but could you repeat or give a bit more color on April and May attendance trends, please? And how you are attributing those, what percentage of the attendance increase goes to the 50th anniversary celebration, or easy comps versus weather last year, or whatever it may be.

Secondly, do you have targets in terms of per cap numbers? Or could you let us know what the growth rates that you figure in for this year are for your per cap numbers, please?

Tim, this is Jim Atchison. I will comment a little bit on your first part of your question and maybe I will ask Jim to comment on the per capita part of your question. As it relates to April, first of all, we felt it was helpful to provide some color on how Q2 was shaping up because of the Easter shift is such a significant matter for our business, as you know well.

As we pointed out, going through the first quarter we had a revenues decline of 11%. And coming out of April that decline is now down to 3%.

So, we feel we had a terrific April and we have good momentum going, and our May performance is ahead of prior year, as well. We really can't give a whole lot more detail than that, other than our April numbers were terrific and our May performance we feel good about.

On the per cap question, if you refer to our revenue guidance for the year and look at the implied growth, it is 2% to 4%. As we mentioned on prior calls, we do expect to have attendance growth for the full year, and also per cap growth. And at this point of the year it is hard to say how much will come from each, but from a modeling perspective I think attributing about half our revenue growth to each is probably reasonable at this point.

Okay. Thank you.

Bryan Goldberg, Bank of America/Merrill Lynch.

Hi, thanks. I just have two quick ones, a follow-up to Tim's. I think if I'm doing my math correctly the down 3% revenue trend that I think you called out through April, does that imply that the month of April was up in the low double-digit range on a revenue basis? If you can verify that, that would be helpful. And then I have a follow-up.

Yes, without giving specific numbers directionally the math is correct. We had a very strong April. We expected it to be strong with the benefit of Easter and spring break, and it came in as strong as we had hoped, both on the attendance and per cap side.

Then on the attendance side, are you seeing any materially different trend line between the SeaWorld-branded parks and, really, the Busch Gardens parks year to date? Is there any trend you could share?

And then, actually, I just thought of a third. Historically when you open up attractions across a wide swath of your footprint, like this year, versus years past when you may have had more concentrated effort like with stuff like with Antarctica last year, or even during the end of years, how much variability do you see in June attendance levels as a percentage of the second quarter total? Is there any historical trend we should be thinking about or mindful of as we head into Memorial Day weekend?

Bryan, I will say a couple things. With respect to the trends throughout our parks, obviously, as you point out here, the second quarter is a very large important quarter for us. The first quarter of the year is relatively small. So, as we look through later in the quarter, certainly as we get to Memorial Day and then past Memorial Day as we begin summer operation in June, June is a very large month for us, and can have variability in it.

I will say some of that will depend on if there's counter changes in when schools get out. Schools may be getting out later after more snow days or things like that. But, really, a lot of what you will see from today moving forward is going to depend on the timing of when our new attractions open and the attraction line that we have, which really drives the mix.

In this case we have attractions at 9 of our 11 parks and we are very excited about that, and the 50th anniversary. The SeaWorld brand has been well received. We have Falcon Fury in our Tampa park soon to open. And, really, just a terrific lineup across our whole portfolio. And that will probably have the biggest driver on park-by-park or brand-by-brand performance, more so than anything.

Thank you very much.

Tim Conder, Wells Fargo Securities.

Thank you. Just to maybe stay on the whole trend there with the second quarter, how are you gentlemen factoring in or thinking about the timing of when the Harry Potter expansion opens, and your attendance expectations? Because I know at times, when a major attraction opens, depending on the competitor or yourselves, people will delay their visit to Orlando, and then everybody gets a lift from that. So, how is that factored into your expectations here, in particular for the second quarter?

Yes, a very good question, Tim. We are always mindful in evaluating the impact of competition, and particularly meaningful new attractions in the markets where we operate. I'm sure our friends at Universal do a terrific job with Harry Potter and I know that it will be much anticipated.

Having said that, we feel very good about how we are positioned in Orlando and in the Florida market more broadly, since we have five parks in this market. We will see how the summer evolves, but I think, really, the bigger headline for our feeling and sentiment about the summer ahead for us is we feel very well-positioned in the Florida market and pleased with our performance thus far.

And, Jim, as it relates to that also, Antarctica opened I think it was May 24h or so of last year. Yet you called out on prior calls that the central Florida weather in the month of July and clearly June and the month of July wasn't all that great. Did you get potentially the full benefit because of that weather last year? Or should we think of it as fairly easy comps with that looking through the month of July? Or is there some flaw in my thought process there?

No, I think that's a reasonable hypothesis, for sure. The weather in Florida in particular last year was quite extraordinary in terms of the rain we saw in July in particular, and June, as well. So we think that's an advantage for us as we lap those numbers from last year. So we think that will give us some upside.

And also, to the extent that there's maybe some of the early tourist traffic from last summer didn't get a chance to see Antarctica because the weather knocked them out of their plans, we might capture them this year. But for sure last year, June and July, we had a very challenging weather environment.

Okay. And then, finally, if I may, on the international development, you alluded in the press release multiple parks. Are we talking here, if you can give any color here, are we talking SeaWorld Park with an adjacent Aquatica or Discovery Cove? Or are we talking multiple large parks such as multiple SeaWorld parks or SeaWorld and a Busch Gardens type park?

Tim, unfortunately, the terms of our MOU really prohibits us from getting into any detail on the concepts precisely. So, unfortunately I'm not able to comment on that. What I will say, though, is we have put a lot of work into the concepts that we are looking at, the location, and the partner who we are negotiating with. So, this is something we've been working on for quite a long time. We've alluded to that on prior calls.

We are delighted to be at this point, and we feel very good about the negotiation and where we are in it. But, unfortunately, the terms of our arrangement don't enable us to provide anymore color than that.

Afua Ahwoi, Goldman Sachs.

Thank you. Just two from me. First on the expenses on the SG&A, I think we had tried to build, or we did build in that incremental marketing spend ahead of the 50th anniversary. But maybe in the OpEx line can you maybe help us understand what sort of 50th anniversary celebration expenses were in there, and if it is a one-time and whether going forward maybe we shouldn't expect that.

And then I wanted to ask on the sponsorship or alignment, I can't remember the exact phrasing you used for it, for the American Express opportunity, is that the first of maybe more sponsorship deals we will hear about? I know in the past you've highlighted that is an opportunity but maybe you were waiting for the economy to become a little bit more stable, or for us to see more improvement before you maybe start aggressively growing that. Is this the first of maybe potential more deals we can hear about? Thanks.

Afua, this is Jim Atchison. Let me talk about the American Express partnership and then I will let Jim follow-up on your question regarding SG&A. As we've shared before, our view about strategic alliances and partnerships is that we really want to have a handful of meaningful relationships that really help us extend our brands and partners who share the same values that we do as an organization, and commitment to quality and guest service. We are delighted to be at this position of announcing this partnership with American Express.

We are certainly always looking at other opportunities. But I will caution that we remain focused on really doing a handful of meaningful ones, more so than a volume of ones that really don't help us leverage, not just the financial performance of the arrangement but our whole brands and sponsorship opportunities. So, we'll have more to come, but this one is one we are very excited about.

Then on the operating cost, the Q1 impact of the 50th anniversary is pretty much that of a one-time effect. It just happened to show up more because the first quarter is relatively small. When you look at our operating cost for the entire year, our cost management effort, which you saw the impact of that in last year, expect to see that continue in 2014 and be able to manage our operating cost to very low single-digit growth rates.

Okay. And actually I just had a quick follow-up on the international parks. Maybe instead of giving us what sorts of parks that you're thinking about, could you maybe give us an idea on how many potential you think these are, especially because you mentioned these were multiple. And also can you give us an idea on maybe the likelihood that these assessments result in actual park development? So, in terms of maybe comfort level you feel that something will arise, or anything at all on that. Thanks.

We're really not able to comment any further on the number of parks other than the obvious that it is more than one because of that framing. But what I will say is we are very excited about being at this stage with this partner. And to your question, we feel very good about the likelihood of this discussion coming to fruition of us building these parks as we've contemplated. I would say our confidence is very high in it.

Okay, thank you.

Scott Hamann, Keybanc Capital Markets.

Thanks, good afternoon, everyone. Just two quick ones from me. In terms of some of the noise that's gone on in California this spring, looking for some color around the SeaWorld performance there as of late, to the extent you are willing to comment.

And then, secondly, try something on the international side. In terms of the type of structure deal you are looking for where you can earn money through, whether it is design development, licensing, and how should we think about what opportunities you are looking to exploit through a partnership internationally? Thanks.

Sure, this is Jim Heaney. A couple things. One is we wouldn't have discussed the deal in our earnings release and on the call if we didn't like our chances of getting something done. So, that was somewhat purposeful. The economic model, of course, will vary based on our negotiations. But I don't expect it to be materially different from a lot of the other deals that are out there already in the market.

Yes. And then, Scott, with regards to your question around the impact of the legislation in California, I will say that we are pleased with the result, the outcome, that the California assembly and the first committee to hear this bill arrived at. At the end of the day, we acknowledge that negative publicity for your brand is never good. But at the same time, we feel very good about the efforts we've put forward through our truth campaign and other efforts through traditional and social media and online efforts to really set the story straight with respect to our care for animals. We really are looking more forward than back, and we are pleased to have the legislative matter where it sits currently.

Amanda Bryant, Barclays.

Great, thank you. Can you talk about some of your efforts to promote advanced purchase? And what sort of results have you have seen to date?

Sure. I prefer to talk in a more broad sense, our overall pricing and yield management efforts. We're very pleased with how our pricing and yield management efforts are progressing.

As I talked about earlier, when you look at our per cap performance in the first quarter being up without the benefit of Easter in March, that was against a very tough comp last year where we were up 10%. So, we're very pleased with how that's progressing.

