SeaWorld Entertainment, Inc.
Q3 2016 Earnings Call Transcript

Published: 8 Nov 2016

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to SeaWorld Entertainment Third Quarter 2016 Financial Results Conference Call. My name is Denise, and I'll be your conference operator today. I would now like to turn the conference over to Mark Trinske, Vice President of Investor Relations. Please go ahead, sir.

[Mark Trinske:]

Thank you and good morning, everyone. Welcome to SeaWorld's third quarter 2016 earnings conference call. Today's call is being recorded and webcast live. A press release was issued this morning and is available on our Investor Relations website at www.seaworldinvestors.com. Replay information for this call can be found on the press release and will be available on our website following the call. Joining me this morning are Joel Manby, our President and Chief Executive Officer; and Peter Crage, our Chief Financial Officer. On today's call, we will review our third quarter 2016 financial results along with recent factors impacting our business, and then we will open up the call for your questions. Before we begin, I'd like to remind everyone that our comments today will contain certain forward-looking statements within the meaning of the federal securities laws. These statements include, but are not limited to, the comments on the company's full year guidance and are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the risk factors of our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. These factors may be updated from time to time and will be posted in our filings with the SEC and made available on our website. We undertake no obligation to update any forward-looking statements. In addition, on the call we will reference certain non-GAAP financial measures. More information regarding our forward-looking statements and reconciliations of our non-GAAP financial measures to the most comparable GAAP measures are included in our earnings release available on our website and can also be found in our filings with the SEC. Now, I would like to turn our call over to Joel Manby. Joel?

[Joel K. Manby:]

Thanks, Mark. Good morning, everyone, and thank you for joining us. Before we walk through our performance in the third quarter, I want to take a moment to discuss where we are today and how our results illustrate our progress against the strategy we outlined for you at our Investor Day one year ago. At that time, we identified the five key areas of focus that informed our three-year strategic road map. As a reminder, these areas included

[Peter J. Crage:]

Thanks, Joel, and good morning, everyone. First, I would like to walk you through our financial results and then discuss our updated guidance for the year. For the third quarter, the company generated total revenue of $485.3 million compared to $496.9 million, a decline of $11.6 million, or 2.3% compared to the same period in 2015. Total revenue per capita declined by $1.18 to $58.18 in the third quarter which was driven largely by a shift in park attendance mix with more guest concentration at our water parks and the impact of fewer international guests compared to the same period last year. Attendance in the quarter declined modestly by approximately 30,000 guests, or 0.4%, as new attractions drove increased domestic attendance in Texas and Florida, but these gains were largely offset by the impact of adverse weather including the effects of Hurricane Hermine and a decline in attendance by international guests, particularly from Latin America, which decreased by approximately 93,000 guests or 28% compared to the third quarter of 2015. For the third quarter of 2016, we generated net income of $65.7 million or $0.77 per diluted share. This compares to net income of $98 million or $1.14 per diluted share in 2015. I'd like to point out that our consolidated effective tax rate for the third quarter of 2016 was 52.2% compared to 37.1% in the same period last year. Most of this increase was due to non-deductable equity-based compensation that was recorded as a permanent adjustment in the first quarter of 2016 and the impact of changes in annual forecasted income. I'd like to remind you that because of our net operating loss carry forwards, our cash taxes are not significant. For the third quarter, adjusted EBITDA was $196 million, a decrease of $21.4 million dollars or 10% compared to $217.5 million in the same period of 2015. Operating expenses increased $1.8 million, mostly due to an increase in direct labor and benefit costs resulting from wage and merit increases which were partially offset by targeted cost savings initiatives. Selling, general and administrative expenses increased by $9.5 million primarily related to an increase in non-cash barter expenses, planned increases in marketing cost to drive future revenue and current season pass sales and higher labor and benefit costs related to increased equity compensation expense, which was partially offset by targeted cost savings. As Joel mentioned, we are laser-focused on reducing expenses and with our comprehensive cost optimization program, we expect to reduce cost by approximately $65 million, with a targeted $40 million in net savings by the end of 2018. We are also targeting improvement in adjusted EBITDA margin to 28% to 30% in near term and 32% over the longer term. We are taking a bottoms-up approach to achieve the right balance between revenue growth and cost optimization across the full year. But I want to remind everyone that these changes will not impact our guest experience, the safety of our guests and team members, and the welfare of our animals, which remain our top priority. This cost optimization program is only part of our effort to deploy more capital more efficiently. We also reduced our CapEx budget to no more than $175 million per year, with approximately 75% investment capital and approximately 25% maintenance capital. Turning to the balance sheet, we ended the third quarter with $55.8 million in cash and no amounts drawn on our revolving credit facility. Total long-term debt, excluding current maturities, was $1.54 billion. Our net leverage ratio, as defined in our credit agreement, at the end of the third quarter was 4.73 times adjusted EBITDA. Based on our cash flow from operations, along with our revolving credit facilities, we believe we have sufficient capital to meet our liquidity needs. This brings me to our guidance, with only one quarter left in the 2016 reporting year, we are narrowing the range of our guidance and we now expect adjusted EBITDA for 2016 to be in the range of $310 million to $330 million based on recent developments including the impact of Hurricane Matthew in October. To wrap up, from the financial perspective, we have done a lot of work this year to stabilize the business including identifying opportunities for cost savings and increased capital efficiency. Looking ahead, we are focused on financial discipline, the efficient use of investor capital and the successful return to revenue and EBITDA growth. Now, I'd like to turn the call back to Joel.

[Joel K. Manby:]

Thank you, Peter. The changes we announced earlier this year are the start of an intensified drive to return to revenue and attendance growth through a fundamental repositioning of our brand. This effort has required a transformation of our business and we are seeing positive signs that the transformation is taking hold. As Peter said, we are focused on EBITDA growth, the attendance growth, improving ticket yield and cost optimization. In the past year, we launched our strategic plan, revamped the management team, fundamentally repositioned the brand, introduced compelling new brand consistent rides and attractions and began to improve pricing, marketing, and financial discipline. We are seeing positive results as we continue to execute the plan, Looking ahead for 2017, we're excited about the growth of our 2017 pass presales where we're ahead of last year's sales pace in every park. We're also looking forward to the introduction of one of the greatest lineups of new rides and attractions in our 50-year history. In San Diego, we're launching the Ocean Explorer, a new 3-acre realm combining multiple aquariums, exciting rides and digital technologies. The area is designed to engage park guests in an experience centered on exploration and adventure, inspiring them to protect the wonders of our ocean. The signature attraction for the realm called Submarine Quest will provide guests with the opportunity to travel aboard submarines to see Ocean Explorer's remarkable undersea animals. The new orca encounter in San Diego will inspire and educate guests about the majesty of these complex animals and reinforces the company's commitment to compelling educational experiences. Our Kraken Virtual Reality Coaster at SeaWorld Orlando will be the first digitally-enhanced ride experience and the only virtual reality coaster experience in Florida. The addition of VR to this fan favorite brings a new level of excitement and interest in Kraken for both new and returning guests, and will give us a good foundation for building out virtual reality capabilities elsewhere. Our Wave Breaker Coaster in San Antonio represents a new generation of coaster and reaffirms our mission and vision by thrilling riders while bringing awareness to the brave efforts of the SeaWorld animal teams as they joined forces with organizations around the world to help ill, injured, orphaned and abandoned animals like dolphins and sea turtles. New products are essential to growth in this business, and this incredible lineup should generate building excitement as we progress through 2017. We are confident in our strategic plan. We are constantly challenging ourselves to do even better. We are moving aggressively on every front to improve our results faster and we are committed to doing what is necessary to increase the value of your investment in SeaWorld. With that, I'll open it up for questions.

