# United Parks & Resorts Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [United Parks & Resorts Inc.](/companies/prks.md) (CIK 1564902)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 12:30 ET
- Period: 2023-09-30
- Accession: 0000950170-23-061536
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1564902/000095017023061536/seas-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1564902/000095017023061536/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $548.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.34bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $59.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $176.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $203.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $370.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $37.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $110.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $42.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $65.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $123.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $194.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.92 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $3.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.93 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $3.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 64,319,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 64,425,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $398.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $234.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $17.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $215.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $375.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $2.58bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $406.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $2.83bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $2.09bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $12.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$252.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,832 characters.

*References to our “theme parks” or “parks” in the discussion that follows includes all of our separately gated parks. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.*

### Introduction

The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “*Management’s Discussion and Analysis of Financial Condition and Results of Operations”* section of our Annual Report on Form 10-K for the year ended December 31, 2022.

### Business Overview

We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States. Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.

### Recent Developments

### Current Operating Environment

Our Board has formed a number of committees and held certain meetings and operational review sessions designed to provide further assistance from Board members with expertise in certain areas by providing enhanced oversight over the operations of the Company. As a result, in the current operating environment, certain members of our Board, including our Chairman of the Board, are actively involved in overseeing certain key operating activities and decisions.

We are seeing a return to more normalized staffing levels, but wage pressures and labor availability challenges remain for some positions which could impact operations and the guest experience. We remain committed to our efforts to recruit and retain strong talent as a key to our success. We have also been impacted by higher interest rates and supply chain disruptions (which has, at times, impacted ride and/or in-park facility availability). We have heightened our focus on cost reduction and efficiency opportunities, including optimized labor deployment, as well as incremental pricing and revenue opportunities.

For further discussion relating to strategic measures we have taken to operate in the current environment, see the “*Results of Operations”* section which follows.

### Principal Factors and Trends Affecting Our Results of Operations

### Revenues

Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for food and beverage, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12-month term), season passes (including our fun card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products. Revenue from these admissions products are generally recognized based on attendance. Certain pass products are purchased through monthly installment arrangements which allow guests to pay over the product’s initial commitment period. Once the initial commitment period is reached, some of these products transition to a month-to-month basis providing these guests access to specific parks on a monthly basis with related revenue recognized monthly, while others can renew for a full commitment period.

Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:

- *Admission Per Capita.* We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix (including the impact of pass visitation rates), and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets/passes and can be impacted by the mix of guests, as domestic and international guests generally purchase higher admission per capita ticket products than our local guests. A higher mix of attendance from complimentary tickets/passes will lower admissions per capita. Pass visitation rates are the number of visits per pass. A higher number of visits per pass, including complimentary passes, would yield a lower admissions per capita as the revenue is recognized over more visits. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks.
- *In-Park Per Capita Spending.* We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of food and beverage, merchandise, retail, parking, other in-park products and service fees, and other miscellaneous revenue, including online transaction fees and revenue from our international agreements, not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing, product offerings, the mix of guests (as domestic and international guests typically generate higher in-park per capita spending than local guests or pass holders), guest penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors.

Total revenue per capita, admissions per capita and in-park per capita spending are key performance metrics that we use to assess the operating performance of our parks on a per attendee basis and to make strategic operating decisions. We believe the presentation of these performance metrics is useful and relevant for investors as it provides investors the ability to review operating performance in the same manner as our management and provides investors with a consistent methodology to analyze revenue between periods on a per attendee basis. In addition, investors, lenders, financial analysts and rating agencies have historically used similar per-capita related performance metrics to evaluate companies in the industry.

See further discussion in the “*Results of Operations”* section which follows and in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For other factors affecting our revenues, see the “*Risk Factors”* section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

### Attendance

The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.

### Costs and Expenses

Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities, property taxes and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, park operating hours, new parks and/or incremental operating days, new and/or enhanced events, attendance levels, supply chain issues, and inflationary pressures, among other factors. The mix of products sold compared to the prior year period can also impact our costs as retail products generally have a higher cost of sales component than our food and beverage or other in-park offerings.

We have a dedicated team of employees and consultants focused on reducing costs and improving operating margins and streamlining our labor structure to better align with our strategic business objectives. We have spent significant time reviewing our operations and have identified meaningful cost savings opportunities, including technology initiatives, which we believe will further strengthen our business and, in some instances, improve guest experiences.

See the “*Current Operating Environment”* section for further details. For other factors affecting our costs and expenses, see the “*Risk Factors”* section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

### Seasonality

The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of each year, in part because four of our theme parks were historically only open for a portion of the year. As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred a net loss in the first quarter. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year. Even for our eight theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns.

Any changes to the operating schedule of a park such as increasing operating days for our historically seasonal parks, could change the impact of seasonality in the future. In the year ended December 31, 2022, we opened our Sesame Place San Diego park which has been, and is expected to continue to be, open more operating days than the Aquatica San Diego park it replaced, particularly in the first and fourth quarters of the year. Incremental operating days generally are expected to drive incremental attendance and revenue.

See “*Risk Factors”* section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

### Results of Operations

The following discussion provides an analysis of our operating results for the three months ended September 30, 2023 and 2022. The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

### Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

The following table presents key operating and financial information for the three months ended September 30, 2023 and 2022:

*(In thousands, except per capita data)*

| Summary Financial Data: Net revenues: | For the Three Months Ended September 30, 2023 | 2022 | Variance #% |  |
| --- | ---: | ---: | ---: | ---: |
| Admissions | $299,785 | $313,574 | $(13,789) | (4.4%) |
| Food, merchandise and other | 248,462 | 251,633 | (3,171) | (1.3%) |
| Total revenues | 548,247 | 565,207 | (16,960) | (3.0%) |
| **Costs and expenses:** |  |  |  |  |
| Cost of food, merchandise and other revenues | 40,431 | 41,385 | (954) | (2.3%) |
| Operating expenses (exclusive of depreciation and amortization shown separately below) | 205,808 | 215,899 | (10,091) | (4.7%) |
| Selling, general and administrative expenses | 59,705 | 53,082 | 6,623 | 12.5% |
| Severance and other separation costs | (139) | — | (139) | NM |
| Depreciation and amortization | 39,171 | 37,216 | 1,955 | 5.3% |
| Total costs and expenses | 344,976 | 347,582 | (2,606) | (0.7%) |
| Operating income | 203,271 | 217,625 | (14,354) | (6.6%) |
| Other income, net | (21) | (66) | 45 | 68.2% |
| Interest expense | 37,052 | 30,556 | 6,496 | 21.3% |
| Income before income taxes | 166,240 | 187,135 | (20,895) | (11.2%) |
| Provision for income taxes | 42,685 | 52,578 | (9,893) | (18.8%) |
| **Net income** | $123,555 | $134,557 | $(11,002) | (8.2%) |
| **Other data:** |  |  |  |  |
| Attendance | 7,129 | 7,336 | (207) | (2.8%) |
| Total revenue per capita | $76.90 | $77.05 | $(0.15) | (0.2%) |
| Admission per capita | $42.05 | $42.75 | $(0.70) | (1.6%) |
| In-park per capita spending | $34.85 | $34.30 | $0.55 | 1.6% |

#### NM-Not Meaningful.

*Admissions revenue*. Admissions revenue for the three months ended September 30, 2023 decreased $13.8 million, or 4.4%, to $299.8 million as compared to $313.6 million for the three months ended September 30, 2022. The decline was a result of a decrease in attendance and a decrease in admission per capita. Total attendance for the third quarter of 2023 decreased by approximately 207 thousand guests, or 2.8%, when compared to the prior year quarter. The decrease in attendance was primarily due to significantly adverse weather, including some combination of unusual heat and/or rain, across most of our markets, including during peak visitation periods. Admission per capita decreased by $0.70 to $42.05 for the third quarter of 2023 compared to $42.75 in the prior year quarter, primarily due to the net impact of the admissions product mix, partially offset by the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter.

*Food, merchandise and other revenue.* Food, merchandise and other revenue for the three months ended September 30, 2023 decreased $3.2 million, or 1.3%, to $248.5 million as compared to $251.6 million for the three months ended September 30, 2022, as a result of a decrease in attendance, as discussed above, partially offset by an increase in in-park per capita spending. In-park per capita spending increased by 1.6% to $34.85 in the third quarter of 2023 compared to $34.30 in the third quarter of 2022. In park per capita spending improved primarily due to pricing initiatives, partially offset by factors including weather, the admissions product mix, closures and disruption related to construction delays at certain in park locations when compared to the third quarter of 2022.

*Costs of food, merchandise and other revenues.* Costs of food, merchandise and other revenues for the three months ended September 30, 2023 decreased $1.0 million, or 2.3%, to $40.4 million as compared to $41.4 million for the three months ended September 30, 2022, primarily due to a decrease in related revenue along with the impact of implemented structural cost savings initiatives.

*Operating expenses.* Operating expenses for the three months ended September 30, 2023 decreased $10.1 million, or 4.7%, to $205.8 million as compared to $215.9 million for the three months ended September 30, 2022. The decrease in operating expenses is primarily due to decreased labor related costs and a decrease in nonrecurring legal costs and contractual liabilities resulting from the previously disclosed temporary COVID-19 park closures, along with the impact of implemented structural cost savings initiatives when compared to the third quarter of 2022.

*Selling, general and administrative expenses*. Selling, general and administrative expenses for the three months ended September 30, 2023 increased $6.6 million, or 12.5%, to $59.7 million as compared to $53.1 million for the three months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily due to a $5.6 million increase in third-party consulting costs and legal fees, including approximately $2.7 million of nonrecurring costs primarily related to an opportunistic loan repricing and strategic initiatives, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to the third quarter of 2022. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the opportunistic loan repricing.

*Depreciation and amortization.* Depreciation and amortization expense for the three months ended September 30, 2023 increased $2.0 million, or 5.3%, to $39.2 million as compared to $37.2 million for the three months ended September 30, 2022. The increase primarily relates to new asset additions, partially offset by the impact of asset retirements and fully depreciated assets.

*Interest expense.* Interest expense for the three months ended September 30, 2023 increased $6.5 million, or 21.3%, to $37.1 million as compared to $30.6 million for the three months ended September 30, 2022. The increase primarily relates to increased interest rates on variable rate debt.

*Provision for income taxes.* Provision for income taxes in the three months ended September 30, 2023 was $42.7 million compared to $52.6 million for the three months ended September 30, 2022. Our consolidated effective tax rate was 25.7% for the three months ended September 30, 2023 compared to 28.1% for the three months ended September 30, 2022. The effective tax rate for the three months ended September 30, 2023 and 2022 was primarily impacted due to state income taxes and other compensation related items, partially offset by a tax benefit related to equity-based compensation which vested during the period.

### Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table presents key operating and financial information for the nine months ended September 30, 2023 and 2022:

*(In thousands, except per capita data)*

| Summary Financial Data: Net revenues: | For the Nine Months Ended September 30, 2023 | 2022 | Variance #% |  |
| --- | ---: | ---: | ---: | ---: |
| Admissions | $733,542 | $739,941 | $(6,399) | (0.9%) |
| Food, merchandise and other | 604,080 | 600,776 | 3,304 | 0.5% |
| Total revenues | 1,337,622 | 1,340,717 | (3,095) | (0.2%) |
| **Costs and expenses:** |  |  |  |  |
| Cost of food, merchandise and other revenues | 101,862 | 105,943 | (4,081) | (3.9%) |
| Operating expenses (exclusive of depreciation and amortization shown separately below) | 574,210 | 559,320 | 14,890 | 2.7% |
| Selling, general and administrative expenses | 176,152 | 155,299 | 20,853 | 13.4% |
| Severance and other separation costs | 521 | 113 | 408 | NM |
| Depreciation and amortization | 114,396 | 114,379 | 17 | 0.0% |
| Total costs and expenses | 967,141 | 935,054 | 32,087 | 3.4% |
| Operating income | 370,481 | 405,663 | (35,182) | (8.7%) |
| Other expense (income), net | 20 | (110) | 130 | NM |
| Interest expense | 110,407 | 82,736 | 27,671 | 33.4% |
| Income before income taxes | 260,054 | 323,037 | (62,983) | (19.5%) |
| Provision for income taxes | 65,911 | 80,857 | (14,946) | (18.5%) |
| **Net income** | $194,143 | $242,180 | $(48,037) | (19.8%) |
| **Other data:** |  |  |  |  |
| Attendance | 16,646 | 17,002 | (356) | (2.1%) |
| Total revenue per capita | $80.36 | $78.86 | $1.50 | 1.9% |
| Admission per capita | $44.07 | $43.52 | $0.55 | 1.3% |
| In-park per capita spending | $36.29 | $35.34 | $0.95 | 2.7% |

#### NM-Not Meaningful.

*Admissions revenue*. Admissions revenue for the nine months ended September 30, 2023 decreased $6.4 million, or 0.9%, to $733.5 million as compared to $739.9 million for the nine months ended September 30, 2022. The decline was a result of a decrease in attendance, partially offset by an increase in admissions per capita. Total attendance for the first nine months of 2023 decreased by approximately 356 thousand guests, or 2.1%, when compared to the first nine months of 2022. The decrease in attendance was primarily due to significantly adverse weather, including some combination of unusual heat, cold, rain and/or the fall-out from Canadian wildfires, across most of our markets, including during peak visitation periods. Admission per capita increased by 1.3% to $44.07 for the nine months ended September 30, 2023 compared to $43.52 for the nine months ended September 30, 2022, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset by the impact of the admissions product mix when compared to the prior year period.

*Food, merchandise and other revenue.* Food, merchandise and other revenue for the nine months ended September 30, 2023 increased $3.3 million, or 0.5%, to $604.1 million as compared to $600.8 million for the nine months ended September 30, 2022 as a result of an increase in revenue related to our international services agreements and an increase in in-park per capita spending, partially offset by a decrease in attendance, as discussed above. In-park per capita spending increased by 2.7% to $36.29 for the nine months ended September 30, 2023 compared to $35.34 for the nine months ended September 30, 2022. In park per capita spending improved primarily due to pricing initiatives and an increase in revenue related to our international services agreements when compared to the first nine months of 2022, partially offset by factors including weather, the admissions product mix, closures and disruption related to construction delays at certain in park locations. See Note 1–Description of the Business and Basis of Presentation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on our international agreements.

*Costs of food, merchandise and other revenues.* Costs of food, merchandise and other revenues for the nine months ended September 30, 2023 decreased $4.1 million, or 3.9%, to $101.9 million as compared to $105.9 million for the nine months ended September 30, 2022, primarily due to a decrease in related revenue along with decreased freight costs and the impact of implemented structural cost savings initiatives.

*Operating expenses.* Operating expenses for the nine months ended September 30, 2023 increased by $14.9 million, or 2.7%, to $574.2 million as compared to $559.3 million for the nine months ended September 30, 2022. The increase in operating expenses is primarily due to an increase in costs associated with our international services agreements, an increase in non-cash self-insurance reserve adjustments, and an increase in non-cash asset write-offs, partially offset by the impact of implemented structural cost savings initiatives when compared to the first nine months of 2022.

*Selling, general and administrative expenses*. Selling, general and administrative expenses for the nine months ended September 30, 2023 increased $20.9 million, or 13.4%, to $176.2 million as compared to $155.3 million for the nine months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily due to a $15.7 million increase in third-party consulting costs and legal fees, including approximately $11.2 million of nonrecurring costs primarily related to strategic initiatives, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to the first nine months of 2022.

*Depreciation and amortization.* Depreciation and amortization expense for the nine months ended September 30, 2023 was relatively flat at $114.4 million as compared to $114.4 million for the nine months ended September 30, 2022.

*Interest expense.* Interest expense for the nine months ended September 30, 2023 increased $27.7 million, or 33.4%, to $110.4 million as compared to $82.7 million for the nine months ended September 30, 2022. The increase primarily relates to increased interest rates on variable rate debt.

*Provision for income taxes.* Provision for income taxes for the nine months ended September 30, 2023 was $65.9 million compared to $80.9 million for the nine months ended September 30, 2022. Our consolidated effective tax rate was 25.3% for the nine months ended September 30, 2023 compared to 25.0% for the nine months ended September 30, 2022. The effective tax rate in the nine months ended September 30, 2023 and 2022 was primarily impacted by state income taxes and other compensation related items, partially offset by a tax benefit related to equity-based compensation which vested during the period. See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

### Liquidity and Capital Resources

### Overview

Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash typically include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), share repurchases and/or other return of capital to stockholders, when permitted. As of September 30, 2023, we had a working capital ratio (defined as current assets divided by current liabilities) of 0.9. We typically have operated with a working capital ratio of less than 1 due to a significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances. Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under our Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.

