United Parks & Resorts Inc. Q3 FY2022 Earnings Call

Good day, and welcome to the SeaWorld Q3 2022 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Matthew Stroud, Head of Investor Relations. Please go ahead.

Thank you, Dave, and good morning, everyone. Welcome to SeaWorld's third quarter 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 Marc Swanson, Chief Executive Officer; and Michelle Adams, Chief Financial Officer and Treasurer. This morning, we will review our third quarter financial results, and then we will open up the call to your questions. Also, we have posted a short slide presentation on our investor website along with our earnings press release that we will discuss during our prepared remarks. 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 may reference non-GAAP financial measures and other financial metrics, such as adjusted EBITDA and free cash flow. More information regarding our forward-looking statements and reconciliations of non-GAAP measures 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 our Chief Executive Officer, Marc Swanson. Marc?

Thank you, Matthew. Good morning, everyone, and thank you for joining us. We are pleased to report our sixth consecutive quarter of record financial results. While we achieved records for revenue, net income and adjusted EBITDA in the quarter, these results still do not reflect a normalized operating environment and we still have significant scope to improve our execution and our financial results. We had a meaningful impact from adverse weather in the quarter, including Hurricane Ian that we estimate led to 90,000 fewer guest visits during the quarter. International and group visitation are still not back to pre-COVID levels. Our staffing is still not at optimized levels and inflationary pressures continue to impact our cost. We are pleased with the growth in total revenue and total revenue per capita during the quarter, which continued to demonstrate our pricing power and the strength of consumer spending in our parks. Our cost management and flow through to adjusted EBITDA for the quarter could have been better. To this end, we have enhanced and increased our efforts related to monitoring and managing costs throughout the enterprise and our initiatives to reduce costs and increase efficiencies. As we highlighted last quarter, we have several new projects and initiatives in flight that we expect will help us work to offset the unusually high inflationary pressures and become a more efficient and profitable operating business over the coming quarters. While inflationary pressures continue to exist, we expect certain cyclical supply chain related and/or temporary cost pressures to moderate over the coming quarters. We recently concluded another successful Halloween season at our parks featuring our award-winning Halloween events, which led to strong revenue growth this October compared to October 2021 and October 2019. Revenue for October was up approximately 13% compared to 2021 and approximately 45% compared to 2019. Over the next few weeks, we will begin our popular Christmas events at our SeaWorld, Busch Gardens and Sesame Parks. Our Christmas events feature exciting entertainment, unique food and beverage offerings and seasonal merchandise for guests of all ages. As we have consistently demonstrated, our business model is strong and resilient and we believe that we have significant opportunities to improve and grow our revenue and profitability. As I've mentioned previously, we operate in an industry and in markets with growing demand trends over the long term and we have significant available guest capacity across our product portfolio. Our attendance levels are still below the total attendance levels we achieved in 2019 and well below our historical high attendance of approximately 25 million guests recorded in 2008. We have made significant investments that we expect will continue to deliver strong returns and we have specific plans we are executing on today and plans for the future that give us high confidence in our ability to continue to deliver additional operational and financial improvements that we expect will lead to meaningful increases in shareholder value. Looking ahead, we are very excited about our plans for 2023. Any investments we have made and will be making we expect will drive meaningful growth and new records in revenue and adjusted EBITDA. We have announced a few of the upcoming new rides, attractions, events and upgrades, including something new and meaningful in each of our parks. This lineup includes, among others, Pipeline, the Surf Coaster at SeaWorld Orlando; Serengeti Flyer Swing at Busch Gardens Tampa Bay; DarKoaster, a Straddle Coaster at Busch Gardens Williamsburg; Arctic Rescue Rollercoaster at SeaWorld San Diego; Catapult Falls Flume Coaster at SeaWorld San Antonio; Riptide Race water slide at Water Country USA; and a refresh of Laguna Grill at Discovery Cove. Similar to the previous quarter, we have posted a short presentation on our Investor website along with our earnings press release that provides more detail around the visitation of our park portfolio, how our industry and business performed during historical recessions, the value orientation of our offering, our attendance trends and historical peak attendance levels, our cost reduction and efficiency initiatives, and an update on our mobile app. On Page 4, we show a description of the visitation of each of our markets across our 12 park portfolio and the aggregate statistic for the whole portfolio. As we discussed last quarter, and as you can see from the page, we estimate that approximately 85% of our attendees drive to our parks. Our visitation is more similar to a typical regional amusement park business. At times, people compare our business to destination theme parks like Disney or Universal, but we believe our visitation and business