United Parks & Resorts Inc (PRKS) 2016 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 2016 financial results conference call. My name is Chris and I will be your conference operator today.

At this time all participants are in a listen-only mode. After the prepared remarks, the management team from SeaWorld will conduct a question and answer session, and conference participants will be given instructions at that time. As a reminder this conference call is being recorded.

I would now like to turn the conference over to Mark Trinske, Vice President of Investor Relations. Please go ahead Sir.

Thank you and good morning everyone. Welcome to SeaWorld's second-quarter 2016 earnings conference call. Today's call is being recorded and webcast live.

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.

Joining me this morning are Joel Manby our President and Chief Executive Officer; and Peter Crage our Chief Financial Officer. On today's call we will review our second-quarter and first-half of 2016 financial results along with recent factors impacting our business and then we will open up the call to your 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 include but are not limited to, the comments on the Company's full-year guidance and are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward looking statements, including those identified in the risks factors of our annual report, on form 10K filed with the Securities and Exchange Commission. These factors may be updated from time to time, and will be posted in 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 our non-GAAP financial measures, to the most comparable GAAP measures are included in our earnings release and can also be found in our filings with the SEC.

Now I would like to turn the call over to Joel Manby. Joel?

Good morning everyone, and thank you for joining us today. Before we walk through our performance in the second quarter, and first half, I would like to provide some context for lowering full-year guidance and a brief commentary on our dividend.

First, we believe from the data that we'll share on this call, that the ongoing implementation of our strategic plan is making a positive difference. Although unexpected macro factors have weighed heavily on our recent performance.

While our strategy is allowing us to make progress in markets outside of Florida, the quarter was below the expectations we communicated to you in May, primarily due to accelerated declines during the quarter, and Latin American guests at our Florida Park locations, and a broader downturn in the Orlando market, particularly in the later half of June. Now excluding the impact of, Latin America, revenue at our Florida Park locations would have increased, on a year-over-year basis during the months of June and July.

We estimate that combined, these factors and others impacted our financial results by approximately $11 million in lost adjusted EBITDA in the second quarter. For the full year we are projecting that Latin America, will account for approximately $30 million in loss of adjusted EBITDA.

As a result of our current and projected environment, we have lowered our full year adjusted EBITDA guidance to be in the range of $310 million to $340 million. Now, Peter will discuss his EBITDA outlook in greater detail with you in a moment.

Regarding our dividend, based on our reported results, we believe that we will declare the October dividend payment, of course, our board will make any dividend declarations, and their capital allocation decisions, now and in the future will be in the best interest of all shareholders.

Again, while we are disappointed with this quarter, we are seeing several positive trends that indicate that the strategy we shared with you last November, and our implementing has begun to gain traction. I would like to share just three highlights of those positive trends.

First, after we announced the orcas currently in our care would be our last generation, our recent nationwide polls have confirmed continued positive public feedback. In fact, our recent survey showed our announcement made the public more favorable about SeaWorld by an eight to one ratio, which is even higher than the seven to one positive ratio we saw right after the announcement in March. And the announcement makes them more likely to consider visiting SeaWorld by a five to one ratio, and it increased from the four to one ratio that we reported to you right after the March announcement. We will continue to monitor this sentiment, but we believe this is a very good sign for the long-term health of the business.

Secondly, California is stabilizing, and Texas is growing. In California, revenue is only down 2%, year to date through June, an improvement compared to a decline of 8% in the previous year, and a decline of13% the year before that. Despite a lack of any new major attraction, and increased competition this year from the new Harry Potter attraction at Universal Studios, in Hollywood.

The new Management team in Texas has done an excellent job in stabilizing this location, and delivering improving results on a net basis at those parks. In Texas, revenue is up approximately 2% June year to date, compared to a decline of 17% June year to date last year. This is a welcome improvement after a three straight year decline, during the same period in Texas.

In addition, we have a solid new product roll out plan for 2017, for our SeaWorld parks in California in Texas. And we anticipate further improvement in both parks next year. Excluding Florida, total attendance of all other locations increased by 1.7%, or 67,000 people in the first half, in California and Texas, are turning.

Third, we are seeing improved results driven by the capital investments we have made in new ride and attractions. For the month of July, we had improved performance in Florida with the opening of our new rides, Mako and Cobra's Curse, which are receiving positive reviews, and for the month of July, on a comparable basis, have contributed a year-over-year attendance gain in Florida.

We believe this increase would have been significantly greater, without the negative impact of fewer guests from Latin America. In fact, our revenue would be up 6% in July at our Florida parks, without the Latin America impact, which gives us confidence that our capital investments are working to drive local and domestic attendance, per our strategic plan.

Now in response to our softer than expected second quarter results we are rolling out new revenue growth initiatives, including extended hours at our SeaWorld parks in California and Florida, and added a summer soak party in Orlando and San Antonio. Looking forward to the fall we believe we are well-positioned for year over year growth. Our fall events have historically performed at high-level and we are expanding our offerings throughout the system this year to include expanding or Beer Fest in Williamsburg, and enhancing our Howl Scream party at the same Park.

