United Parks & Resorts Inc (PRKS) 2017 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 2017 Financial Results Conference Call. My name is Phil, and I will be your conference operator today. (Operator Instructions) Please note, this event is being recorded.

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

Thank you, and good morning, everyone. Welcome to SeaWorld's Second Quarter and First Half of 2017 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 Marc Swanson, our new Chief Financial Officer. On today's call, we will review our second quarter and first half 2017 financial results, and then we will open up the call for your questions.

Before we begin, I'd like to remind everyone that our comments today will contain forward-looking statements within the meaning of the Federal Securities Laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the Risk Factors section 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 adjusted EBITDA and free cash flow, which are non-GAAP financial measures. More information regarding our forward-looking statements and the reconciliations of these 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.

Also, after the conclusion of the call today, if you have any additional questions, please feel free to contact SeaWorld Investor Relations at (855) 797-8625.

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

Thank you, Mark, and good morning, everyone, and thank you for joining us. When we outlined our 5-point plan in November of 2015, we defined it as a 3-year effort that we would pursue with urgency while knowing our progress would not be linear. Our second quarter results indicate progress on certain elements of our 5-point plan and reveal other areas that are not working as planned and where we need to make adjustments. To be clear, we are not satisfied with our results. This quarter provided us with a better understanding of what is working and where we need to intensify our focus, and we have already taken action to address these areas.

The decline in overall domestic U.S. attendance, defined as those outside of 300 miles from our parks, was largely concentrated at our SeaWorld Orlando and San Diego parks. Therefore, we did adjust our marketing strategy to increase awareness and share a voice in the national marketplace to highlight our brand attributes and our exciting new rides and attractions. We believe attendance at SeaWorld San Diego was further impacted by public perception issues which have resurfaced, especially since we reduced our reputational campaign in those markets.

For the past 2 years, we elevated our marketing spend above industry averages to address perception issues and to support the messaging associated with the end of the orca breeding program. We had indicated to you previously that we believed we could reduce our elevated advertising and marketing costs to more normalized levels by consolidating our brand and reputation campaigns, which resulted in a reduction in overall domestic advertising spent this year from our heightened levels in the last 2 years. We continue to believe we can be more cost-effective. But we have learned that if we are going to generate the necessary levels of national awareness and website traffic, we cannot reduce our domestic advertising spending as we did over the last few months, and we must continue to address perception issues, particularly in Southern California.

So going forward, we are focused on addressing brand awareness and marketing on 2 fronts. First, we are addressing continued perception issues in Southern California. To accomplish this, we revived our reputation messaging campaign in Southern California and launched it in June.

Based on research in this market, we have seen positive trends on perception and intend to visit among potential guests in this area, who are educated with facts about our mission and value. Specifically, local attendance from the San Diego market was up high single digits in July. This is the market that we believe is most aware of our attractions and our mission, and this data reinforces that we need to maintain consistent marketing spend on reputation issues in Southern California.

Second, we are addressing the decline in overall domestic U.S. attendance outside of a 300-mile radius that we believe has impacted all of our parks, and particularly Orlando. We believe the decline results partly from lower national media spending this year compared to 2016, combined with substantially increased competitive pressures in Orlando from major new attractions like Pandora and Volcano Bay water park.

We have quickly adjusted our marketing strategy to address this issue in Orlando and support our other locations, while maintaining our disciplined cost focus. Beginning July 4, we increased our national media advertising to be in line with our increased national media activity last summer. This increased spend will continue for the rest of the summer, and we expect to fund these additional strategic national and local advertising through additional cost savings this year and going forward.

Now with this increased advertising, website visits for all 3 SeaWorld parks have improved since we launched this spending in July. This revised approach to our marketing strategy is supported by our considerable success at generating improved attendance from guests within 300 miles of our parks in Orlando, Tampa and San Antonio.

For the first half of the year, 300-mile-and-in attendance in Orlando was up 15%, and season pass sales, along with the season pass utilization, were up in all major markets outside of California. This success demonstrates the attractiveness of our new rides and attractions as well as our strong appeal with those guests most familiar with our brand, our mission and our parks.

We have also received positive guest scores for new rides and attractions, many of which did not come online until very late in May or June, including the Orca Encounter, Kraken VR, InvadR, Wave Breaker and Dolphin Nursery. Electric Ocean has garnered positive attention on social media as the best night show in Orlando, giving us confidence in our festivals moving forward.

We are committed to our capital investment plan and will continue to invest in new rides, attractions and festivals across our parks. These important fundamentals give us confidence that we are moving in the right direction and that our plan, with the changes we are making, is the right one.

Now with that, I'd like to turn it over to our newly appointed Chief Financial Officer, Marc Swanson, to discuss our financial results and provide some additional context for the first half. I will then return to give you a look ahead.

Now you all know Marc, as he served as interim CFO back in 2015 and most recently served as Chief Accounting Officer. He's a highly experienced finance professional who knows this company as well as anyone and knows many of you. I have a great deal of faith in Marc, and we are very fortunate that he has agreed to permanently lead our finance team to provide stability and continuity as we continue to execute on our 5-point plan. Marc?

