United Parks & Resorts Inc (PRKS) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to SeaWorld Entertainment third-quarter 2016 financial results conference call. My name is Denise, and I'll be your conference operator today.

(Operator Instructions)

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 third-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 on 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 third-quarter 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'd like to remind everyone that our comments today will contain certain 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 risk factors of our annual report on Form 10-K and quarterly reports on Form 10-Q 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, available on our website, and can also be found in our filings with the SEC. Now I would like it turn our call over to Joel Manby. Joel?

Thanks, Mark. Good morning, everyone, and thank you for joining us. Before we walk through our performance in the third quarter, I want to take a moment to discuss where we are today and how our results illustrate our progress against the strategy we outlined for you at our Investor Day one year ago.

At that time, we identified the five key areas of focus that informed our three-year strategic road map. As a reminder, these areas included actively addressing our brand challenges, refocusing the Company on providing experiences that matter by creating additional rides that are fun and meaningful, generating organic and strategic revenue growth, and adding an additional level of financial discipline to the Company.

We are moving quickly and decisively to execute this strategy to improve performance and increase value for our shareholders. In the past 12 months, we made progress in every part of our 5-point plan. Earlier in the year, we addressed our fundamental brand challenge head-on by ending orca breeding in our parks, shifting towards more educational orca encounters, and partnering with the Humane Society of the United States to focus on broad animal welfare issues.

As part of this strategic repositioning, we have also reversed our plan to spend $300 million of investor capital on the Blue World project, which would have effectively doubled down on the most challenging aspect of our business. We reallocated a portion of those dollars to higher-return attractions that will drive more attendance. This shift was transformational for our business as we move from animal entertainment to experiences that matter.

As part of this transformation, we are appropriately adjusting our management team and workforce, our marketing and pricing strategies, and our commitment to a regular capital investment cadence, for new brand-consistent rides, events and attractions. We have already made many of these changes and are moving quickly to continue the transformation, which is also enabling us to get a clear picture of where we can better-control or eliminate costs. I'll circle back to this shortly.

Turning to our third quarter, we delivered tangible results against our plan in several key areas. Notably, California revenue and attendance trends continue to improve. California revenue was flat year to date through the third quarter, an improvement compared to a decline of 7% year to date through the third quarter of 2015. While our total revenue was down for the quarter due to unusually bad weather at the Company's northeast park locations and unfavorable park attendance mix, we see positive signs of the progress we have made in the underlying trends, and opportunity to improve as we address the mix shift and improve our pricing and yields.

In October, Company-wide revenue was up in the low single-digits, despite the negative impact of Hurricane Matthew. Notably, California and Texas had their best October in recent years. Our capital investments and exciting new attractions in Florida, like Mako and Cobra's Curse, helped drive a 1.3% increase in attendance in Florida in the third quarter, despite a steep decline in Latin America attendance, the broad softness in the Orlando market, and the impact of Hurricane Hermine. This reversal of the attendance decline indicates that impactful capital investment drives visitation.

Absent the Latin America impact, Florida attendance would have been up 4% in the quarter. I would note that we are also seeing international weakness abating. Latin American attendance declined 28% for the quarter from a decline of 47% in the second quarter of 2016. In the third quarter, our attendance was flat, but total revenue per capita declined 2%, due to an unfavorable park attendance mix and a decline in international attendance in Florida.

To address the per capita decline, we have responded by implementing new pricing strategies based on a series of quantitative studies to determine proper price points versus our competitors. In fact, we were able to successfully take price increases in Florida, California and Williamsburg in September.

As a Company, we launched our season pass sales earlier than ever, with our buy early and save strategy, which we are supporting with an aggressive sales and marketing effort. Early indications are good for 2017 pass sales. We are up at every park, and sales revenue are up double-digits over the same period last year. During the fourth quarter, we'll be driving attendance with Christmas events, including welcoming a character everyone knows and loves, Rudolph the Red-Nosed Reindeer, to our SeaWorlds and Busch Garden parks.

Looking ahead, we see a clear path forward that gives us confidence for improved performance for 2017. Now to assure we deliver increasing ticket yields, we are creating a single streamlined, centralized revenue and pricing team, with input from a top consultant who has worked with other entertainment companies, to ensure that our pricing systems and people are truly world-class. Steps we are already taking on the pricing front include adding all-year dining passes and all-year Quick Queue passes, moving the customers up our price ladders to increase per capita spending, and using dynamic pricing for our in-park spending opportunities.

To increase attendance, we are continuing with our new cadence of capital investment in new rides, attractions and festivals. We've built three great new attractions in 2016, and in September, we announced an innovative lineup of compelling new attractions.

These offerings illustrate our new approach of combining fun and meaningful experiences, and include a Sea Rescue-branded launch coaster in Texas, the first virtual reality coaster experience for our already popular Kraken coaster in Orlando. And the highly anticipated new Orca Encounter, along with Ocean Explorer, a deep-sea discovery ride in San Diego. We are also introducing Electric Ocean, our new nighttime park experience, in both San Diego and Orlando.