And for this Christmas season we are excited to be welcoming Rudolph the red nose reindeer and friends to our SeaWorld and Bush Garden parks. In addition, we are increasing our advertising spend during this key period, and will be launching aggressive buy early and save 2017 season pass acquisition campaigns, that we expect will strengthen our fall, and build the foundation for success in 2017.

Despite the challenges that accelerated this quarter, we are confident we are on the right path. We know it will take more time to get where we want to be, as we work through these macro issues and continue to execute our plan to stabilize the company's performance in Florida, and return to growth.

With that, I will turn the call over to Peter to walk through our financial results, and the details of our revised 2016 full-year guidance.

Thanks Joel, and good morning everyone. First I would like to walk you through our financial results, and then I'm going to take some time to explain our thinking behind the revised outlook for the year.

As expected, and communicated last quarter second quarter results were negatively impacted by calendar timing. As a result, I will focus my discussion on our six-month results, as they are most directly comparable, and eliminate the impact of this timing year-over-year. As Joe mentioned, first-half results were exacerbated by weakness in Florida, which is primarily attributable to an accelerated decline in Latin American attendance and an overall softness in the land in the Orlando market.

For the first half of the year, the Company generated total revenue of $591.4 million, a decrease of $14.8 million or 2.4%, compared to the same period in 2015. Attendance in the first half of 2016 declined by approximately 411,000 guests, or 4.2%, primarily due to weakness in the company's Florida Park locations. Specifically, Latin America attendance shortfall contributed almost 60% of the decline.

In the first half, total revenue per capita improved by $1.17 to $63.72 which was driven largely by increases in in Park per capita spending due to increase sales of our end-product products, such as all-day dining packages, and front-of-the-line quick queue access.

For the first half of 2016 the company generated a net loss of $66.3 million or a loss of $0.78 per diluted share, adjusted net loss was $31.5 million or a loss of $0.37 per diluted share. This compares to a net loss of $37.8 million or $0.44 per diluted share and an adjusted net loss of $24.8 million or a loss of $0.29 per diluted share in 2015.

Adjusted EBITDA was $77.8 million, a decrease of $18.5 million or 19% compared to adjusted EBITDA of $96.3 million in the same period of 2015. Operating expenses increased $26.7 million mostly due to an increase of $9.5 million in non-cash equity compensation expense, an increase in other direct labor and benefit costs, and an increase in asset write-offs including the $6.4 million write-off last quarter associated with the Blue World project.

SG&A expenses increased by $15 million and included an increase in non-cash equity compensation expense of $19.3 million. Excluding this non-cash equity compensation, SG&A expenses decreased by $4.3 million for the first half of 2016.

Turning to the balance sheet, we ended the first half with $29.2 million in cash and cash equivalents. Our net leverage ratio as of June 30 was approximately 4.71 times adjusted EBITDA, and subsequent to the end of the second quarter, we paid off the outstanding balance on our revolving credit facility.

Looking to July, monthly attendance was up 4% year-over-year, on a comparable basis companywide. This includes an increase in attendance at our Florida Park locations, where we are seeing the impact of capital investments in our two new attractions, Mako and Cobra's Curse, which came online in mid-June.

This brings me to our guidance. We now expect adjusted EBITDA for the full year 2016 to be in the range of $310 million to $340 million compared to our previous range of $335 million to $365 million for the full year 2016. I would like to walk you through how we arrived at this new guidance range.

In developing our guidance we updated our view on two primary factors that impacted our performance in the second quarter. An acceleration in the decline of Latin America attendance and observed softness in the Orlando market.

First, a continued and accelerated decline in Latin America guests in the second quarter. To provide you with a bit more granularity, last quarter we had projected that the decline in Latin America attendance would be consistent with what we saw in that quarter, off about 25% to 30%. In the second quarter, the decline accelerated to 45% to 50%, or approximately 127,000 guests.

Based on this accelerating decline we are now assuming that lower Latin American attendance of approximately 450,000 to 500,000 visitors for the full year, or approximately 40% of our Latin American attendance will result in a revenue shortfall between $34 million and $38 million, which represents an additional decline of between $15 million and $20 million for 2016, compared to our original model. This will have an estimated adjusted EBITDA impact of $30 million at the midpoint, as compared to $15 million in our original full-year guidance.

Second, observed softness in the Orlando market. We are seeing data that shows year to date hotel occupancy in Orlando is down about 2%. Other tourism industry reports indicate attendance figures at theme parks are off across Orlando.

We have also seen theme park competitors lifting blackout dates on their passes for the remainder of the year, and some going back to non-peak pricing to attract guests. We believe this softness in the Orlando market, along with other factors will result in approximately $7 million of additional adjusted EBITDA shortfall versus our original guidance for 2016.

In total these two factors account for the majority of the $25 million of additional projected adjusted EBITDA shortfall in 2016 at the midpoint of our range, resulting in our new guidance of adjusted EBITDA for 2016 to be in the range of $310 million to $340 million. However we are seeing signs that certain initiatives are taking hold.