Thanks, Joel, and good morning, everyone. I wanted to start by saying that I'm looking forward to working with all of our investors and analysts. I'm pleased to have been named SeaWorld's CFO, and I remain committed to the financial discipline pillar of our 5-point plan. We will continue to carry out our cost reduction initiatives as well as seek additional financial and operating efficiencies as we move forward. I'll provide some brief comments on Q2 and year-to-date performance, along with an update on our full year guidance.

Our attendance in the second quarter of 2017 was up by approximately 138,000 guests compared to the prior year second quarter and benefited from the shift in the timing of Easter. The company generated revenue of $373.8 million, an increase of $2.6 million or 1% compared to the second quarter of 2016, while total revenue per cap for the second quarter of 2017 declined to $61.05 from $62.02.

One expense item I wanted to point out is that due to financial performance, particularly late in the second quarter of 2017, we conducted an interim goodwill impairment test for SeaWorld Orlando and determined that the goodwill associated with that park, for accounting purposes, was fully impaired. As a result, we recorded a noncash goodwill impairment charge of $269.3 million, which was a big driver of our second quarter net loss of $175.9 million.

Keep in mind, this charge does not impact our reported free cash flow or adjusted EBITDA. For Q2 2017, our adjusted EBITDA was $104.2 million, an increase of $20.4 million or 24% versus Q2 2016.

Turning to our year-to-date results through June 30. Due to the Easter shift and its resulting impact on holiday schedules, comparing the first half of 2017 to the first half of 2016 provides a more meaningful comparison than looking at individual quarters.

For the first half of 2017, attendance was down by approximately 353,000 guests compared to the same period in 2016. This was primarily due to a decline in U.S. domestic and international attendance, largely concentrated at our parks in Orlando and San Diego. San Diego was further impacted by a decline in attendance from Southern California, we believe due to perception issues that have resurfaced. The decline in attendance from these factors was partially offset by an increase in attendance from guests within a 300-mile radius of our parks in the Orlando, Tampa and San Antonio markets.

Revenue for the first half of 2017 was $560.1 million, a decrease of $31.3 million or 5% from the first half of 2016. In addition to the attendance declines, the revenue decrease was also driven by a decline in total revenue per cap to $62.74 from $63.72 in 2016 as a result of: the decline in U.S. domestic and international attendance; increased utilization of season pass products and associated free promotional ticket offerings; and park attendance mix. These factors were partially offset by price increases in the company's admissions products.

On the cost management side, we continue to achieve good results and drove over $27 million in EBITDA expense reductions in the first 6 months of 2017 compared to 2016. Our success with these reductions reflects the company's commitment to continually focus on ways to drive efficiencies and savings while delivering a great guest experience and not impacting safety or employee and animal welfare.

As a result of the cost savings offsetting a significant portion of our revenue declines, adjusted EBITDA in the first half of 2017 was $73.9 million, a decrease of $4 million or 5% compared to adjusted EBITDA of $77.8 million in the same period of 2016.

I wanted to touch quickly on international attendance. As we expected, the declines from Latin America that we experienced in the first quarter of 2017 have stabilized in the second quarter, although it is still down from historical levels. From the U.K., we saw a decline in attendance of 13%, which worsened late in Q2 and has continued into July. We now expect attendance from the U.K. market will be down by approximately 20% for the full year. As a reminder, U.K. visitation represents approximately 5% of our total attendance for the year. To manage this impact, we are modifying our international product offers and messaging in light of the foreign exchange rate pressures.

As I mentioned earlier, we have had success with our cost savings efforts, driving over $27 million in EBITDA cost savings in the first half of 2017. Approximately 2/3 of these cost savings have come from our efficiency efforts and the remaining 1/3 is the result of variable cost savings from lower attendance and revenues. We remain committed to achieving $40 million in net cost reductions by the end of 2018, and we are identifying an additional $25 million in savings which could be saved outright or reinvested in our marketing efforts.

Before turning to guidance, I did want to mention that the $40 million outstanding on our revolving credit facility at June 30 has been fully paid down subsequent to the end of the second quarter.

Now turning to the updated guidance we provided in the press release. Based on our results so far this year and expected trends going forward, we have revised our full year guidance downward. For the full year of 2017, we now expect adjusted EBITDA in the range of $280 million to $310 million.

I want to take a moment to provide a bridge between our prior guidance midpoint of $345 million to our new midpoint of $295 million. The change in adjusted EBITDA guidance is based on the assumption that the trends we have seen in June and July will continue through the rest of our seasonally important third quarter, which is our largest quarter of the year.

Here are the drivers of the change: Roughly $30 million is from continued softness in California; another roughly $30 million is from continued U.S. domestic and international softness, primarily in Florida. Partially offsetting this combined $60 million shortfall is $10 million in additional cost savings. That brings us to a total decline of $50 million in guidance from midpoint to midpoint.

In summary, we have California accounting for roughly $30 million, U.S. domestic and international softness, mainly in Florida, accounting for another roughly $30 million, and then a positive $10 million in expense reductions that bring us to a net decline of $50 million from midpoint to midpoint.