dynamics are more closely comparable to our regional theme park peers as opposed to our destination theme park peers. On Page 5 of the presentation, we show an industry graph that shows the growth of the industry over the last 20 years and the resiliency of the industry during the last two U.S. recessions. On Page 6, we show our specific performance during the last two U.S. recessions. As you can see, we believe our business demonstrated resiliency in both the 2001/2002 recession and the 2008/2010 recession. As we have discussed before, we offer tremendous value to our customers and given our attractive value proposition and the drive-to nature of our parks and how our business has performed in past recessionary periods, we expect it will perform relatively well in future recessionary environments. On Page 7, we show the value proposition of our park offering versus other entertainment offerings. This slide underscores the incredible value we provide to our guests and not only highlights the opportunity to continue to grow pricing but also helps explain the resiliency of our business during economic downturns. Page 8 shows our latest LTM attendance of approximately 22 million visitors and a potential for where our attendance can go by returning to historical levels. As we have discussed and you can see we are still below 2019 levels and we are well below 2008 peak attendance. We also show what our attendance would be if we achieved peak attendance at all of our parks in the same year. The punchline is that we have significant potential to achieve meaningfully higher attendance by getting back to historical levels. As you can imagine, we recognize this opportunity and we are working on plans to recapture lost attendance. Page 9 of the presentation presents an updated target for our cost efficiency and reduction initiatives. As we highlighted, we have enhanced our efforts around these initiatives and have teams dedicated to realizing these and additional opportunities. As we highlighted last quarter, this is just a select list. It does not necessarily reflect everything we are working on or will work on over the coming months and quarters. On Page 10, we provide an update on our mobile app. As you can see, we continue to make good progress rolling our new value-enhancing features in and gaining adoption and usage. As of September, the app had 3.4 million downloads and was used by more than 50% of guest parties visiting our parks. We are capturing up to 15% of in-park revenue on the app and for certain products it's 30% or more. Mobile ordering has been expanded to additional restaurants and is now operating at about half of our target restaurants. We continue to see increases in average transaction value for food and beverage purchases made through the app compared to a point of sale order. We are excited about the potential of the app and its ability to improve the guest experience, drive increases in revenue and decreases in cost. We hope this helps everyone better understand the drive-to and regional theme park nature of our park portfolio, the resiliency and attractive relative value of our industry overall and our business in particular, our attendance potential, our cost reduction and efficiency efforts, and our mobile app before moving to Michelle's update on financial performance. Let me comment on a few more items in greater detail. First, let me speak to our balance sheet, which continues to be strong. Our LTM September 30, 2022 net total leverage ratio is 2.71 times and we have approximately $480 million of total available liquidity including almost $110 million of cash. This strong balance sheet gives us flexibility to continue to invest in and grow our business, make opportunistic investments, and to thoughtfully return capital to our shareholders. Second, we continue to make progress with our plans to build hotels to complement our park offerings. We have identified possible sites, continued our design and planning efforts, and have hired a dedicated experience leader to help drive this effort. We look forward to sharing more specifics in future quarters. Third, our partner in Abu Dhabi announced it has reached 90% construction completion of the next generation marine life theme park, SeaWorld Abu Dhabi. This park is expected to open in 2023 and will include the UAE's first dedicated marine research, rescue, rehabilitation and return center. We continue to progress discussions related to other international opportunities and expect to have more to share in coming quarters. Finally, we continued to aggressively repurchase shares during the third quarter and into the fourth quarter as we repurchased approximately 3.6 million shares of common stock at a total cost of approximately $183.9 million from August 2022 through October 2022. Year to date through October, we have repurchased approximately 12.3 million shares of common stock or approximately 16% of total shares outstanding at a total cost of approximately $683.9 million. We have a strong balance sheet and financial position, a clear belief in our go-forward prospects and we believe the markets have offered us an extremely attractive value this year. In regards to share repurchases, overall, we are proud to report record net income on a trailing 12-month basis of $313.7 million and record adjusted EBITDA on a trailing 12-month basis of over $727 million which was achieved with attendance of 22 million guests, which is still below our 2019 attendance and well below our historical high of over 25 million guests we achieved in 2008. These achievements reflect the extraordinary efforts of our teams to operate our parks despite the challenging environment we faced and continue to position this company for revenue growth and increased profitability. With that, I would like to turn it over to Michelle to discuss our financial results in more detail.

