United Parks & Resorts Inc (PRKS) 2015 Q2 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by. Welcome to SeaWorld Entertainment's second-quarter 2015 financial results conference call. My name is Suzanne and I will be a conference operator today.

(Operator Instructions)

I would now like to turn the conference call over to Gene Ballesteros, Senior Director of Investor Relations and Corporate Treasurer. Please go ahead, sir.

Thank you. Good morning and welcome to our second-quarter 2015 earnings conference call. Today's call is being recorded and webcast live.

Our earnings release was issued this morning 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 morning is Joel Manby, our President and Chief Executive Officer, and Marc Swanson, our Chief Accounting Officer and interim Chief Financial Officer. We will begin today's call by discussing important factors impacting the business and reviewing our second-quarter 2015 financial results before opening the call to questions.

Before we begin I would like to remind everyone that our 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 that could cause the actual results to be materially different from those indicated including those identified in the risk factor section of our annual report on form 10-K filed with the Securities and Exchange Commission on February 27, 2015.

These factors may be updated from time to time and will be posted on our filings with the SEC and made available on our website. We undertake no obligation to update any forward-looking statements.

In addition on the call we will 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 Joel Manby. Joel?

Thank you, Gene. Good morning everyone and thank you for joining us today. It's been four months since I joined SeaWorld Entertainment. In this relatively short period of time we've taken action on several fronts that have driven a slight improvement in our overall demand through the first half of the year.

We acknowledge that we still have much work ahead of us to recover more of our attendance base, increase revenue, and improve our performance. Our attendance for the first half of 2015 primarily benefited from an improvement in demand at most of our park locations and was largely offset by record levels of rainfall in Texas and continued brand challenges in California.

Although we've seen improved demand this year, we know that returning to our historical performance levels will take time and investment to address. Also, we recognize that fully resolving our brand challenges in California will require sustained focus and commitment.

Let me assure you that we remain steadfast in our efforts to overcome these challenges and to improve the performance of the Company. Our reputation campaign was launched in March to correct misinformation about SeaWorld and address our brand challenges.

Thus far we are very pleased with the feedback we've received. Based on our nationwide research and in-park guest surveys, our ads and testimonials are resonating well with our guests, stakeholders, and potential customers.

Our TV ads are driving positive sentiment and helping set the record straight on the important facts about our Company. People are receptive to our message, and we are committed to continuing our efforts over the long term.

We remain focused as we look ahead to the remainder of the year, as a significant portion of our annual EBITDA remains in front of us. From a revenue perspective, we expect to benefit from a favorable calendar timing in the second half of 2015.

In September we should see a benefit from the timing of Labor Day which falls a week later in 2015 than in the prior year. Now while this calendar shift does not affect all of our year-round parks as much, it does provide our seasonal parks with more operating days during their peak season.

In October we expect to realize another calendar benefit from the timing of Halloween, which falls on a Saturday, supplying an extra weekend day for our popular Halloween events. Finally to close out the year, in November and December our parks will celebrate the holiday season with our highly anticipated Christmas events.

Both of these holiday events have historically performed well and we expect that to continue. In addition to the favorable calendar, we expect to realize a per capita benefit in the second half of 2015 as we begin to fully lap some of the more significant discounting actions implemented last year.

While our discounting levels are continuing at a rate similar to 2014, our revenue base is higher due to pricing increases taken at our parks over the last 12 months. Even with these benefits, however, we remain cautious as always regarding weather at any of our locations due to its unpredictability, such as the record levels of rainfall in Texas which impacted passholder sales at that location and will have a lingering impact on attendance at that park.

On the expense side, our first-half results reflect the previously discussed incremental costs related to our marketing and reputation campaigns, the bulk of which were incurred in the second quarter. With these costs now behind us, we expect further improvement due to the ongoing benefits from our cost savings announced in 2014.

While we continue to efficiently operate our world-class theme parks, we have recently instituted additional spending controls throughout the organization to help ensure we remain on track to meet our 2015 adjusted EBITDA guidance. Based on these factors and our current outlook, we are reaffirming our previously provided adjusted EBITDA guidance range.

Turning to 2016, I'm very excited about our lineup of new attractions which we expect to help address the challenging competitive environment, particularly in Florida. Opening at SeaWorld Orlando next summer is Mako, the tallest, fastest, and longest roller coaster in any of Orlando's theme parks.

Mako will be the centerpiece of a newly themed shark realm, which also features our walkthrough attraction Shark Encounter, our signature dining venue, Sharks Underwater Grill, and numerous educational experiences featuring the ocean's apex predator. At SeaWorld San Antonio we will open Discovery Point, which doubles the size of our dolphin lagoon. The highlight of the Discovery Point experience will be the opportunity to swim and interact with dolphins in a naturalistic setting. Discovery Point is another example of our ongoing commitment to improving our animal habitats while providing innovative and new ways for guests to connect with the animals in our care.

