SeaWorld’s Q3 Shows Strong Positioning to Ride Out Pandemic

When people reflect on the unprecedented year that was 2020, a fond trip to a theme park may not be the first activity that comes to mind. Major parks, attractions, and other tourist destinations worldwide have seen numbers plummet, as people sequestered themselves close to home during the coronavirus pandemic.

Theme parks, like many companies and businesses, faced new challenges in 2020. This was evident in the Q3 numbers for SeaWorld Entertainment (NYSE:SEAS), which – along with competitors Walt Disney (NYSE:DIS) and Comcast’s Universal Orlando (NASDAQ:CMCSA) – has been operating parks in Central Florida and across the country for months. Under varying and evolving degrees of COVID-19 restrictions in place, this entertainment institution has maintained an unwavering focus on health and safety.

The gravity of the situation, and what it signals about a rebound for these attractions in the coming months and years, requires perspective in an industry that is particularly vulnerable to the pandemic’s blows.

SeaWorld Entertainment Inc. is a leading theme park and entertainment company headquartered in Orlando, Florida. It is most notably recognized for its animal exhibits and learning opportunities, thrill attractions, and vast aquariums. SeaWorld’s management team is led by interim CEO Marc Swanson and its board is led by the Chairman of the Board of Directors, Scott Ross.

Throughout his 20 year tenure with SeaWorld, Marc Swanson held various roles, including Chief Financial Officer, and Treasurer. In 2019, Swanson was named as the company’s interim CEO.

Scott Ross is the Founder and Managing Partner at Hill Path Capital, the majority owner of SeaWorld, and serves as the Chairman of the Board of Directors at SeaWorld Entertainment. Prior to founding Hill Path Capital in 2015, Mr. Ross served as a Partner at Apollo Global Management. He was responsible for leading private equity and debt investments in the lodging, leisure, entertainment, consumer, and business services sectors. Mr. Ross has also previously served on the Board of Directors of Diamond Eagle Acquisition Corp., Great Wolf Resorts, Inc., EVERTEC, Inc., and CEC Entertainment, Inc. (the parent company of Chuck E. Cheese and Peter Piper Pizza).

SeaWorld’s Q3 Analysis

The earlier part of the year elicited difficulties due to economic shutdowns and government-imposed capacity limitations. As a result, the number of guests in the first nine months of the year declined by 13.8 million, as compared to the same period during the previous year. Total revenue during that period declined $822.5 million from the same timespan in 2019. Thus, SeaWorld has reported a net loss of $266.8 million to date in 2020.

To position the company to weather the storm, SeaWorld’s leadership moved quickly to shore up its balance sheet and reduce costs. SeaWorld estimated that its average monthly net cash burn (the amount of cash the company spends per month) in Q3 was $22 million per month. The company reported that its average monthly adjusted net cash burn (excluding deferred payments to vendors) was $2 million per month during this period. This a significant reduction compared to the previous quarter, in which SeaWorld reported an average cash burn of about $12 million a month.

In its most recent investors' conference call, Interim CFO Elizabeth Gulacsy reported that with a deferred payment balance of around $70 million, which the company would pay through April of next year, SeaWorld’s cash burn would be about $22–25 million a month.

The Road Ahead

We’ve all grown used to living alternate realities this year, and the same applies to companies and investors who have had to adjust to the new operating reality brought forth by COVID-19.

As theme parks across the board try to pick up the slack from slumps in attendance due to the pandemic, certain bright spots on that horizon signal a more hopeful turnaround than numbers would suggest. This may bode well for companies, including SeaWorld, as it continues to operate attractions during the pandemic.

SeaWorld stock has more than tripled since March, when it's 12 theme parks were forced to close due to the pandemic. When it comes to backup funding, as of September 30th, SeaWorld has stated that the company had $800 million dollars on hand to ensure continued operations.

During the third quarter, SeaWorld reopened three more parks, bringing the total number in operation by September to 10 out of 12. Other upticks on the ground appear helpful for SeaWorld’s recovery. According to Marc Swanson in an investors' call, monthly attendance improved during the quarter, with some parks reaching maximum (limited) capacity on certain days.

Per capita revenue also rose 16.5 percent to $67.94 during this time, due to the higher cost of admission, and more spending by guests inside the parks.

