SeaWorld Entertainment, Inc.
Q3 2014 Earnings Call Transcript

Published: 12 Nov 2014

[Operator:]

Good morning ladies and gentlemen and thank you for standing by. Welcome to SeaWorld Entertainment’s third quarter 2014 financial results conference call. My name is Manny and I will be your conference operator today. At this time, all participants are in a listen-only mode. After conducting their prepared remarks, the management from SeaWorld will conduct a question and answer session and conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Mr. Gene Ballesteros, Senior Director of Investor Relations and Corporate Treasurer. Please go ahead, sir.

[Gene Ballesteros:]

Thank you. Good morning and welcome to our third quarter 2014 earnings conference call. Today’s call is being recorded and webcast live. Our third quarter earnings release was issued this morning and is available on the Investor Relations portion of our website at SeaWorldEntertainment.com. Replay information for this call can be found in the press release and will be available on our website following the call. Joining me this morning are Jim Atchison, our Chief Executive Officer and President, and Jim Heaney, our Chief Financial Officer. They will discuss important factors impacting the business and review our financial results. Before we begin, I’d like to remind everyone that our comments today may contain forward-looking statements within the meaning of federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different. We undertake no obligation to update these statements. In addition, on the call we may reference certain non-GAAP financial measures. More information regarding our forward-looking statements and reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the earnings release and can be also found in our filings with the SEC. Now I would like to introduce Jim Atchison. Jim?

[Jim Atchison:]

Thank you Gene. Good morning and thank you to everyone for joining us today. During our call, I will first provide comments on strategic developments impacting the business and then Jim Heaney will provide details surrounding our third quarter performance and provide an update on our 2014 guidance. Clearly 2014 has failed to meet our expectations. Consistent with the update we provided in August, the attendance trends the company experienced in the latter part of the second quarter continued into the third quarter. The market’s reaction following our last earnings call and the stock’s underperformance over the last few months is not something we take lightly. I want to reassure the investment community and all of our stakeholders that we firmly believe that our brands remain strong and are resilient to the challenges we are facing. Over these last few months, our senior management team has worked diligently to identify the recent issues affecting our company as well as to define opportunities, initiatives and actions that will move us forward. As we work to improve our results, it is clear that a more aggressive and scalable cost structure must be part of that equation. As we discussed last quarter, we engaged external advisors to help us evaluate our existing addressable cost base. Based on the work to date, we plan to deliver $50 million of annual cost savings by the end of 2015. A portion of these savings will be recognized on a pro forma basis in 2014 with the remainder being realized in 2015 as we implement all aspects of our plan. Among other expense reductions, our cost initiatives focus on the centralization of certain administrative and support functions and the further optimization of our park operations. This plan is being developed with a keen focus on the guest experience and the clear understanding that we will not impact guest and team member safety or the health and welfare of our animals. Our plan is designed not only to lower our cost base but also to deliver increased levels of effectiveness from our teams and to improve the scalability of our operations. We have great confidence in our ability to deliver on this plan based on the thoughtful advice from our external advisors, engagement of our team, and our overall disciplined approach to this effort. Jim Heaney will provide additional details on the timing and financial impact of the cost savings plan in a few minutes. In addition to the cost savings plan, we are adjusting our attraction and marketing plans to address our top line concerns primarily at our destination parks. These challenges include negative media attention in California and competitive pressures in Florida. On the reputation side, we have introduced a number of aggressive and proactive initiatives and campaigns to make sure the truth is being told, address public perceptions, and raise and protect brand awareness. On the competitive side, we engaged in-depth research which has provided valuable insights to assist us in realigning and focusing on our guest needs and desires. I am confident we are taking the necessary steps to address our near term challenges and position the company to deliver value over the longer term. As part of our longer term strategy, we have extended our memorandum of understanding and continue to work with our partners in the Middle East evaluating the business plan, technical models, and proposed agreements for a multi-park development. We expect the first phase of the project to open in 2020. We also continue to work with Village Roadshow Theme Parks on potential development opportunities in Asia and other international markets. Before highlighting some of our 2015 new attractions, I want to provide an update on the progress of our Blue World project, which we announced in August. We continue to move forward with our independent advisor panel in developing and designing our new state-of-the-art killer whale environment. As we noted in our announcement, these habitats will be the first of their kind and will nearly double the volume of water in our existing facilities. We plan for the new environments to have views exceeding 40 feet in height, providing our guests with the world’s largest underwater killer whale viewing experience. We expect to break ground on the first new environment at San Diego SeaWorld next year. Looking ahead to 2015, we believe our announced line-up of new attractions will deliver something for everyone. Next year at Busch Gardens Williamsburg, we will introduce a new roller coaster, bringing the park’s coaster portfolio to six. This exciting new coaster will tower more than 150 feet over the park’s Italian Village and will launch next spring. Adventure Island, the sister water park to our Busch Gardens Tampa theme park, will be getting its first new attraction in eight years. Colossal Curl, which opened to great reviews at Water Country USA earlier this year, will deliver 560 feet of action-packed thrills. This new slide will open during Adventure Island’s 2015 operating season. Opening at SeaWorld San Antonio in 2015 is Pacific Point Preserve, a new immersive experience where guests will make connections with sea lions and other coastal wildlife. This new realm includes a brand-new show, dining and merchandise venues, and a transformation of the park’s sea lion habitat that will allow guests to experience an enriching animal connection. Finally, next year Sesame Place will celebrate its 35th birthday. Guests at the park will enjoy birthday décor throughout the park, an all-new neighborhood birthday party parade, and a transformation of Elmo’s Eatery, the park’s largest restaurant. The restaurant will be converted from its current cafeteria style to a modern technology-based service where guests can order their food and have it delivered directly to their tables. As a reminder, stay tuned to our park websites and social media pages as we have additional news regarding our new attractions at our parks in the coming months. Turning to our rescue efforts, you may have heard that our animal rescue program recently surpassed a milestone of helping more than 1,000 animals in 2014. This milestone, which shows why animals need our help now more than ever, brings the total number of animals we’ve helped in our 50-year history to over 24,000. Our animal care teams, who are on call 24 hours a day, 365 days a year are the true advocates for wildlife and conservation. They work diligently day-in and day-out to rescue, care for and return to the wild hundreds of orphaned, ill or injured animals. I’m extremely proud of the work our teams and partner organizations do to protect and care for wild animals and wild places. Before I hand the call over to Jim, I want you to know that our team is intensely focused on overcoming the short-term challenges we face and on improving our results; however, we recognize that we are in the early stages of these initiatives and the results we envision will take time to execute. With the implementation of the planned cost initiatives I’ve discussed, adjustment of our attraction and marketing plans, and our continued focus on expanding our parks into international markets, we firmly believe these actions will enable us to overcome the current challenges and enhance our competitive standing. Now I’d like to turn the call over to Jim, who will provide details on our third quarter financial results. Jim?