### Share Repurchases

See Note 10–Stockholders’ Deficit in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on our share repurchase programs.

### Other

We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our revolving credit facility will be adequate to meet the capital expenditures, debt service obligations and working capital requirements of our operations for at least the next 12 months.

The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:

*(Unaudited, in thousands)*

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $398,457 | $468,874 |
| Net cash used in investing activities | (234,218) | (150,729) |
| Net cash used in financing activities | (31,333) | (647,139) |
| Net increase (decrease) in cash and cash equivalents, including restricted cash | $132,906 | $(328,994) |

### Cash Flows from Operating Activities

Net cash provided by operating activities was $398.5 million during the nine months ended September 30, 2023 as compared to $468.9 million during the nine months ended September 30, 2022. The change in net cash provided by operating activities was significantly impacted by a decline in operating performance.

### Cash Flows from Investing Activities

Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the nine months ended September 30, 2023 consisted of capital expenditures of $234.2 million largely related to future attractions. Net cash used in investing activities during the nine months ended September 30, 2022 consisted of $150.7 million of capital expenditures.

The following table presents detail of our capital expenditures for the periods indicated:

*(Unaudited, in thousands)*

| Capital Expenditures: | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Core(a) | $156,060 | $100,197 |
| Expansion/ROI projects(b) | 78,158 | 50,532 |
| Capital expenditures, total | $234,218 | $150,729 |

(a) Reflects capital expenditures for park rides, attractions and maintenance activities.

(b) Reflects capital expenditures for park expansion, new properties, and revenue and/or expense return on investment (“ROI”) projects.

The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements. Historically, we generally expect to fund our capital expenditures through our operating cash flow.

### Cash Flows from Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2023 results primarily from share repurchases of $17.9 million, repayments of $9.0 million on our long-term debt, and payment of tax withholdings on equity-based compensation through shares withheld of $6.6 million. Net cash used in financing activities during the nine months ended September 30, 2022 results primarily from share repurchases of $617.8 million and payment of tax withholdings on equity-based compensation through shares withheld of $22.2 million. See Note 10–Stockholders’ Deficit in our notes to the unaudited condensed consolidated financial statements for further details.

### Our Indebtedness

We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below. As of September 30, 2023, our indebtedness consisted of senior secured credit facilities, 5.25% senior notes (the “Senior Notes”) and 8.75% first-priority senior secured notes (the “First-Priority Senior Secured Notes”).

See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details related to our long-term debt.

### Senior Secured Credit Facilities

SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended and restated pursuant to a credit agreement (the “Amended and Restated Credit Agreement”) dated August 25, 2021 (the “Senior Secured Credit Facilities”).

As of September 30, 2023, our Senior Secured Credit Facilities consisted of $1.176 billion in Term B Loans which will mature in August 2028, along with a $390.0 million Revolving Credit Facility, which had no amounts outstanding as of September 30, 2023 and will mature in August 2026. As of September 30, 2023, SEA had approximately $18.4 million of outstanding letters of credit, leaving approximately $371.6 million available for borrowing under the Revolving Credit Facility.

### Senior Notes and First-Priority Senior Secured Notes

As of September 30, 2023, SEA had outstanding $725.0 million in aggregate principal amount of Senior Notes due on August 15, 2029 and $227.5 million in aggregate principal amount of First-Priority Senior Secured Notes, due on May 1, 2025.

### Covenant Compliance

As of September 30, 2023, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

### Adjusted EBITDA

We define Adjusted EBITDA as net income plus (i) income tax provision, (ii) loss on extinguishment of debt, (iii) interest expense, consent fees and similar financing costs, (iv) depreciation and amortization, (v) equity-based compensation expense, (vi) certain non-cash charges/credits including those related to asset disposals and self-insurance reserve adjustments, (vii) certain business optimization, development and strategic initiative costs, (viii) merger, acquisition, integration and certain investment costs, and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.

Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Covenant Adjusted EBITDA as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).

Covenant Adjusted EBITDA is defined as Adjusted EBITDA plus certain other items as defined in the Debt Agreements, including estimated cost savings among other adjustments. Cost savings represent annualized estimated savings expected to be realized over the following 24 month period related to certain specified actions including restructurings and cost savings initiatives, net of actual benefits realized during the last twelve months. Other adjustments include (i) recruiting and retention costs, (ii) public company compliance costs, (iii) litigation and arbitration costs, and (iv) other costs and adjustments as permitted by the Debt Agreements.

We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, we believe the presentation of Covenant Adjusted EBITDA for the last twelve months is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Debt Agreements. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA and Covenant Adjusted EBITDA are not recognized terms under U.S. generally accepted accounting principles (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and are not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA, Covenant Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA and Covenant Adjusted EBITDA as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net income for the periods indicated:

*(Unaudited, in thousands)*

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 | Last Twelve Months Ended September 30, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net income | $123,555 | $134,557 | $194,143 | $242,180 | $243,153 |
| Provision for income taxes | 42,685 | 52,578 | 65,911 | 80,857 | 83,937 |
| Interest expense | 37,052 | 30,556 | 110,407 | 82,736 | 145,172 |
| Depreciation and amortization | 39,171 | 37,216 | 114,396 | 114,379 | 152,637 |
| Equity-based compensation expense (a) | 4,644 | 4,472 | 13,715 | 15,554 | 17,918 |
| Loss on impairment or disposal of assets and certain non-cash expenses(b) | 8,723 | 3,540 | 22,985 | 12,555 | 24,648 |
| Business optimization, development and strategic initiative costs (c) | 6,662 | 4,656 | 28,191 | 14,050 | 33,987 |
| Certain investment costs and other taxes | 1,147 | 53 | 1,309 | 1,053 | 1,384 |
| COVID-19 related incremental costs (d) | 1,092 | 4,957 | 8,760 | 5,930 | 9,519 |
| Other adjusting items (e) | 1,666 | 1,598 | 3,239 | 5,275 | 4,377 |
| Adjusted EBITDA (f) | $266,397 | $274,183 | $563,056 | $574,569 | $716,732 |
| Items added back to Covenant Adjusted EBITDA as defined in the Debt Agreements: |  |  |  |  |  |
| Estimated cost savings (g) |  |  |  |  | 25,200 |
| Other adjustments as defined in the Debt Agreements (h) |  |  |  |  | 6,522 |
| Covenant Adjusted EBITDA (i) |  |  |  |  | $748,454 |

(a) Reflects non-cash equity compensation expenses and related payroll taxes associated with the grants of equity-based compensation. See Note 9–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

(b) Reflects primarily non-cash self-insurance reserve adjustments of: (i) approximately $4.8 million for the three months ended September 30, 2023; (ii) approximately $11.8 million for the nine and twelve months ended September 30, 2023, respectively; and (iii) approximately $2.6 million and $6.5 million for the three and nine months ended September 30, 2022, respectively. Also includes non-cash expenses related to miscellaneous fixed asset disposals including asset write-offs and costs, including approximately $4.5 million for the three months ended September 30, 2023 and $6.5 million for the nine and twelve months ended September 30, 2023 in disposals associated with certain rides and equipment which were removed from service.

(c) For the three, nine, and twelve months ended September 30, 2023, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $3.1 million, $17.1 million, and $19.3 million, respectively of third-party consulting costs and (ii) $3.6 million, $9.7 million, and $12.9 million, respectively of other business optimization costs and strategic initiative costs. For the three and nine months ended September 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $2.5 million and $7.6 million, respectively, of third-party consulting costs and (ii) $1.8 million and $5.6 million, respectively, of other business optimization costs and strategic initiative costs.

(d) For the three, nine, and twelve months ended September 30, 2023, primarily reflects costs associated with certain legal matters, nonrecurring contractual liabilities and respective assessments related to the previously disclosed temporary COVID-19 park closures. For the three and nine months ended September 30, 2022, includes approximately $4.1 million of certain legal matters related to the temporary COVID-19 park closures.

(e) Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. For the nine months ended September 30, 2022, includes $3.6 million related to a legal settlement.

(f) Adjusted EBITDA is defined as net income (loss) before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above.

(g) Our Debt Agreements permit the calculation of certain covenants to be based on Covenant Adjusted EBITDA, as defined above, for the last twelve-month period further adjusted for net annualized estimated savings we expect to realize over the following 24-month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Debt Agreements and does not impact our reported GAAP net income.

(h) The Debt Agreements permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs, if any.

(i) Covenant Adjusted EBITDA is defined in the Debt Agreements as Adjusted EBITDA for the last twelve-month period further adjusted for net annualized estimated savings among other adjustments as described in footnotes (g) and (h) above.

### Contractual Obligations

There have been no material changes to our contractual obligations as September 30, 2023 from those previously disclosed in our Annual Report on Form 10-K.

### Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “*Management’s Discussion and Analysis of Financial Condition and Results of Operations.”* There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on March 1, 2023.

### Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2023.

### Recently Issued Financial Accounting Standards

Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

## Market risk

As filed, 1,941 characters.

### Inflation

The impact of inflation has affected, and will continue to affect, our operations significantly. The costs of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, other costs, such as the costs of fuel, construction, repairs and maintenance, labor, freight, utilities and insurance are all subject to inflationary pressures. For further discussion, see the “*Risk Factors”* section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

### Interest Rate Risk

We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.

Prior to 2021, we previously managed interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fixed a portion of our variable-rate long-term debt. We have no interest rate swap agreements outstanding as of September 30, 2023. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At September 30, 2023, approximately $1.2 billion of our outstanding long-term debt represents variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $390.0 million, a hypothetical 100 bps increase in Adjusted Term SOFR would increase our annual interest expense by approximately $15.7 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in Adjusted Term SOFR would increase our annual interest expense by approximately $11.8 million.

## Controls and procedures

As filed, 6,281 characters.

### Evaluation of Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any controls and procedures also is based on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based upon this evaluation, our management, including our principal executive officer and principal financial officer, have concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q due to a material weakness in our internal control over financial reporting which was initially disclosed as of September 30, 2021.

Notwithstanding the above, the control deficiency did not result in a material misstatement of any of the Company’s annual or interim consolidated financial statements. Further, management believes and has concluded that the consolidated financial statements for the prior periods and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

### Changes in Internal Control over Financial Reporting

Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in our internal control over financial reporting that occurred during the most recent quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than those disclosed in the status update section.

### Status Update

Management and our Board of Directors are committed to remediating the above noted material weakness to address the deficiency within the control environment which resulted from a lack of sufficient policies and procedures surrounding the frequency, manner and extent in which Board members engage with management, resulting, in part, from increased Board engagement with management, as disclosed in Part I, Item 2, “*Current Operating Environment”* included elsewhere in this Quarterly Report on Form 10-Q. As a result, management and the Board determined that it should establish and/or enhance additional policies and procedures relating to Board engagement and establish a process to evaluate adherence to these policies and procedures. Based upon a recommendation of the Audit Committee, the Board formed a committee (the “Committee”) and engaged independent consultants to advise the Committee and management as it relates to this deficiency to develop and execute on a remediation plan.

Management continues to perform ongoing risk assessments. As a result of these assessments, management and the Committee continue to identify actions to remediate the material weakness, including the following actions:

- Updated and further revising policies related to Board and management interactions and communications and the delegation of authority policy.
- Enhanced our evaluation of the control environment by increasing the frequency and further updating the scope of the fraud risk assessment.
- Named a lead director whose responsibilities, amongst others, include acting as a liaison and monitoring the frequency, manner and extent of Board and management engagement.
- Implemented additional regular sessions between senior management and the Board.
- Increased testing of certain transactional and entity level controls.
- Initiated and conducted training and education for members of the Board and certain members of senior management regarding the internal control framework and corporate policies related to Board and management engagement.

Management will continue to perform ongoing risk assessment procedures, including continued enhancement, design and implementation of relevant controls, and will assess and test the effectiveness of these remediation efforts. As we continue to evaluate the effectiveness of the above remediation efforts, management may determine to take additional measures or to modify the remediation plan described above, which may require additional implementation time. The material weakness cannot be considered remediated until remediation efforts have operated for a sufficient period of time and management has concluded, that the material weakness has been resolved. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.

## Risk factors

As filed, 320 characters.

There have been no material changes to the risk factors set forth in Item 1A.to Part I of our Annual Report on Form 10-K, as filed on March 1, 2023, except to the extent factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, which is incorporated herein by reference.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-061536. Last ingested by Listed: Oct 24, 2026, 15:13 ET. No prices; not investment advice.