As a result of new offers we have implemented, season pass sales have actually improved slightly. While last quarter we project $10 million to $12 million negative impact on 2016 revenue from soft season pass sales, we now expect the full-year impact to be less, and in the range of $8 million to $10 million.

We also continued to focus on financial discipline, and important pillar of our strategic plan. In November I spoke about taking 200 to 250 basis points out of our cost within three years. We remain committed to this goal and are making progress.

In the first half, SG&A expenses, excluding the non-cash equity compensation expense were down by $4.3 million. We have undertaken a comprehensive the review of our operations, and have already identified opportunities for better efficiencies and lower costs, however we need to do more. Now we are stepping up our efforts and evaluating our cost structure in an effort to drive greater efficiency sooner.

We recognize that based on current performance levels, we need to right size our cost structure, and we will continue working over the next few months to identify and drive additional cost savings. Also, we've reviewed our CapEx plans and believe we will be able to optimize our spending with no impact to our operations, and have subsequently tightened the range. We expect to spend no more than $175 million to $180 million in CapEx this year.

Although the first half of the year weighted down by an acceleration of largely negative macro factors in the second quarter was below expectations, we are seeing signs that certain initiatives we have deployed are working. Reputation improvement as Joe mentioned, improving performance in Texas and California thus far, season pass sales improvement versus our original projection, an increase attendance in Florida in July, despite the numbing effect of the Latin American attendance decline are indications that we are making progress.

Now I would like to turn the call back to Joel.

Thank you, Peter. As I have said before, this turnaround will take some time, and will be a bit bumpy. But, we have a very clear understanding of the challenges we face. We see our parks in California and Texas improving, and shown without the Latin America issue, the capital invested in Florida appears to be delivering on our strategy.

In addition, we are aggressively implementing short and long-term revenue growth initiatives. By driving revenue growth and, as Peter mentioned, aggressively managing our costs, we are confident in our strategic plan, and our ability to return the company to consistent profitability and growth, and improved shareholder value.

With that, I will open up the call for questions.

(Operator Instructions)

The first question is from Barton Crockett with FBR, your line is open.

Okay, great, thanks for taking the question. A couple of things here first, the commentary about the dividend. If you guys hit the low end of your guidance, you're pretty close to 5 times leverage by our math. You have a restrictive-payments basket that would, as currently written, would constrict your ability to pay dividend. But you also have, are you thinking the position as a very good credit, I think lenders want to lend you money, I think they want to work with you. It's a very favorable interest rate environment. And, you guys said, at different points, that your land and asset value is north of $5 billion which is a big multiple of your debt. I was wondering if you could comment on your interest, willingness, or the opportunity you would see to work with lenders to get more relief on that covenant, if the macro continues to be slippery, and earnings perhaps come at the low end, or little bit lighter of your expectation currently

Hey Barton, this a Joel let me start and then I'll turn it over to Peter for more color. I think the macro issue, that we all have to understand, we are incredibly focused on hitting, or exceeding the midpoint of our range which is $325 million. At $325 million or higher we don't have any issues on the 5 times leverage, and we are all incredibly focused and determined to do that, whether it's revenue enhancement or cross-structure issues, to not even introduce the issues you are bringing up. But having said that, if all of our best efforts don't get us there and we are very focused and urgent about it, I will let Peter address that.

Sure, hi Barton. Clearly we take a look at, and as Joel pointed out, the $325 million, and north of that we have comfort, obviously comfort that we would have the ability to pay the dividend and we are not, clearly, we would talk with our lenders if we felt that, that was the best approach to take, such that we wouldn't be sacrificing capital in our capital allocation model. Clearly, while the markets are strong if we can renegotiate our lending package, at appropriate rates that make sense, but we have very inexpensive debt structure right now, and going out to the market and pricing up dept would not necessarily be the smartest thing to do but we will continue to take a look at it.

I think one additional comment, we want optionality. If we are above $325 million, is the best use of that cash the dividend is always the question that the Board, which I'm part of, we all make that decision. Because the good news is with our announcement and some easing on some of the brand issues we are getting more opportunities, we are getting more partnership's coming our way, so there's always the question of what the best use of the cash. But we want to have that optionality and create our opportunities.

I understand that this is a Board decision, and there's obviously a limit on what you can say very specifically. I detect from what you're saying that it sounds like you think in the current environment there would be an opportunity to get some flexibility if you chose to go there. The question is whether you would choose to go there. To what extent do you think the dividend is important? How important is that for your management of the Company do you think at this juncture?

We have always said to our shareholders we think it's important, especially until we show we have completely stabilized the business. Unfortunately because of this macro, this Brazilian issue, it's been a setback to show that clear stabilization. I think without it we'd have shown it.

But in my mind, and in the Board's mind it's always been an important element to keep the shareholders in the game until we show our stabilization, and then we have plenty of ideas, and opportunities of how to use more capital, but I think it's harder to do that in an environment where we haven't proven that we've hit the absolute bottom. That's what we're incredibly focused on, and why I haven't spent a lot of time talking about the new ideas that we have, there's plenty of ways to grow the SeaWorld entity. But we are trying to get there first. I think it's really important until we've proven that, that bottom and the stabilization.

On the July trend, which was fairly encouraging, up 4%. And July, for other theme-park companies can be half of the quarter. So that would seem to be a good indicator for the third quarter. Is there any reason to think that, that type of trend, that up 4% wouldn't persist for the back part of the year, or is there some deceleration in that trend that's kind of baked into your outlook?

No. There's nothing, there's no reason to believe that it would change. First of all historically, the last five years the fall and winter, we have on average grown about 4.5% to 5% in that range because our Halloween and Christmas Festivals are very, very strong in the markets that they exist. The audience is less internationally focused. So for all of those reasons we feel very confident in the second half of the year.

In addition, even for the tourism, or, I'm sorry even in, for the summer market, what I tried to articulate is the rides in Florida, both at Tampa and in SeaWorld are doing their jobs strategically. They are drawing the local market, they're driving overnight market, and even our domestic market. They all grew in Tampa and in Orlando, which is very encouraging because that is our strategy of value play, a capital we can afford, drawing that 300 mile in, being the easy park to use. That part is working. But we are being hurt worse than we thought we would be in Brazil.

The only think I would add to that, Barton, this is Peter. The attendance increase, we had a hot summer, pretty much across all of our parks. And we're are seeing strong water-park attendance and that can have an impact on per capita just as you think about the cadence in our revenue as well and Joel's points are right on. I think July was named the hottest summer in history, or at least in record-keeping history. We are seeing great water-park attendance as part of the overall park mix

The revenue may not be there as strong, because of that mix issue. One other point I'll just proactively say about the Brazilian issue. We are incredibly disappointed that we have to come out and say, just three months later that it's about almost double what we thought, a $15 million EBITDA issue to a $30 million EBITDA issue. We have historical data, we look at historical trends by exchange rate. It tends to be about a 0.6 correlation between exchange-rate drop and attendance drop.

In this case, with Brazil, it's a 45% exchange rate difference. We had trending, and we were trending about 20%-off cadence, which matches that historical correlation. Unfortunately, it accelerated in June, and May to almost match the exchange rate. We're literally off 40% on our Brazilian business and exchange-rate difference is about 45%. That's unprecedented for us, and that acceleration was something we had to build into our guidance.

Just one other big issue I just want to ask it very quickly because it's on top of everyone's mind. The Brexit impact, the currency declines for the British, any sense that, that's impacting attendance? Any sense of the size of the British as a percent of your attendance and also if could comment on the more recent use news about Zika in Miami and what impact you think that might be having on the Orlando market and you guys.

That's a good question. The hits just keep on coming right, from the international business. On Brexit, the 15% is, we think, if you apply the same correlation, that would say, all right, there's going to be a 7% to 10% impact on us at some point. I personally was on a call with our English distributors. We are on top of it daily. We have seen no impact so far. They are long lead times.

The better news in England versus Brazil is the English pound is also more expensive versus the euro, not just the dollar, so even vacationing in Europe isn't really a good option and there's also safety issues in Europe. We don't think it's going to be as impactful as Brazil, both because the exchange rate's not as impacted and also both the issues I just mentioned with the euro. But we will look at it and build it in more into 2017 and 2018 because of the lead times associated on those. We don't anticipate much in 2016, but we will look at it in 2017.

But let me say we are very focused on doing what we can to minimize that risk. So we are marketing for Discovery Cove. We are increasing our marketing cadences into the domestic part of the country versus, that's a big market for us, for Discovery Cove. We're shifting ad dollars, we're focusing very hard on 300 miles and in, because we can still win there, and we're proving that we can. Even though, yes, we anticipate an impact we are trying very hard to abate it, and doing everything we can to keep it to a minimum.

As far as Zika, we are working very, very closely with the Florida government along with the tourism industry. We absolutely take it seriously. We have very robust mosquito control programs at all of our parks, I think we are leader in the industry. We're working very closely with local, state, and federal travel and tourist industry folks on any updates and recommendations. We have been working with Senator Rubio and Nelson to make sure we've got funding to address the issue quickly.

Could it impact us? Yes, but we are doing everything we can to make sure we are on top of it. The whole industry in Orlando does an incredibly good job of mosquito abatement. So we think we can keep it to a minimum. You know a mosquito only travels 150 yards its entire lifetime. If we keep the facts out there, we will hopefully minimize any impact.

Great. I'll leave it there. Thank you.

(Operator Instructions)

The next question is from Matthew Brooks with Macquarie, your line is open.

Good morning guys. I just wanted to find out if that attendance was up in July for the new rides? Any indication about pricing at the same time?

As far as, per cap you mean?

Yes.

Two issues that are a factor for us. One is the water-park mix that Peter mentioned. That will hurt per caps a little bit, versus historical averages because we have a higher percentage of people in our water parks. However we definitely are discounting less. We have less freebies and our season-pass program has gone from a buy one get one last year, to now we give the water park, which is a lower discount, and we've seen a stabilization of the season-pass business.

We commented in the first quarter that we got hurt in our season-pass business but now we are tracking ahead of last year so that shows some pricing power on our season passes. The daily, is a little bit more competitive right now, because our friends in Disney Universal are being very aggressive in the market as well, because of the general softness but we are holding our own from a pricing standpoint.

Right, I guess the results from attendance, so that, as you say, the capital be put in does work. Do you have anything you could say about the capital plan for Orlando, specifically next year? You're going to have some new attractions from Universal and Disney coming next year do need some sort of new capital -- ?

We do have three things we are going to market next year. We're not prepared to go plug public with that. In our next call, we will go public. But we have three really, two really good new things, and one is a re-market of a very positive thing. So we will have something to talk about that I think fits, in market, fits our 300-mile-and-in strategy. I think we can continue to make traction there, as we have --

Will it require much extra capital or there'll be capital allocation that you set up already?

Right now our capital allocation, the answer is no. Our capital allocations right now are about $175 million to $180 million this year and we're on about the same next year. That cadence leads all of our parks according to strategic plan. I think the thing that may change that is if we want to be more aggressive trying to go after farther out domestic business or international, which is a shift in the strategy. We may choose to put more capital into Orlando. But right now, for our strategy to gain market share 300 miles and in, and win where we can win there, it does not take more capital.

Last one for me, on LatAm which was called out as a negative after Q1 I think you mentioned that you had some strategies you were going to try to implement to try and bring the tourists back. I'm just wondering what those were and maybe what you're going to do differently now, perhaps, to hopefully get some more LatAm tourists back in the second half?

More Latin America guests? Is that what you we're saying? I couldn't hear you.

That's right. I was just trying to understand what was your strategy after Q1 to try and get Latin American visitors back?

What we stated and what we have decided to do very proactively, is, based on how poor the economy is there and, really, the airport traffic coming in, airlines that stopped coming into Orlando, we made the strategic decision, instead of putting good money after bad, in our opinion, we actually shifted dollars to focus on the 300-mile-and-in domestic audience, local audience. We have seen tremendous improvements there. That July increase, in Orlando and Tampa is almost entirely, well it is entirely the 300 mile and in and some domestic customer growth.

The international trends have not improved and that was not our strategy to try to go after that because of what we're seeing in the data, what we're hearing from competitors, what we're hearing from airport data, that this is not a SeaWorld only issue, it is a market issue. We are not claiming that there may not be some market share shifts, we don't know that, but we do know that we are winning and we are doing well with the money spent on our strategy to attract that 300-mile-and-in audience.

The next question is form Joe Stauff with Susquehanna, your line is open.

Thank you. Good morning. So, Barton and the previous analyst asked a number of relevant questions of big items. But I wanted to touch on the point that you mentioned in your last remarks or your last response about that strategy pivot or change this year to focus on the regional audience and/or market. What else can you tell us with respect to how that's working? To obviously supplement for the lack of, or the weakness in international traveling and/or destination traveling to Orlando. What else can you share with us?

Are you able to provide, maybe some numbers as it relates to what your overall Orlando was up in July relative to the overall corporate rate of 4%? What else can we, maybe put our arms around?

First of all, let me emphasize one point. We are not taking anything away. We are, international strategy in general has stayed the same. Brazil is where we pulled some money out because the market was so weak. So as a Company, we don't want to deemphasize it going forward. But the new money, the increases in marketing spend, as we grow, have gone entirely into that, either an Internet-based strategy for domestic visitors, so anyone who is vacationing will see us when they come to Orlando on the web. And any traditional media that's 300 miles and in. That strategy is clearly working.

Our source of residency data says that in Tampa and in Orlando, our local and drive-in overnight markets are up between 5% and 15% depending on the area and depending on the park. We don't want to get that specific with the data, but our Orlando attendance and revenue as I said, without Brazil would be up 6%. That to me says that on a revenue basis our strategy is working. When we can attract people with our capital and we feel from the other data our brand issues are abating and that's the big point.

I might add to that Joe, is that, of the 4% Companywide I will say that Orlando is stronger than that 4% average. Hopefully that's responsive to your one question in concern.

Okay, thank you. One follow-up on this particular item. How do we understand just the seasonal cadence of that increased investment, again, regional versus destination. Obviously the advertising campaign, we see it up here, in New York. But when was that started and how would you expect basically that, is it now just hitting? Was it not hitting, call it in, the May and June timeframe?

How, what else can you tell us in terms of just, that investment, and when basically some payoff from that incremental investment is starting to hit? Obviously it's hitting in July but, what else can you tell us, would you expect it to accelerate from here?

First of all what you're referring to, I believe, is the real amazing campaign, which is part of our reputation spend. It's the first time in the history of the Company we've put our rescue operations and some of the good we do, juxtaposed with how much fun you can have at the park. And that's, that experiences that matter, focus and we also tagged it with a specific family offer.