[James Heaney:]

Thanks Jim. Good morning everyone. For the third quarter of 2014, the company generated revenue of $495.8 million, a decrease of 8% over the third quarter of 2013. The decrease in revenue was driven by a 5.2% decline in attendance and a 2.9% decrease in total revenue per capita from $60.74 in the third quarter of 2013 to $58.99 in the third quarter of 2014. The decrease in total revenue per capita was primarily the result of an unfavorable change in the park attendance mixture in the quarter and an increase in promotional offerings. Attendance for the quarter declined versus 2013 and the attendance trends we experienced at our destination parks in the latter part of the second quarter continued into the third quarter. We believe the decline resulted from a combination of factors, including negative media attention in California along with the challenging competitive environment, particularly in Florida. Part of the challenges in Florida relate to significant new attractions at competitor destination parks and a delay in the scheduled opening of Falcon’s Fury at our Busch Gardens Tampa park. In addition, the prior year also includes the benefit from the opening of Antarctica, which helped drive record revenue in the third quarter of last year. I am pleased to say that Falcon’s Fury opened over the Labor Day weekend and has been a home run new attraction for the park with a 93% excellent guest rating. The cost of food, merchandise and other revenues decreased by 5% from $40.4 million in 2013 to $38.2 million in 2014. As a percent of total revenue, these costs increased slightly from 7.5% in 2013 to 7.7% in 2014. Operating expenses in the quarter decreased by 1% from $202.6 million in 2013 to $200.9 million in 2014. This decrease in operating expenses was primarily the result of a reduction in variable rate labor cost and other cost mitigation efforts employed by our park operations team, largely offset by additional operating costs to support new attractions and other cost pressures. SG&A expense in the third quarter increased by 6% from $47.4 million in 2013 to $50.4 million in 2014. The increase was primarily related to higher marketing spend due to incremental brand initiatives, partially offset by a reduction in equity comp expense. Adjusted EBITDA, a non-GAAP measure defined and reconciled in our earnings release, decreased by 18% from $254.4 million in the third quarter of 2013 to $209.1 million in 2014. The decline in adjusted EBITDA was primarily a result of the decrease in total revenue. Depreciation and amortization expense increased from $42.3 million in the third quarter of 2013 to $44.4 million in 2014. This increase was due to the impact of new asset additions, partially offset by the drop-off of assets that are now fully depreciated. Total interest expense in the quarter increased by 3% from $20.2 million in 2013 to $20.9 million in 2014. The increase primarily relates to an increase in interest rate swap expense along with a decrease in capitalized interest in the quarter. As a reminder, the company executed a new interest rate swap agreement in March that increased our interest rate swap position from $550 million to $1 billion of our variable rate term loan debt. GAAP net income decreased from $120.7 million in the third quarter of 2013 to $87.2 million in 2014. Diluted earnings per share decreased from $1.34 in the third quarter of 2013 to $1.00 per share in 2014. Adjusted net income, a non-GAAP measure reconciled in our earnings release, was $88.6 million or $1.01 per diluted share. We ended the third quarter with $115.2 million of cash and cash equivalents on our balance sheet with no amounts drawn on the revolving credit facility. Total long-term debt, including current maturities was $1.616 billion, which includes the impact of the $31.5 million voluntary prepayment on our term loan during the third quarter of 2014. Our net leverage ratio at the end of the third quarter was 4.09 times adjusted EBITDA. Based on our debt covenant calculations at the end of the third quarter, we have $120 million of capacity for certain restricted payments in 2014. As of September 30, we have used approximately $104.9 million for dividend declarations and the repurchase of shares during the secondary offering in April. To maximize flexibility, we are anticipating