The last new attraction I want to quickly highlight is Cobra's Curse, opening at Busch Gardens Tampa. This family-friendly spin coaster features unique ride elements, such as an elevator-like vertical lift and an 80-foot tall snake icon towering over the park's Egypt realm. We look forward to sharing additional details on these and all of our new attractions on future calls.

During my first few months I have continued to review and prioritize our strategic business development opportunities. Our discussions with international partners remain ongoing.

I have to reiterate, though, that while we continue to make forward progress, given the long-term nature of these negotiations we only will share more details when the time is right. I continue to work with our Board of Directors and leadership team on constructing a long-term strategy focused on driving future growth and delivering shareholder return while also upholding the core values we have built over the past 50 years.

Our new strategic vision will be communicated on Friday, November 6. Additional details about this event will be provided next week.

Before I turn the call over to Marc, I want to note that we have engaged a leading executive search firm and are reviewing candidates to identify a permanent CFO. While we continue evaluating candidates I do want to thank Marc, who is currently serving as interim CFO, for his continued leadership and ensuring continuity and stability across our finance teams during this period.

We still have a lot of work to do to improve the Company's performance, but with the measures we have taken to date, the actions we are implementing, and the strategic plan we are developing, I am confident that we are stabilizing. Then we can grow our attendance base and be a stronger company than before.

We know you have high expectations of us and we have equally high expectations of ourselves. And we intend to continue to take action to deliver the results we know we are capable of delivering. I thank you for your continued support of SeaWorld Entertainment.

With that, I will turn the call over to Marc to walk you through our second quarter 2015 financial results.

Thanks, Joel. Good morning, everyone. Thanks again for joining us. I want to begin by reiterating Joel's sentiment that we remain focused on and committed to the work ahead of us as we continue recovering and rebuilding our base.

For the second quarter of 2015 the Company generated revenue of $391.6 million which is a decrease of 3% from $405.2 million in 2014. The decrease in revenue was driven by a 1.8% decline in total revenue per capita along with a 1.6% decrease in attendance.

The decline in total revenue per capita from $61.54 in the second quarter of 2014 to $60.45 in 2015 was a result of an increase in promotional offerings and passholder visitation along with an unfavorable change in park attendance mix during the quarter. Attendance for the second quarter of 2015 declined due to the timing of Easter which shifted to the spring break holiday period for some schools in our key source markets.

Also contributing to the decline was reduced attendance in Texas primarily related to record levels of rainfall during the quarter, and reduced attendance in California primarily related to brand challenges. The unfavorable impact of these factors was partially offset by an improvement in demand at our other park locations including Florida, which we attribute to increased promotional offerings, strong passholder visitation, and our consumer event programs.

The cost of food, merchandise, and other revenues decreased 8% from $33.7 million in the second quarter of 2014 to $31.1 million in 2015. These costs represent 20.3% of related revenue in 2015 compared to 21.6% of related revenue in the prior-year quarter.

This improvement is a result of our cost savings initiatives including our leveraged buying efforts. Operating expenses increased 1% from $189.2 million in the second quarter of 2014 to $191.2 million in 2015.

The increase in operating expenses was a result of additional accrued incentive compensation costs compared to the second quarter of 2014 offset by a decrease in other direct labor and benefit costs as a result of the cost-saving initiatives announced in December 2014. SG&A expenses increased 25% from $58.6 million in the second quarter of 2014 to $73.3 million in 2015.

The increase in SG&A expenses was expected and largely related to additional marketing costs associated with our reputation campaign, additional third-party consulting costs, and to a lesser extent an increase in labor and benefit costs driven by incremental equity compensation expense due to the new equity grants awarded in 2015. We expect the increase in SG&A spending related to our marketing and reputation campaigns to be mostly contained in the second quarter.

Adjusted EBITDA, a non-GAAP measure defined and reconciled in our earnings release, decreased 21% from $126.1 million in the second quarter of 2014 to $100.2 million in 2015. The decline in adjusted EBITDA was primarily related to the decrease in total revenue along with the expected increase in SG&A expenses related to our marketing and reputation campaigns this quarter.

Depreciation and amortization expense increased 16% from $43.1 million in the second quarter of 2014 to $50.1 million in 2015. This increase was primarily due to the impact of approximately $5 million of accelerated depreciation on Gwazi, our wooden roller coaster at Busch Gardens Tampa which we closed earlier this year. Closing this underutilized, large footprint, high operating cost coaster is one example of how our teams worked to find methods of improving operational efficiency while driving cost savings.