Fewer Visitors Paying More

There may be fewer guests in attendance today compared last year, but those who have visited SeaWorld parks appear more likely to pay higher prices for tickets and spend more on food, drinks, and souvenirs. Although travel restrictions may have prevented some out-of-town guests from attending, these numbers suggest that even locals who’ve visited may be willing to spend more for the experience. SeaWorld's average guest spending rose from $25.31 last summer to $27.55 this year, according to the company.

SeaWorld Entertainment generally relies more on local guests than its competitors, which has been a silver lining during a pandemic that has dealt heavy blows to the travel industry. The increased local visitation could help the company rebound quicker, as it aims to level out losses and find ways to stay ahead of competitors.

When it comes to attractions, unlike competitor Disney World (which never reopened water parks Blizzard Beach and Typhoon), and Universal Orlando (which only temporarily opened water park Volcano Bay), SeaWorld Entertainment continues operating Aquatica and Discovery Cove.

Universal Orlando has said that Volcano Bay’s shuttering is a “seasonal closure,” while Disney opted not to reopen its water park at all. In Florida, where waterparks can pretty much operate year-round, these types of attractions can elicit sizable income for park operators. With competitors’ water park options off the table for visitors until March, SeaWorld could benefit from business lost on closed waterslides and lazy rivers.

Holidays Keep Coming

SeaWorld Entertainment has also planned significant events during the holiday season that competitors have not, which may help attract visitors to the parks for fun, socially-distant entertainment. Both Comcast and Disney called off their Halloween events earlier this year, while SeaWorld Orlando opted to forge ahead with its Halloween Spooktacular, operating under a modified format.

This year, along with keeping its Halloween event on the books, SeaWorld had a Veterans’- Day-themed event called “Red, White & Blue Salute” in November, offering active-duty military and veterans free admission.

Christmas is in full swing at SeaWorld, and the company is introducing a new holiday performance to highlight the holiday spirit. “It’s a Wonderful Night: A New Story to Tell” is a festive show featuring more than 30 carols. The show will operate at limited capacity, and with physical distancing measures enforced.

SeaWorld will also showcase an ice-skating show, “Winter Wonderland on Ice”, complete with a colorful light show and winter-themed backdrop. This show will also operate at limited capacity, with social distancing for guests’ safety. Guests can enjoy “Rudolph’s Movie Experience,” a short film playing at the top of every hour inside the Sea Port Theatre, which will be operating at a limited capacity with physical distancing. Guests can also visit Santa Claus in the Wild Arctic and take pictures with him from a safe distance on his sleigh. In addition to standard COVID-19 safety protocols, guests visiting Santa Clause will enter one at a time and visit Santa while separated by a plexiglass partition.

This year’s other festive additions include a Kwanzaa and Hanukkah celebration put on by Sesame Street Characters. Hanukkah celebrations will take place from December 10th through December 18th, and Kwanzaa celebrations will take place between December 26th and January 1st. SeaWorld Orlando will also host a New Year's Eve event on December 31th, with a firework show and entertainment park-wide to ring in the new year.

Pandemic and Beyond

The trepidations that guests may have about visiting theme parks, and other attractions, during a pandemic will likely persist into the new year. Some theme park operators appear unsure about how to get back up to speed during these unprecedented times. As the increase in in-person per capita spending at SeaWorld shows, those who are prepared to go to theme parks right now are willing to pay for it.

SeaWorld is adapting to changing times, and evolving health and safety protocols, by operating limited-capacity special events at SeaWorld San Diego and Busch Gardens Williamsburg. By evolving protocol, SeaWorld can keep parks open while complying with state regulations. The company has also focused on health and safety by implementing increased precautions for guests, including temperature screenings and physical distancing. It has also added COVID-19 restrictions for events, requiring date-specific reservations in advance for certain attractions, and operating at limited capacity for special occasions.

Forward-Looking Strategies

For everyone involved in the theme park industry, 2020 has posed a unique challenge, and the following year will undoubtedly elicit continued shake-ups. The industry will need some time to come back around, and though there have been ups and downs for investors, there remain reasons to believe that things are moving in the right direction.

What may be a defining factor in the recovery is the extent to which the company can rally around goals and appeal to visitors who are vying for entertainment during the pandemic. Above all, SeaWorld appears to hold a continued appeal in areas that others don’t, as the company forges ahead through the end of the year and beyond.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes