United Parks & Resorts Inc. Q4 FY2023 Earnings Call

Good day and welcome to the United Parks & Resorts Q4 2023 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 with Investor Relations. Please go ahead.

Thank you and good morning everyone. Welcome to United Parks & Resorts' fourth quarter and fiscal 2023 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.unitedparksinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call. Also, we have posted a slide presentation on our investor website along with our earnings press release that we will discuss during our prepared remarks. Joining me this morning are Marc Swanson, Chief Executive Officer; and Jim Forrester, Interim Chief Financial Officer and Treasurer. This morning, we will review our fourth quarter and fiscal 2023 financial results, and then we will open 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 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'd 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. I want to welcome you to our first quarterly earnings report under our new company name, United Parks & Resorts Inc. We believe this name change better reflects what we have been and will continue to be a diverse collection of park brands and experiences. The name change affects only the name of the parent company, SeaWorld Entertainment, Inc. Our award-winning portfolio of parks: SeaWorld, Busch Gardens, Discovery Cove, Sesame Place, Water Country USA, Adventure Island, and Aquatica retain their respective park names. What also remains unchanged is our deep commitment to creating experiences that matter for our guests and inspiring them to help protect animals and the wild wonders of the world. Before we turn to the quarterly and annual results, I want to point out that we uploaded a presentation to our Investor Relations site that includes some supplemental information that covers topics we have heard from our investors that they would like covered as well as some other important points that we want to get across. I will refer to these slides later in my remarks. Now, let me turn to the quarterly and annual results. We are pleased to report another quarter and fiscal year of strong financial results. In the fourth quarter, we delivered record attendance and record in-park per capita spending despite significant adverse weather impacts, in particular, across our Florida markets during peak visitation periods and an unfavorable calendar shift in the quarter. For the full year, we delivered near-record results and grew our total revenue per capita for the sixth year in a row despite significant adverse weather impacts throughout the year. We estimate that weather-related and calendar shift impacts reduced attendance by approximately 75,000 visits in the fourth quarter and that weather-related impacts reduced attendance by over 370,000 visits for the full year. Weather aside, we continue to drive growth in total revenue per capita, including growth in admissions per capita and in in-park per capita, which has increased for 15 consecutive quarters, demonstrating the effectiveness of our revenue strategies, our pricing power, and the strength of consumer spending in our parks. Also in 2023, along with our partners, we successfully opened our first SeaWorld Park outside of the United States in Abu Dhabi, which has been extremely well received and is performing ahead of expectations. In addition, we made meaningful investments across our parks and business that we are confident will deliver strong returns and will be a source of growth and profitability this year and into the future. I want to thank our ambassadors for all their dedicated efforts in 2023. Our attendance levels for fiscal 2023 were still below levels achieved in 2019, primarily due to a decline in international and group attendance, which we are confident will eventually recover to and surpass pre-COVID levels. We are also still more than 3 million visitors below our historical high attendance of approximately 25 million guests achieved in 2008. Our clear opportunity to drive meaningfully more attendance to our parks, combined with our demonstrated ability to continue to grow total per capita spending, manage and reduce cost, and achieve strong returns on our investments gives us high confidence in our ability to continue to deliver operational and financial improvements that will lead to meaningful increases in shareholder value. We are excited about our plans for 2024 including the prospect for more normalized weather and an incredible lineup of new one-of-a-kind rides, attractions and events and new and improved in-park venues and offerings across our parks. We're also really excited about celebrating SeaWorld park's 60th anniversary this year, which kicks off across our SeaWorld parks on March 21st, and will run throughout the whole year. There will be even more reasons to visit our SeaWorld parks this year with special events, shows, attractions and a whole lot more. We are happy to report that our new rides and attractions are all currently scheduled to open before the peak summer season. We are also encouraged to see 2024 bookings trending ahead of the prior year for both group sales and our Discovery Cove property. We expect meaningful growth and new records in revenue and adjusted EBITDA for 2024. As I mentioned, for 2024, we have an exciting lineup of new rides, attractions, events and new and improved in-park venues and offerings with something new and meaningful in our parks. We've outlined each of our new rides and attractions in our press release, and we encourage you to visit them this year. I will highlight just a few of them here. The first one is Penguin Trek at SeaWorld Orlando, an unforgettable multi-launch family coaster adventure, where guests will navigate the harsh Arctic environment in search of a colony of penguins. Penguin Trek will be an indoor/outdoor coaster experience as well as the eighth and most immersive addition to the Coaster Capital of Orlando. The next one is Jewels of the Sea in SeaWorld San Diego, a first of its kind at SeaWorld parks, the all-new Jewels of the Sea: The Jellyfish Experience offers an immersive and interactive view into the mysterious underwater world of fascinating and graceful jellyfish. This aquarium features three unique galleries, including one of the largest jelly cylinders in the country, as well as an immersive multimedia experience. The next one is Catapult Falls at SeaWorld San Antonio. Riders will experience the rush of the world's first launched flume coaster featuring the world's steepest flume drop. This family thrill experience will also feature the tallest flume drop in Texas. The next one is Loch Ness Monster: The Legend Lives On at Busch Gardens Williamsburg. The legendary Loch Ness Monster will resurface as a fully restored experience loaded with all new thrills, dramatic storytelling and innovative effects as it takes riders on Nessie's newly refurbished signature track. Finally, Phoenix Rising at Busch Gardens Tampa Bay. Riders will experience a fiery blaze of immersive, family-friendly excitement as they soar above the Serengeti Plain and drop into an array of fun-filled twists and turns on the new Phoenix Rising. As I mentioned, I would encourage you to go back to our press release, and you'll see there are other rides we are adding at other parks across our company that you can read more about. I've just hit the highlights. Now, turning our attention to the slides that we posted. We mentioned we created a presentation that addressed certain topics that we have heard from stakeholders and shareholders that they would like to be covered and some important points that we would like to get across. Slide 4 is titled disciplined capital allocation strategy. And on this page, we've outlined our capital allocation strategy. We have a thoughtful and clear capital allocation philosophy where we consider the highest and best use for our excess capital across four buckets; number one, investing in the business; number two, debt pay down; number three, M&A; and number four, return capital to shareholders. Investing in the business is focused on three areas; continuing our ongoing maintenance spend to ensure our parks are well maintained; continuing our cadence of new rides, attractions, shows and events in our parks, creating new reasons to visit; and identifying and executing on high conviction, high ROI initiatives. As you'll see on the next page, we typically spend approximately $150 million to $175 million per year on core CapEx and up to $50 million per year on expansion ROI CapEx. Looking at debt paydown, we are comfortable with current leverage levels and expect further deleveraging from future EBITDA growth. Given our low leverage levels and the current cost of debt, paying down debt is not a current priority. Regarding M&A, we will opportunistically pursue M&A when attractive opportunities present themselves. But at present, no M&A opportunities are currently contemplated. The company has and will continue to aggressively return capital to shareholders when it makes sense to do so in the form that makes the most sense. We have repurchased over $1 billion in shares since January of 2019, which is 23 million shares or approximately 27% of shares outstanding. And yesterday, the Board of Directors voted to recommend a new $500 million share buyback authorization subject to approval by non-Hill Path shareholders. Needless to say, the Board and the company believe our shares are materially undervalued. Going forward, the Board and the company will consider buybacks and/or dividends, regular or special, as appropriate based on market conditions and other relevant factors. Finally, if somehow it's not already clear and obvious, you should know that the Board is highly aligned with shareholder interest. Turning to the next slide, disciplined capital spend strategy. We have a clear and disciplined capital spend philosophy. We think about capital spending in two buckets; number one, core CapEx; and number two, expansion/ROI CapEx. We estimate that our core CapEx will typically run between approximately $150 million and $175 million on an annual basis. This is the spend that we estimate supports growth in revenue and adjusted EBITDA in line with long-term base business expected growth rates. This amount includes maintenance CapEx and new rides and attractions CapEx. We estimate that our expansion/ROI CapEx will run between approximately $0 million and $50 million on an annual basis. This is spend that supports growth in excess of normalized levels and includes high conviction projects with 20%-plus ROI unlevered cash on cash returns, including revenue-generating and cost savings projects, park expansions, new properties, etc. So in total, we expect total normalized CapEx of approximately $150 million to $225 million on an annual basis. Turning to Slide 6, capital spend update. This slide provides more color on our 2023 capital spend and on our expected 2024 capital spend. As discussed in prior calls, given our significant excess cash flow generation in recent years, our Board challenged us to pursue more than our normal cadence of ROI projects in 2023. As such, we spent approximately $80 million more on ROI CapEx in 2023 than we would normally spend, and we took on more projects than we would typically take on. Many of these projects were completed on schedule and delivered expected ROI. Many others were delayed due to some combination of weather and us taking on more projects than we probably should have. As discussed on previous calls, this led to certain operational disruptions in peak periods in some of our parks and was a headwind to performance in certain parks at certain times. The good news is we learned a lot from our experience in 2023, and we expect the headwinds that we experienced in 2023 will be tailwinds going forward. In 2024, we currently expect to spend approximately $225 million of CapEx, split between $175 million of core CapEx and $50 million of expansion/ROI CapEx. We feel good about these ROI projects and have high conviction on their impact in 2024. Turning to Slide 7, capital spend case studies. We show you some examples of projects completed in 2023, delayed in 2023 and what we have in store for 2024. On the next slide, capital spend significant free cash flow generation. We simply lay out the significant discretionary free cash flow generation of our business. The slide speaks for itself and shows the high free cash flow conversion of our business and the $400 million of normalized levered free cash flow that the business should be expected to generate on an annual basis. Turning to Slide 9, hotel update. We've gotten a lot of questions on hotels from investors. First, let me be clear that we believe there is a great opportunity for hotels in our parks. We own approximately 400 acres of developable land adjacent to our parks. We know there is significant vacation hotel demand from guests in our markets and we see an obvious opportunity to generate significant incremental EBITDA and value from hotels in our parks. Second, we have not decided to spend any capital actually constructing hotels and in any event, we will not spend any capital to construct a hotel without high confidence in achieving 20%-plus ROI unlevered cash-on-cash returns. Third, we have targeted the first hotels in the Orlando area, which is the largest tourist destination in the United States. Market research makes it clear that there is significant demand for hotels in this market. We are evaluating the opportunity for hotels in other park markets as well. Fourth, we expect hotels to be a meaningful contributor to EBITDA over time, but the contribution will depend on the business structure ultimately chosen. Fifth, we are currently evaluating options with respect to who will build and manage these hotels and we are in discussion with various development, management and brand partners. The ultimate decision will be in the best interest of the company and its stakeholders, taking the risk-reward, timing, capital requirements and expected ROI into consideration. Moving on to the next slide, significant international and group attendance opportunity. As we have discussed, we strongly believe we have a meaningful opportunity to grow attendance across our parks, including by simply returning to historical levels we once achieved. This next slide shows that in 2023, our attendance from group and international guests was still down approximately 1.3 million guests or 30% from 2019 levels. On the right side of the slide, you can see that excluding group and international visitation, our attendance was up in 2023 versus 2019 despite the severe weather headwinds we experienced in the year. In other words, there is a 1.3 million visit upside to our attendance just by recovering group and international attendance. We are confident in our ability to recover these guests in the near to medium term. Turning to Slide 11, meaningful opportunity to grow attendance by returning to historical levels. This is a slide we have shown before. If we return total attendance to 2019 levels, that would be approximately 5% growth in attendance compared to 2023. If we return attendance to 2008 levels, our historical high, that would represent approximately 18% growth in attendance compared to 2023. If we achieve attendance levels where each park returns to its historical high level of attendance, that would represent a 25% increase in attendance compared to 2023. We have clear and ample opportunity to grow attendance just by returning to levels we have previously achieved, ignoring population growth, sector share gains, etc. On the next slide, drivers of future attendance growth. We lay out a roadmap of how we think about attendance growth beyond returning to historical levels. We plan to grow attendance over time by: number one, benefiting from population growth with our addressable markets growing in excess of the U.S. national average; number two, creating new reasons for people to visit such as new and expanded rides, attractions, events, and shows; number three, growing our season pass base and visitation per member; number four, continuing the recovery in international visitation as well as increasing our focus on partnerships and marketing; number five, growing awareness, increasing conversion, optimizing our media spend; number six, continuing our CRM build-out and optimizing the strategy around that; number seven, increasing our focus on group sales across youth, corporate, and other large buyouts; and number eight, developing and growing a loyalty program. We have confidence in the near, medium, and long-term strategy with respect to each of these drivers. Turning to the next slide, we are looking at the admissions forecast over the next two slides, which include details on admissions and in-park per caps. You can review these slides yourself as they are clear. The key takeaway is that we are confident our current per caps are sustainable and there is potential for further growth. We aim to increase our per caps in line with inflation and, through our pricing power and various initiatives, even beyond inflation. Slide 15, cost efficiency and cost reductions outlines our current cost efficiency and reduction initiatives. As you can see on the page, we have currently identified approximately $85 million of cost efficiency and reduction initiatives and expect $50 million of realized cost savings in 2024 with the remaining cost savings being achieved in 2025, along with other cost initiatives we developed over the course of this year. As you all know, cost discipline and management has been and is a relentless focus of our management team, and we have a track record of delivering on these margin-enhancing activities. Turning to Slide 16. United Parks & Resorts' illustrative adjusted EBITDA. This is a slide that we have previously discussed in past years. And as a reminder, this illustrative adjusted EBITDA potential is not meant to be guidance. It is just meant as a simple illustration to show what we believe the earnings power of this business would be at 2019 attendance levels and if we return to 2008 historical peak attendance levels, while growing our total per capita revenue, along with the cost savings opportunities we have identified. As you can see from the illustration, this business has the potential to do between $1 billion and $1.2 billion of adjusted EBITDA under these scenarios, excluding any cost inflation or pressure. Just as a reminder, this is not guidance but rather a simple illustration. As we've said before, our business model is simple and not complicated. If we get a little attendance growth, a little per cap growth and we remain disciplined and focused on cost management, the EBITDA potential of this business is substantially higher than what we achieved in 2023. Turning to Slide 17, United Parks' valuation overview. This slide outlines the current public market valuation of our shares. As you can imagine, this page makes us quite frustrated. The public market is valuing our company at 7 times forward EBITDA and 9.4 times forward unlevered free cash flow and at around a mid-teens levered free cash flow yield. We operate in an industry that historically was valued at over 11 times EBITDA, and we strongly believe we deserve to trade at a much higher multiple than 7 times EBITDA. Slide 18, trading at a significant discount despite outperformance. Now, even more frustratingly, this next slide shows our performance compared with leisure, hospitality and entertainment company peers. As you can clearly see, we have outperformed, in many cases significantly so our peer groups and yet we trade at the lowest multiple of any of our peers. This is really incredible to us and hard to understand. The next slide, Slide 19, implied future stock price. On the next slide, we show what our implied share price would be if we traded in line with our peer groups or at discount to our peer groups. Any reasonable way you look at it, we feel we are materially undervalued and that there is significant upside opportunity in our current share price. And finally, let me turn to Slide 20, which is the key takeaways. And there are six key takeaways. Number one, our capital allocation strategy is focused on maximizing returns for shareholders with a highly aligned Board. Number two, we have a disciplined capital spend strategy with approximately $150 million to $225 million in normalized annual CapEx spend. Number three, we have significant discretionary free cash flow generation. Number four, we have a thoughtful approach to hotels and will not spend any capital to actually construct hotels without high conviction and 20%-plus unlevered returns. Number five, we see a path to $1 billion in adjusted EBITDA with multiple levers to drive value and further upside. And finally, number six, we believe the company is extremely undervalued despite significant outperformance relative to peers. Thank you for letting me take you through that presentation. Hopefully, that addressed the number of questions that people have had. So, with that, I will turn it over to Jim to discuss our financial results in more detail.

Thank you, Marc. Good morning, and thank you all for your interest in our company. It's good to be able to join you to report out our quarterly performance. During the fourth quarter, we generated total revenue of $389.0 million, a decrease of $1.6 million or 0.4% when compared to the fourth quarter of 2022. The decrease in total revenue was primarily a result of decreases in admission per capita, partially offset by increases in attendance and in-park per capita spending. Attendance increased approximately 23,000 guests when compared to the fourth quarter of 2022, primarily due to an increase in demand, partly from the company's Halloween and Christmas events, partially offset by the impact of adverse weather during peak visitation periods, particularly across our Florida markets and the impact of a calendar shift in the quarter. Total revenue per capita in the quarter decreased slightly to $78.42 compared to $79.10 in the fourth quarter of 2022. Admission per capita decreased 2.6% to $44.46, while in-park per capita spending increased by 1.5% to a record $33.96 in the fourth quarter of 2023 compared to the fourth quarter of 2022. Admission per capita decreased primarily due to the impact of the admissions product mix when compared to the fourth quarter of 2022. In-park per capita spending improved due to pricing initiatives. Operating expenses increased $8.3 million or 4.7% when compared to the fourth quarter of 2022. The increase in operating expenses is primarily due to non-cash expenses related to asset write-offs and costs related to certain rides and equipment, which were moved from service. Selling, general, and administrative expenses increased $0.3 million or 0.7% compared to the fourth quarter of 2022. We generated net income of $40.1 million for the fourth quarter compared to net income of $49.0 million in the fourth quarter of 2022. The decrease in net income was primarily a result of the impact of higher operating expenses. We generated adjusted EBITDA of $150.4 million, a decrease of $3.2 million when compared to the fourth quarter of 2022. Adjusted EBITDA was negatively impacted by a decrease in total revenue. Looking at results for the full year. Total attendance was approximately 21.6 million guests, a decrease of 1.5% versus 2022. Total revenue was $1.73 billion, a decrease of $4.7 million or 0.3% when compared to 2022. Fiscal 2023 total revenue per capita was a record $79.91 compared to $78.91 in 2022, a 1.3% increase, driven by an increase in admissions per capita and in-park per capita spending. Admission per capita increased 0.4% to a record $44.16 compared to $44.0 in 2022. Admission per capita increased primarily due to the realization of higher prices in our admissions products, resulting from our strategic pricing efforts and the impact of the park attendance mix, which was partially offset by the impact of the admissions product mix when compared to 2022. In-park per capita spending improved by 2.4% to a record $35.75 from $34.91 in 2022. In-park per capita spending improved primarily due to pricing initiatives and an increase in revenue related to the company's international services agreements when compared to 2022, partially offset by factors including weather, the admission product mix, closures, and disruption related to construction delays at certain in-park locations. Operating expenses increased by $23.2 million or 3.2% when compared to 2022, primarily due to an increase in non-cash asset write-offs and self-insurance reserve adjustments and an increase in costs associated with our international services agreements, partially offset by the impact of implemented structural cost savings initiatives when compared to 2022. Selling, general, and administrative expenses increased by $21.2 million or 10.6% when compared to 2022, primarily due to an increase in third-party consulting costs and legal fees and an increase in labor-related costs, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to 2022. Net income for the year was $234.2 million, a decrease of $57 million. Adjusted EBITDA was $713.5 million, a decrease of $14.8 million when compared to 2022. Net income and adjusted EBITDA were negatively impacted by a decrease in total revenue and increases in operating expenses, selling, general, and administrative expenses, and the depreciation expense. Net income was also negatively impacted by higher interest expense. Now, turning to our balance sheet. Our December 31st, 2023, net total leverage ratio was 2.53 times and we had approximately $618.5 million of total available liquidity, including over $246.9 million of cash on the balance sheet. The strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. Just a few weeks ago, we refinanced our Term Loan B, locking in a more favorable interest rate that will save the company approximately $5 million in annual interest expense going forward. Our current deferred revenue balance as of the end of the fourth quarter was $155.6 million. Excluding certain one-time items, deferred revenue decreased approximately 5.3% when compared to December of 2022. As Marc already mentioned, yesterday, our Board of Directors voted to recommend a new $500 million share buyback authorization subject to approval by non-Hill Path shareholders. Through yesterday, our pass base, including all pass products, was down slightly compared to February of 2023. We are pleased that we're seeing high single-digit price increases on our pass products compared to prior year. Last fall, we launched our best pass benefits program ever, which we expect will drive additional increases in pass sales and a strong pass base for this year. We're seeing strong pass sales in recent weeks and are excited about our peak pass selling period coming up during the spring and early summer periods. As a reminder, our deferred revenue balance contains a number of products to include ticketing, vacation packages, annual and seasonal passes, and ancillary products. Some of those 2022 ticketing product balances were one-time items, as mentioned last year. We also continue to see an increase in the number of pass holders who have been with us for at least a year who transitioned to month-to-month payments at a higher rate at the completion of their initial pass commitment. This month-to-month revenue does not show up as deferred revenue. As noted, we have a very strong balance sheet position. As of December 31st, 2023, our total available liquidity was $618.5 million including $246.9 million of cash and cash equivalents on our balance sheet and $331.6 million available on our revolving credit facility. We spent $70.6 million on CapEx in the fourth quarter of 2023, of which approximately $25.8 million was on core CapEx and approximately $44.8 million was on expansion and/or ROI projects. For 2023, we spent $304.8 million on CapEx, including $181.8 million on core CapEx and $123 million on high conviction growth and ROI projects. Looking ahead to 2024, we expect to spend approximately $175 million on core CapEx and plan to spend approximately $50 million on CapEx on growth and ROI projects that are a direct result of our 2024 planning process.

Thanks Jim. Before we open the call to your questions, I have some closing comments. In the fourth quarter of 2023, we came to the aid of 98 animals in need. Over our history, we have helped over 41,000 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 they do to operate our parks. We are excited about 2024. We have some great events going on now, including the Seven Seas Food Festival at SeaWorld Orlando, Mardi Gras at SeaWorld San Diego, SeaWorld Texas, and both Busch Gardens Parks. We are proud of these events and the event calendar that we have scheduled for the rest of the year that gives our guests even more reasons to visit. And I want to reemphasize the SeaWorld's 60th anniversary celebration starting on March 21st and going all year at our SeaWorld parks. We are proud to celebrate 60 years of conservation, education, and fun for all ages. We continue to strongly 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 confidence in our long-term strategy and our ability to drive significantly improved operating and financial results that we expect will lead to meaningfully increased value for stakeholders. Now, let's take your questions.

We will now begin the question-and-answer session. Our first question comes from Michael Swartz with Truist. Please go ahead.

Hey everyone. Good morning. Maybe just to start, Marc, with some of the commentary around the park or, sorry, hotel or accommodations development plan. I think in the previous calls, you said you would look to finance some of that. Now, it sounds like you're not looking to finance any of that. I mean maybe help us understand what's changed in your thought process just from the standpoint of appetite to invest in these sorts of things?