That's not part of our long-term strategy. We want to focus almost entirely on the web, or those domestic audiences in New York coming to Orlando. However, to answer your question specifically, we are increasing our marketing spend in the fall. We have built that into our guidance. And it's part of the reason we are putting all the guns on making sure, we want to hit or exceed that $325 million midpoint in the range.

We haven't built in acceleration of our current trends because our current trends were domestic and local markets are very good. I just said between 5% and 15% up in those markets in Orlando and Tampa. That's very good performance. We hope to maintain it but were not accelerating it.

The next question is from Benjamin Chaiken with Credit Suisse, your line is open.

Hey guys. Just on the OpEx side, I think it was flat year over year, is there anything one time in this number, inflating it, we should be aware of, just, with significantly lower volume, it kind of implies some constant pressure on that side, any color here on the cost-cutting initiatives as well would be helpful.

On the OpEx side, we've, wage merit, particularly minimum wage and competitive wage challenges, and pressures in, particularly Florida and California are built into that. Of course we have some new attractions that cost us OpEx but the majority of it is a wage pressure rate, wage pressure, across the company, in particular in California and Florida.

Got it. And then, not to belabor the point but there was a lot of emphasis on Latin America and the calendar shift that impacted the business. But the Latin America shift seems pretty similar to what it was 1Q, 108,000 versus 127,000 and the calendar shift should be pretty straightforward, so just curious on the moving parts here, versus your original expectations. I mean is 1Q typically a heavier LatAm quarter?

Yes, yes, yes it is. And then we looked at the 108,000 versus 127,000, we also look at that as a percentage of what we'd expect. And of course the second quarter, it escalated from that 25% to 30% up to 47%. That's why we take the view on a relative basis for the rest of the year, and have increased the decrement associated with that.

Okay, and then one more. Just some color on your pricing, at least in Florida, the plan was to discount the main gate from $79 to $69, was my understanding, and then remove that discounting when Mako opened. Where do we stand that front and your thoughts going forward? I guess another way of asking, on a sequential basis, Q3, from Q2, you keep the same strategy or change that at all?

We did intend to bring it up, we decided proactively based on a competitive environment that we were seeing, we did not take it back up. But I think it's part of the reason we're seeing really strong local and drive-in overnight success on the ride, because of that. But frankly, Universal lifted blackout dates, Disney was offering Florida residents discounts earlier than they ever have. We saw Lego have kids free, so all people, all competitors in the market are being very aggressive, so we thought we had to stay that way, proactively, and I think it's working

Your next question is from Tim Conder with Wells Fargo Securities, your line is open.

Thank you. Just a couple. Peter, if you could review the math, the dividend at the $325 million EBITDA and the security of that, and the two different covenants. I think the covenants also are premised on your $930 million trailing 12-months results. So if you could kind of go through that, and then Joel, and the team as a whole, again congrats on the early success of the strategy, it appears to be a very solid and we'll have to continue to monitor that but, one comment that you guys haven't talked about is Canadians.

Canadians are the largest visitor group to Florida, and we've seen some data that Canadians are staying home more this year. Maybe they got hit with the realization of the currency last year. What are you seeing from the Canada perspective? And then lastly, on the dividend itself and consideration of capital allocations, has there been any discussion of given where the stock, is and you're not getting paid for the dividend or investors are not respecting it. Has there been any discussion, it was danced around before, just, maybe cut the dividend in half, cut it out in total, get a better repricing on some refinancing and then look to maybe reinstated over the next year or so?

Tim, Peter here. Good morning. Just to level set, the October dividend declaration would be based on second-quarter leverage, which we talked about at 4.71 times. So we are well within the 5 times for the measurement of the dividend for October. And then the third quarter, informs the dividend that we would otherwise declare in January, of 2017. And the math is pretty straightforward. We had a trailing GTM EBITDA of $342 million and that, our outstanding debt on a net debt basis came in at 4.71 times.

I'm going to answer your last question as well and then Joel will jump into your second question. Clearly the Board and Management, we take a look at how we are performing each and every quarter, each and every month. And take that into consideration as we think about capital allocation. Obviously we have discussions around is the dividend important? Is investing more on capital, CapEx important? Those discussions are ongoing.

Going forward we will continue to have those discussions, and right now we have not had discussions about cutting the dividend to any great degree. We believe it's an important component of our total capital allocation, but as Joel pointed out, our focus is really on focusing, our focus is on maximizing EBITDA for the rest of the year. Maximizing our flexibility, so that we can make those capital allocation decisions with all the flexibility we can possibly have. You'll notice that we're also taking a look at CapEx and trying to find ways to do more with less in CapEx. We're thinking about the entire stream of capital allocation.

I think that's important because we are, as I said earlier, we are getting more opportunities of partnerships, ways to grow our business, whether it's speeding up the resort strategy, other elements that I don't want to go into, that could get a higher return then the full dividend. We always look at those issues, not just now but always. And we always look at all of the best ways to get return.

As far as Canada, first of all, on a macro level it's not a big part of our attendance it's about 1% or less for the whole Company. It's more important in Orlando. We have seen a decline there this year. We do have a strong Internet marketing presence, just with travel tourism, and tenders up there, but we have built in the factors you are talking about into our guidance already. The current trends in Canada, which are down on a very small basis.

To size that Tim, Canada is about a quarter, 20% to 25%, or what each individually Latin America and the UK are. So it's not as substantial as those two sources.

Okay, and then, gentlemen, just to clarify did you, you have or have not factored in any potential weakening from the UK, it did not sound like it in 2016 because of the lag effect but you'd be considering that for 2017?

I think that's basically right. Certainly the low end of our guidance has some unexpected things built into it, which that would be part of, maybe some Brexit impact in 2016. Clearly our trends in what is the midpoint of our range, so there's a little bit of wiggle room at the low end so yes, there's some built in but most of it we think will be longer term.

The next question is from James Hardiman with Wedbush Securities, your line is open.

Hi, good morning. I don't I think you've answered some of this, but I just want to make sure I understand, sort of, how we should think about free cash and the component there. That $325 million midpoint to the EBITDA you're talking about $175 million to $180 million in CapEx. Remind us what the interest and tax numbers are there, and are there any working capital adjustments we should be thinking about. Basically I get to, pretty close to what your dividend payment would be, in terms of free cash, at the various midpoints but, just, help me just work through the quick math on free cash flow based on your updated guidance.

Your math is pretty close. The way we think about it is, at the midpoint $325 million, we're working to manage CapEx to $175 million interest at 59%, 60%, dept amortization at 25%, so that's 85%. We've already paid dividends of 57%, so this next dividend we'd have to borrow slightly to get to it, but a small amount. Essentially breakeven to $5 million to $10 million.

The next question is from Jason Bazinet with Citi, your line is open.

Thanks so much. I just want to focus on international again because it's gone so much air time. One of the things that confuses me a bit, is I'm sure all of your commentary regarding Brazil is accurate, but when we look at the inbound passengers coming into Orlando from international markets, in the second quarter, it was still up comfortably up double digit. Do you disagree with that, in terms of international is still strong right now, and if you don't disagree with it then why isn't there some sort of offsetting benefit from some other international markets outside of Brazil that's helping your numbers?

First of all for Brazil a lot of that comes in through Miami. As far as the Orlando air traffic, we have talked to the airport officials and they are off double digits on Brazilian inbound into Orlando, and Miami we don't have the data right now. But the convention business is another big offset of that. It is a very big component year. And it is doing pretty well from what we understand.

The data we talk about for tourism in Brazil is not just a SeaWorld issue. We have very, very strong, and I would say very accurate, SOR data to support that.

Okay, so two factors. One, you think a lot of the inbound traffic into Orlando is convention based, not going to parks. And two, a lot of your Brazilian visitors flying to Miami. That's the reason.

Yes, yes.

Okay, perfect. Thank you.

The next questions is from Alexia Quadrani with JPMorgan, your line is open.

Hi, this is David Karnovsky on for Alexia. Your release mentioned attendances up in California and Texas on a combined basis for the first half. Any color you can give on the attendance trends in those markets individually and then on San Diego, any, really, indication on what the attendance impact could be, even on a short-term basis from ending the live-whale shows at the end of the year?

What was the second part of your question? I'm sorry, say it again.

Just any potential impact on attendance in San Diego from ending the live-whale shows at the end of the year.

So, as far as more color, we are up in attendance in Texas for the first time in four years. That is a very, very important issue for us. We've been trying very hard in that market, we've put new leadership in. We have very good product program coming next year as well. So we continue, we are excited about Texas and what's happening there and we feel like that's going to continue. Good to see growth there.

In California, we've gone from minus 13% two years ago, minus 8% year to date last year, now we are at only minus 2% and frankly we have no large attraction this year. We have festivals that we are marketing and we have new things to the market but no major attraction. The next two years in California we have major attractions coming that we are very excited about.

In addition, Harry Potter is doing very well as we understand it in Los Angeles so the fact that we're holding our own with very strong competition and no new major product, and the data that I shared earlier, we are seen very strong indications in California that our brand issues are abating. The data says that. The intent to visit is going up, and it's a lagging indicator of people actually visiting. Anecdotally, and the data says it is starting to turn in California. We do anticipate it. This is not guidance, but I anticipate California growing next year for the first time in three years.

So big picture, I think two of the three SeaWorld parks we are seeing very positive trends. We are in Orlando for July once we open our new ride and we need to see that on the second half of the year play out.

As far as the orca encounter that you mentioned we are marketing that this fall, it has not started yet. It's is, we are not ending the whales being present at the park, just to clarify. It is a orca encounter, it's a new approach. The whales will be very, kind of a whale-centric presentation. Not entertainment centric.

We are very excited about it, we're seeing good reviews, but, we will start marketing that in October and November with a buy-early-and-save strategy along with our new attractions. So we anticipate a good year in 2017. But no season-pass impact so far because we haven't started marketing it yet.