[Operator:]

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

[Tim A. Conder:]

Thank you. Gentlemen, a couple of things here relating to the season passes and so forth. You announced it last year but really, I guess is it fair to say that this is the first year where you're really having a full force of getting it rolling for calendar 2017 year? And that being the case, can you give us any color, I guess, on deferred revenue because your percentages should be pretty decent year-over-year increase, but how are deferred revenues looking here with the season tickets, the dining, Quick Queue, all that sort of combined together?

[Joel K. Manby:]

Hey, Tim. It's Joel. Thanks for that question. As far as color on season pass, let me give you the bigger picture and I'll let Peter handle the specific numbers on deferred revenue. You are right, this is the first year that we have pulled everything together early. The buy early and save strategy was inconsistent. Every park launched with that no later than October 1. We put strong money behind it. We had every marketing hook ready to market and it's off to a very, very good start. We are up at every park across the board in season pass sales. We're actually up double digits in revenue. So, we are very pleased with the coordinated effort, strong marketing and really the strong product. This is one of the best product lineups we've ever had. And so, we feel very good about not only the product, but the execution of it. Peter, you want to just talk a little bit about the deferred revenue?

[Peter J. Crage:]

Sure. Good morning, Tim. We began – launched the program on September 26. So, at the end of the third quarter, you won't see much in terms of increase in deferred revenue. Obviously, as we approach 12/31 and 03/31. It should be more noticeable as we continue – hopefully continue down- with this pace of improved sales.

[Tim A. Conder:]

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

[Joel K. Manby:]

Tim, for your question on Tampa, the entire issue on Tampa is an international loss. They're up in every other SOR, either a little or quite a bit, but we have – they have been also hurt by the macro Brazilian issue. It's the source of residency from the international businesses where they have seen a hit. But, as you know, that's a very strong park. They have a very strong five-year CAGR on their EBITDA and attendance. We do expect that to abate as the Brazilian issue abates but there's no other issues there from a macro standpoint. As far as Matthew, it did take out three days of attendance basically. You had a couple days in big park here in Orlando that were completely wiped out and we also had a day loss in Williamsburg that was Halloween and financially it's about a $4 million hit. So, one way to look at it for use – one reason we narrowed our guidance range at the top end was that $4 million from the hurricane and at a high level, that's how I would articulate it.

[Tim A. Conder:]

That was very helpful there, Joel. And then, if I may, Peter, lastly here the cost savings, you guys had an existing cost savings program and how should we look at the $65 million? Is this sort of a take the prior one, fold that in, and this was sort of the new one or – and $55 million gross, $40 million net, and maybe just sort of laid it out, I guess, the cadence of what we should be anticipating annually both on the gross and the net basis here?

[Peter J. Crage:]

Sure. The way I'd like to think about it is this is an acceleration both in terms of timing and an increase in terms of dollars. So, this really replaces and if you want to think of it as folding in what we talked about a year ago. $65 million on a gross basis, $40 million on a net basis over the next two years. The reason for that gross and net is because as we pointed out in our call and our prepared remarks, we are seeing wage crashers across the portfolio. And the way we like to think about cadence is we'll be making some changes this year that will likely impact, positively impact of our adjusted EBITDA. And then through 2017 and 2018, obviously execute on those. And so I think in terms of this year, perhaps recognizing $10 million and then over the next two years, $17 million and $18 million, $15 million and $15 million to get us to a total of $40 million. That's our best guess at cadence right now.

[Tim A. Conder:]

Great, Thank you, gentlemen.

[Peter J. Crage:]

Thank you.

[Operator:]

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

[Barton Crockett:]

Okay. Great. It's Barton Crockett, and thanks for taking the question. I was – wanted to get a little bit more color if we could on the cadence of trends in the quarter because you exited the second quarter saying that July attendance was up 4%, and then we're ending up here for the full quarter somewhat less than that. So, it suggests there some declines in August and September. And I was wondering if you could quantify that a little bit. And then as to your guidance for the full year, which at the midpoint would imply kind of flattish EBITDA in the fourth quarter, does that also imply kind of flattish revenue, or is that, to a large degree I guess taking advantage of the $10 million cost saves that you just called out in the previous question?

[Joel K. Manby:]

Do you want to take that one?

[Peter J. Crage:]

The second one, Bart, with regard to guidance, yeah, flattish in terms of adjusted EBITDA in the fourth quarter. We do, as I mentioned, have the benefit of making these – accelerating these cost reductions and taking advantage of the pro-forma adjustment. But fourth quarter is much smaller in relation to our third quarter. And the opportunity from missing, obviously, is much smaller. So, we – by holding it flat and then taking advantage of up to $10 million in cost reduction and pro-forma adjustments, we think that guidance is internally achievable. And essentially on flattish revenue, we're expecting some increases. We had a good solid October, and now the remainder of the year really is focused on December where we have a lot of concentration. Joel?

[Joel K. Manby:]

Yes. As far as your question, we did see as others in the industry saw and have reported in previous earnings calls, we did see unseasonably bad weather in the Northeast. We had double the bad weather days, which we track every single day, whether it's rain impacted or extreme heat. But we had doubled that versus previous year. That really was the issue on August, but then we saw some – we started seeing positive trends again in September. And as we've already said, those trends are continuing into October. One thing I haven't said is California in October – California and Texas had their best October in recent years. And California is up middle, high-single digits; Texas is up double digits. So, we're seeing a continuation of September and October coming back after a very, very tough August that has been articulated by others as well.

[Barton Crockett:]

Okay. And then if I could step back a little bit thinking about the competitive backdrop in Orlando, which is I think, a big focus of questions for people right now. We have Disney opening a big new Avatar attraction. Comcast continues to make investments. There have been times in the past when the Harry Potter attractions had a competitive impact on you guys and times when the attractions have been less noticeable. When you look at next year, I mean, how do you think about – and I realized it's not scientific but perhaps in your guide, how do you think about the competitive environment in terms of whether it's disruptive to you guys potentially or not when you look at it?

[Joel K. Manby:]

It's a good question, Barton. And I actually feel more confident than I ever have in our Orlando strategy. We've done a lot of work. And first of all, price positioning. We know where we are a very good value to our competitors. And as you know, they're very rational and our recent analytics say we can actually increase our value proposition versus our competition and still continue to increase our admissions yield. And then the other thing that is proving out our strategy is we are putting capital in place that our business model can afford. Obviously, we can't do the $200 million, $300 million attractions. They're going after a different strategy, but we put in Mako which was very affordable within our cash flow and our pricing strategy, and we got tremendous results from it. We were trending down about 8-ish percent heading into Mako. It has increased and has turned our trend plus 10% which is incredible in the theme park business to move something that much that we were actually up about 1 point in Orlando. And that proves to me that our strategy that's affordable from a value standpoint and also an attraction standpoint can compete against those players because we're not trying to go after the same market. And if anything, I think we can improve on that positioning over time. Obviously, we have to prove that out. But from the analytics and I think we are proving it with Mako, I actually feel very, very confident because when they put those great attractions in, the market grows. This is the largest market – tourist market in the world, and it actually helps bring people to the market, and we will get our fair share of it with our incredible value proposition. We've also seen, final point on it, really good success in the 300 mile-and-in. Our day-trippers, overnighters, we focused hard in our marketing in Miami. It's getting great results. So, if you back out that, the international issue, the Brazilian issue, we'd be up 4% in Orlando. So, we feel good about the strategy. We've got to continue to execute on it, but we know where we can compete and we're executing.

[Barton Crockett:]

Okay. That's helpful. Thank you.

[Operator:]

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

[James Hardiman:]

Hi. Good morning. Thanks for taking my call. I wanted to maybe connect the dots between the $65 million, I guess, gross, $40 million net of cost savings over the next few years with the commentary you made towards the end of the prepared remarks with respect to 28% to 30% EBITDA margins in the near term, 32% in the long term. I guess the question is, how should I think about nearer-term, is that the next year or two that we should be getting there and what does your guidance assume that – where EBITDA margins finish for 2016?

[Peter J. Crage:]

Hi, James, it's Peter. A couple of things. The cost reductions over the next two years at our current revenue levels are about 300 basis points and I think for the full year, we're right in the 24% range this year. So that's how we think about it, that would put us close to 27%. And over the next two years given the encouraging signs we've seen in the business, we expect revenue to grow as well. So that's why we provided a range of 28% to 30% in the near term, and I think we like to think of near-term as over the next two years, driving cost reductions, taking advantage of these positive signs, investing the right capital over the next two years and then driving those margins through a combination of these cost cuts as well as revenue growth and organic margin improvement.

[Joel K. Manby:]

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

[James Hardiman:]

That's helpful. And maybe at least part of the answer to my next question, but I guess just overall level of confidence that we won't see another step-down in EBITDA for 2017, especially in the context of the leverage covenants that remain on your debt. And what, if any, precautions are you taking to prevent those covenants from being an issue? And ultimately, as we think about the dividend cut, was there any thought to maybe bank that cash in the event of a rainy day?

[Joel K. Manby:]

I'm glad you asked that because I am very confident for 2017. If you look at our current trends, which is positive, and you look at our season pass sales, which are off to an incredibly fast start, double-digits up as I've said, if you look at our extreme focus on cost management and what we're doing in our yield management. And one specificity we can come back to is we're adding this centralized focus to make sure we're world-class in our ticket yield. You add all those things up, I'm extremely positive that 2017 will be an increase in EBITDA. I feel SeaWorld has – we've been through some difficult times but we've got a clear strategy that we are executing. Obviously, we want to move faster. We want more results faster. However, we have a clear path to 2017. So, I don't see an issue with EBITDA going down and I also don't see any issue with the covenants. Do you have any other comment, Peter?

[Peter J. Crage:]

Yeah. I think that optimism in what we're seeing is important to know. And even at the end of this third quarter, we're still under 5 times, with about three types of return of cushion there. So, we're confident we can keep it below 5 times.

[James Hardiman:]

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

[Joel K. Manby:]

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

[James Hardiman:]

That's really helpful. Thanks, guys.

[Operator:]

Your next question comes from Matthew Brooks with Macquarie. Your line is open. Matthew Brooks - Macquarie Capital (USA), Inc. Good morning, guys. I wanted to ask a few questions about your capital spending. Firstly, in your experience, how much does a new ride like Mako impact attendance in the second year? And sort of related to that, what are you thinking in terms of what's going to drive visitations especially local, for Tampa next year?

[Joel K. Manby:]

Well, thank you. As far as the cycling on a ride, we like, we want and expect to get something out of ride for three years. It's from a marketing standpoint, just because of cycling. Because we opened Mako in June, we're going to pump it really hard. And next year, it's going to be marketed just like our other attractions in Orlando. But on top of that, we have Kraken which is the first-ever VR technology which we're excited about and of course the night-time event of the ocean, nighttime ocean event we have. So, we feel really good that we can continue to market Mako. In Tampa, we don't have as big of an attraction, but we can – again, we didn't open until June with Cobra's Curse. So, we will continue to remarket that. And also we have festival changes there. So, we still have hooks to talk about every year as far as some festival change, whether it's Halloween, whether it's Christmas, whether it's a new beer festival. So, we will continue to have marketing. And as I've said, we are getting good performance in Tampa other than the international. Matthew Brooks - Macquarie Capital (USA), Inc. Right. The second sort of issue related to that, is there any way to sort of split or understand how much you spend on new rides and attractions? So, for example, you may purchase a ride from a third party, but you also spend a lot on theming. Is there any way you can talk about allocation there? I was wondering maybe if you spent less on theming whether that would be able to boost your returns?