With this revised guidance, we believe there's a possibility that the company's debt rating and our outlook may be downgraded by credit rating agencies. If we received a downgrade from these rating agencies, it should not impact our current credit facilities. As a reminder, we recently refinanced approximately $1 billion of debt earlier this year and do not have any maturities prior to May of 2020.

In conclusion, I want to reiterate that we remain committed to the financial discipline that is a pillar of our 5-point plan and continuing to advance the success we've had with our efficiency efforts.

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

Well, thank you, Marc. 15 months after we made the orca decision that set our 5-point plan in motion, we continue to constantly evaluate what is working and what needs to be adjusted as we implement our transformation.

Stepping back from our second quarter results, we clearly still have an ongoing revenue issue at 2 of our 3 SeaWorld parks, Orlando and San Diego. As I addressed in my earlier comments, we have quickly taken specific steps to address our marketing plans where we are not seeing the success we need. Although we are clearly not satisfied with our first half financial results, I want to remind you where our 5-point plan is working and why we are committed to those parts of the plan, while adjusting those parts of the plan that aren't working.

So first, reposition SeaWorld from a brand that represents purely animal entertainment to a purpose-driven brand that is fun and meaningful, a SeaWorld brand that provides fun and diverse experiences, including: live animals; virtual reality; shows; rides; attractions; and IP that primarily focuses on ocean themes of exploration, adventure and mystery; and a brand that also provides meaningful experiences that show our guests how they can make a difference to protect our blue planet, the oceans and the wonderful animals within it.

We know from our research that this positioning is what our guests and potential guests respond to. Our qualitative and quantitative research clearly shows this positioning works. If we first show our rescue history and animal welfare purpose in front of a pure attraction advertisement, we get better performance.

Our overall success with guests 300-miles and in supports our belief that the more people learn about us and our mission and our attractions, the more we have the potential to increase attendance. However, we clearly have work to do to expand that message outside of 300 miles from our parks.

Dealing with our challenges is the second point of our plan. We have ended our controversial breeding practice of orcas. We've partnered with the Humane Society in the United States on broader animal issues and are transitioning our shows to be more educational. These actions consistently scored extremely high with nonvisitors, but as we stated, we need to get the message out more effectively.

The third point of our plan is creating experiences and attractions at our parks that are fun and meaningful. As I mentioned, our new rides and attractions across our parks are generating positive responses, and we are getting more efficient with our capital spend, generating nearly double the attractions in 2017 that we did in 2016 for about the same capital dollars.

The fourth point in the plan is continuing to drive organic and strategic growth. SeaWorld San Antonio is on track to show adjusted EBITDA growth this year for the first time in 3 years, and our other parks outside of Orlando and California are performing well. We continue to increase prices to drive organic growth, and our current national offers, starting at $59.99, represents an increase in net per capita over last year. In fact, we'd be seeing an increase in yield if not for park mix issues and ticket mix issues.

As for strategic growth, we are making solid strides with strategic partnerships in Asia, in the Middle East, Sesame Place and with our resource strategy. The SeaWorld brand offers strong growth opportunities overseas, and Sesame offers more diversification and IP options.

And the final point of our plan is financial discipline. As Marc noted, we continue to make great progress and have identified additional and substantive areas for cost reduction, and we have refinanced our debt and have no current maturities until 2020.

However, we have learned we cannot reduce domestic advertising to the level that we had. So these additional cost reductions could be saved outright or used in our marketing efforts. We believe we are on the right path. It will take time, and we will need to refine and adjust our plan along the way. But we believe we can and will improve our performance and deliver increased value for you, our shareholders.

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

(Operator Instructions) The first question comes from Tim Conder with Wells Fargo Securities.

Joel and -- if you guys could go over the covenants, I mean, that you alluded of the potential downgrade from some of the rating agencies, but if you could go through the covenants, the baskets and how those flow through based from the midpoint and maybe even the low-end of your new adjusted EBITDA guidance. That'd be, I think, that's probably on the top of a lot of people's minds.

Tim. I'll let Marc take that one.

Yes. Tim, It's Marc. So right now, we're at a net debt ratio of 4.77x. To get to any sort of default, we would have to reach 5.75x net debt. And so we've looked at the various scenarios in relation to our guidance, and even at the low end at $280 million, we would still be in compliance and would not trip the covenant. Admittedly, it does get closer. But remember, the low end of our guidance assumes no trend improvement going forward. And historically, in most years, we have seen, coming out of summer, our most recent history is we tend to have an improvement in trend going into the fall and winter with the popularity of our Halloween and Christmas events. And I think this year, we have even more confidence in that because you've heard Joel talk a lot about the success we've had with pass sales and attracting people 300 miles and in. Those are the type of folks who will utilize our events the most. And so I think we have confidence that we can achieve those, the improved visitation trend in the fall and winter, and therefore, hit our guidance. Obviously, we'll monitor the situation and manage anything. And if we start to get closer than we would like, there are levers we can pull on. But like I said, right now, even with our guidance we've updated, we would still be in compliance.

And those levers, Marc, that you just alluded to, how would that impact the plans for CapEx looking into the balance of this year and into 2018?