that our board will shift the timing of the next quarterly dividend declaration from mid-December to early January 2015, with the payment still occurring in January. This shift also creates $15.1 million of restricted payment capacity for other purposes in 2014. The amount available for dividend payments and other restricted payments under the company’s debt covenants will reset on January 1, 2015 as described in our Form 10-Q. Before I go into our guidance, I want to provide insight into the prior period revisions disclosed in our press release. During the third quarter based on an internal analysis, we determined that we’d incorrectly applied accounting guidance to certain debt transactions in 2011. ’12 and ’13. As a result, we deferred more fees than we should have, or did not extinguish certain fees at the appropriate time. Our management team concluded that the revisions were not material to any of our previously issued annual or interim financial statements. We have revised prior year amounts to reflect these revisions and will include full disclosure for all affected periods in our Form 10-Q that will be filed tomorrow morning. Now moving on to our guidance for 2014, the following estimates are based on current management expectations. Please refer to the discussion of forward-looking statements in our earnings release and related SEC filings. We are affirming our prior guidance for full-year 2014 revenue and adjusted EBITDA to be down approximately 6 to 7% and 14 to 16% respectively versus the prior year. The cost reductions mentioned earlier in the call are expected to deliver approximately $50 million of annual cost savings by the end of 2015. For purposes of calculating adjusted EBITDA, $10 million of the cost reductions will be recognized in 2014 on a pro forma basis as permitted by our debt covenant definition for adjusted EBITDA, with the remaining balance benefiting 2015. The 2015 impact of the cost reductions will largely be offset by normal inflationary cost increases in labor and other expenses and an expected increase in marketing spending. On a net basis, we expect 2015 EBITDA expenses to be flat or down slightly versus 2014. We also expect to take a one-time restructuring charge of up to $13 million in the fourth quarter of 2014 related to the cost reduction initiatives. We expect this change will be excluded from adjusted EBITDA, consistent with what is permitted by our debt agreement definition for adjusted EBITDA expenses. In addition to the existing guidance, I thought it would be helpful to provide more specific guidance on our near-term capital expenditures. For 2014, we expect our full-year capital expenditures to be in the range of $155 million to $165 million and our 2015 capital expenditures to be in the range of $185 million to $195 million. At this time, we’d like to open up the call for questions. Operator?

[Operator:]

[Operator instructions] Our first question is from Tim Conder of Wells Fargo. Please go ahead.

[Q:]

Thank you. Gentlemen, if you could give a little bit more color – and I apologize if I missed part of this – on the trajectory of attendance trends, and in particular southern California and Orlando throughout the quarter and then here into the fourth quarter. Then Jim, just a clarification on your statement there, will cost on a net basis, you’re saying to be down slightly, resulting in EBITDA to be up slightly at this point for 2015.

[James Heaney:]

Good morning, Tim. I’ll take the second question first. Our guidance on expenses for 2015, as Jim mentioned, there’s a $50 million total cost reduction. Based on our EBITDA definition, we’re able to take $10 million of that early in 2014 with the remainder impacting 2015. Net of our anticipated cost increases outside of the cost reductions merits, we’re also looking increasing our marketing spend. On a net basis, we expect 2015 expenses to be flat to down slightly versus 2014.

[Jim Atchison:]

Good morning, Tim. This is Jim Atchison. I’ll take your first question. With respect to the attendance trends in those two parks, we’re seeing a continuation of what we had reported and signaled in Q2, so we’re not surprised by that. Not that we’re happy with it or accepting of it, but we’re seeing similar trends through those two parks as has been reported previously in our Q2 numbers.

