Good morning, and welcome to the SeaWorld Entertainment First Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Matthew Stroud, Vice President of Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to SeaWorld's First Quarter 2019 earnings conference call. Today's call is being webcast and recorded. 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 in the press release and will be available on our website following the call. Joining me this morning are Gus Antorcha, Chief Executive Officer; and Marc Swanson, Chief Financial Officer. This morning, we will review our first quarter 2019 financial results, and then we will open up the call to your questions. Before we begin, I would like to remind everyone that our comments today will contain forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the Risk Factors section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time and will be included in our filings with the SEC that are available on our website. We undertake no obligation to update any forward-looking statements. In addition, on the call, we will reference adjusted EBITDA, which is a non-GAAP financial measure. More information regarding our forward-looking statements and reconciliation of adjusted EBITDA to the most comparable GAAP measure is 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 the call over to Gus Antorcha. Gus?

Thank you, Matthew. Good morning, everyone, and thank you for joining us. Today marks my third month at the company, and I'm pleased to report solid first quarter financial results. For the fifth consecutive quarter, we saw organic growth in attendance, revenue and adjusted EBITDA. We grew attendance and total revenue in the first quarter compared to the prior year despite unfavorable weather and the shift of Easter and some school spring breaks from the first quarter to the second quarter this year. We believe our first quarter results were primarily driven by the continued implementation of our improved marketing and communications initiatives and new pricing strategies, the positive guest reception of our new rides, compelling attractions and events, and the continued realization of our cost reduction and cost efficiency initiatives. We continue to see success with our season pass program. We believe our season pass offerings provide some of the best value in the industry, and we believe we are doing a better job communicating the highly compelling value our pass offerings provide to our guests with significant scope to improve our pass base and to increase loyalty among our guests and the predictability and recurring nature of our revenues. We continue to be focused on growing total revenue and expect to grow admissions per cap, in-park per cap and total revenue per cap going forward. In first quarter, we demonstrated our continued ability to grow in-park per cap spend, which hit a record high for the company. We're encouraged by the opportunities we see to continue to drive incremental spending on culinary, merchandise and other in-park spending. Admissions per cap fell this quarter due in part to the continued implementation of our new pricing strategies, which we've previously discussed and visitation mix due to the later timing of…

Thanks, Gus, and good morning everyone. As Gus mentioned, we reported solid first quarter financial results. First quarter attendance increased 3.6%. We believe that the improved attendance resulted from a combination of factors, including our improved marketing and communications initiatives, our new pricing strategies and the positive reception of our new rides along with compelling attractions and events, all of which drove increased demand. The increased demand was negatively impacted by unfavorable weather in some of our parks during the quarter and the Easter and spring break shift that Gus referred to earlier. These factors were partially offset by an extra weekend day in March and the timing of school holiday break schedules in early January. From a revenue standpoint, first quarter total revenue was positively impacted by an increase in attendance and improved in-park per capita spending, partially offset by lower admissions per capita. The decline in admissions per capita primary results from the impact of pricing strategies and visitation mix related to the later timing of Easter and some school spring breaks this year and increased pass visitation. During the quarter, we generated revenue of $220.6 million, an increase of $3.4 million, or 1.6%, compared to the first quarter of 2018. The increase in revenue results from the growth in attendance and in-park per capita spending partially offset by a decrease in admissions per capita. We reported a net loss of $37 million, an improvement of $25.8 million compared to the first quarter of 2018. Net loss includes approximately $2.6 million of pretax expenses attributable to separation-related costs. We reported adjusted EBITDA of $16.4 million, an improvement of $14.1 million compared to the prior year quarter. The adjusted EBITDA improvement was driven by an increase in total revenue, the realization of cost savings initiatives and the timing of…

Thank you, Marc. Before we open the call to your questions, I have some closing comments. As many of you know, we are one of the world's leading animal rescue organizations, and we are proud of our efforts to protect and save wildlife, including more than 34,000 animal rescues in total. During the first quarter, we helped to rescue over 450 animals. It is our hope and expectation that our actions also inspire our guests to consider and protect animals, their habitat and the wild wonders of our world. A few weeks ago we announced that SeaWorld Orlando was designation as a certified autism center by The International Board of Credentialing and Continuing Education Standards. SeaWorld joins Aquatica Orlando and Discovery Cove to become the first family of parks in the world's leading theme park destination to be certified. These certifications followed sister park, Sesame Place, the first theme park in the world to reach this accreditation in April 2018. We could not receive these important certifications without the care and dedication of our ambassadors in each of these parks. This is just one example of the outstanding team of ambassadors and leaders in all our parks, who are committed to our success. They are committed to providing exceptional service and meaningful experiences to our guests and world-class care to our animals. We have a terrific team of employees, and I'm truly excited and honored to be working with them. As you've heard today, we're confident in the direction we're heading and are encouraged by the results we're seeing in our business. Our confidence extends to our long-term view and the significantly improved financial performance we strongly believe this company can deliver over the coming years and beyond. As I've said before, we have an exceptional business model. We're focused on improving our execution with enhanced marketing and communication initiatives, more effective pricing strategies and the introduction of new compelling rides, attractions and events in every park every will continue to identify and execute on cost and capital efficiency initiatives that we expect will contribute to meaningfully improved margins and profitability. Through these efforts, we believe we'll deliver attendance, revenue and adjusted EBITDA growth that will result in a meaningful increased shareholder value. We're excited about the future, and we look forward to sharing our progress with you. Now let's take your questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Brett Andress with KeyBanc Capital Markets. Please go ahead.

Hey, good morning. So, Gus, I am trying to be respectful of your comments in the prepared remarks. But with the transfer of ownership of the shares, I guess, what's been your communication with these new shareholders? Is there any open dialogue there? And does the company have any view, I guess, on being able to repurchase shares, if need be, after the lockup expires?

Sure, thanks for your question. So, a couple of questions in there. We clearly have to talk to them to complete the transfer. And so in that regard, yes, we communicated with the lenders. Beyond that when it gets to their intentions and what they're planning in doing, really can't comment on that. Can you repeat the second part of your question?

Yes, the view on being able to repurchase shares, if need be, after the lockup expires.

Okay. I mean generally, again, we can’t really comment on will we buyback and when we buyback and what price we buy back shares. I mean, that's not something we really comment on because it's really up to the Board. That said, the Board is always looking at ways to deploying cash and capital in a way to attract shareholder value. And if the opportunity should arise to buy shares, I'm sure the Board will evaluate it. But again, it's up to the Board.

Yes, understood. And then my follow-up, you called out unfavorable weather at some of the parks that had an impact on attendance. I guess, any more color there? What parks were impacted? How much of an attendance impact do you think that had? And then, I guess, have you recouped any of that during the April and May time period now?

Hey, Brett, it’s Marc. I can take that question. So, yes, I mean, we’re going to call out weather when it's significant, and so obviously, the fact that we called it out tells you it had a pretty meaningful impact on the quarter. I would say it was largely in California and in Texas. And I think certainly in California's case, it's been pretty well reported, if you've followed all the weather they've had out there. What I would say just briefly about April, I mean, we're not going to comment specifically on the current quarter other than to say that we're pleased with our results through April, and we're focused on executing the rest of the year. We're still early in the second quarter, and we're excited about the summer ahead of us. We have a lot of things that we're excited about for the summer. And we're going to continue to execute on those. But through April, we're pleased with the results, and I will leave it at that.

Thank you.

And our next question comes from Steve Wieczynski with Stifel. Please go ahead.

Hey, guys. Good morning. So, first I want to go back to the long-term EBITDA target of $475 million to $500 million, which sounds like you guys just reaffirmed that this morning. But if we look at some of the drivers of getting to that target – and I think we've asked this before, but some of those assumptions now seem very conservative, especially I think when we look at visitation metrics you guys were embedding in those targets. So I guess, the question is here, I don't know if this is for Gus or Marc, but are we getting to the point where this 2020 EBITDA target might be getting a bit conservative?

Hi, thanks for your question. I will give you my higher level view and then Marc could comment on the specific targets. I mean, I think we've outlined the strategy. We're executing against that strategy and working on multiple levers on the business whether on the cost side, the attendance side, per cap side. But it's early in the year, right. We're sitting – we're talking about Q1. Q2 and Q3 are big quarters, and so it's still – it's too early. We're excited. We're optimistic about what lays ahead, and we're certainly focused on executing. But it's still very early in the year to be really commenting about the change in that goal that we set for ourselves.

Yes, Steve, this is Marc. I would agree with what Gus said. And a remainder, we did lay out kind of multiple paths to get there. We gave one illustrative example last year. But obviously, you could outperform in one or more areas, as you’ve noted. I will say to address it, on the per caps, again, as we’ve talked about, we do feel as we approach the back half of the year that we will drive growth there. And if you look at our strategies of continuing to test and optimize on pricing, as we lap – those strategies that we started really late in Q2 of last year, as we lap those, we’re confident we can get modest price increases on similar offers on this year.

Okay. Got you. Thanks guys. And then second question would be just around general price increases. If we look at how strong the first quarter attendance was even with the shifts in the calendar and the weather impact, is it fair to say that as you’ve layered in these price increases, the pushback has been minimal from your customer base which should allow to push more on the price side moving forward?

I think what I would say in that regard is, we are focused on driving total revenue and driving EBITDA. And of course, we want to push for higher pricing, but you have to keep an eye on the volume metric and the trade-off between price and volume. Q1, given the shifts, yes, it was very strong attendance, and that gives us optimism in our ability, especially in the second half of the year, to begin to push on the per cap. And that’s why we are, as I mentioned in the opening comments, we’re confident in our ability to move both attendance and per cap in the second half of the year.

Okay, great. Thanks guys, I appreciate it.

And our next question comes from Alexia Quadrani from JPMorgan. Please go ahead.

This is Anna Lizzul on for Alexia. Thank you so much for the question. You opened Sesame Street in Orlando in late March. Just wondering how that’s tracking so far. And also if you could comment on in terms of your potential price increases, how do you expect to manage those potential price increases with the upcoming competition from other parks and notably the opening of Star Wars planned later this year at Disney? Thanks so much.

Thanks. I’ll answer that question. I’m very pleased with the opening of Sesame Street land at SeaWorld Orlando. I’ve been out there multiple times and walked it. I’ve seen how families enjoy the space, how little kids run around, how they interact with all the different technology and interactives we’ve put into the land. It’s really compelling experience, and guests are enjoying it every day. Satisfaction scores look very positive. And so we think it’s been a great addition and really rounds out the experience we have at SeaWorld Orlando. It’s a park that combines animal experiences with thrill rides, with areas and activities for smaller children. So if you think about a vacation for a family, it’s really compelling and the unique value proposition, which then is a way I think about second part of your second question around Star Wars, which is I think we have a unique and differentiated experience. I think it resonates. And so I don’t – I’m not so worried about other parks opening up lands or opening up rides because we are clearly differentiated, and we’re in a market that as this market grows, we will stand to benefit. And so as Universal and Disney add investment into their parks, we will naturally benefit, not just SeaWorld Orlando, but also Discovery Cove and Aquatica. And so I think we’re very well positioned in Orlando. And as Orlando continues to grow and become a destination, we will benefit from that.

Anna, this is Marc. The one other reminder I’ll give you, keep in mind that we’ve been competing in this market since the 70s. And if you think back to all the growth that Orlando has had since that time, we’ve been a strong competitor throughout that duration. And as Gus mentioned, I mean, over 70 million people visit Orlando. So we feel good about our opportunity to compete here and feel good with our product and what we offer, I guess.

Great. Thank you.

And our next question comes from Michael Swartz with SunTrust. Please go ahead.

Hey, good morning everyone. Maybe start off with a question for Gus. Now that you’ve had a few months in the CEO role and I guess to get a closer look under the hood, I guess, is there anything about the company or the park portfolio that surprised you either to the positive or the negative? And maybe how your findings in your first 90 days on the job foot with the progress towards these 2020 targets that have been laid out?

Great. Thank you. So I guess, let me start by saying, and I mentioned this in our opening comments, and it was my sense to be honest coming in and it’s just been reaffirmed. And honestly, I’m more excited than it was looking outside in. This is an incredible business with an incredible business model. And there’s no doubt in my mind, there’s significant opportunity ahead of us. As the quarter shows and our results demonstrate, we’re making progress along the strategy that we’ve outlined. And as a reminder, and I reaffirm this strategy, our focus is on capital allocation adding new compelling rides, lands, experiences across all the parks, marketing that in a more effective way so we generate demand, pricing to capture that demand and then real discipline around cost. And as the quarter shows, attendance is up, our past pace which you mentioned is up, our costs are coming down. So there is definite progress, and I’m excited about that progress. But we have more to do. We need to continue to improve our execution on all the elements of our strategy, but especially around, and my sense is marketing, digital and our communications initiatives. The lineup we’re introducing is incredible with the new rides, attractions, events, and so we need to make sure we’re communicating in a compelling way. And in addition, the efforts we have around education, rescue, conservation as well as sustainability are amazing. I think that’s been an area as I’ve met the team and – at the parks and at the centers has really blown me away. And so we need to make sure we’re communicating all the efforts of the company in a more compelling way.

Okay, great. That’s helpful. Thanks for the color. And then maybe shifting over to Marc, just the execution against the $50 million in cost savings target that you’ve built in those 2020 targets, can you talk about where you are along that path? How much is left to go? And maybe what some of the larger projects are that remain to be executed against?

Yes. Sure, Michael. As we’ve talked about, we began this process back in 2018 and started to see some savings last year but obviously with an eye towards 2019 would be the year that we would drive a fair amount of savings and then some would bleed into 2020 as well. What I’ll tell you is we feel we are making very good progress towards that $50 million, but we’re not going to stop when we get to that point. What I would stress to you is we have a continual focus on driving efficiencies. And so in a number of areas as we’ve talked about in the past, whether it’s vendor spend, use of consultants, etcetera, and then looking for more automation and efficiencies in how we run our business. And so we feel good about where we are, and we’re going to continue to execute.

Okay, great. Thanks for the color.

And our next question comes from Tim Conder with Wells Fargo Securities. Please go ahead.

Just, if I may, Marc, just to follow-on to the question there, where are we, how far have we come on that $50 million, I guess, line there of the savings specifically, if you have a number? And thanks also for the color just reiterating the 2020 goals. We appreciate that. The other question’s a little bit more of a housekeeping also. Can you give us some color on what you’re seeing both either in unit terms or pricing on your season pass year-over-year and the related where do we stand with the deferred revenue at the end of Q1?

Yes. Tim, I can take a couple of those for you. So again, we don’t have a specific number on the cost savings. I think you can dive into the numbers and see that we’ve made, I would argue, pretty substantial progress. And if you look at our – if you dive into the press release, we have a pro forma cost savings of just over $20 million that we would execute and realize going forward. So hopefully that gives you some comments or some context. And then on deferred revenue, we are up 9% as I mentioned in our prepared remarks. And that’s mainly driven by the season pass category. And what I would tell you is, our pass base sitting here today and through the first quarter, we have more people have a pass this year than certainly had last year.

And then as my follow-up, I guess, any color in that season pass base the renewals versus how are you just in general first quarter small, so maybe granted that, but the trends in what you’re seeing in unique visitors, both our unique – new unique season pass holders whether their conversion of prior guests into season pass holders or just totally new to the SeaWorld – the SeaWorld family?

Yes. Tim, so what I can tell you when we look at kind of unique visitation over the last 12 months, I mean, we are seeing an increase to your point more people have a pass, and so those are more unique visitors, and obviously, they are visiting. So that’s good.

Okay. Thank you.

[Operator Instructions] And our next question comes from Paul Golding with Macquarie Capital. Please go ahead.

Thanks a lot for taking my question. Congrats on the quarter. Just a follow-up on season pass color. I was wondering if you could give any extra color on EZ Pay uptake as part of the mix. And then just a question on SG&A. It looks like it’s down solidly year-over-year. I was wondering if you could give some color around what category of SG&A was driving that.

Paul, it’s Marc. I can take both of those questions. So on EZ Pay, I think what we would tell you there is, if you look at how we’ve launched our pass program back in October, I mean, that is – we are trying to lead in a lot of cases with a monthly payment message, and we know that, that appeals to a lot of people. So I think, we’re finding success in that program, and I think we will continue to find that monthly payment is appealing to a lot of people obviously. And then on the SG&A, what I would remind you is last year and you’ll see this when we file the Q, which will be available tomorrow morning, there was about an $8 million legal accrual last year, and then there was about $4 million of equity comp related to some of the departures we had last year from executives. And then the remainder is a combination of the cost savings initiatives that we’ve had ongoing and then there is a smaller amount of timing element, which won’t be totally unexpected in Q1. So it’s a mix of variety of things, but what I would tell you is we have a tremendous focus on the SG&A category from a cost efficiency and cost savings standpoint, and we will continue to execute on that and continue to especially closely at that category.

And we’re looking – this is Gus. We’re looking at multiple areas to drive lower costs whether it’s sourcing in what we pay for things whether it’s adding technology and driving labor efficiency, whether it’s looking at some of our structural cost. We are – we have been and we’ll continue to look at multiple areas within our cost structure to drive our costs down and improve our margins, which I noted in the last call we’re keenly aware that below the competition, and so we’ve made good progress, but still have a lot of work to do.

Great. Thanks so much.

And our next question comes from Chris Prykull with Goldman Sachs. Please go ahead.

Good morning guys. Thanks for taking the questions. Just had a quick one on in-park spending per capita. It looks like you’re bringing back a number of events and promotions from last year. How should we think about your ability to continue to drive low- to mid-single-digit growth on that line item in 2019? What would you sort of characterize as the key contributors?

Sure. I’ll comment at a high level, and Marc, if you want to comment on some of the numbers, feel free to jump in. But I think there’s material opportunity left in in-park, and we’re at a high for the historical base. I think there is, like I said, materially more opportunity. And it comes in a number of places. Food and beverage, I think, has significant opportunity. If you look at what theme parks do generally versus how food and beverages evolving outside, it points to a number of areas, how we can evolve our food offer and what we offer and what we serve to guests in the parks, but also comes in how we better leverage our assets, whether that’s animal experiences or upgrading folks in the park. I think there’s a lot more we can do there. Again, we made some progress, but there’s a lot more we could be doing there as well as evolving our retail offer. So I look at the product we’re offering, the price we’re offering at. Is it keeping – is it sort of keeping with the trends that we see how consumer cases are evolving? And to me it strikes me as a significant area of opportunity going forward.

Yes, and the only thing I would add, Chris, is I think another area that you’ll see us make progress in and we’re really excited about is our zoological interactions. And as you know, we have a one-of-a-kind world-class zoological collection and giving up-close experiences with those animals and the trainers, etcetera, is appealing to a lot of people. And I think you’ll see us continue to look for opportunities to do more and more of that in our parks.

Great. That’s helpful. And then it looks like, I guess, the advanced reservations or bookings whatever you want to call it for the first couple of weeks at Star Wars in Southern California sold out fairly quickly. I guess, my question is have you seen any indication whether its hotel bookings in the area, your advance ticket sales, any other indicators that you track that might indicate you will capture some of those trips?

So we haven’t seen or tracking anything that would suggest one way or the other given Star Wars opening. It’s a little hard with Q1 in California. There was a lot of weather, and so it’s a little hard to look at the Q1 trends there. But going forward, there is nothing one way or the other that we’re seeing at this point that would suggest anything to perform it.

Okay. That’s helpful. And then just any way you can quantify the timing element of the SG&A in the first quarter? How small was it or how big was it, just so that we can model the second quarter and the rest of the year appropriately?

Yes. What I would tell you, Chris, is it’s single-digit millions. And what I would tell you is on a go-forward basis some of that pushing it out or all of it will reverse, but we have a continual focus on driving cost savings. So even as those costs are incurred later on year, we’re optimistic we can find additional cost savings and continue to execute on our cost efficiency culture.

Understood. Makes sense and good luck for summer.

[Operator Instructions] And our next question is follow-up from Tim Conder with Wells Fargo Securities. Please go ahead.

Just anecdotally some of the conversations we’ve had with folks in Southern California, a lot of the locals are saying we’re not going anywhere near Star Wars for several months, just given the press and people. So it could be even a near-term benefit. But the other question I did want to circle on is international attendance Q1. Any commentary on trends there, especially from Orlando, where that’s mostly concentrated or what you’re seeing in advance bookings?

Tim, it’s Marc. So obviously, with the Easter shift, there’s some impact on that international numbers. We’ve mentioned in our press release with just the amount of tourism in Q1 that shifted into Q2. So what I can tell you is, as of the end of the April, which would normalize for that Easter shift, we’re pleased with our results, and we’re pleased with where the international attendance sits for the year.

Okay. Thank you.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Gus Antorcha for any closing remarks.

Thank you. On behalf of Marc and the rest of the management team at SeaWorld Entertainment, I want to thank you for joining us this morning. I want to thank our employee ambassadors for the contributions for our strong performance in the first quarter and their efforts every day to further our mission to protect animals. We’re enthusiastic about 2019, and we look forward to talking with you over the coming months. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.