Well, this is Joel. As far as there -- obviously, there's some short-term levers if it was really close, like payables, receivables, just managing cash, because this is a net cash issue. Certainly, if it got progressively worse or we thought we had to do more than that, this business certainly can be adjusted from a capital standpoint. But we think, again, we put a guidance together. We waited until July because the June trends were concerning. We waited to get full July, so we could give an accurate reflection of the issue and make sure at the low end that we were really assuming no increase in our trends and our attendance. But again, if something changes or it doesn't materialize like we feel it will, then we could adjust either with cash flow or with capital going forward. And I've been through a couple of recessions in my own career in other businesses, and in the theme park business, we can adjust capital for a short period of time without impacting attendance. But it can only be for so long before you have to move back.

The next question comes from Felicia Hendrix with Barclays.

First, I'm just wondering if you could help us understand, what was the EPS impact of the goodwill charge? We're just having some trouble calculating that, not knowing how to tax it.

We're going to run that number real quick for you, and we'll have it here in a second.

Okay. So I'll go move on to my next question. Joel, you and I have talked about this many times offline, but each quarter, your strategy seems to react to what happened the quarter before. So I'm just wondering, how much do you study the potential impact of certain decisions before they're made? For example, like as you were cutting back your advertising, were you -- did you have folks kind of studying the impact of that? It's just kind of hard to take for granted your comments that the changes you're making are the right ones when each quarter, there just seems to be another execution issue.

Well, at a high level, the plan, the 5-point plan really hasn't changed. The 2 adjustments that we're talking about is a tactical adjustment of advertising spend, but also the reputation issue as we articulated in California. I will say that the marketing piece was very data-driven. We had, obviously, we have expert buyers outside the company. We use a very well-known ad agency. We debated it heavily, and there are 3 main issues. One is that the buy that we're looking at was much more efficient. It was going after mothers with children, very targeted. That's our core audience. And '16 and '15, there had been a much broader cable reach, which is not as efficient. And then secondly, we got near -- between 90% and 100%, depending on market, between 90% and 100% of the gross rating points or the weight in 2017 than we had in '16. So it was an efficient buy. It wasn't necessarily less weight. It was just who we were going after, which, frankly, any marketer or any executive is looking for ways to be more efficient with dollars. We obviously had been overspending versus our peers, and we were trying to find ways to get back to a more peer level, 8% of sales marketing effort. And thirdly, it was a nonelection year. So the dollars went a lot farther this year than they did last year. Having said that, we made a very calculated data-driven decision. But the good news is, as we saw in June, because really through May, we are tracking very well. It was at June, when we switched to domestic mix more than in May -- January through May, we moved incredibly quickly. And by July 4, we had that renewed spend back in the plan. So I think no one should be faulted for making a data-driven decision, trying to move away strategically from more than average spend, and we moved very quickly. That's just part of efficient tactical work. The other part that I would add is we know, we know and we are getting Denise, our new CMO, has brought incredible, incredible weekly data on not only our awareness levels, our advertisements driving people to the website and what's the flow-through to the website and what's the conversion rate. And we know that our messaging works. We are finding and have found, with this increased specificity of our data, that when people see our reputation or perception messagings in front of an advertisement for a ride or attraction, the close rate and the flow-through rate on those ads are much higher. And so the good news is we know the messaging works, and we continue to tweak to be more efficient. And we, again, we've reacted quickly. So far, the web traffic is up significantly or at least has improved over last year. I don't want to project yet on the sales impact, but it's all put into our guidance for this year. So to me, that advertising piece is of more of a tactic than it was a strategic issue.

And you feel comfortable about where your yield management is now?

You always want to be better. But I will say, it's definitely headed in the right direction since we've put that increased advertising on July 4.

Okay. And back to the goodwill charge?

Yes. So if you assume a 38% rate, which would be kind of a more normalized rate, it's about $1.85 of an impact.

Okay. And can you just explain to us, so we've now kind of written that down -- can you just tell us what this is telling us about SeaWorld Orlando, this accounting (inaudible) ?

Yes, sure. Well, I'll give you kind of the accounting answer and then maybe Joel can add anything he wants to add. But basically, so as we saw starting in late Q2 and then into July, we have what's, in accounting terms, is called kind of a triggering event, which causes us to have to look at the goodwill at this park based on those translate in Q2 and July and then going forward. And it's all governed by GAAP guidelines and guidance. So then there's the process you go through to determine if you have a write-down. In our case, we did. It was fully impaired at $269 million, so it's just a noncash charge. This goodwill originated back when Blackstone purchased the company back in 2009, December 1, 2009. So it's an accounting charge. We have a little bit of goodwill remaining still at Discovery Cove. But other than that, we have no more goodwill. So I'll -- I can let Joel comment more on kind of the nonaccounting of how to think about the perception issues or...

Yes, so I think the broader question is what about the longer-term in Orlando. Marc addressed the accounting piece of it. Look, a couple of main points, Felicia. First, we were trending well through May. This is an issue that really June and -- was bad and we waited to see how July was. And again, 2 markets. What we do know about Orlando, we do know that 300 miles and in is working and is working well. We're up 15%; season pass sales are up. We also know we have great room to grow in 300 miles and in. We have -- within 300 miles of Orlando, there's 20 million people. Right now, roughly, we're doing, call it, 500,000 a year from that segment. There's plenty of room to grow there. Our percentage of penetration is not what I've seen in other theme park competitive analysis. So we're doing well with it and there's room to grow, is the first point. The second point is we know what the messages for the domestic consumer want to hear, and we know what brings them to SeaWorld outside of 300 miles. They want value, which we can own value. Our competitors are very, very strong, but they're also very expensive. They want family experiences; they like our animal experiences; they like our convenience; they like having Sesame as a relaxing environment. So we know that, that, plus the perception issues I've already spoken about, can win from a messaging standpoint. So we know that outside of 300 miles, we know the messaging that we can have and do put out works. And the reason I feel confident about that too is last year, we were up in all 3 SeaWorld domestic markets. So this is not like a 5-year trend, where we can't perform well domestically in our SeaWorld markets. We did last year, and frankly, the only difference is, this adjustment in advertising and some competitive issues. And then lastly, and I'll go on to the next question, we do believe that with the 300-mile success, that the changes in tactical marketing spend we have addressed, and also, let's not forget that last year, 85% of our EBITDA drop in Orlando was Brazil. That has to return. So when you're looking at a long-term perception, I mean, look, the exchange rates have been very against us, the strong dollar, those issues tend to balance themselves out over time. So for those 3 reasons, I do have confidence that we can build a very profitable and growing park in Orlando with our different strategy from our competitors.

Okay. And the 500,000 a year from that segment you said, what is that referring to?

That's just the -- that's the drive, the local drive and overnight guests coming to the Orlando park out of the roughly 4-plus million.

(Operator Instructions) The next question comes from Michael Swartz with SunTrust.

Just following up on Felicia's question, I think you said about, was it 500,000 of your 4 million in attendance at SeaWorld Orlando, is kind of the 300 miles and in. Could you give us a sense of maybe where you think that can go based on other parks where you have a stronger, closer-in visitation base?

We haven't been giving that data, and I don't want to do that here. But I will tell you that it's much higher at other parks, and I know that we have upside there. I think that's the main message to hear and walk away. I don't think we will get to the same level in Orlando that we do, let's say, at Busch Williamsburg or some other parks because of the competition, because there's more, again, more competition by season passes. However, even when we factor that into our math, we know there's continued upside. We have not capped out on 300 miles and in yet. But clearly, this business in Orlando is much more focused on domestic and international, and we have to take steps to maintain those markets. If you step back from the whole thing, we're doing as good or better than we thought we would 300 miles and in. We're obviously doing worse than we plan to do domestically and international has not recovered. And that's what's caused this particular drop.

That's helpful. And then maybe just second question on SeaWorld San Diego. Could you just talk about maybe what you've seen in June, July post the new Orca Encounter and some of the other new attractions?

What we've seen is the San Diego market, which from our weekly data, people there clearly have the most awareness, the most understanding, they understand who we are, our rescue efforts; that market has been coming. Their attendance is up single-digits, low single digits in July and then high single digits -- I'm sorry, low in June and high in July. So that market is responding. But in Los Angeles, we have not seen the response we want. And our research says part of that is ongoing perception issues. So the lesson learned is we had tried and it was all part of the plan to integrate our messaging and spend less because again, we were spending more than the average in the industry. And what we have found is we need to keep the pedal to the metal there, and that's the news that I don't like, but we are going to offset it with cost cuts, and we're committed to that. And that, that way, we can make sure we still get the maximum financial return we need. The truth is, in a brand turnaround, we're going to continue to have to maintain a strong message out there about perception issues out there that are not true that we need to continue to fight. And that's what we had hoped to back off of and we can't right now. The good news is we'll pay for it in other ways. And I don't think, big picture, it's an untenable number. I think we're talking -- I don't want to pin it too closely, within the $10 million to $20 million range. And again, as Marc said, we are targeting $25 million and -- to help or completely pay for that.

The next question comes from Barton Crockett with FBR Capital Markets.

I was wanting to ask on a slightly different topic, one of your -- you've got the new big investment from Zhonghong, taking some port seats. So there's some news out about them not being able to complete another acquisition due to, I guess, capital controls or whatever is going on in China. And I just wanted to kind of understand what the puts and takes are around your relationship with them at this point? If, for instance, they were acquired or sold their stake in SeaWorld, do you still have the management contract with them? Is that still in place? And is there any prohibition on them selling their stake for some amount of time? Or is that really fully in their control?

As far as that last question, that's all in the public documents about any restrictions. But I will say on the, whether or not they were capital constrained on the other acquisition, I think you'd have to take that up with them. I honestly don't know the answer to that, and it's really their issue. I will say what I do know about them is they're extremely good board members. They are very engaged, and they want to see SeaWorld do well. And not only in the United States, but also in China. And we, yes, we still have the agreement. We're still moving forward in China. We have light design work going on, but really it's a 3-year study to figure out what is our process, what is our priority in China. We're looking at both FEC and theme park and that's all actively ongoing and then we hope to have an agreement, an official agreement similar to what we have in Abu Dhabi, as soon as possible.

But to be clear, is that agreement contingent on them owning the stake in SeaWorld? Or is it separate from that?

No, that's a separate agreement. And again, that's all in the public documents. But it went -- we had a special committee to make sure that was all properly done from a process standpoint. And no, they are not contingent on each other.

Okay. And then just one other thing, I think, the question about the attractions and new attractions in San Diego. Stepping back, were the attractions as good as you've thought they were going to be or not? How would you rate how the attractions have worked out now that they're up and running in the market?

On Orca Encounter, actually, look, we knew that was a difficult needle to thread because as you know, there's legislation that says you can't have entertainment with orcas. It has to be an educational show. So we -- that was a legal issue. I thought we did an extremely good job of threading that needle. Our guest scores in -- on that Orca Encounter are actually at the same level that One Ocean was when it first opened, and it has improved since it opened because shows and attractions and encounters always do. I think the one that I'm not satisfied with is, I think, the Ocean Explorer. We did not market it as well as I wanted to right out of the blocks, but I think we've adjusted there and -- meaning, it's completely designed for young children. And we need to make sure that's the case because the plan is next year, we fill out that area with a thrill ride and that has always been the plan, to redo that entire realm over a 2-year period so it has both young family attraction as well as more teenager attraction in it. So the one thing that's exceeded our expectations is Electric Ocean. That has gotten incredible press, especially locally, the people who have actually gone there and engaged in it. And I think we have a real winner there. People are staying later. We're getting about 90% staying of our daily attendance staying late on weekend nights. Per caps are increasing. But again, that's a local San Diego-driven activity. But that one has done better than I thought.

The next question comes from Jason Bazinet with Citi.

I just have a broader question on your shareholder base. During the course of this year, between one large fund and a strategic investment by a Chinese partner, I think about 1/3 of your shares, 35%, are owned by just sort of 2 entities, if you will. They're both down pretty significantly, 45%, 50% or something. Have they given you any indication of what, at least the funds, in terms of what their objectives are with their investment? And are they in coordination, do you know, with your Chinese strategic investor?

Look, we talk to those investors all the time; listen carefully. They are both long-term investors, and they see exactly how we've quickly responded to these issues. And so we have very good relationships there. As far as them working together, I certainly can't comment any of that. I'm not aware of any of that so you'd have to speak with them about that. But they are both long-term and working with us to grow the value of the business. That's what we all want to do.

The next question comes from James Hardiman with Wedbush Securities.

I wanted to maybe clarify Tim's question at the top of the Q&A about the debt covenants. I guess, can you help us put that 5.75x into EBITDA terms. It doesn't seem like there's a whole bunch of room at the bottom end of your guidance. And although I think you convincingly walked us through the scenarios for the remainder of this year, I guess my concern is with 2018. If we continue to move in this direction, it seems like you're going to be potentially in breach of some of those covenants. I guess, what are the strategic alternatives if we're staring down another $30 million, $40 million decline in EBITDA. That seems like something a lot more than short-term cash management that would plug that hole. How should we think about your ability to stay ahead of those covenants in 2018?

Yes, James, thanks for the question. I'll start, and then Marc, if you want to chime in at all. But look, we purposely wanted to get all of July in. We've given guidance that assumes no improvement over July trends, which, obviously, are not as what they were going through May. We believe, and every indicator we have right now says that, that low end of the guidance is -- will not -- it does approach and it gets -- starts to get closer to covenant, but it won't be there and we can take those short-term adjustments. If for whatever reason we have a continued decline, and we certainly don't anticipate that, we certainly expect these actions to mitigate what we've seen in July and June. But if not, there are several levers, again, we can pull. We could look at capital spend for a year or a quarter. Again, I've done that before and it's just -- you don't want to do that for too long but 1 year or so is fine. Obviously, we can go and have discussions with our banks if we get to that point. But we don't feel like we're there yet from everything we see. So we do have levers we can pull. Basically, we do about $175 million in EBITDA on -- of our EBITDA on CapEx. We could adjust that down slightly if we had to.

Again, those seem like, more like 2017 alternatives. This is the fourth straight year of EBITDA declines. It seems like if we have a fifth, certainly of this magnitude, are those levers available to you enough to offset $30 million or $40 million?

Again, I think -- I have done it before, so I would say the answer to that is yes. You can -- can you get by a year or so at $100 million or $125 million or $150 million in EBITDA? Yes. The answer to that is yes. I've done it before. I just -- you have to do that in your markets where you're the strongest, and you -- what my thought would be is we would not do that to the markets that are suffering. And there's -- so, yes, the answer is we can make -- pull those levers. We don't want to, we don't anticipate it, but that possibility exists.

Okay. And then my follow-up. Obviously, you spoke to a sizable dropoff in Orlando, I guess, it sounds like particularly in June. Help us connect the dots between that and the opening of the Avatar product in that market. We've talked in the past about the notion that a rising tide lifts all ships. Should we reconsider that notion, especially as we look forward in the years to come, to maybe even bigger competitive attractions coming out of most notably Disney, but also Universal?

Well, I tried to address that earlier, and I don't want to reiterate too much, but I do -- what we do know about the Orlando market is we know where we're winning and we're winning 300 miles and in and we know we have room to grow there. We also know that we've got to get our message out, and we have talked to customers. We do research with customers outside of 300 miles that come to SeaWorld. We know why they're coming, and we're going to keep pushing those points. And as I've said earlier, it's the family value, it's convenience, it's Sesame, it's a lot of different things; that's what we're going to target those customers with. We have a very strong value proposition and the more people understand that, the more they want to visit us. And again, for many, many years, we are pricing right with Disney and Universal. We are shifting away from that for a reason because we can win there, and in some ways, I don't see us competing directly with them. They are very similar in their pricing and their sequestration strategy. We are very different in our pricing, our experience, how we position ourselves, and we're much easier to use. So with those and all the reasons I've already articulated, I do believe that we can grow Orlando profitably even if we lose share because the market continues to do so well.

The next question comes from Steve Wieczynski with Stifel.

So I guess you talked about when your new guidance range here, the $280 million, you're basically assuming nothing gets better. And then can you help us understand maybe what would get you to $310 million? I guess what I'm trying to get at is, why -- maybe why not build in a little bit of cushion there on the bottom assuming that maybe things do get a little bit worse? I guess that's what I'm just a little bit confused about.

Yes, I understand the question, Steve. And look, the last 4 years, historically, as we move into the fall and we move away from the dependence on the domestic customer, we have improved, especially in -- the last 2 years, we have been down in the domestic segment, and then we end up either being down a lot less or up in that domestic attendance category, because more dependence on locals and so forth. So we, again, it would be unprecedented based on the last 4 years for the rest of the year to get worse, not better. And having said that, we certainly monitor it every week. We will take all the appropriate steps possible, and we're watching it very, very closely.

Okay, got you. And then can I maybe ask, the new guidance range, was this put into place before the CFO change?

Yes. I was looking at Marc, sorry.

It's -- we look at the guidance as of today. So I mean, it's the guidance as of today and the most recent trends we have.

But this was Peter's range that he came up with and you're signing off on this, Marc. Is that the right way to think about it?

It's the guidance that we all came up with today and the last few days. And so I'm signing off on it, Joel is signing off on it, it's all of us.

Okay, got you. And last question, just a bigger picture question here. With Sesame Place, now you talked about potentially having a new park opened, I think you said, by 2021. Do you have any ideas yet of, potentially, locations yet? Or where you're thinking about putting those new parks?

Well, we do, but it's something I can't talk about. It's very competitive, obviously. But we're very excited about that aspect of our plan, having that IP, that diversification, obviously. As I said earlier, everything outside of Orlando and San Diego is doing well for the company, and so we are moving on it. I'm not ready to make any announcements yet, but we're also very excited about having Sesame in Orlando, and we're working hard on that too. And as soon as we're ready to make an announcement, we will. But that's proven to be a winner for us.

The next question comes from Matthew Brooks with Macquarie.

So the 300-mile-and-in strategy is working. Are you able to quantify at all how much the earnings grew at Busch Gardens and Sesame Place perhaps?

We don't want to break that down. We try to break it down enough to give you guys full color. We've been very transparent here where our issues are, but I will tell you that we are pleased with the performance of everything outside of Orlando and San Diego. And obviously, we're continuing to move forward with Sesame projects.

All right. And sort of as a follow-up to that, can you tell us what percent of your customers that have a multi-park pass in Florida go to maybe SeaWorld Orlando or Aquatica and also go to Busch Gardens?

It's around 25% and we, as I've pointed out earlier, we think there's a lot of room to grow that, not only season pass holders for SeaWorld but also multi-park passes. We are extremely competitive there, and that's one of our focus areas for increased revenue per person.

And sorry, the one, other one, can you quantify at all what the season pass growth was? You've said a couple of times that it was up. What kind of percent are we talking about?

It's in Orlando, specifically? It's...

Across the whole portfolio.

Call it, mid-single digits, and it's slightly higher than that in Orlando. So it's a solid number everywhere but California.

The next question comes from Christopher Prykull with Goldman Sachs.

I just want to follow up, I believe, on Barton's question from earlier around the new attractions. I guess, first, do you expect to achieve your targeted ROI on the new attraction, particularly in San Diego? And then sort of secondarily, just some short questions on some of the other new attractions. What's been the response to the virtual reality on Kraken? And then, for Electric Ocean, are you seeing guests actually extending their stay at the park?

On the last question first, yes, we are seeing people staying later. A higher percentage of our day mix is staying. That's helping our culinary per caps and slightly on merchandise. So we will continue with Electric Ocean; that's a real winner. Our other parks, the Orca -- I'm sorry, the virtual reality on Kraken has gotten an incredible social response. We actually have -- we have to process people through if there's any issues, just getting the capacity we need. That's just -- for everyone in the industry, that's a downside of virtual reality. Of course, we knew that going in, and of course, we planned for it. But our only issue is getting enough people through to please them. But it's been a great attraction for us with great positive word of mouth. The other one I haven't mentioned this is just the launched coaster in Texas. It executed extremely well. We nailed it from a marketing, opening, operational standpoint. Again, that market will be up for the first time in 3 years. And was there another? I think that was it, on your questions.

I think it was just, do you expect to achieve the targeted ROI on the new attractions?

I purposely forgot that one. No, obviously, and it's a disappointment but I'm trying to be as -- I am being as transparent as I can. We will not achieve it in San Diego. Clearly, we're down. We invested. I'm disappointed in that. I've said it on previous calls. I'd be extremely disappointed if California didn't go up this year, and I am extremely disappointed, and we all are. And we're working very diligently to address the issues and change that trajectory. And I do believe it's going to happen from the data we see. Again, when people hear and understand it, they come. And so we've just got to continue to put the pedal to the metal from a messaging standpoint.

Great. And then maybe just my follow-up on that point in Southern California. You have a regional peer in Southern California that competes fairly successfully with Disney and Universal in that market. Have you studied that peer and sort of the park strategy? And what do you think there is to learn from them?

You mean Knott's or Lego?

I was referring to Knott's.

Yes. Actually, I have. And I think they do, do a great job there in Knott's. And so without getting into it strategically, I actually have visited there. I've studied the situation. Matt and I are friends and colleagues and I always learn where I can. Theirs is greatly a price point. They're seen as a local park, and it's a much lower price point. And we certainly are trying to, as you've seen, maintain and not grow our ticket pricing to the same degree as our competitors like Disney and Universal. And as I've always said, if we just eliminate -- and we have done better eliminating our discounting and that will get us a better net per cap even if our gross pricing doesn't keep pace with Disney and Universal. Therefore, its moving in that same direction as what Knott's has done in Los Angeles.

The next question comes from Joe Stauff with Susquehanna.

Joel, you had indicated during your comments that you had seen an improvement based on the attendance trends once you reengaged with the national campaign, the marketing advertising campaign, I guess, in July. Can you give us a sense basically of what the magnitude of that change was that you saw when you reengaged?

Well, what I said was the website traffic has increased. We track now weekly, every -- all the website traffic, what the conversion rate is, et cetera. It's gone up, but we haven't translated into attendance. Obviously, there's a lag factor between purchasing and showing up at the park. So I haven't given an indication. You would anticipate and you would believe that, that would lead to increased attendance. But so far, it's a slight moderation but not -- and it's all built into our guidance.

And is that both in the Orlando SeaWorld and San Diego SeaWorld properties?

Yes. As far as the website traffic, yes.

Yes, the website traffic has improved. It was down, and now it's not down as much. So it's improving from the advertising that Joel has talked about.

Okay. And then just a follow up...

(inaudible) I just don't want to -- I'm being very transparent. I don't want to overpromise. I just want to tell you the facts as we have them.

Okay. And then is there any way that you can provide basically what the tax basis is for the entire portfolio? And just the updated federal NOLs that you have at this point. I guess it's around federal, right? So I think it was around $700 million at year-end. What is that updated number, please?

Yes, I mean -- this is Marc. It's just over $700 million. And so I think that number is still good for you. That's typically something you tend to update more at the end of the year. On the basis, I don't know. I think what we can say there is the company was last valued from an accounting standpoint, if you will, on December 1, 2009, when Blackstone purchased the company and the assets were written up to the current fair value. So that was the last time that occurred. You would then just roll in any spending you've had since then and write-offs, et cetera.

But did that -- being the accounting basis, I guess I was asking about the tax basis, is that fair to say that's the same methodology?

I don't know that it's exactly the same just because for tax purposes, you typically have a greater rate of depreciation, et cetera. So if you want a more detailed answer, we may have to probably get back to you on that. But I think what we were -- our point was really the last kind of fair value, which I think is how we think about it, was back in 12/1/09 when Blackstone made the purchase.

Okay, and then if I could just squeeze one more in. Just -- obviously, you answered this, but on your debt package, basically, like you've said, you have 5.75x maintenance test and that's on all the layers, and you've got a $185 million CapEx limit. The EBITDA is bank EBITDA, right, in the context of that test. Is it fair to assume there'd be, like, $10 million to $20 million to add back as you actually do the calculation?

Yes. Well, I think what we've always done is our bank EBITDA is equal to the EBITDA that we've talked, that we report. We don't have a bank EBITDA and a reported EBITDA. So they're one and the same. So the add backs that you see in our adjusted EBITDA like this quarter and past quarters would be the same for our reported EBITDA, therefore, our bank EBITDA.

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Manby for any closing remarks.

Great. Thank you, and we appreciate everybody's questions and your support. Look, we have been very transparent here. We know where our issues are. They're at 2 parks. We've reacted very quickly to it. We're taking action to address it. And I believe in my closing comments earlier in the -- before the questions, we showed many of the elements of our 5-point plan are working very, very well. And we're sticking with those, but we're adjusting where it's not. So we appreciate your support. We will continue to adapt, and we look forward to growing the value of this company. And we're all working diligently to get that done. So thank you very much for your support, and we'll talk to you all soon.

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