[Q:]

I think on the Q2 call, you mentioned that those attendance trends were still down in the early part of the third quarter but had apparently tried to stabilize. Can you just give us, I guess, an update on that sort of cadence across the months through where we stand now?

[Jim Atchison:]

Yeah, we’ve seen some improvement, subtle improvement I’ll say, through the months. I think we had the biggest challenge beginning really in—well, let me back up. Our San Diego park, the challenges were a little bit earlier in the year. It wasn’t until our Orlando park really came into the very late May and essentially June period that we started seeing some softness relative to the competitive environment. We did see a bit of a flattening out of the trend – in other words, it not getting worse – and we’ve kind of stuck to that over the last three months. Basically, it’s kind of been at about the same pace.

[Q:]

Okay. Lastly for Jim Heaney, any additional comment, Jim, regarding potential of some refinancing on the debt side?

[James Heaney:]

Sure, yeah. As you know, our senior notes are callable in December, and we are working with several banks, looking at our options, the two obvious being the new bonds offering or tapping into the capacity of our term loan debt. We have $350 million of capacity. We’re evaluating the trade-offs, the maturity profile of the two options – prepayment flexibility. We’re also obviously factoring in market conditions, preserving our future capacity if we wanted to do something on the M&A side, and then obviously cost. We expect to execute something during the fourth quarter or in the first quarter at the latest.

[Q:]

Okay, thank you gentlemen.

[Operator:]

Thank you. The next question is from Alexia Quadrini of JP Morgan. Please go ahead.

[Q:]

Hi, thank you. Two questions. The first one, just on your full-year guide, which you’ve maintained despite a bit of a shortfall in adjusted EBITDA this quarter. The benefit in Q4 EBITDA, is it largely the $10 million in the cost savings it implied, or is there some other more positive trends underlying our Q4 to Q4 expectations?

[James Heaney:]

Well as you mentioned, the $10 million benefit for adjusted EBITDA will impact the fourth quarter, and it’s around $10 million. Our reaffirming guidance is based on the trends to date through the fourth quarter. We have October behind us and a portion of November behind us, so it’s really a factor of what we see in the business so far in the quarter and then the $10 million benefit of the cost reductions.

[Q:]

And then sort of a bigger picture question, when you’re looking at the competitive environment, my understanding is Disney has a fair amount of new attractions sort of popping up the next few years. But I guess more specifically Universal, where you have experience with the initial launch of Harry Potter two years ago and now you have this addition, do you have any sense of, I guess, how long the initial challenge to you guys lasts? Should we be through the worst of it now that it’s opened, or will it—I guess any color on how long you think that more intense competitive environment from the Universal side will go on for.

[Jim Atchison:]

Sure. This is Jim Atchison. I’ll answer that. I think the overall investments in this market over the longer term are good for the market, good for the destination, good for the players in it. In the immediacy of a major attraction, there can be shifts in market share over the longer term. It does tend to draw more people to the market. So I think if you’re implying that hey, it might be initial phases of the more intense competitive offering in Orlando hurt us a little bit more and might it flatten out or even ultimately draw more people to the destination, I think that’s a fair premise. So I do think that the initial offering, the initial launch of a major attraction tends to kind of over-index and then things tend to norm out a little bit. Orlando is a very repeatable market, so a lot of visitors to the town are here year after year, or at least every other year or things like that. So even if people index—if a competitor over-indexes in one year, that might trade off the next year.

[Q:]

I guess how long is that sort of initial period you described, just based on your past experiences?

[Jim Atchison:]

Well, it typically—you know, the most intense period in that would usually be the full calendar year impact of a new attraction, so I think that’s probably a decent rule of thumb.

[Q:]

Okay, thank you very much.

[Operator:]

Thank you. The next question is from Felicia Hendrix of Barclays. Please go ahead.

[Q:]

Hi, good morning. Jim Heaney, I was wondering if you could just give us some color. You talked a lot about why expenses are going up, and you talked about marketing programs. I was just wondering if you could help us understand what those marketing programs are and how those are—you know, strategically how you’re thinking about those to offset some of the competitive pressures you’re seeing.

[James Heaney:]

Sure. Yeah, to give you a little bit more color of the add-backs in 2015, there’s really three large categories. One is labor cost – we have impacts around minimum wage legislation in California. We do annual increases with our hourly labor in the parks, the Affordable Care Act costs are impacting us slightly. We’ve largely managed against that, but there are some cost pressures from that. The incremental marketing spend, I’ll ask Jim to talk about the strategy behind it, but from an order of magnitude standpoint it’s about $10 million that we’re adding or increasing our marketing spend by. Lastly, if you look at our non-labor costs, our other expenses, we have a long track record of being able to hold those down to around 1% year-over-year, an inflationary cost increase impact, and that’s baked into that number as well. So it’s really those three categories.