Total interest expense decreased 23% from $20.5 million in the second quarter of 2014 to $15.7 million in 2015. The decrease in interest expense was due to the early redemption of our 11% senior notes in April, offset partially by interest related to our new term B3 loans. At current interest rates we expect this debt refinancing to generate an average of $14 million in annual interest cost savings.

GAAP net income decreased from $37.4 million in the second quarter of 2014 to $5.8 million in 2015. Diluted earnings per share decreased from $0.43 in the second quarter of 2014 to $0.07 in 2015.

Adjusted net income, which excludes the loss on extinguishment of debt and the restructuring charges in 2015, was $18.7 million as of the second quarter of 2015, or $0.22 per diluted share.

Deferred revenue as of the end of the second quarter was $146.5 million, an increase of 8.2% from $135.3 million at the end of the second quarter of 2014. As a reminder, deferred revenue represents revenue received in advance for season passes, multi-use admission products, and other advance purchases and is recognized over the terms of the product.

We ended the second quarter with $52.9 million of cash and cash equivalents on our balance sheet and no amounts drawn on our revolving credit facility.

Total long-term debt including current maturities was $1.6 billion. Our net leverage ratio at the end of the second quarter was 4.4 times adjusted EBITDA.

Based on our current debt covenant calculations, the Company has $120 million of capacity in 2015 of which $65.5 million remains for certain restricted payments, including dividend declarations and share repurchases. This brings me to our outlook.

The following guidance is based on current management expectations, is subject to change, and the Company undertakes no obligation to update the guidance. Please refer to the discussion of forward-looking statements in our earnings release and related SEC filings for additional information.

With the additional cost measures that we have taken to date, we currently continue to expect full year 2015 adjusted EBITDA to be in the previously communicated range of flat to up 3% versus 2014. Our capital expenditure guidance for 2015 remains consistent with the previously provided range of $180 million to $190 million.

Additionally we are now expecting EBITDA expenses to be down slightly in 2015 as the impact of the $50 million cost reductions and the additional cost savings we recently implemented will be largely offset by an increase in marketing and other expenses.

That concludes our prepared remarks so we will now open up the call for questions.

(Operator Instructions)

Your first question comes from the line of Tim Conder of Wells Fargo.

Good morning. This is Karen calling in for Tim. Just a couple of questions from us.

First you had called out Florida being particularly strong. I was wondering if you could maybe share between the Busch Garden Park and SeaWorld Park -- if you could provide any color between those two parks and their performances?

Sure. This is Joel, Karen. How are you today?

Good.

As we said in our comments, the main factor that drove us down versus last quarter was the weather in Texas and California. Other than that, all of our other parks in general were doing well. We don't want to split out specifically Tampa or Orlando, but overall we were pleased with the performance there.

Okay. Great. And then as to promotions, I know there was a little bit of promotions in the first half of the year.

I was wondering if you could share what your promotional plans for the second half? If you plan to maybe set back some of the promotions from the first half, given what you're seeing in trends or whether it's going to be consistent with first half?

Hello, Karen. This is Marc.

On the promotions, a couple things drove our per-cap decline in the first half of the year and especially in the quarter. And you're right; we did some more promotions this first half of the year that we did not have last year. If you recall, last year we didn't really start discounting until post Memorial Day when we saw some challenges in our business. And even those discounts took awhile to implement. So for most of Q2 this year, our discounts were going up against non-discounted numbers last year.

Going forward, we expect that dynamic to improve a little bit. We'll be doing a similar level of discounts in the second half of this year, as we did last year in the second half. But we're doing it off of a higher gate price because we took price increases at most of our parks. So even if we do the same level of discounting, we're discounting oftentimes off of a gate price that is a couple to a few dollars higher. That should drive improved per caps going forward.

Okay, great. And last question from us.

We saw on the weather news, there was a little higher precipitation or flooding that occurred around the Tampa market more recently. I know it's happening in the third quarter. But to the extent that you can maybe comment as to whether or not there were any operating days that have been affected this current quarter from what's going on in Tampa, that would be very helpful.

Sure, Karen. This is Marc again.

We did have some impacts from the Tampa weather. They had some flooding in that area which impacted our attendance. But I can tell you, that was already contemplated in the guidance that we gave. That's all been factored into the guidance that we reaffirmed.

Okay. Great. Thanks so much for taking the questions.

Thanks, Karen.

Your next question comes from the line of Scott Hamann of KeyBanc Capital.

Thank you. Good morning.

A couple questions here on Texas first of all. Can you quantify the impact during the quarter in attendance or revenue from the Texas flooding?

Hello. It's good to talk to you again. How are you?

I'm great, Joel.

Good to hear your voice.

Big picture. Big picture, we don't give the specifics on that. But it was significant enough for us to mention it. But as Mark already alluded, it's been factored into the guidance going forward. But it was significant enough for us just to put it in our comments.

Hello, Scott. It's Marc.

Just to follow up on that, really there were three things in the quarter that impacted attendance. One being the Easter shift, which we talked about on our Q1 call. What happened there is you had Easter last year on April 20,; and this year it shifted to April 5. So effectively, that peak week of Easter, which is a peak spring break week, started on Saturday, March 28. So you ended up pulling four days out of Q2 into Q1. And those are peak spring break days.

If you remember on our Q1 call, our attendance was up 169,000 for the quarter. And we said it would have been up even without the Easter shift. You can defer from that that the Easter shift is significant, but no more than 169,000 obviously.

The weather in Texas -- as Joel said, every park is going to have weather throughout the year. But when it gets to a point of aggregation where it's significant, we're going to call it out. And Texas got to that point, and that's why we wanted to call it out. Their rainfall and the weather they had there was really unprecedented and record-breaking.

One other thing that can hurt you, and Joel said this in the prepared remarks, is when you have that weather early in the season, you lose that key pass acquisition period. So even as the weather gets better in July and August, somebody who may come to the park in July or August who would have come back in April, they're probably now going to buy a single day admission as opposed to a pass. School is getting close to starting again. If they're coming late July or early August, they're probably only going to visit one time.

So when you have a lot of rain early in the year, you lose that pass acquisition. You lose those multiple visits in May and June and July. And you end up with maybe just a single visit later in the summer. But again, that's all factored into our guidance going forward.

Okay. That's helpful.

And then in terms of the trends that you're seeing in July and early August, can you kind of give us a flavor for what's going on there lately?

Well, Scott, it's Joel.

One last comment on Texas. We are, as we're heading into 2016, looking for different ways to market our season pass sales and try to pull more forward so we're not quite as dependent on the weather impact early in the season. So partly it was the way it's marketed. That causes more of an impact on season pass from rain, but we are working to correct that.

As far as July, we don't comment on that, as you know. But it has been baked in how we're trending in July -- from a per cap and attendance basis has been baked into our guidance for the rest of the year.

Okay. And then just finally, on the incremental cost program you talked about, can you give us a sense of what types of initiatives are there? And maybe try to size it up as you think about the impact on the balance of the year and into 2016? Thanks.

Let me just comment big picture on the expenses for the reputation campaign. And I know that's kind of the question behind the question. We had some heavy upfront costs. We had a lot of production for the campaign. We had more spending there than the rest of the year. However, we are continuing it into the rest of the year. It's very important for us.

It's had a huge and positive impact for us from a -- just changing people's opinions. So we will be continuing with it. But we've made other cost adjustments in the Company in addition to what we've already announced from the 2014 restructuring. We've done some other cost reductions here in the second quarter so that we can pay for that going forward. Again, that's all baked into our guidance for the rest of 2015.

Marc, do you have any other comments on that?

Scott, we've talked a lot about in the past the $50 million cost initiatives that we had. The additional cost initiatives that we've recently implemented, they're obviously not in that range. But they're significant enough to help us with covering some additional costs and then to help us offset some of the weather headwinds and other headwinds that we had in the quarter.

Your next questions come from the line of Joel Simkins of Credit Suisse.

Hello, good morning. A couple quick questions here for you.

First off, Joel, one of your major competitors in Orlando just announced a pretty significant water park investment. How do you think about continuing to protect your flanks down there, particularly with your two big water park assets in that market?

Hello, Joel. How are you today?

First of all, it's a very competitive market as we've said. Big picture, it's the most popular tourist attraction in the world. We've admitted that there are headwinds here, and we've also admitted that we've lost some share to our competitors. And that's easy to surmise from looking at their numbers. However, we do see it strengthening again for us, and that's positive.

And big picture for me it's all about stabilizing the business and moving forward. Specifically on being competitive, our first initiative is 2016 and just getting Mako in place, which we're very excited about, as you know. It's the biggest, tallest, longest, fastest coaster in the market, which we have a very good marketing plan for. Then also Cobra's Curse, as I mentioned, in Busch Garden, Tampa. We are looking in 2017 and beyond what to do with the water parks to make sure they're competitive. We have a very good packaging plan with the SeaWorld Park to make sure pricing-wise it's competitive. So we can't announce anything right now, but we're certainly looking at what we need to do to our water parks to make sure we stay competitive in those markets and in Orlando.

That's helpful.

And I guess, and I'm sure you don't want to show your cards too much, but as you think about your season pass strategy in Florida particularly for the local audience next year, how do you go about that, given that you want to get people back in the parks? You want to show off these two interesting rides in Tampa and Orlando.

Very big picture, Joel. I think when you're in a stabilizing situation like we're in, and there's always a challenge for resources in any business that you're in, we have to pick where we want to win first. And we've been doing a very good job with our local market, winning within 100 or 200 miles. We are going to continue to do that. I think the numbers reflect that very well.

So we will do what we need to do to win in that strategy. And then once we've nailed that we can continue to move out in concentric circles beyond that. Whether it's valued orientation or differentiation from our competitors in a variety of ways, that's our strategy.

That's helpful.

And just one final question here. Obviously I assume you've had a chance to look at Mako a little bit before that was green lit. As you've settled in and you've taken a look at the Blue World Projects, what are your initial impressions? I guess if you don't want to share that, will we hear more about the strategy for those developments when you have the Analyst Day?

For Mako specifically or just Blue World?

Well, more Blue World. Will we hear more around November 6?

You will. Really everything is still on track for the San Diego Blue World project, as we've said. We expect approval this year, and then we expect to start construction sometime in 2016 and open in 2018.

And then as I've said before in previous calls, we will learn from that construction as in any business. You do something the first time, you need to learn from it; make it better; find ways to do it the second time even more efficiently. And then we will apply those learnings to our other parks as we continue to roll forward. But we will show more pictures of it and some films of it at the Analyst Day.

Thank you.

Your next question comes from the line of Amanda Bryant of Barclays.

Great. Thank you.

What gives you confidence in your expectations for improvement in revenue per capita in the back half of this year? Can you talk about how much of those expectations are driven by the calendar shifts versus your fall event lineup and your marketing campaign? Thank you.

Hello, Amanda. This is Marc.

There are really three things that give us a lot of confidence in the back half of the year and which allowed us to reaffirm our guidance. The first one is the calendar benefit, the second is the per-cap improvement, and the third is the cost-saving initiatives. On the calendar benefit, as Joel mentioned, we pick up the extra week of summer with the later Labor Day, and that will benefit our seasonal parks. And then with Halloween following on a Saturday, that is one of our most popular events. So that should be a strong additional weekend day that we get out of that.

And then on the per caps, as I was alluding to earlier, we'll be doing some discounting in the second half, but we will be comping against similar levels of discounting in the prior year. The difference though is that we've taken price increases at most of our parks over the last 12 months. So even if we do the same level of discounting, we're discounting off of a higher gate price, oftentimes a gate price that is a couple to a few dollars higher. So we should get that per-cap benefit going forward.

I would also point you to our increase in deferred revenue. It's up 8.2% or just over $11 million. That is all revenue that will be recognized over time with those products. It won't all be recognized this year, but a significant portion will and then the rest into the future. So we feel real confident with that strength there. And lapping the discounts with the higher gate prices, we should pick up some per cap improvement.

Then on the cost-saving initiatives, we had the higher expenses in Q2 as we ramped up our reputational spend and some additional third-party costs. Those will moderate over the rest of the year. Then with some additional cost-savings initiatives we've put into place, that'll help us get to the guidance as well.

When you take all three of those things together, we feel confident in reaffirming our guidance.

Thank you.

Sure.

Your next question comes from the line of Afua Ahwoi, Goldman Sachs.

Hello, good morning. A couple of questions from me.

First of all, on the marketing expense, could you quantify how much more you spent? I don't think you've mentioned it because we definitely had built some of it in. But it seems like we didn't build as much as you ended up spending. And is that all -- are you pretty much saying that's done in the second quarter, or should we trickle some of it through the rest?

And then on the per caps for this quarter, I notice in the press release, you mentioned the promotional offerings; the season pass visitation; and some mix change in the parks that affected it. But then I'll let you surprise -- I think, Marc, you were just talking about how the season pass visitors didn't show up as much. I was wondering if you can reconcile those two comments? Because my question on that was how much of the season pass visitation maybe hurt the per caps. And if we were to strip that out, would organic have been positive?

And then just a final one on the October benefit from Halloween. Given it was on Friday last year, is there that much of a difference between a Friday and a Saturday? I know they're both good, but I guess I didn't realize Saturday was just that much better than a Friday. Thank you.

Yes, you bet. This is Marc. I'll start with the per-cap question.

My comments on the pass visitation were specific to Texas. Outside of that park, we have seen strong pass visitation; and that was purposeful. We set out for the year to grow our pass base. And we've been successful with that through not only promotional offerings, but some strong consumer events. So outside of Texas, we've been successful with that. And again, you see that in the deferred revenue increase of roughly $11 million year over year.

On the marketing spend, I think you were kind of questioning how much to bake in, et cetera. We alluded to -- if you remember in Q1, we said roughly $15 million would be deployed this year to the reputation and marketing spend, an incremental $15 million. A large part of that -- I don't want to give a specific number -- but a large part of that hit in Q2 especially as you ramp up that spending.

But going forward that level would moderate. But as Joel mentioned, we're obviously committed to the program; but it will moderate over time.

And then on Halloween, a Saturday would be stronger than a Friday, especially at our parks that have the daytime Halloween event that is more kid-centric, like here in Orlando and some of our other parks. You will drive a bigger attendance lift off of that.

Okay. And I actually had one more follow-up question.

On the new cost saves that you found, how much of that is permanent cost saves versus maybe cost saves you've found in the year to make the back half numbers? Or is that cost saves that you didn't think about and you continue to benefit from past 2015?

Hello, Afua. It's Joel.

We don't give specifics on it, but it's a little bit of both. If you want it rough, probably roughly half of the new stuff I would call permanent. And half of it is just adjusted due to volume at parks and some things that we can tweak.

But big picture, other than keeping our employees safe and having world-class animal care at our parks, those are non-negotiables. Other than that, everything is always on the table. And I would say we constantly look for ways to get better.

Part of the issue on going to the reputation campaign, we will build that in going forward; but we want to hold margin. We don't want margin to go backwards. And so we're doing the best we can to do what we need to do in the reputation campaign and all of our marketing efforts, but keep margin the same or improve it. That's our goal as business people, and that's what we're trying to do going forward.

Thank you.

This is Marc.

I did mention also in the prepared marks the Gwazi coaster in Tampa as an example of where we had a ride that was high-cost and, frankly, underutilized. So closing a ride like that drives some pretty good expense savings with very limited guest dissatisfaction or anything like that. That's kind of another example of the type of things we would look for.

Thank you.

Sure.

Your next question comes from the line of Alexia Quadrani of JPMorgan.

Hello, this is James Kopelman in for Alexia. Good morning.

Given the ongoing strength in the dollar, I was wondering if you could provide some granularity around which international markets or regions are holding up well in terms of volume of tourism? How are you seeing it play out over summer? Are there any particular areas of strength? Any color would be helpful. And then I have a quick follow up. Thanks.

Hello, James. This is Marc.

I can tell you we have seen some weakness in international visitation. It's hard to peg exactly what it's related to, but we have seen some shortfall there at some of our locations.

Got it.

And are there any particular regions that you could comment on? Latin America versus Europe or Brazil or any other markets?

No, we don't want to get into any specifics on that. But you can probably surmise that the international visitation we have would largely be into our destination-type parks, largely into Florida and into California. But we don't really get into what specific countries or anything.

Let me ask a quick follow up on consumer sentiment.

There seems to be a sense that despite lower gas prices that have persisted, consumers have yet to open their wallets and take advantage of that, even with employment rising. How do you view the macro landscape in terms of consumer sentiment going forward? Is there some opportunity there as consumers start to spend more?

I think big picture the sentiment has been very good. This has been a good period for the industry and for spending. As usual, we're seeing more strength on the food side than we do on the merchandise side. But I think that's the only area where if sentiment continues to improve that we could see, I think, some more merchandise lift. But really from a ticketing and a food standpoint, we've been pretty pleased with the kind of growth and what we've seen in their willingness to spend.

But do you have any other comments on that?

I would just add the only other thing to take note of -- and you can kind of see this in our per caps -- is with that higher pass visitation, ultimately you get more total revenue. It's going to be spread over multiple visits. So it brings our per caps down a little bit, but the total revenue is higher.

But those folks largely spend similar levels on culinary. And I think we've done a really good job in our parks with different dining options and specialty snack and specialty drink options, that even that repeat pass visitor is still compelled to buy some sort of culinary item. That gets a little harder on the merchandise side -- for somebody who comes three or four times to buy a T-shirt or something every time. So just a little more guidance into the per caps on that.

One more thing I'll add to Marc' s comment is where we have seen good success is there's a high variability of what people are willing to pay, right? We've done well, whether it's the Discovery Cove dynamic pricing -- we can really drive based on where the demand is hot or cooler.

And we've found that in our queue products. I know others have as well. But our fast queue products -- valet parking, special services, backstage tours -- we are getting better and better at driving more revenue out of those willing to pay for it. And yet we still are able to keep a good value ticket for those who aren't willing to pay for it.

I think going forward, and we'll talk about this more in November, I think it's a common theme for this industry in general. The industry in general is behind the curve a little bit on the dynamic pricing versus, let's say, airlines and others. And we also see that as an opportunity to make sure those who are willing to pay for more, we give them more -- and yet still offer value for those who are not.

I actually think that's a little bit stronger opportunity than sentiment itself -- is to really be more targeted and give people who want to pay more individualized experience, give that to them.

Got it. Thanks a lot.

Your next question comes from the line of Barton Crockett from FBR Capital Markets.

Can you hear me?

We didn't hear you. Could you start over?

Let me get off the headset here. Hold on.

Are you in your car, Barton?

No I'm not in my car, actually. I have a headset on that's been working great until you got me on the call here. So I'm sorry about that.

Safety is our number one concern.

I appreciate that. I try not to drive and do conference calls. But efficiency always rules, right?

I never do because I have my chief counsel sitting next to me.

That's good.

Hopefully, if you can hear me now, what I wanted to ask about was a little bit more on the brand issue. You said there continues to be some brand headwinds in California. In particular, it seems like the past is that the brand was sensitive to the news cycle, right? The brand issues really started last year, Joel, before you came here when there was a lot of news coverage of the legislative efforts in California.

There's been a little bit more news flow of late, a number of issues smaller than I think the legislative thing but still out there. How much is your attendance trends in California reflective of the news cycle? How much of a role is that in your brand out in California at this point?

Big picture, Barton, we have admitted that there are some reputation issues in California. We've said that publicly. But also what I'm very encouraged by is the reputation campaign that we have launched and the marketing that we have done has been getting the facts out about our Company. And we've obviously researched this pre and post going into the markets and doing the testing.

When we do that, the TV ads we have been running definitely drive a positive sentiment for the Company and offset some of the negatives that are out there that we see, as you've mentioned. The good news, as I said really in the first quarter and it continues, is that when people get the facts about the Company, it definitely neutralizes or improves their sentiment about us. So we will continue with it and we will focus it where we need to focus it.

And I don't want to get specific too much on how we're going to do that. But we will continue to fight with the facts because the facts are on our side.

Okay. All right. I guess we'll leave that aside for now, but thank you for that color.

One other separate question in Orlando. Last year when the new Potter attraction opened in July, that seemed like a big competitive headwind. Our hope was that over time perhaps that could turn from a headwind to maybe a help by bringing people to the market. Are you starting to see that now? Is it more friend than foe at this point?

That's a great question.

I think in general the answer is, yes. Orlando is the most popular attraction market in the world. It brings in 62 million visitors a year. And as I said earlier, we've admitted we are losing share and have lost share in a vastly-growing market. However, a rising tide does raise all boats. We are doing better in Florida this year.

I would say overall it's a good thing. I think the key thing, again, is we have to always focus on how we're different. And I think the first is we do offer great value, and we will continue to offer it. We have very rational competitors who are really good, but they are also very rational and they raise price right with anyone.

We also have to make sure that our product is positioned differently, and I think we're doing that. When you see the plans in November and see how we will do Mako or Blue World or anything that we do, it's always highly differentiated in three key ways. I'll just hit them very, very quickly. But what we do as a Company is very differentiated.

There's really no one else who can inform and engage a guest like we do. We want to make entertaining fun and very meaningful at the same time. The way we do that, how we go about doing it, is we connect animals to human beings. And when they have that emotional connection, there's something very magical that happens. And it makes them want to do something more. Inspires them to be, I think, more as a human being as well.

Why we do that is, I think, very important for the future of millennials. And really where this country is headed is wild animals and wild places are in trouble. And as a Company, why we do what we do helps those animals. And our incredible animal care can also help animals in the wild.

And I think when we show that differentiation and we do that in our marketing, people will want to come and visit us because of that. And so it's part of a marketing effort that is differentiated. I think as long as we do that and we keep good value and have really, really dynamic attractions, I do think we can differentiate our place in the market.

Okay. Great. Thank you very much for that.

Your next question comes from the line of James Hardiman of Wedbush.

This is Sean Wagner on for James.

I was just wondering if you had any comment or could shed any light on a couple of legislative issues? The first being the delay on the California Coastal Commission's vote on the new killer whale facility. I know you mentioned that you expect approval for Blue World this year, so it seems you aren't worried about that project at least.

But the second is the report of recently renewed push by some congressmen to revise the federal regulations governing the marine mammal care. Is there any color you can provide on that and how it might impact your operations going forward, if that does move forward?

What was the last point? I'm sorry. The last question?

There was a report about -- go ahead.

I'm sorry. I got it, Sean. I'll take a cut. It's Joel.

On the Coastal Commission piece, we have worked with the Coastal Commission for 30-plus years, and really adjusting meeting dates or schedules is not out of the ordinary. They've told us that we are scheduled for their October meeting. And we don't anticipate any construction delays at this time. But it is a very big project with a lot of capital going behind it. So we find that very normal in the process. We don't expect any approval issues there.

On the issue in Washington, we are aware that the Senate Appropriations Committee directed the USDA to seek public comment on the rules for captive marine mammals. And I think the big point here is we've always been supportive of this kind of activity, as long as it is science-based. And we will cooperate and we will be leaders here from a science-based perspective if that happens.

And we are involved in Washington, and I'm involved personally in it. So I'm not particularly concerned about it because we'll be involved with it. And we will be supportive, as long as it is science-based.