I'm very excited about this new lineup of attractions, and I'm sure our guests will be too. These attractions are all being built within our annual capital budget of no more than $175 million per year. We are being more efficient with our capital spending, and we are doing more with less by introducing more attractions in 2017 than we did in 2016, for less money.

To further manage costs, we are actively reducing expenses across the business as well. We are implementing a comprehensive cost-optimization program, with which we expect to reduce costs by approximately $65 million, with net savings of $40 million by the end of 2018. This is more than double the amount we committed to at our Investor Day just one year ago.

Lastly, the Board's recent decision to suspend our dividend policy gives us greater flexibility to allocate capital to the highest-return alternative. In the near term, we expect to invest in our stock at a time when we believe it is substantially undervalued. We expect to opportunistically repurchase our shares in the open market during the remainder of 2016. In the longer term, we will remain disciplined, regularly assess our capital allocation, and allocate capital in the most accretive way possible.

With that, I'll turn the call over to Peter to talk about our financial results and our updated 2016 full-year guidance.

Thanks, Joel, and good morning, everyone. First I would like to walk you through our financial results, and then discuss our updated guidance for the year.

For the third quarter, the Company generated total revenue of $485.3 million compared to $496.9 million, a decline of $11.6 million or 2.3% compared to the same period in 2015. Total revenue per capita declined by $1.18 to $58.18 in the third quarter, which was driven largely by a shift in park attendance mix, with more guest concentration at our water parks, and the impact of fewer international guests compared to the same period last year.

Attendance in the quarter declined modestly by approximately 30,000 guests or 0.4%, as new attractions drove increased domestic attendance in Texas and Florida. But these gains were largely offset by the impact of adverse weather, including the effects of Hurricane Hermine. And a decline in attendance by international guests, particularly from Latin America, which decreased by approximately 93,000 guests or 28% compared to the third quarter of 2015.

For the third quarter of 2016, we generated net income of $65.7 million or $0.77 per diluted share. This compares to net income of $98 million or $1.14 per diluted share in 2015.

I'd like to point out that our consolidated effective tax rate for the third quarter of 2016 was 52.2% compared to 37.1% in the same period last year. Most of this increase was due to non-deductible equity-based compensation that was recorded as a permanent adjustment in the first quarter of 2016, and the impact of changes in annual forecasted income. I'd like to remind you that because of our net operating loss carry-forwards, our cash taxes are not significant.

For the third quarter, adjusted EBITDA was $196 million, a decrease of $21.4 million or 10% compared to $217.5 million in the same period of 2015. Operating expenses increased $1.8 million, mostly due to an increase in direct labor and benefit costs resulting from wage and merit increases, which were partially offset by targeted cost savings initiatives.

Selling, general and administrative expenses increased by $9.5 million, primarily related to an increase in non-cash barter expense, planned increases in marketing costs to drive future revenue and current season pass sales. And higher labor and benefit costs related to increased equity compensation expense, which was partially offset by targeted cost savings.

As Joel mentioned, we are laser-focused on reducing expenses. And with our comprehensive cost optimization program, we expect to reduce costs by approximately $65 million, or the targeted $40 million in net savings, by the end of 2018. We are also targeting improvement in adjusted EBITDA margin to 28% to 30% in the near term, and 32% over the longer term.

We are taking a bottoms-up approach to achieve the right balance between revenue growth and cost optimization across the full year. But I want to remind everyone that these changes will not impact our guest experience, the safety of our guests and team members, and the welfare of our animals, which remain our top priority.

This cost optimization program is only part of our effort to deploy capital more efficiently. We also reduced our CapEx budget to no more than $175 million per year, with approximately 75% investment capital and approximately 25% maintenance capital.

Turning to the balance sheet, we ended the third quarter with $55.8 million in cash, and no amounts drawn on our revolving credit facility. Total long-term debt, excluding current maturities, was $1.54 billion. Our net leverage ratio, as defined in our credit agreement at the end of the third quarter, was 4.73 times adjusted EBITDA. Based on our cash flow from operations, along with our revolving credit facilities, we believe we have sufficient capital to meet our liquidity needs.

This brings me to our guidance. With only one quarter left in the 2016 reporting year, we are narrowing the range of our guidance, and we now expect adjusted EBITDA for 2016 to be in the range of $310 million to $330 million, based on recent developments, including the impact of Hurricane Matthew in October.

To wrap up, from the financial perspective, we have done a lot of work this year to stabilize the business, including identifying opportunities for cost savings and increased capital efficiency. Looking ahead, we are focused on financial discipline, the efficient use of investor capital, and the successful return to revenue and EBITDA growth. Now I'd like to turn the call back to Joel.

Thank you, Peter. The changes we announced earlier this year are the start of an intensified drive to return to revenue and attendance growth through a fundamental repositioning of our brand. This effort has required a transformation of our business, and we are seeing positive signs that the transformation is taking hold. As Peter said, we are focused on EBITDA growth via attendance growth, improving ticket yields and cost optimization.

In the past year, we launched our strategic plan, revamped the management team, fundamentally repositioned the brand, introduced compelling new brand-consistent rides and attractions, and began to improve pricing, marketing and financial discipline. We are seeing positive results as we continue to execute the plan.

Looking ahead for 2017, we're excited about the growth of our 2017 pass presales, where we're ahead of last year's sales pace in every park. We're also looking forward to the introduction of one of the greatest lineups of new rides and attractions in our 50-year history.

In San Diego, we're launching the Ocean Explorer, a new 3-acre realm combining multiple aquariums, exciting rides and digital technologies. The area is designed to engage park guests in an experience centered on exploration and adventure, inspiring them to protect the wonders of our oceans.

The signature attraction for the realm, called Submarine Quest, will provide guests with the opportunity to travel aboard submarines to see Ocean Explorer's remarkable undersea animals. The new Orca Encounter in San Diego will inspire and educate guests about the majesty of these complex animals, and reinforces the Company's commitment to compelling educational experiences.

Our Kraken Virtual Reality Coaster at SeaWorld Orlando will be the first digitally enhanced ride experience, and the only virtual reality coaster experience in Florida. The addition of VR to this fan favorite brings a new level of excitement and interest in Kraken for both new and returning guests, and will give us a good foundation for building out virtual reality capabilities elsewhere.

Our Wave Breaker coaster in San Antonio represents a new generation of coaster, and reaffirms our mission and vision by thrilling riders. While bringing awareness to the brave efforts of the SeaWorld animal teams as they join forces with organizations around the world to help ill, injured, orphaned and abandoned animals, like dolphins and sea turtles. New products are essential to growth in this business, and this incredible lineup should generate building excitement as we progress through 2017.

We are confident in our strategic plan. We are constantly challenging ourselves to do even better. We are moving aggressively on every front to improve our results faster, and we are committed to doing what is necessary to increase the value of your investment in SeaWorld.

With that, I'll open it up for questions.

(Operator Instructions)

Your first question comes from Tim Conder with Wells Fargo Securities. Your line is open.

Thank you. Gentlemen, a couple things here. Relating to the season passes and so forth, you announced it last year, but really, I guess, this is the -- is it fair to say that this is the first year where you really are having the full force of getting it rolling for calendar 2017 year?

And that being the case then, can you give us any color on deferred revenue? Because your percentages should be pretty decent year-over-year increase. But how are deferred revenues looking here with the season tickets and dining, Quick Queue, all that sort of combined together?

Hey, Tim, it's Joel. Thanks for that question. As far as color on season passes, let me give you the bigger picture, and I'll let Peter handle the specific numbers on deferred revenue. You are right, this is the first year that we have pulled everything together early. The buy early and save strategy was inconsistent. Every park launched with that no later than October 1. We put strong money behind it. We hit every marketing hook, ready to market, and it's off to a very good start.

We are up at every park across the board in season pass sales. We're actually at double-digits in revenue. So we are very pleased with the coordinated effort, the strong marketing, and really, the strong product. This is one of the best product lineups we've ever had. And so we feel very good about not only the product, but the execution of it. Peter, do you want to just talk a little bit about the deferred revenue?

Sure, good morning, Tim. We began -- launched the program on September the 26th. So for the end of the third quarter, you won't see much in terms of increase in deferred revenue. Obviously as we approach 12/31 and 3/31, it should be more noticeable as we hopefully continue down with this pace of improved sales.

Okay. And then gentlemen, just maybe a little more color on the attendance. How was Tampa? And then if we look at anything that you can give us on quantification of the impact of Hurricane Matthew -- all the parks in Orlando, I know, were closed for a few days, competitors [ever watch]. But just in general, is there any way you can quantify, at this point, the impact of Hurricane Matthew on Q4?

Tim, for your first question on Tampa, the entire issue on Tampa is an international loss. They're up in every other SOR, either a little or quite a bit. But we have been -- they have been also hurt by the macro Brazilian issue. It's the source of residency from the international businesses where I've seen it hit.

But as you know, that's a very strong park. They have a very strong five-year CAGR on their EBITDA in attendance. We do expect that to abate as the Brazilian issue abates. But there's no other issues there, from a macro standpoint.

As far as Matthew, it did take out three days of attendance, basically. You had a couple days in a big park here in Orlando that were completely wiped out. And we also had a day loss in Williamsburg, that was Halloween. And financially, it's about a $4 million hit. So one way to look at it for you, one reason we narrowed our guidance range in the top end was that $4 million from the hurricane. And at a high level, that's how I would articulate it.

Very helpful there, Joel. And then if I may, Peter, lastly here, the cost savings. Do you guys have an existing cost savings program? And how should we look at this $65 million? Is this sort of, take the prior one, fold that in, and this is sort of the new one? Or -- and $65 million gross, $40 million net. And maybe just sort of lay it out, I guess, the cadence of what we should be anticipating annually, both on a gross and the net basis here?

Sure. The way I'd like to think about it is, this is an acceleration, both in terms of timing, and an increase in terms of dollars. So this really replaces -- and if you want to think of it as folding in -- what we talked about a year ago. $65 million on a gross basis, $40 million on a net basis over the next two years.

The reason for that gross and net is because, as we pointed out in our call and our prepared remarks, we are seeing wage pressures across the portfolio. And the way we like to think about cadence is, we will be making some changes this year that will likely impact, positively impact our adjusted EBITDA.

And then through 2017 and 2018, obviously execute on those. And so I think in terms of this year, perhaps recognizing $10 million, and then over the next two years, 2017 and 2018, $15 million and $15 million, to get us to a total of $40 million. That's our best guess at cadence right now.

Great. Thank you, gentlemen.

Thank you, Tim.

Your next question comes from Barton Crockett with FBR Capital Markets. Your line is open.

Okay, great. It's Barton Crockett, and thanks for taking the question. I was wanting to get a little bit more color, if we could, on the cadence of trends in the quarter. Because you exited the second quarter saying that July attendance was up 4%, and then we're ending up here for the full quarter somewhat less than that. So it suggests there were some declines in August and September, and I was wondering if you could quantify that a little bit?

And then as to your guidance for the full year, which at the midpoint would imply flattish EBITDA in the fourth quarter, does that also imply flattish revenue? Or is that, to a large degree I guess, taking advantage of the $10 million cost saves that you just called out in the previous question?

You want to take that one?

The second one, Barton, yes, with regard to guidance, flattish in terms of adjusted EBITDA in the fourth quarter. We do, as I mentioned, have the benefit of making these -- accelerating these cost reductions, and taking advantage of the pro forma adjustment. But our fourth quarter is much smaller in relation to our third quarter, and the opportunity for missing, obviously, is much smaller. So by holding it flat and then taking advantage of up to $10 million in cost reductions and pro forma adjustments, we think that, that guidance is entirely achievable.

And essentially on flattish revenue, we're expecting some increases. We had a good solid October, and now the remainder of the year really is focused on December, where we have a lot of concentration. Joel?

As far as your first question, we did see -- as others in the industry saw, and have reported in previous earnings calls -- we did see unseasonably bad weather in the northeast. We had double the bad weather days -- which we track every single day, whether it's rain-impacted or extreme heat. But we had double that versus previous year. That really was the issue in August. But then we saw some -- we started seeing positive trends again in September. And as we've already said, those trends are continuing into October.

One thing I haven't said is, California in October -- I'm sorry, California and Texas had their best Octobers in recent years. And California is up middle, high single-digits. Texas is up double-digits. So we're seeing a continuation of September and October coming back after a very tough August. That has been articulated by others as well.

Okay. And then, if I could step back a little bit, thinking about the competitive factor up in Orlando. Which is, I think, a big focus of questions for people right now. We have Disney opening a big new Avatar attraction. Comcast continues to make investments. There have been times in the past when the Harry Potter attractions have had a competitive impact on you at times when the attractions have been less noticeable.

When you look at next year, how do you think about -- and I realize it's not scientific, but perhaps in your gut, how do you think about the competitive environment in its essence, in terms of whether it's disruptive to you potentially or not, when you look at it?

That's a good question, Barton, and I actually feel more confident than I ever have in our Orlando strategy. We've done a lot of work in, first of all, price positioning. We know where we are a very good value to our competitors. And as you know, they're very rational. And our recent analytics say we can actually increase our value proposition versus our competition, and still continue to increase our admissions yield.

And then the other thing that is proving out our strategy is, we are putting capital in place that our business model can afford. Obviously we can't do the $200 million, $300 million attractions. They're going after a different strategy. But we put in Mako, which was very affordable within our cash flow and our pricing strategy, and we got tremendous results from it.

We were trending down about 8%-ish heading into Mako. It has increased, and has turned our trends plus 10% -- which is incredible in the theme park business, to move something that much. So we're actually up about 1 point in Orlando.

And that proves to me that our strategy -- that's affordable from a value standpoint and also an attraction standpoint -- can compete against those players, because we're not trying to go after the same market. And if anything, I think we can improve on that positioning over time.

Obviously we have to prove that out. But from the analytics -- and I think we are proving it with Mako -- I actually feel very confident. Because when they put those great attractions in, the market grows. This is the largest tourist market in the world, and it actually helps bring people to the market. And we will get our fair share of it with our incredible value proposition.

We've also seen -- final point on it -- really good success in the 300-mile-and-in, our day trippers overnighters. We focus hard on our marketing in Miami. It's getting great results. So if you back out the international issue, the Brazilian issue, we'd be up 4% in Orlando.

So feel good about the strategy. We've got to continue to execute on it, but we know where we can compete, and we're executing.

Okay, that's helpful. Thank you.

Your next question comes from James Hardiman with Wedbush Securities. Your line is open.

Hi, good morning. Thanks for taking my call. I wanted to maybe connect the dots between the $65 million, Gross, $40 million net of cost savings over the next few years. With the commentary you made towards the end of the prepared remarks with respect to 28% to 30% EBITDA margins in the near term, 32% in the long term.

How should I think about near term? Is that the next year or two that we should be getting there? And what does your guidance assume that -- where EBITDA margins finish for 2016?

Hi, James, it's Peter. A couple of things. The cost reductions over the next two years at our current revenue levels are about 300 basis points. And I think for the full year, we're right in the 24% range this year. So that -- this is how we think about it. That would put us close to 27%. And over the next two years, given the encouraging signs we've seen in the business, we expect revenue to grow as well. So that's why we've provided a range of 28% to 30% in the near term.

And we like to think of near term as over the next two years, driving cost reductions, taking advantage of these positive signs, investing the right capital over the next two years. And then driving those margins with a combination of these cost cuts, as well as revenue growth and organic margin improvement.

And overall, philosophically, it's the recognition. We want to be entrepreneurial, we want to be efficient, very effective and fast at moving at what we do. And part of that is the philosophy behind it. So by doing that, we can get net savings, so our costs actually decrease. And that's what we're going for. We have been working very hard on it. We have specific plans we're working through, including getting some outside help to make sure we're doing all we can.

That's helpful, and maybe at least part of the answer to my next question. But I guess just overall level of confidence that we won't see another step-down in EBITDA for 2017, especially in the context of the leverage covenants that remain on your debt?

And what, if any, precautions are you taking to prevent those covenants from being an issue? And ultimately, as we think about the dividend cut, was there any thoughts to maybe bank that cash in the event of a rainy day?

I'm glad you asked that, because I am very confident for 2017. If you look at our current trends, you look at our -- which is positive -- and you look at our season pass sales, which are off to an incredibly fast start, double-digits up, as I said. If you look at our extreme focus on cost management, and what we're doing in our yield management. And one specificity we can come back to is, we're adding this centralized focus to make sure we're world-class in our ticket yields. You add all those things up, I'm extremely positive that 2017 will be an increase in EBITDA.

I feel SeaWorld has -- we've been through some difficult times -- where we got a clear strategy that we are executing. Obviously we want to move faster. We want more results faster. However, we have a clear path to 2017. So I don't see an issue with EBITDA going down, and I also don't see any issue with the covenants. Do you have any other comments, Peter?

Yes, I think that optimism in what we're seeing is important to know. And even at the end of this third quarter, we're still under five times, with about three types of return of cushion there. So we're confident we can keep it below five times.

And then maybe last clarification for me. You had given us the quantification on Matthew. Would you care to quantify Hermine to the third quarter? I'm assuming it was smaller than Matthew, but it seems like it might have been material.

Yes, it was about $2 million. But year to date, if you -- just big picture, if you want something from a modeling thought process, is -- Latin America and the hurricanes combined are about $35 million of EBITDA impact. And that is not an excuse, but we know where we got hit, we know where we got punched, we know exactly what we're doing to address it. And I think the key point is, our plan is in place, and the elements we can control in our plan, we're seeing traction.

That's really helpful. Thanks, guys.

Your next question comes from Matthew Brooks with Macquarie. Your line is open.

Good morning, guys. I wanted to ask a few questions about your capital spending. Firstly, in your experience, how much does a new ride like Mako impact attendance in the second year? And sort of related to that, what are you thinking in terms of what's going to drive visitation, especially local, for Tampa next year?

Well, thank you. As far as the cycling on a ride, we want and expect to get something out of the ride for three years, from a marketing standpoint, just because of cycling. Because we opened Mako in June, we're going to pump it really hard. Next year it's going to be marketed just like our other attractions in Orlando.

But on top of that, we have Kraken, which is the first-ever VR technology, which we're excited about. And of course, the nighttime event of the ocean, nighttime ocean event we have. So we feel really good that we can continue to market Mako.

In Tampa, we don't have as big of an attraction, but we can -- again, we didn't open until June with Cobra's Curse. So we will continue to remarket that. And also we have festival changes there. So we still have hooks to talk about every year, as far as some festival change, whether it's Halloween, whether it's Christmas, whether it's a new beer festival. So we will continue to have marketing. And as I said, we are getting good performance in Tampa, other than the international.

The second sort of issue related to that -- is there any way to sort of split or understand how much you spend on new rides and attractions? So for example, you may purchase a ride from a third party, but you also spend a lot on theme-ing. Is there any way you can talk about the allocation there? I was wondering if you spent less on theme-ing, whether that would be able to boost your returns?

Yes, big picture, we are definitely moving to try to reduce our capital spending in that way. One thing I am pleased with -- I'm not easy to please -- but on capital, we are spending less in 2017 than we did in 2016, and we're introducing significantly more attractions. And one way to do that is to focus more on the ride itself, and not too much on the theming.

I actually think we were close to world-class on Mako. It was a fantastic ride and a good mix of how much theming should go with it. I think we -- Cobra's Curse had maybe more theming, and I think that's a good learning for us of going forward. But our philosophy is, put as much money as possible to make the ride as good as possible.

And we also look at some of our other markets slightly differently than looking at Orlando. The other parks behave and act more like regional parks, and we can be efficient there. So we are looking at that constantly. It's one reason we say a maximum of $175 million. We are going to look for every possible way to get that number down on our core business, without sacrificing the cadence and the number of attractions that we bring forth that can drive attendance.

And the last one from me. On Halloween, I was at the Spooktacular in Orlando, and it was the busiest I'd seen the park in some time. So I was wondering if you can talk about the difference in growth for the parks that have Spooktacular as more sort of the key focus, and the ones that have Howl-O-Scream, I think it's called, at Busch Garden?

Spooktacular is more for family-oriented, as it's for young children, and so they get to do trick or treating there. Howl-O-Scream is what you -- you had better scream when you're there or they are not doing their job. (laughter) And we have incredibly good product in Tampa. It was rated even better than our competitors in Orlando on that night product.

We've got to continue to evolve, though, as the market evolves. There's always new competition popping up. So we're going to be aggressive and be edgier in Tampa, to make sure we grow there. The reason we're different here in Orlando is because, really, Universal Studios kind of owns the horror element of it. And so we picked the family element to diversify.

Okay, thanks so much.

Yes.

Your next question comes from Felicia Hendrix with Barclays. Your line is open.

Thank you so much. So Joel, on the early signs of success that you're seeing for your pricing programs for next year, when you say that every park across the board is up in season pass sales double-digits, can you give us some kind of parameters just to understand that? Like, is the base low? Do you look at it like a booking curve?

Obviously, locking in the customers early is certainly a good thing. I'm just trying to understand how much visibility the early season pass sales successes are giving you?

Yes, I think the best way to answer that is, we're early. However, we're up everywhere, and we're up double-digits in revenue, and it's real numbers. There's solid numbers there, and we're very encouraged by it. But we don't tend to get into the actual yield or what percentage we sell per month. But we're very pleased with it, and we're better than we thought we would be, and that's a very encouraging development.

Okay, that's helpful. And then regarding the Latin America guests in the quarter, you saw an improvement there. Just wondering what your -- because obviously this has been an issue now for a while. And what are you doing to fill in the gap for that consumer if they don't continue to recover?

Well, first of all, we have shifted some dollars. We don't spend a ton in Latin America, but our philosophy is, if the market's not there, don't chase it. And so we did reallocate some of the dollars to a 300-mile-and-in strategy. We also are being very aggressive through our distributors there with pricing, just to make sure that we do have a good value play for them. But for the most part, we're focusing on other markets until it recovers.

We are encouraged, as I said, about the abatement. Not only is our sales trend improving, but also the exchange rates improve, the government stability there has improved. Anecdotally, they added back a few flights coming from Brazil into Orlando that had been canceled before. So we are seeing some signs that it is abating.

Okay, that's encouraging. And then, okay, just on SG&A, Peter, just trying to think about how we should model that going forward. A few questions there. If we back out the barter, is that a good run rate? And then as we think about the cost savings -- and I apologize if you answered this already -- but as we think about the cost savings, how much would be split between, say, operating expenses and SG&A?

Yes, on the first question, if you look at year to date, and you back out some of the noise, barter was up about $5 million or $6 million. So on a year-to-date basis, if you look year over year, we had about $4 million in barter last year, $11 million in barter this year. And that's probably the best way to look at it, although we were heavily weighted in the third quarter at about $5 million. Hopefully, that's helpful.

In terms of the overall cost reduction plans, we're still identifying very specific targets. I think for modeling maybe, I think maybe 33%, maybe 1/3 in corporate and maybe 2/3 in operating, only because obviously it's a bigger dollar amount. I'm looking at the guys here, and I think that's where we're at right now.

Okay. But even if I back out the higher barter in the quarter, your SG&A was still up year over year. So should we assume that those kind of marketing plans and initiatives continue? Should we use that as a go-forward run rate, obviously adjusting for the cost savings?

No, I think in the quarter, there's some timing there as well. So I think, really, looking at perhaps at the year to date is a better way to look at it. We're down about 4% year to date when you back out that noise, down about $6 million on a year-to-date basis.

Okay, perfect.

We are down in corporate expenses year to date when you factor out the stock issues that make that a noisy number.

Okay. And I know you don't pay cash taxes, but your tax rate on your income statement was a lot higher than we expected. What was the reason for that?

Yes, we have the equity-based comp, is a permanent difference for tax purposes. So as the year went on and we adjusted our net income projections, that permanent difference that is not deductible for tax purpose, just increased the effective rate. And obviously it had an impact on EPS. That's why we wanted to call it out. But our cash taxes are almost zero.

Okay. But for your income statement tax base, it would go back to normal for next year?

Absolutely.

Okay. And then just final housekeeping. Joel, in one of the prior questions, you had said that Latin America and the hurricanes combined were $35 million to EBITDA. That was for nine months, right?

Yes.

Okay, all right.

That is actually projected for the full year. It's projected for the full year. I'm just trying to get at how big the issue was, and that it's identifiable, and we know what hit us there.

Okay, great. Thank you.

Your next question comes from Alexia Quadrani with JPMorgan. Your line is open.

Hi, thank you. Just really wanted to get a sense about sort of the marketing of the rebranding spending potentially in 2017? You're seeing some signs of better attendance trends, I think particularly in California, where that's been more of an issue. When you think about it internally, it sounds like the worst is clearly behind us. How do you see your need to continue to kind of re-brand, or continue on that marketing spend when you look into 2017? And any level of confidence that you kind of know you're past the hump and you're on the right track?

Well, I feel we're definitely on the right track. And yes, we still need to continue to spend at competitive levels. The way I would look at it is, we had two silos in the past. We had reputation spend, and we had marketing spend, and they were two very different messages.

Moving forward, we -- and the real amazing ad that we have put out is our first attempt to pull those two together. It sells theme park tickets, but it also talks about our rescue efforts, and that we are a Company that you can support, you can believe in, you can trust and you can get behind.

The goal is to bring those two together, and in doing so, you save money. But we still will continue to spend at a competitive rate, but the silo of just strictly reputation spend will go down. And that's part of -- that's encapsulated in the $65 million macro goal, $40 million of that net to the bottom line.

And then just a follow-up on Zika. I know you mentioned better trends with South America in general, and the resumption of some flights. But when you think about it domestically, are you seeing it -- it seems to have died down in terms of the focus of the chatter. But you probably have a lot more data than we do. Are you still seeing it as a bit of a potential deterrent for visitors?

It has been very quiet on that issue. We have heard nothing there. We have the best mosquito elimination issues in the industry. Because of our animals, we are so good at it, and the industry is. But we have not heard a thing. Obviously it's always a potential out there. But we have not heard anything, and it seems to be fading. It really seems to be a non-issue.

Thank you.

Your next question comes from Jason Bazinet with Citi. Your line is open.

Thanks. I just had two quick questions. Maybe I'm the only one that doesn't understand it, but on the barter disclosures that you gave in the release, is that essentially free tickets? That's like zero-margin revenue? Is that the way to think about it?

Yes, essentially it's a gross-up revenue, and costs gross-up and eliminate. And it's all non-cash free tickets for advertising or services in general.

Okay. And then maybe a broader philosophical question for Mr. Manby. I don't --when you guys eliminated the dividend, what I thought -- and given your focus on organic growth -- what I thought would be the most prudent course of action is actually to spend more capital, to raise it up above $175 million, to try and drive attendance. Can you just talk a little bit about -- is that -- is there scope for that to occur as we get to 2018, 2019?

Because when I look back in the, I think it was 2011 and 2012 time period, you guys were spending like $225 million or something, maybe in a peak year, as opposed to this sort of $175 million ceiling you articulated. Thanks.

Yes, I understand the question. However, you're tieing more capital to necessarily more attendance-driving attractions. We really feel, in the range we've given, we can do what we need to do in the core business to drive attendance. And that's by being more efficient and putting more money into the rides, like I articulated earlier.

In those numbers from the past, some of that had other elements in it that weren't really attendance-driving capital. We had lifting floors put in. That was public information. That was before my time. But there was a lot of money there that was not attendance-driving.

But if you look at the attendance-driving level, it's always been in that range. And if you look at our other competitors in the industry, and we are compared to them, they spend at that level or less. And so we can do it, and we intend to do it and still drive attendance.

Okay. Thank you very much.

Because we really think -- the additional point I'd make is, we did that because we see incredible value in our stock right now. We've thought the best return was to go out in the market and buy back shares. That's not necessarily a philosophy always. It depends on what's getting you, the shareholder, the best return. And our analytics, our analysis, that it was the best way to spend our money.

And over time, as we turn the business around and we show that positive growth in 2017, we could then look to other opportunities. There are many other opportunities we have to grow the Company, but this is not the time for that. This is the time to focus on the core, turn around the core. And once we do that, there's plenty of opportunities for growth.

Okay, thank you.

Your next question comes from Ben Chaiken with Credit Suisse. Your line is open.

How much of the $40 million is dependent on you growing revenue? Or is it things you could pull out of the business today?

Ben, it's Peter. It's things we can pull out of the business today.

Yes, none of it is dependent on revenue. The way you should look at it is, if we were flat -- which we're not going to be -- but if we were flat in revenue, we would have $40 million more in EBITDA two years from now.

Got it. And then does the $40 million have anything to do with removing the orca shows, or would that be incremental? And can you talk about the --

Sorry. I'm sorry for the interruption.

No, go ahead.

That savings would be more on the capital side. So as I said in my opening comments, we reversed the decision to invest $300 million in Blue World. We took a portion of that money towards attendance-driving capital that we felt could get a better return for less. The rest of that money will be put back into cash, distributed to shareholders, and whatever gets the best return.

Got it, okay, got it. And then to be clear, do you think --

Did I not answer your question?

No, yes. In 4Q, is this an accounting treatment similar to 2013 or 2014? Or is this actual dollar savings in the quarter? It sounds like the former. Is that correct?

I'm sorry, could you repeat that?

The $10 million in cost savings that you referenced in this year.

Right.

Is that just an accounting treatment similar to what we saw in 2013 or 2014, or is it actual dollar savings? It sound like the former.

It's the former. But clearly, the construct is that those savings would occur in the following year. So the dollar savings would occur after we recognize it as a pull-forward, essentially, on a pro forma basis.

It's the exact same thing we did the last two years.

Got it. And can you continue to do that next year -- meaning, if you think there's going to be expenses recognized that you are going to save in 2018, and you pull some of that forward into 2017 -- should we expect the same thing?

We have a $30 million cap on it. And if we take this $10 million, we'll have -- $22 million left? A total of $22 million. So we would have $8 million next year.

Okay. So for any 12-month period, I guess.

Yes.

Okay, that's all. Thanks.

Thanks.

Your last question comes from Bryan Goldberg with Bank of America Merrill Lynch. Your line is open.

Thanks. I've just got two quick ones. On the Florida attendance, I guess the domestic portion that you helped isolate. I was just curious a little bit more about the traction you're getting in the 300-mile-and-in market? I think you said you saw a 4% gain in Florida, ex-LATAM. And I'm just curious -- do you have enough data to know how much of that came from the local or drive-in market? And I know both Mako and Cobra's Curse are obviously big attractions. But how prevalent was water park attendance to that 4% gain?

Overall, we don't want to spell it out any finer than we have. The main point is that the strategy that we pointed out to focus dollars on 300-miles-and-in is successfully working in the State of Florida. But we also had good domestic market increases that were very much focused on basic electronic media and getting travel-intenders to intercept them around the country. That's actually been an effective strategy as well, very efficient from a dollar standpoint.

The 4% without Brazil was really for the whole Orlando market. But most of that would be the dry park, because most of it's driven by Mako. So that's how I would look at it.

Okay, thanks. And then on the -- well, related to Brazil, I mean, hopefully the worst is behind us with those trends. But if I remember correctly, it seemed -- it was a bit lagged, the impact to you guys, relative to what happened in the economy down there.

And I'm just curious, with all the stuff going on in the UK post-Brexit, as we head into next year, what are the leading indicators that you are seeing out of UK right now? Should we be concerned at all about economic softness? And then could you just sort of help us think about the relative sizes of UK again, to your business?

Sure. Overall, our international business is, we said about 1/3 in Orlando. And it's roughly 1/3 Brazil, a little less than 1/3 UK, and 1/3 all other, just to give you some broad perspective.

We have just recently met with our distributors from England. We are seeing a good solid pre-bookings. We don't think, from everyone we've talked to, that Brexit will have the same -- anywhere near the same kind of issue as Brazil did. Mostly because the exchange rate.

It was also hit versus the euro, so it's also more expensive to go into other European countries, and there's safety issues in the other European countries. And a lot of -- the English are still coming to the United States for that reason. So we have not seen indication that it's going to be an issue. But we certainly keep our eye on it every week, and we'll do what we have to do.

Great. And then actually one sort of point of clarification for Peter. It just came up a question or two ago on the flexibility under your credit agreements to pro forma EBITDA for future cost-saving activity. So in the fourth quarter, you have a cap of $10 million. Is that correct? That you could declare?

Yes, for the remainder of the year, we have a cap up to $10 million.

And for a 12-month period, your cap is $30 million?

I'd say over the life of the facility. $30 million lifetime cap, $10 million annual cap, and $22 million would be used as of the end of 2016, if we used the full $10 million in pro forma adjustments.

Okay. Thank you very much.

Thank you.

This concludes our question-and-answer session. I'll now turn the call back to Joel Manby for closing remarks.

Yes, thank you very much. I'd like to close the call -- first of all, thank you all for your great questions. But I want to say to you, I have never felt more confident that we're on the right track. Our improving sales trends, our fast start to 2017, past pre-sales, our increased focus on our pricing initiatives, and the cost focus that we've talked in depth about. They all lead me to believe that 2017 will be an excellent year for SeaWorld.

I appreciate your commitment to the brand. I appreciate your investment in the Company. And we are doing everything we can to move with haste to improve shareholder value. So thanks for that. I appreciate the time, and we'll talk to more of you soon.

This concludes today's conference. You may now disconnect.