[Jim Atchison:]

To add more color on the marketing spend, what we’re doing is we’re effectively redeploying some of our cost savings into increased marketing. That will be most prominently featured in probably more advertising, some television, some digital, and some other efforts most squarely targeted at our destination markets more so than our regional portfolio.

[Q:]

Is that a major change from what you’ve done previously?

[Jim Atchison:]

Yes, it’s a significant new investment. When you look at it as an increase in our marketing spend, it’s a significant increase; but if we choose to focus it primarily just in advertising, it’s even a bigger increase, obviously. So there is—that’s a significant change for us, and I think that’s going to be beneficial both for stimulating demand, talking about our new attractions that we have, and also giving us opportunity to kind of better build our brand.

[Q:]

That’s a good segue to my next question, because as you think about next year and as you’re budgeting for next year, do you foresee revenue growth?

[Jim Atchison:]

We’re not providing guidance for revenues for next year. I think we’ve shared some views on our capex spend and we have shared some views on our expense base, which we see as flat to a slightly declined overall expense base, and that contemplates us absorbing these marketing expenses and some of the other expenses Jim had talked about. But at this point in the year, we’re not giving any guidance on revenues for next year.

[Q:]

Okay, I totally understand that. I was just trying to figure out your—but you’re facing a lot of headwinds right now, so I was just trying to figure out if there was any comfort you could give us that those headwinds might abate for next year. But it sounds like you’re trying to do that via marketing.

[Jim Atchison:]

Yeah, and I think we’ll be able to circle back down the road with kind of more view on that, but for now we’ve had—really, our focus is finishing out this year. We’ve had a tremendous amount of work in this cost base, which we feel good about, and that’s something that we fully expect and plan to deliver on for next year. So as we put together our final marketing plans and offerings for next year, we’ll circle back with a more clear view; but we think that we’ve got a good plan in place overall for 2015.

[Q:]

Great. Final for me is just you talked about this on your last call, and obviously the spending that you’re doing at your parks, particularly around the orca sanctuaries are lifting your capex as a percentage of revenues higher than the range that you had originally intended, higher than that 10 to 11% range. Just wondering, as we model out several years, how should we think about that capex as a percentage of revenues running for the next several years?

[James Heaney:]

Sure, this is Jim. Yeah, we recognize that our capex profile is an important number for everybody to get right. So as you heard on the call, we’re providing short-term guidance on capex, 155 to 165 for ’14 and 185 to 195 for 2015. If you look at the Blue World project spend, there’s three habitats. Directionally, we expect each habitat to cost around $100 million. The first habitat opens in ’18 and the last one opens in 2022, so if you take that $300 million spend and put it on a per-year basis, it’s roughly about $40 million, and that would start to hit really beginning in 2016. I think the best way to model it is to take the 2015 capex number and then add half of the $40 million increase for Blue World, because the Blue World project will replace some other planned attractions if you consider Blue World an attraction on its own, albeit maybe a more expensive one. So the best way to model it, at least in our mind, is 2015 being 185 to 195, then about half of that $40 million, or $20 million addition on top of that going forward for the next five or six years. Individual years might be higher or lower, but as a run rate we think that’s a good number.

[Q:]

Okay, super-helpful. Thank you so much.

[Operator:]

Thank you. The next question is from Tim Nollen of Macquarie. Please go ahead.

[Tim Nollen- Macquarie:]

Hi, thanks. My question actually follows directly on the last, which was about the cost savings and the investment profile. So $50 million, I think was perhaps a slightly higher number than we expected, but it sounds like you’re going to be channeling really all of that into increased marketing really in Q4 and going into next year. I thought the cost savings was going to be directed into the capex investment, although that sounds like that is really more starting in 2016. So if I could just check my logic and make sure I still understand it, the opex will be transferred into capex, only that next year your cost savings are going to be used more for marketing purposes. And then if you could also explain please where the cost savings are coming from? I understand it’s kind of central office costs, but if there’s anything more you could explain on that. Thanks.

[James Heaney:]

Sure. When we were initiating this effort, the cost reduction effort, a big part of our motivation was to offset a significant portion of the incremental capex, or all of it for that matter, and that at $50 million we get there. When you look at the year-over-year rollover of how those cost reductions will impact our P&L, there are ongoing cost increases that offset a portion of that, so if you think about the $50 million, we’ll get $10 million of it in ’14 and then another $40 million in 2015, so cumulatively we’ll be up to $50 million. Our cost base is around a billion dollars, so we have directionally 3 to 4% of increases from labor costs, the incremental marketing spend that Jim referenced, and then just general inflationary costs on our other expenses, which we try to hold at around 1%, so that will offset a portion of the cost savings. It’s still cost avoidance – absent these cost efforts, our cost base would have been much higher. We do view that as a net benefit, and again from a year-over-year basis we expect EBITDA expenses to be down to flat versus 2014.

[Tim Nollen- Macquarie:]

Okay, so I think I understand that for next year. Still, the idea is you’re freeing up capital to put into your capex spending, which begins more heavily into 2016.

[James Heaney:]

Yeah, a portion of the Blue World project impacts ’15, but it’s a smaller part. The real increases start in 2016.

[Jim Atchison:]

This is Jim Atchison. To your question about categorically where we’re getting these cost savings, if you look at our cost program as a percent of our total addressable base, it’s in the high single digits. We have two kind of big categories, buckets, and it relates to our centralization efforts of back office functions and then really just some other nuances of the operations, which if you were to look at just those operational pieces, they’re probably in the 3 or 4% of our total addressable base. So they are nuances, they’re not massive changes.

[Tim Nollen- Macquarie:]

Okay. Lastly, in addition to Blue World, you’ve laid out some expansion plans in Williamsburg and Tampa and San Antonio. Are there any others to be aware of in Orlando itself?

[Jim Atchison:]

Well, our attraction pipeline is always changing. We have concepts we look out for several years at a time, but we also have ones that are always in play. So I wouldn’t say that we’re kind of fully done with announcements around other attractions, but those are the only ones we’re prepared to announce at this point.

[Tim Nollen- Macquarie:]

Okay, thank you.

[Operator:]

Thank you. The next question is from Afua Ahwoi of Goldman Sachs. Please go ahead.

[Q:]

Thank you. Just two for me. First on the—I know in the past, you’ve said, I think, your capex would be 70% return projects and then maybe 30% other. As the number has not moved much higher, is that still a fair split to think about whether expenses are going towards return projects so 70/30? And then the other one was on the international expansion. I guess the 2020 timeline is a little further than we all thought was possible. Can you maybe talk about some of the steps between now and the next six years that makes this opening a little later, especially versus some of what your peers are announcing? Thanks.

[Jim Atchison:]

Sure. I’ll talk a little bit about the international expansion and I’ll let Jim comment on our capex mix of ROI projects versus infrastructure projects. So with respect to the international development and the timing we’ve signalled around 2020, that is a project we’re very excited about. We’re working with a terrific partner and we have a terrific development in mind, and as we said, that’s kind of the first piece of it would have that targeted opening date. That date aligns with a number of things, not the least of which is our partners’ development ambitions and schedules and other things that are kind of in play in that particular market. So I think when we get this MOU—when we get this project fully completed and prepared to announce, I think it will probably make a lot more sense, Afua. But that timing has a number of components to it, not just the deal but also what else is happening in that region.

[James Heaney:]

Afua, on the capex, the incremental spending is largely on attractions, but if you do the math on it, that would shift our mix from 70/30 to 80/20. Again, all the incremental spend is on new attractions, Blue World and also adding some attractions at our destination parks.

[Q:]

Okay, thank you.

[Operator:]

Thank you. The next question is from Joel Simkins of Credit Suisse. Please go ahead.

[Q:]

Hey, good morning. A lot of my questions have been answered. As you think about the capex going into San Diego around Blue World, how much room is there for disruption as that project gets ramped up, and are you designing ways to minimize that on the rest of the park?

[Jim Atchison:]

Maybe you could clarify a bit what do you mean, from the construction impact in the park?

[Q:]

Exactly.

[Jim Atchison:]

Yeah. That’s something we’ve given a lot of thought to, and we’re used to building attractions and major attractions, even, in our parks. We have three of our parks, big format parks run year-round, so we’re used to dealing with that. This particular development and the location that we’ve conceived for it, we think we have a pretty good plan to minimize the impact thereof, so I don’t think it’s going to be a major impact from a guest experience or just from the logistics of the layout of the park. We have a very good plan in place for how to mitigate that.

[Q:]

Just a follow-up, on the dividend, obviously you guys might be delaying that until the first quarter. I think when you came public, SeaWorld was not designed to be a yield story per se, so given that you’ve got a lot of capital commitments coming up over the next couple years, you’ve got to sort of re-think the business a bit, how should we be thinking about your absolute payout levels going forward, or at least in the near to intermediate term?

[James Heaney:]

This is Jim Heaney. Protecting our dividend is a high priority, a very high priority for us. The shifting that was referenced in the earnings release and on the call, it’s really more of a technical matter. We’re shifting the declaration date from December into January. It revolves around a technical issue with our debt covenants. We have—at the end of the quarter, we had $115 million of cash and we had no draw on our revolver, so we have plenty of liquidity. It’s really a technical matter. By shifting the dividend declaration out to January, it does two things. One, it avoids us paying a technical fee for a waiver, which could have been several million dollars, which we didn’t think was a good use of cash for the company. Then, it also opens up $15 million of RP capacity to do something else in 2014, which could be a share buyback or a special dividend. So we thought it was the right call for the company. We didn’t want to come out of pocket for what really was a technical matter, and we also like having $15 million of RP capacity now to do something in 2014.

[Q:]

Sure, that’s helpful. One final follow-up – as you completed your discussions with consultants, obviously you identified some of these cost opportunities. What did they say with regard to sort of your need for any potential investments in technology and other sort of back-of-the-house infrastructure, or do you feel that that’s sort of sufficient to continue to support the business?

[Jim Atchison:]

Well their feedback, specifically to your question, was favorable in that regard. We have made significant investments over the last five years around our infrastructure from an IT standpoint and systems standpoint, so from both servicing the needs of the going concern of the business, their view is that we were well equipped, and from the opportunities we see to further drive top line growth through technology initiatives, the projects that we have launched and the ones that we have in our pipeline, they concurred were well positioned to help the company.

[Q:]

Thanks guys.

[Operator:]

Thank you. As a reminder ladies and gentlemen, it is star, one if you’d like to ask a question. The next question is from Barton Crockett of FBR Capital Markets. Please go ahead.

[Q:]

Okay, great. Thanks for taking the question. On the competitive environment in Orlando, you didn’t really have any new attractions this year at SeaWorld. Are you planning to really step up the pace of new attractions next year, so that might be a favorable comp? Also on the topic of comps, how would you have described the weather impact this year, particularly in the Orlando market which I think might have been a bit rainy?

[Jim Atchison:]

Sure. Barton, I’ll comment on the attraction schedule first. We really have a number of levers to drive volume at our parks. It’s not just the attractions that we’re launching but it also has to do with pricing, it also has to do with our advertising spend and marketing spend overall. So to focus on that for just a moment, as we signalled, we’re going to step up our investment in marketing by $10 million of new investment, and that will be targeted at our destination markets, which obviously would include our Orlando park. So we feel that that’s a meaningful investment and we expect to have the desired outcome of attractive returns on that investment relative to helping to position the park in this very competitive environment. With respect to new attractions, we have—the line up that we share around our parks, we also have smaller attractions that will be quite meaningful to the local nearby markets, our pass holder bases, things like that that will also be part of our attraction lineups throughout our parks. But for major attractions, we’re always contemplating new ones, we’re always looking at new ones, and the timing of which is something that we’ll look to announce as we move along. The one thing I’ll say is the Orlando market and our year-round parks, they’re not just limited by launching attractions in just the summer months or the spring months. Being in a year-round market, there could be arguments made for opening attractions at different times of the year and still benefiting from them because of the year-round nature of the parks.

[Q:]

Okay, and then on the weather?

[Jim Atchison:]

Sure. With respect to weather, we had some beneficial weather impact, if you will, in the early part of the summer because we had a difficult weather season last year in June. So Jim can add a little more color on the weather impact that we’ve seen for the rest of the year, though.

[James Heaney:]

Yeah, in regards to Q3 and the weather, as you recall, last Q3 we had some negative weather effects so we had some fairly easy comps. This quarter’s weather was slightly better, probably not ideal. From a year-over-year basis it was neutral to slightly positive, but still not idea.

[Q:]

Okay, great. I’ll leave it there. Thank you.

[Operator:]

Thank you. The next question is from Robert Fishman of MoffettNathanson. Please go ahead.

[Q:]

Hi, good morning. Can you share with us anything you’ve learned about your brand specifically in San Diego and Orlando since the summer, and have you seen any general sentiment improvement with any of your new social media campaigns or from the announcement of expanding the orca tanks?

[Jim Atchison:]

Yeah, I’ll provide some general commentary on that, but that will probably be as much as we’re able to provide at this point. We have conducted a considerable amount of research around our brand and perceptions thereof, both from the SeaWorld brand broadly and our California park more specifically to your question. We’re kind of modifying our advertising campaigns, our messaging and kind of how we position the park to reflect the inputs that we’ve learned through that process. What we’ve learned and seen is that we have beloved brands that are 50 years old and have great experience and a great positioning in kind of the American vacation and theme park landscape. The attacks that we’ve had on our brand, although we disagree with the nature and premise of them and unfounded nature of them from the animal rights community, we don’t see as kind of lingering and lasting. We were pleased that some of our guests reflected that same sentiment. So we’re pleased with the research we gained. We have tweaked our messaging and advertising plans accordingly, and we’ll continue to work through that. With respect to the social media efforts, we were very pleased with the performance of those campaigns, those efforts to better tell our story and build our brand, if you will, so we’ll have more of that to come. We’ll have more efforts along those lines and in other ways that are designed to continue to work on a brand rebuilding campaign that we feel is well underway.

[Q:]

Okay, thank you. Can you discuss the possibility of starting to recognize any international licensing fees ahead of these parks opening?

[Jim Atchison:]

Well, we can’t just yet. That’s still an important piece of our ongoing negotiations to finalize these deals, but hopefully we’ll be able to circle back on that soon.

[Q:]

Okay, thank you.

[Operator:]

Thank you. The next question is from James Hardiman of Longbow Research. Please go ahead.

[Q:]

Good morning. Thanks for taking my call. Most of my questions have been answered, but I did have a couple. So you maintained your full-year guidance; that said, third quarter was beneath at least the Street expectations. Can you sort of talk about how trends have gone versus your own internal assumptions over the past three or four months? Has this basically progressed as you thought it would and it’s us that sort of got the timing wrong, or have things been a little bit worse and you were able to get maybe some incremental cost out of the business versus how you thought about it? And then I apologize if you’ve spoken to this, but can you just speak specifically to the post-3Q trends that you’ve seen in October and early here in November? Are things still trending sort of similar to where they were late 3Q, or have we seen any improvement?

[Jim Atchison:]

Yes James, this is Jim Atchison. I’ll talk about the attendance trends and maybe Jim can address your first question. So if you look at kind of Q4 for us, the biggest portion of the month is—the biggest portion of the quarter is December. We have robust Christmas programs in all of our parks, and that tends to drive that month. The other piece really relates to our Halloween season, again where we have kind of strong programs throughout our parks. So in terms of our Q4 trending, it’s consistent with the guidance we’ve provided, obviously, because that’s the only quarter left in our year, so we feel that it’s kind of built into that. But what I’ll say is we are encouraged by the trends in our Halloween program, and we have good expectations for our Christmas success. November is a much smaller month overall, and we’re too early in it to really gauge. But a strong Halloween and expectations for a good Christmas.

[James Heaney:]

To address the other question, as you know, we don’t provide quarterly guidance, and we work with all of the analysts to guide how the quarters might roll out, but the expense timing can be difficult to model sometimes. The top line came in right in where everybody expected. The business is progressing really how we saw it rolling out for the rest of the year – that’s why we reaffirmed guidance. I think it’s really—the differential this quarter was really around expense timing in the third quarter. We had some expenses around new attractions that maybe weren’t contemplated by the Street, but they were contemplated in our models. The good news at this point is with full-year guidance and year-to-date Q3, so the next quarter kind of falls out from that.

[Q:]

Great. Two more quick ones for me. So 185 to $195 million in capex for 2015, you’ve given us a few new rides and attractions, but given the fact that the Blue World project doesn’t really kick in until 2016, how much of that 185 to 195 do we currently know about, and how much is left to announce? Secondly, just quickly on the capex guide, last quarter you talked about sort of 13% of revenues for next year. You’ve now given us a number – 185 to 195. Sort of do the math and it suggests 7% sales growth next year. I know you’re not going to give guidance at this point, but are those two sets of guidance consistent with one another in terms of how you guys are thinking about next year? Thanks.

[James Heaney:]

No, I wouldn’t try to connect those dots. Because of the—you know, over the long term, a percentage of revenue in guiding capex makes sense, but given the volatility of the business, we thought it was more appropriate to shift away from that and provide actual dollar guidance, so I wouldn’t try to connect those two data points and extrapolate out a revenue projection. The 2015 capex is impacted by attractions that open in 2016. For an attraction, more than half of the capex can be in the year prior to when it opens, so 2015 is being impacted by attractions that open in 2016 that have not been announced.

[Q:]

But I guess in terms of 2015, is there a significant amount of—a significant number of rides and attractions built into that 185 that we don’t know about yet at this point?

[James Heaney:]

I don’t want to comment on the term significant, but there are substantial rides and attractions that open in 2016 that are unannounced and that are contemplated in the guidance we gave.

[Q:]

Got it. Thanks guys.

[Operator:]

Thank you. We have no further questions in the queue at this time. I would like to turn the floor back over to management for any closing remarks.

[Jim Atchison:]

Great, thank you. Well, thanks everyone for your questions and your continued interest in our company. Before I close the call, in honor of Veterans Day yesterday, on behalf of our entire team I’d like to pay tribute to all the veterans working here at SeaWorld Entertainment and to any veterans who joined us on our call today. I also wanted to express my gratitude to all of our team members for their ongoing dedication and commitment to our mission and values during this busy summer season. Rest assured that I and the entire SeaWorld team are focused on overcoming the challenges facing our company. We are resolute in our belief that our brands, parks, attractions and mission remain compelling and that we will emerge from this period stronger than ever. That concludes our call, and thank you again for your time.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.