Thank you, Marc, and good morning everyone. As Marc mentioned, our results of operations for the third quarter of 2022 and 2021 continue to be impacted by the global COVID-19 pandemic as shown in part by the decline in both international and group related attendance in both periods as compared to pre-COVID levels. The first nine months of 2021 were also impacted by capacity limitations, modified and limited operations and in part temporary park closures. My commentary today will be focused on our financial results compared to 2021; however, due to the impacts the pandemic had on our 2021 year-to-date third quarter results, we provide a comparison of some of our key results versus both 2019 and 2021 in our earnings release charts and will also do so in our Form 10-Q. During the third quarter, we generated record total revenue of $565.2 million, an increase of $44 million or 8.4% when compared to the third quarter of 2021. The increase in revenue is due to an increase in total revenue per capita of 6.8% and an increase in attendance of 1.5%. Attendance benefited largely from an increase in demand primarily from international guests when compared to prior year, which was impacted by more severe COVID-19 related restrictions on international travel. Attendance during the quarter was unfavorably impacted by adverse weather including impacts of Hurricane Ian in September 2022, which led to closures at the company's parks in Florida and Virginia for a combined 15 operating days. We estimate adverse weather including the hurricane contributed to a decline of approximately 90,000 guests during the quarter. As Marc said, while improving, we continue to experience lingering effects of the pandemic with international and group related visitation still not yet back to pre-COVID levels. In the third quarter, international visitation was still down 45% compared to the same quarter in 2019 while group visitation was down 20% compared to the same quarter in 2019. Our pricing and product strategies continue to drive higher realized pricing resulting in total revenue per capita in the quarter of $77.05 compared to $72.13 in the third quarter of 2021. This increase was driven by improvements in both admissions per capita and in-park per capita spending. Admissions per capita increased by 4.1% to $42.75, and in-park per capita spending increased by 10.4% to a record $34.30 in the third quarter of 2022 compared to the third quarter of 2021. The increase in admissions per capita was primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year. In-park per capita spending improved due to a combination of factors including pricing initiatives, improved product quality and mix, and the impact of new, enhanced and expanded venues and other park offerings. Operating expenses increased $20.8 million or 10.7% when compared to the third quarter of 2021. The increase in operating expenses is primarily due to costs associated with new and/or expanded attractions and events, high inflationary pressures and an increase in legal accruals as compared to the prior year quarter. These factors were partially offset by a decrease in non-cash equity compensation expense along with structural cost savings initiatives when compared to the third quarter of 2021. Operating expenses for the third quarter of 2021 were also impacted by approximately $9.2 million in non-recurring contractual liabilities and legal costs resulting from temporary COVID-19 park closures. Operating expenses as a percent of revenue were 38.2% for the third quarter of 2022 compared to 37.4% for the third quarter of 2021. While staffing has improved from early in the year as shown by our higher labor hours in the third quarter compared to prior year, we are still not at optimal staffing levels. We continue to suffer from staffing shortages in various roles across our parks at various times during the quarter, which among other things impacted our ability to fully capture in-park revenue. Labor costs in the third quarter were primarily driven by increased labor hours as our base hourly wage rate was only moderately higher than prior year. Selling, general and administrative expenses decreased $0.5 million or 1% compared to the third quarter of 2021. The decreases were primarily due to a decrease in non-cash equity compensation expense and the impact of cost savings and efficiency initiatives. These factors were partially offset by increased marketing and third party consulting costs when compared to the prior year quarter. Selling, general and administrative expenses as a percent of revenue were 9.4% for the third quarter of 2022 compared to 10.3% for the third quarter of 2021. We believe that approximately $20 million to $25 million of costs in the third quarter compared to 2019 are temporary, unusually high inflation-driven costs that we expect to moderate in the coming quarters. We generated record net income of $134.6 million for the third quarter compared to net income of $102 million in the third quarter of 2021, and we generated record adjusted EBITDA of $274.2 million, an increase of $8.9 million when compared to the third quarter of 2021. The improvement in adjusted EBITDA for the third quarter of 2022 was primarily driven by an increase in attendance and total revenue per capita when compared to the third quarter of 2021. Looking at our results for the first nine months of 2022 compared to 2021, total revenue was a record $1.34 billion, an increase of $207.8 million or 18.3%. Total attendance was 17 million guests, an increase of 1.8 million guests or 11.5%. Net income for the period was a record $242.2 million, an improvement of $57.2 million and adjusted EBITDA was a record $574.6 million, an improvement of $65.3 million or 12.8%. Now turning to our balance sheet, our current deferred revenue balance as of the end of the third quarter was $182.3 million, an increase of approximately 5.1% when compared to September of 2021, which included the impact of some COVID-19 related product extensions and one-time items compared to September 2019. Deferred revenue increased 59.1% at the end of October 2022. Our pass base was at a record level for October, up approximately 26% compared to October of 2019, a very healthy indicator of consumer demand for our parks and the remainder of the year. We are also still seeing a higher mix of premium passes in our pass base compared to prior year as our pass holders continue to recognize the value and benefits of our higher tiered products. To that end, we are continuing to realize meaningful price increases on our pass products with pass prices up approximately 10% compared to the prior year. As Marc mentioned, we have a very strong balance sheet position as of September 30, 2022. Our total available liquidity was $479.9 million, including $109.6 million of cash and cash equivalents on our balance sheet, and $370.3 million available on a revolving credit facility, which has not been drawn. Cash flow from operations was $169.2 million for the third quarter of 2022. Free cash flow was $119.6 million for the third quarter of 2022. We repurchased approximately 3.6 million shares of common stock at a total cost of approximately $183.9 million from August 2022 through October 2022. Year to date through October 2022, we have repurchased approximately 12.3 million shares of common stock or approximately 16% of total shares outstanding at a total cost of approximately $683.9 million. We spent $49.7 million on capital expenditures in the third quarter of 2022 of which approximately $32.6 million was on core CapEx and approximately $17.1 million was on expansion and our ROI projects. We expect to spend approximately $190 million to $200 million in CapEx for 2022. We have spent considerable time over the last several months analyzing and evaluating opportunities to invest our expected substantial cash flow back into our business in high ROI projects. While we are still in the midst of finalizing our capital plans for 2023, we can share with you, as you already know from our announcements, that we will invest meaningfully to continue our strategy of offering something new and compelling across all of our parks next year. Beyond our typical cadence of rides and attractions, we have identified a robust list of highly attractive growth and ROI projects that we expect to also execute on in 2023. We will enhance, improve, and/or create new animal habitats, food and beverage outlets and retail venues, and we will invest in park infrastructure and technology to improve the guest experience and reduce and/or eliminate cost. We'll also invest in our inorganic growth strategies to further drive shareholder value. In aggregate, we plan to spend at least $200 million in 2023, and we'll share more details on plans in the next quarterly discussion. Now, let me turn the call back over to Marc who will share some final comments. Marc?

Thank you, Michelle. Before we open the call to your questions, I have some closing comments. In the third quarter of 2022, we came to the aid of 229 animals in need. Over our history, we have helped over 40,000 animals including bottlenose dolphins, manatees, sea lions, seals, sea turtles, sharks, birds, and more. I'm really proud of the team's hard work and their continued dedication to these important rescue efforts. I want to thank them and all our ambassadors for all that they do to operate our parks in this current environment. We are excited about the remainder of 2022 as we head into our popular Christmas holiday events. As I mentioned, over the coming weeks, our Christmas events will start in our parks. We are also really excited about our plans for 2023. While we have made good progress over the past year, we continue to believe there are significant additional opportunities to improve our execution, take advantage of clear growth opportunities, and continue to drive meaningful long-term growth in both revenue and adjusted EBITDA. We continue to have high confidence in our strategy and in our ability to deliver significantly improved operating and financial results that we expect will lead to meaningfully increased value for stakeholders. Now, let's take your questions.

First question comes from Philip Cusick with JPMorgan Chase. Please go ahead.

Hi guys. Thank you. I guess I first wanted to start with the 2023 CapEx commentary. Do you think the $130 million to $140 million core is sort of stable next year, but the growth number could double or triple, or do you think that that core number is up as well? And then also sort of a follow up on the cost cutting efforts, the $25 million inflation costs that you expect to moderate. I didn't really understand why that is and how that comes into the numbers on slide nine. Thanks very much.

Yeah. Hey, Phil, it's Marc. I can answer your question. On CapEx, you heard Michelle in her prepared remarks talk about the efforts beyond the core things that we've identified. Our goal is to invest in something new in every park every year, and I laid out a number of rides and attractions that we're bringing to our parks, especially some of the coasters I mentioned. But then you heard Michelle mention additional efforts to look at other areas that we can impact in our parks. She mentioned like refreshed venues, new or improved animal habitats, new or refreshed retail venues — all those things. So, I expect that'll be a little bit more spend than maybe we've normally had in the past. We quoted $200 million in her prepared remarks, so we're really excited about our ability to invest in those things, and I think it's a function of our free cash flow and the ability to continue to invest in the business. On the inflation efforts, what I would tell you is we have a tremendous focus on continuing to work hard on our costs, refine our efforts around cost management and cost containment, and we provided a list there as well, and there's a number of things that we will continue to do going forward with those efforts.

If I can sort of follow up on a different subject, it sounds like you look at your business — because most people drive there — as a little bit more inflation resistant or recession resistant than some of your peers. How do you think about the impact of gas prices on that and what have you seen? I imagine surveying your customers over the last six months as gas prices have moved around in terms of the impact you expect over time? Thanks again.

Yeah, thanks, Phil. What I would tell you is I look at the growth and the consumer spending in our parks. I think that's a pretty good indicator that people are coming out even in a high inflationary environment and they're spending money in our parks. That's a testament to the investments we've made in our parks, the events we're doing, the offerings that we have. So I feel good about our ability even in these last couple quarters where we've seen inflationary impacts; people are still coming out and spending in our parks.

Our next question comes from James Hardiman with Citi. Please go ahead.

Hi, good morning. So October, it's kind of an open-ended question, but it sounds like October was really strong. We heard similar commentary from one of your peers last week. I guess maybe speak to what you see going on there versus sort of the third quarter trend. And ultimately is that October run rate sustainable for the remainder of the fourth quarter?

Thanks, James. October started around our Halloween events, which continued to be popular, and I think we saw a good response to those. As you noted, our revenue was up about 13% to last year. Halloween's been strong. In Q3 especially towards the end of the quarter, we had the impact of Hurricane Ian, and that did bleed a little bit into October as well. But I think the events continue to be popular like Halloween. As far as the run rate and how we think about that going forward: we'll be starting some of our Christmas events this weekend in some of our parks and then later in the month at the rest of the parks that do Christmas. Those events have traditionally been popular with people as well. So I don't know if it'll be the exact same run rate as October, but I do think those are compelling reasons to come and visit the park.

That's helpful. And then I don't know how much you're going to want to answer this one, but as we look to 2023, I'm certainly not looking for guidance. But as we think about some of the building blocks — attendance, per caps, margin and ultimately EBITDA — maybe level of confidence that each of those will grow next year? Obviously there are some puts and takes to each one of those numbers, but any color you could give us on your level of confidence in growth next year out of those items?

Sure. We're confident in our ability to grow the business, and there are the pillars you mentioned. On attendance, we're investing in the parks, so there's new rides and attractions and things like that coming to our parks. We also have additional CapEx for refreshes, new habitats and improved habitats. New things generally drive people to parks. We also expect further recovery of international attendance over time; we're still not back to 2019 levels and don't know when that will occur, but when it does, it'll be a tailwind. On pricing, we continue to see strong consumer spending in our parks. We've done good things around our offering and have a strong value proposition relative to other entertainment options, which gives confidence to continue to grow pricing. More people are seeking experiences over buying goods, and our parks offer unique experiences with our zoological collection. We also have continued learnings and benefits from our CRM system — we're early in rolling it out, but it should allow better marketing and guest engagement. On the cost side, we've done a very good job since 2019 with margin expansion, but we need to do a better job now in this inflationary environment. We've mobilized teams and resources to address these headwinds and put initiatives in place. Hopefully that gives you context on attendance and costs and how we think about them. Our expectation would be to continue to grow the business going forward.

Next question comes from Steve Wieczynski with Stifel. Please go ahead.

Yeah, good morning. So Marc, I want to keep going here with the cost side of the equation. This is the second quarter you guys have laid out these cost goals, and they've actually improved over the last quarter. Can you help us think about where margins could actually go over time? I understand you're not going to give a number, but today you're running margins in that low-forties range and I'm trying to understand what that potential could look like with a more normalized environment.

Thanks, Steve. The way I think about the business — and the way the team thinks about the business — is fairly straightforward. We grow attendance a little bit each year, grow our per caps a little bit each year, and if we manage cost well, that translates to good growth in adjusted EBITDA. We've put ourselves in a good position to achieve that. We achieved higher margins last year, and if we continue to execute on growing attendance, growing per caps and being efficient with our cost dollars, there's not a reason to think we couldn't get back to that point. I'm not going to provide a specific margin number, but that's the approach.

Okay. Got you. And then second question is around Slide 8, that potential attendance metric you laid out in the presentation, which would be almost 20% to 25% higher than where attendance is running today. Is that metric achievable and if you got attendance up into that 27 million range, would you be starting to sacrifice customer experience in terms of potential overcrowding just to have more people in the parks?

Good question. Part of the reason we put out that slide is to show the potential. We showed two things: one, the peak attendance of 25 million and then the peak of each park, which gets to the higher number. Our parks rarely operate at capacity; it's just a handful of days a year where we're near limits. So we certainly have room to drive more people to our parks. I'm not worried about running out of room. We have capacity to recapture lost attendance.

Our next question comes from Michael Swartz with Truist. Please go ahead.

Hey, good morning everyone. Maybe — and I think you laid out international attendance running something like 45% below 2019 levels — but maybe give us a sense of how that's been trending and then how we should think about that going into 2023 given currency headwinds that international visitors may be experiencing.

Hey Michael. International versus 2019 has been down the last couple quarters in that roughly 45% range. Where that goes on a go-forward basis we'll have to see. I don't know when it will become more of a tailwind, but certainly we want to see more international attendance come back. There are many factors that impact that, and we'll look for opportunities to offset as much as we can until it does return.

Okay, thanks. And then follow up question on the October revenue figures you gave: are those apples-to-apples relative to the number of operating days in 2021 and 2019? How much difference in operating days were there this year versus those periods?

What I can tell you is we ran similar Halloween events versus 2021; there would be a slight pickup from the new park San Diego Sesame Place this year. But even stripping that out, we still feel good about the revenue increase. Versus 2019, we've added more events and nighttime streams in some parks, which helped us. Early October was still impacted by Hurricane Ian, so that had a negative impact as well. We achieved that revenue growth even with that impact.

Our next question comes from Chris Woronka with Deutsche Bank. Please go ahead.

Hey good morning everyone. I know we've already talked a lot about attendance, but just going back to where we are today versus the $3 million or $5 million delta of 2008 or all prior parks, and I know you don't solve exclusively for attendance, are there initiatives we don't know about yet that are driving that? Is that more of a pricing action to get there? Or is it more on the marketing side?