[Joel K. Manby:]

Yeah. Big picture, we are definitely moving to try to reduce our capital spending in that way. One thing I am pleased with. I'm not easy to please – but on capital, we are spending less in 2017 than we did in 2016, and we're introducing significantly more attractions. And one way to do that is to focus more on the ride itself and not too much on the theming. I actually think we were close to world-class on Mako. It was a fantastic ride and a good mix of how much theming should go with it. Cobra's Curse had maybe more theming and I think that's a good learning for us of going forward. But our philosophy is put as much money as possible to make the ride as good as possible and we also will look at some of our other markets slightly differently than looking at Orlando. The other parks behave and act more like regional parks and we can be efficient there. So, we are looking at that constantly. It's one reason we say a maximum of $175 million, we are going to look for every possible way to get that number down on our core business without sacrificing the cadence and the number of attractions that we bring forth that can drive attendance. Matthew Brooks - Macquarie Capital (USA), Inc. And the last one from me. On Halloween, I was at the Spooktacular in Orlando, and it was the busiest I'd seen the park in some time. So, I was wondering if you can talk about maybe the difference in growth for the parks that have Spooktacular as more sort of key focus and the ones that have like Howl-O-Scream, I think it's called, at Busch Gardens.

[Joel K. Manby:]

Yes. Spooktacular is more for family-oriented. It's for young children. And so, they get to do trick or treating there. Howl-O-Scream is what you – you better scream when you're there or not doing their job and we have incredibly good product in Tampa. It was rated even better than our competitors in Orlando on that night product. We got to continue to evolve though as the market evolves. There's always new competition popping up so we're going to be aggressive and be edgier in Tampa to make sure we grow there. The reason we're different here in Orlando is because, really, Universal Studios kind of owns the horror element of it and so we picked the family element to diversify. Matthew Brooks - Macquarie Capital (USA), Inc. Okay. Thanks a lot, guys.

[Operator:]

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

[Felicia Hendrix:]

Thank you so much. So, Joel, on the early signs of success that you're seeing for your pricing programs for next year. When you say that every park across the board is up season pass sales double-digits, can you give us some kind of parameters just to understand that? Like, is the base low? Do you look at it like a booking curve? I mean, obviously, locking in the customers early is certainly a good thing. I'm just trying to understand how much visibility the early season pass sales successes are giving you?

[Joel K. Manby:]

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

[Felicia Hendrix:]

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

[Joel K. Manby:]

Well, first of all, we have shifted some dollars. We don't spend a ton in Latin America but our philosophy is, if the market is not there, don't chase it. And so, we did reallocate some of the dollars to 300-mile-and-in strategy. We also are being very aggressive through our distributors there with pricing just to make sure that we do have a good value play for them. For the most part, we're focusing on other markets until it recovers. We are encouraged, as I said, about the abatement. Not only is our sales trend improving but also, the exchange rates improve, the government stability there has improved. Anecdotally, they added back a few flights coming from Brazil into Orlando that has been cancelled before. So, we are seeing some signs that it is abating.

[Felicia Hendrix:]

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

[Peter J. Crage:]

Yeah. The first – on the first question, if you look at year-to-date and you back out some of the noise, barter was up about $5 million or $6 million. So, on a year-to-date basis, if you look year-over-year, we had about $4 million in barter last year, $11 million in barter this year. And that's probably the best way to look at, although, we were heavily weighted in the third quarter at about $5 million. Hopefully, that's helpful. In terms of the overall cost reduction plans, we're still identifying very specific targets. I think from modeling, maybe, I think maybe 33%, maybe a third in corporate, and maybe two-thirds in operating only because obviously, it's a bigger dollar amount. I'm looking at the guys here, and I think that's where we're at right now.

[Felicia Hendrix:]

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

[Peter J. Crage:]

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

[Felicia Hendrix:]

Okay. Perfect. And...

[Joel K. Manby:]

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

[Felicia Hendrix:]

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

[Peter J. Crage:]

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

[Felicia Hendrix:]

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

[Peter J. Crage:]

Yes, absolutely.

[Felicia Hendrix:]

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

[Joel K. Manby:]

Yes.

[Felicia Hendrix:]

Okay.

[Joel K. Manby:]

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

[Felicia Hendrix:]

Okay. Great. Thank you.

[Operator:]

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

[Alexia S. Quadrani:]

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

[Joel K. Manby:]

Yeah. I feel we're definitely on the right track. And yeah, we still need to continue to spend at competitive levels. The way I would look at it is we had two silos in the past. We had reputation spend and we have marketing spend and they were two very different messages. Moving forward, with the real amazing ad that we have put out is our first attempt to pull those two together. It sells theme park tickets but it also talks about our rescue efforts, and that we are a company that you can support, you can believe in, you can trust and you can get behind. The goal is to bring those two together and in doing so, you save money. But we still will continue to spend at a competitive rate but the silo of just strictly reputation spend will go down. And that's part of – that's encapsulated in the $65 million macro goal, $40 million of that net to the bottom line.

[Alexia S. Quadrani:]

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

[Joel K. Manby:]

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

[Alexia S. Quadrani:]

Thank you.

[Operator:]

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

[Jason Boisvert Bazinet:]

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

[Peter J. Crage:]

Yeah. Essentially, it's a gross-up revenue and cost gross-up and eliminate and it's all not cash like free tickets for advertising or services in general.

[Jason Boisvert Bazinet:]

Okay. And then, I guess, maybe a broader philosophical question for Mr. Manby. I guess, when you guys eliminated the dividend, what I thought – and given your focus on organic growth, what I thought would be the most prudent course of action is actually to spend more capital to raise it up above $175 million to try and drive attendance. Can you just talk a little bit about – is their scope for that to occur as we get to 2018-2019 because when I look back in the – I think it was the 2011-2012 time period, you guys were spending like $225 million or something maybe in a peak year as opposed to this sort of $175 million ceiling you articulated. Thanks.

[Joel K. Manby:]

Yeah. I understand the question. However, you're tying more capital to necessarily more attendance-driving attractions. We really feel in the range we've given we can do what we need to do in the core business to drive attendance and that's by being more efficient and putting more money into the rides like I articulated earlier. But in those numbers from the past, some of that had other elements in it that weren't really attendance-driving capital. We had lifting floors put in. That was public information, that was before my time. But there was a lot of money there that was not attendance-driving. But if you look at the attendance-driving level, it's always been in that range. And if you look at our other competitors in the industry and where we are compared to them, they spend at that level or less. And so, we can do it and we intend to do it and still drive attendance.

[Jason Boisvert Bazinet:]

Okay. Thank you very much.

[Joel K. Manby:]

Because we really think – the additional point I'd make is, we did that because we see incredible value in our stock right now. We thought the best return was to go out in the market and buy back shares. That's not necessary a philosophy always. It depends on what's giving you, the shareholder, the best return and our analytics, our analysis, that it was the best way to spend our money. And over time, as we turn the business around, and we show that positive growth in 2017, we could then look to other opportunities. There are many other opportunities we have to grow the company but this is not the time for that. This is the time to focus on the core, turn around the core and once we do that, there's plenty of opportunities for growth.

[Jason Boisvert Bazinet:]

Okay. Thank you.

[Operator:]

Your next question comes from Ben Chaiken with Credit Suisse. Your line is open. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) How much of the $40 million is dependent on you growing revenue or is it things you could pull out of the business today?

[Peter J. Crage:]

Hi, Ben. It's Peter. Things we can pull out of the business today.

[Joel K. Manby:]

Yeah. None of it's dependent on revenue. The way you should look at it is if we were flat, which we're not going to be, but if we were flat in revenue, we would have $40 million more in EBITDA two years from now. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Got it. And then does the $40 million have anything to do with removing the orca shows or would that be incremental and I guess can you talk about the...

[Joel K. Manby:]

I'm sorry for the interruption. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) No, no, go ahead.

[Joel K. Manby:]

That savings would be more on the capital side. So, as I said in my opening comments, we reversed the decision to invest $300 million in Blue World. We took a portion of that money towards attendance-driving capital that we thought could get a better return for less. The rest of that money will be put back into cash or distributed to shareholders and whatever gets the best return. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Got it. And then – okay. Got it. And then to be clear...