And then, food merchandise and other on a per-cap basis, had another solid quarter. Can you talk about what initiatives are helping there, and what the outlook for the rest of the year looks like on that front?

We are very bullish on our culinary program, and this Company is incredible. We do an amazing job on our food-and-wine festivals at the Bush parks, we are now intimating food-and-wine festival at all of our SeaWorld parks, called Seven Seas Festival. We are in the early stages there. So we hope that we can continue that good traction, that's really the biggest initiative behind those improvements that you've seen.

We do however have a, the water-park issue will dampen that somewhat, just because of the mix issues. But the initiatives over time are the right ones.

We've also been really successful with all-day dining just as some of the regional competitors have been successful, we are as well. Our catering business is up this year, and we are doing a really good job with Quick Queue. I think we are an industry leader there, in some of the things that we do to generate revenue. All of the above is helping with our per-cap improvement.

The next question is from Scott Hamann with KeyBanc Capital Markets, your line is open.

Yes, thanks, good morning. Two questions from me. First, based on your internal expectations, do you believe that at the end of third quarter you'll be below the 5 times leverage threshold? And then secondly, in terms of some cost savings, Peter, that you talked about, are any of those contemplated, or do you expect that to show up within 2016, or are those things we should expect in 2017? Thanks.

Scott hi. We will below the 5 times, the base, and the midpoint of our range in the third quarter in our cadence. Your second question I'm sorry you broke up a little bit there.

In terms of the incremental cost saves that you talked about that you are exploring now are any of those going to show up in 2016 or are those 2017 benefits?

We would like to have them show up in 2016, we're pushing hard on those that are quick hits because we're looking at more structural issues, those may be delayed. As you know, this park business you build this machine to open these parks and it's tough to turn that on a dime, I would caution, and say 2017 but we are going to work hard to find some low hanging fruit.

Thanks.

The next question is from Felicia Hendrix of Barclays, your line is open.

Hi, great, thanks so much and good morning. Joel, throughout this call you've talked a bit about some pricing action that you've taken and competition but I just wanted to step back for a second and just big picture. I was wondering if you could talk overall about your pricing strategies and more specifically your yield management strategies.

Because right now it seems that your pricing is a bit reactive to what's going on in the market, especially in Orlando. It also seems that a lot of times when you pull back certain promotions or discounting, the admissions drop, so I know originally, back before you guys there was the plan to drop admissions so you get in a higher quality customer, but it seems consistent. I was just wondering what you're doing to mitigate some of the stuff that you're seeing in Orlando but also keep in mind the old management strategies, I know you've talked about it a bit, but if you could answer the question in particular, regarding the old management strategies that would be helpful.

We definitely are sticking to our strategy as stated in the November conference, that we had, where we have done research on where our daily price should sit versus the competitors. I don't want to say with that figure is, but we have it validated very well, with some pricing analytics. Where we think we need to be. We definitely have a buy-early-and-save strategy and we definitely market our entry point on season pass, is substantially less than our competitors. That is our stated strategy, we stick to it.

We do vary, we have varied a little bit, based on competitive factors but it's kind of a $10 range whether it's $69 or $79, it's still an advance purchase only. If you show up at the gate, it's a the higher price and that differential pretty much stays the same. I think all pricing in this market, there is some reactivity to competition. But our basic overall strategy of where we want to sit versus our competitors in Orlando and compete very strongly in that 300-mile-and-in audience and how we go after customers and price is still consistent with what we said in November.

That's really helpful. Thank you. Final question, wondering what percent in Orlando this year or so far what percentage of your admissions has been local versus last year?

We don't break it up quite that specific but I will say that all of our, that 4% growth in Orlando, and then I said 6% between Tampa and Orlando on a revenue, that's entirely the local and drive-in overnight market. There is no international growth there.

Showing no further questions at this time I will turn the call back to Joel Manby for any closing remarks.

Thank you those were excellent questions. From a macro standpoint, I know the quarterly results are disappointing. I think what we have shown here and I feel very strongly about this, that our brand issues that when I came into the Company, we had to solve, those brand issues are abating, and the data clearly shows that, with favorability and intent to visit. And I think our California and Texas results show that.

Unfortunately, right now we have Florida problem. We don't have a, it seems like we don't have a SeaWorld Orlando problem. Tampa is off the same internationally or more than SeaWorld is. We are addressing the issues and we will, we feel these will abate. Our capital in Florida is driving attendance according to our strategy, local and drive-in overnight markets.

We do feel like our strategy is working. We appreciate you, your patience as we work through these macro issues which we will. We are working hard on revenue and cost initiatives to make sure we do everything in our power to hit that midpoint of the range so we have flexibility, in how we use our capital going forward.

That's our goal. That's our very urgent and intently focused goal here. I just want you all to know that. We appreciate your support and good questions and look forward to talking to you next quarter.

Ladies and gentlemen this concludes today's conference call. You may now disconnect.