Chris, on recapturing attendance versus historical peaks, there's a couple ways to think about it. We'll continue to invest in our parks — our stated goal is to have something new in our parks each year. In 2023 we're going to have new things in each of our parks. We're also investing in venues, refreshes and things Michelle mentioned. Marketing is certainly a component; we have the CRM system that's relatively new and we will continue to harness its power. We also have opportunities to be more efficient in our marketing messaging. So it's a total package of investments, product, pricing and improved marketing that should help us recapture that lost attendance.

Okay. And on costs, going back to Slide 9, is there any specific timing around that $30 to $50 million? And are there offsets to that that aren't necessarily on the slide?

We are working on those things right now, so these would be items we expect to impact quarters going forward into next year. A lot will depend on the macro inflationary environment. We have seen moderation in freight and shipping costs and are seeing other things moderate, but some costs like energy are going up in certain markets, for example in Florida. We also have investments to address that, like a solar project. So while we will identify and execute on the items on that chart, offsets will depend in part on how inflation evolves.

Our next question comes from Barton Crockett with Rosenblatt Securities. Please go ahead.

Hi. I had two things. You flagged the nearly 10% decline versus 2019 in attendance, but up 2% adjusted for a series of items including the 90,000 from weather. Could you break down the other elements of the delta between the up to down 10 — how much was international, how much was group — just to understand that? And second, Disney reported international attendance is back to pre-pandemic norms in Orlando. Would you expect to share in that trend or are you seeing something different?

Barton, on the attendance breakdown versus 2019, we've called out the main impacts: international, group and weather. For specifics beyond what we've already provided, we may point you to the slides and our release where some of that is detailed. Historically, international attendance for us has been roughly 10% of total company attendance. We continue to promote our parks in Orlando and our differentiated product. We aim to capture more international attendance as it returns, but there are many factors that influence the pace and timing of that recovery.

Next question comes from Paul Golding with Macquarie. Please go ahead.

Thanks so much and congrats on the quarter. I wanted to ask about timing. When do you typically start to see longer lead-time bookings come on with respect to group or international? Do they trend in line with season pass purchases or what does the lead time look like? Any color could help inform when we should start to see this come back.

Paul, one of the challenges we have versus some other Orlando parks is we don't have hotels, so our view into the future is a little more limited. Generally, our guests tend to book closer to their visit than guests at destination parks, but I don't have specific lead-time metrics to share.

All right. And on the cost side, with respect to Michelle's numbers on the $20 million to $25 million of Q3 inflation-related costs expected to moderate, can you give us a directional split of what might be fixed versus variable out of that bucket?

Sure. On the inflationary costs referenced — approximately $20 million to $25 million in Q3 versus 2019 — a lot of those costs were related to labor and wage pressures above normal inflation. We also saw increases in utilities, energy, insurance, transportation and shipping, and some commodities within food and beverage and retail items. We're starting to see moderation in freight and shipping, but we continue to see increases in utilities, particularly in Florida. We do have investments, such as a solar project, to address some of that. Overall, we expect these costs to moderate over the next quarters.

Our next question comes from Ben Chaiken with Credit Suisse. Please go ahead.

Hey, how's it going? In Abu Dhabi, you have a large attraction opening up in 2023. Can you help frame this a little bit — is this a hotel management contract, are you tied to revenue or profitability, or is it more of a licensing arrangement?

Ben, we're excited that the park there is expected to open in 2023. It showcases what the next generation of SeaWorld could be and brings our brand to another part of the world. It is more of a capital-light arrangement — a licensing agreement. Until the park opens, it's a bit early to provide financial specifics, but you can look for future updates in coming quarters.

Got you. I appreciate it. And then on the buyback, is the plan moving forward to continue to buy back more than you're generating in pre-tax cash flow for the time period because of perceived dislocation?

Like we do throughout the year, we'll work with our board and advisors on the best use of cash for shareholders. I can't guide to a specific program, but we will work to deliver what we believe is the highest and best return to our shareholders.

This concludes our question-and-answer session. I would like to turn the conference back over to Marc Swanson for any closing remarks.

Thank you, Dave. On behalf of Michelle and the rest of the management team at SeaWorld Entertainment, I want to thank you for joining us this morning. As you heard today, we are confident in our long-term strategy, which we believe will drive improved operating and financial results and long-term value for stakeholders. Thank you and we look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.