All right. Thanks for the color.

You're welcome.

Your next question comes from the line of Jason Bazinet from Citi.

Good morning. I'm going to try and ask Barton's question in a slightly different way.

If I just pick an arbitrary, the earliest year in my model, say 2008 to 2014, there's about a 3 million hit to attendance. I think the market believes, rightly or wrongly, that the arms race that is going on in Orlando is going to be difficult for you guys to overcome. But the brand issues will prove transitory.

So not so much asking if you agree with that hypothesis, but I think that's where the street is. Is there a way to help the buy side tease out how much of that could indeed be permanent pressure as opposed to transitory pressure -- I.e., how much is it the arms race, how much is it the brand issue?

I don't think we can comment on that specifically. However, again, we've been very open that we are well aware of the arms race, so to speak. I think the important thing, again, is to be differentiated and make sure that we stay in the very top three or four choices in this market. And our research shows that there's no doubt in the first visit or possibly even the second visit, we aren't as high on the list as a Universal and Disney, per se; but we are definitely high on their list. When they come back, they come back to Orlando multiple times as we all know. In fact our thesis is they will start coming back even more because the market is so strong.

Again, back to my differentiation points, we just have to make sure we are a very compelling differential choice and, I think, get our fair share. Also one point I didn't mention is make sure that independent hotels around us see us as a very strong ally. And we always make sure we are their most attractive partner as Disney and Universal move more and more to their own hotels.

So look, we're not naive to it; but we also are doing everything we can to create a strategy to make sure we're differentiated. But as far as teasing out which is which, we don't try to do that.

I think the street's hypothesis is that in the past, you used to benefit from the capital investment that some of your competitors would make as a rising tide would lift all boats. With three players now taking the market seriously -- Disney, Universal, and you -- you're not getting the same spillover dynamics that you used to get.

In other words, people would go Disney primarily, go over spend some time at your park. Now they're doing Disney/Universal. So the whole industry structure has changed in a three-player market. Do you agree with that being the core issue?

It is certainly an issue that we're studying hard. And we're making sure that we have our place. I think there are so many players in this market. To say that there's only room for two to be successful, I think is not a true statement in a market that has 62 million plus. And we have experienced strong competition for a long, long time; and we see that continuing.

So as we move forward, we'll continue to look hard at how we differentiate. I've already made the point, we haven't tried to tease it out specifically. But we're very confident we can carve out our niche by being differentiated. There is nobody else who has the kind of experience we do and, as I said earlier, creates the kind of connection we create in our parks.

The thing that gives me confidence every day is when I go to the parks, which I do a lot, and then I see our guest scores. Our NPS scores are just through the roof. And we don't make them public, but I will say they are very comparable to all of our competitors. And they're comparable to even Apple iPhone product, which is about as good as you get. We have excellent product, and we just need to get more people to come and see them.

Thank you very much.

Your next question comes from the line of Tim Nollen with Macquarie.

Hello. I hope this isn't belaboring the point, but I just wanted to clarify something on the brand challenges that you've obviously spoken freely about.

You talked about California in particular. I just want to make sure I understand how much of the PR marketing effort is focused on California. Because I don't think it's necessarily a California-specific issue, although I do recognize all the legislative things that we've talked about before.

And then a related question. On your marketing, you said the majority of the PR marketing spending was done in Q2. I wonder if that means that the actual spending tails off here? Or it's that you have risen to that level, and you will continue to spend to promote your brand?

Big picture, we don't break out the reputation campaign spending. I think generically we will do whatever we have to do to make sure the facts are known. We are a very good Company doing very good things. And our 23,000 employees are deserving of making sure the facts are out there correctly. So big picture, we will do what we have to do. We have been very good at adjusting our spend and making cuts in other places to pay for as much of it as we can. But we don't split it out going forward.

But as Marc said earlier, our guidance does already bake in our continuation of the program. I think in any marketing program, there is a heavy up; and then you have a maintenance level continuing those messages. And then we'll evaluate what the next wave is, and we'll communicate that if it adjusts 2016. But right now we're good for 2015.

Do you have anything?

Tim, this is Marc.

As I said in my remarks, we did give some guidance around EBITDA expenses, and we said they would actually be down year over year. I think that can give you some comfort that the increase you saw in Q2 is not necessarily indicative of a run rate going forward and that it would moderate as Joel said. And we'll also end the year down in EBITDA expenses, per our guidance.

Got that. Thank you.

Sure.

There are no more questions in the queue. I will turn the call back over to Mr. Ballesteros for closing remarks.

Thanks, everyone, for your questions and for your continued interest in our Company. We look forward to speaking with you next quarter. That concludes our call. Thanks again for your time.

Thank you again. This does conclude today's conference call. You may now disconnect.