As we've talked about before on our last call, Disney and Universal took pricing here locally in February. And our last price increase in Orlando and Tampa was last summer when we took our front gate price up from $89 to $92. We also took our normal pricing this fall at all of our other parks outside of Florida.

Also, as we discussed on the last call, we expected to take pricing here in Florida going into the Memorial Day weekend. And we will be doing that. That will roll out on Monday.

In addition to the new pricing, we're implementing the next phase of our variable pricing model where we will have a year-round any time weekday ticket product available here in Orlando and Tampa. Then you also see we will introduce a similar any time weekday ticket product in Texas and California over the summer. So, we are excited to move ahead on the next phase of our pricing and yield management strategy with these new products, and look forward to seeing how they impact the business over the summer.

Great, that's very helpful. Thanks.

Robert Fishman, MoffettNathanson.

Hi, thanks. With the increase to the dividend I'm curious if you can provide any update on the discussion with the Board to authorize a formal share buyback?

Sure. Let me give you a little background first. In the first year as a public company, we have returned around $170 million to shareholders through dividends and buybacks. Which, if you do the math, is effectively 100% of our free cash flow that we generated in 2013.

As you mentioned, we announced a dividend increase yesterday for what is our fifth distribution as a public company. With that increase, our dividend yield is about 2.8% versus the S&P at about 2%. Our intent is to increase our dividend by roughly the same rate as S&P to maintain that premium going forward. The balance of our free cash flow will go towards business expansion and buying back shares of our own stock.

Our covenant capacity is based on the maximum of 7.5% of our market cap -- or, based on 7.5% of our market cap as long as our leverage ratio is below 4 times. If you do the math on that, that's roughly $225 million with a $30 stock price.

Based on discussions with our Board, we expect to have a meaningful buyback authorization in place later this year or early in 2015. We had the discussion on our last Board meeting and are currently refining our plans on the structure of the authorization.

Okay, great. And if I can just do one more. The flat in-park spending that we saw in Q1, is there any way you can help quantify how much of that was impacted by either Easter and/or the bad weather?

That's mostly mix related. With the shift of Easter and spring break out of the first quarter we lost tourist business, which tends to have a higher in-park spend level. We saw that last year on the other end where we had very high in-park per caps. I think you'll see that reverse in the second quarter and we expect to have in-park per cap growth for the remainder of the year.

Perfect, thanks, guys.

(Operator Instructions)

Barton Crockett, FBR Capital Markets.

Thanks for taking the question. I wanted to make sure I understand a little point on the 3% trend through April. Would it be safe to say that the down 3% through April fully normalizes for the Easter shift, so the decline would really be something else, like weather? You did call out whether and I was wondering if you could highlight in particular what you saw with weather. That's one set of questions.

And the other thing is, on the AmEx deal, is that entirely new money or are they replacing someone else who had the card deal before?

Barton, this is Jim Atchison. I will talk just to clarify for your AmEx question. No, this is an entirely new relationship that we are entering into with American Express. And we are delighted to have them as a partner. I'll ask Jim to address your other question.

Sure. If you look at the attendance decline in the first quarter, it was roughly 250,000 from the Easter shift, and another 200,000 from weather and/or fewer operating days. If you calculate the revenue on that 200,000, that would have put us roughly flat with prior year on a revenue basis through Easter. Or said another way, that 200,000 cost us the 3 points. So, absent that, we would have been basically sitting flat to prior year coming out of April with Easter and spring break behind us.

Okay. But just to follow-up, what was the weather that you saw? Was it particularly rainy in Orlando or was it something else?

It was unusually cold weather in Texas. And then we also had a washout on the last weekend in March here in Florida where there was tornado watches and we effectively had a park closure.

Okay. And then on the card deal, you guys didn't have someone else before him -- you didn't have a Visa deal or something else? So, card is a new category for you?

This is a new category for us, yes.

Okay, great. Thank you.

It appears there are no further questions in queue at this time. I would now like to turn the conference back over to Jim Atchison, President and Chief Executive Officer, for closing remarks.

Great, thanks, Shannon. Thanks to all of you for your questions and your continued interest in our Company. I'm encouraged by our results to date, and I'm excited about the momentum our Company is generating heading into the summer. With our first full year as a public company behind us, our Company remains committed to continuing the execution of our proven strategy of growing our beloved brands, delivering strong financial performance, and providing solid returns to our shareholders.

I want to extend my thanks to all of our hard-working team members for their continued efforts to deliver memorable, interactive and educational experiences to all of our guests. Our Company has always been and remains committed to providing a safe, fun and inspiring work place for each member of our talented team, as well as creating healthy and enriching environments for the animals in our care.

Our dedication to this will never waver. And we look forward to continuing these efforts as we celebrate 50 years of helping guests connect with and care for the natural world we share. Thank you all for your time.

That does conclude today's conference. We do thank you for your participation. Have a great rest of your day.