[Joel K. Manby:]

Did that answer your question? Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) No, yeah. In 4Q, is this an accounting treatment similar to, I guess, it was 2013 or 2014 or is this actual dollar savings in the quarter? It sounds like the former. Is that correct?

[Peter J. Crage:]

I'm sorry. Could you repeat that? I... Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Is it the $10 million in cost savings that you referenced in this year...

[Peter J. Crage:]

Right. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Is that just an accounting treatment similar to what we saw in 2013 or 2014, or is this actual dollar savings? It sounds like the former.

[Peter J. Crage:]

It's the former but, clearly, the construct is that those savings would occur in the following year. So, the dollar savings would occur after we recognize it, it's a pull-forward essentially on a pro forma basis. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Got it. And can you...

[Joel K. Manby:]

It is exact same thing we did the last two years. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Can you continue to do that next year? Meaning, if you think there's going to be expenses recognized in – that you're going to save in 2018 and you pull some of that forward into 2017, should we expect the same thing?

[Peter J. Crage:]

We have a $30-million cap on it. If we take this $10 million, we'll have $20 million – $22 million left – total of $22 million so, we'd have $8 million next year. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Okay. So, for any 12-month period, I guess?

[Peter J. Crage:]

Yeah. Ben N. Chaiken - Credit Suisse Securities (USA) LLC (Broker) Okay. That's all. Thanks.

[Peter J. Crage:]

Thanks.

[Operator:]

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

[Bryan Goldberg:]

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

[Joel K. Manby:]

Overall, we don't want to split it out any finer than we have. I think the main point is the strategy that we pointed out to focus dollars on 300 miles and in is successfully working in the State of Florida. But we also had good domestic market increase that were very much focused on basic electronic media and getting travel and tenders to intercept them around the country. So, that's actually been an effecting strategy as well, very efficient from a dollar standpoint. The 4% without Brazil was really for the whole Orlando market but most of that would be the dry park because most of this is driven by Mako. So that's how I would look at it.

[Bryan Goldberg:]

Okay. Thanks. Well, related to Brazil, I mean that, hopefully the worse is behind us with those trends. But if I remember correctly, it seemed it was a bit lagged, the impact to you guys relative to what happened in the economy down there and I'm just curious with all the stuff going on in the UK post-Brexit, as we head into next year, what are the indicators that you guys are seeing out of UK right now? Should we be concerned at all about economic softness and then, could you just sort of help us think about the relative sizes of UK again to your business?

[Joel K. Manby:]

Sure. Overall, our international business is we said about a third in Orlando and it's roughly a third Brazil, a little less than a third UK, and a third all other, just to give you some broad perspective. I just recently met with our distributors from England. We are seeing a good solid pre-bookings. We don't think from everyone we talked to that Brexit will have the same, anywhere near the same kind of issue as Brazil did, mostly because the exchange rate. It was also hit versus the euro, so it's also more expensive to be going to other European countries and their safety issues in other European countries and a lot of and the English are still coming to the United States for that reason. So, we have not seen indication that is going to be an issue but we certainly keep our eye on it every week and we'll do what we have to do.

[Bryan Goldberg:]

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

[Peter J. Crage:]

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

[Bryan Goldberg:]

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

[Peter J. Crage:]

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

[Bryan Goldberg:]

Okay. Thank you very much.

[Joel K. Manby:]

Thank you.

[Operator:]

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

[Joel K. Manby:]

Yeah. Thank you very much. I'd like to close the call. First of all, thank you all for your great questions but I want to say to you I have never felt more confident that we're on the right track. Our improving sales trends, our fast start to 2017 pass pre-sales, our increased focus on our pricing initiatives and the cost focus that we've talked in depth about. They all lead me to believe that 2017 will be an excellent year for SeaWorld. I appreciate your commitment to the brand, I appreciate your investment in the company and we are doing everything we can to move with haste to improve shareholder value. So, thanks for that. I appreciate the time and we'll talk to more of you soon.

[Operator:]

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