Hey Michael, I think what we were saying there is that we're looking at all options. So, I don't want to suggest that financing a portion of that is off the table. We're looking at all the different ways we could enter into a hotel structure, whether it's with a partner or licensing, whatever it may be. And we have the land, as we've mentioned, and a lot of different ways we could go about this. I think what we've been hearing from a lot of our shareholders is they wanted to hear more about this. There's multiple ways that people have done this. What is clear is that people are fans of hotels. They recognize the potential of having hotels in our parks. Many other companies have been successful with that, as you know. So, we're just saying, look, we're looking at all the different options. We want to be sure to drive the ROI that I mentioned in the slides, and there's multiple ways we could look at trying to achieve that. And keep in mind, it's not just the hotel itself, the EBITDA from the hotel, you're going to get, we believe, an incremental benefit from people being in your parks longer, capturing more of their day, and more of their total spend. So, we're excited about hotels. I think we're just trying to be transparent and let you know that we're still looking at different alternatives before we actually go about constructing the hotel.

Okay, that's helpful. And then just a second question for me on the commentary around you expecting meaningful growth in revenue and EBITDA for the year. And I think you went through some of the longer-term opportunities or levers to drive bottom-line growth. But just as we think about the year ahead, what are the primary maybe puts and takes? I understand there's easy comps, so that's probably part of it. But how should we be thinking about the main drivers of growth for the year ahead?

There are a few important points to consider. First, we experienced a notable impact from weather in 2023. Any normalization in weather conditions would significantly benefit us, but we will need to see if that actually occurs. The beginning of this year has faced tough weather comparisons, particularly in Florida due to El Niño since December and into January and February. However, having been in this industry for a long time, I believe the weather will eventually normalize. We've had both good and challenging years, and while we've had tougher times recently, weather remains a key factor. Additionally, I mentioned our lineup of attractions, rides, and events coming to our parks. The introduction of new offerings is often crucial for our industry, and we have an exciting array lined up. For instance, Catapult Falls in Texas just opened last weekend to a limited audience and will open to more visitors in March. We're eager to launch these new experiences, especially as we approach the peak summer season. Beyond that, we continue to execute our pricing and revenue management strategies, alongside ongoing cost management efforts that we have been implementing for some time and will persist with moving forward. When we put all these aspects together, it leads to a promising outlook for both 2024 and beyond. I view the business simply: if we can slightly increase our attendance each year—especially in strong markets like Florida and Texas—and also improve our per capita spending while managing our costs, it should result in EBITDA growth. We've discussed this before, and we're really looking forward to 2024.

Thanks Marc.

Hey good morning. Thanks for taking my questions. So, I wanted to dig into the weather a little bit. I was a bit surprised by the 75,000 weather headwind. Maybe let's just start with is that versus normal weather or versus last year? Because if I remember correctly, last year, you called out 249,000 of weather headwinds. You had some hurricanes in the fourth quarter of last year. So, I guess, same question for the 370,000 you called out for the year, is it versus a normal year? Is it versus last year? I'm just trying to figure out what attendance would ultimately look like if we were to get back to normal weather, even though obviously, that's an elusive concept.

Yes. Hey James. No, that is relative to 2022. So I think the way I think about it is we didn't have really good weather in either year. And where I thought we may see some improvement, I think all of us did, some improvement in 2023 really didn't materialize quite as we had expected. So, that is relative to 2022 to be down over 370,000 people. I think it's been pretty well documented, at least in the markets we're in. Keep in mind relative to some of our competitors, we are in Florida. And I think that's been pretty well documented here, especially more recently with December and then even into this year. So, that's the weather and how we think about it.

I should be adding the 75,000 this year to the 249,000 from last year for the fourth quarter to arrive at roughly 324,000, comparing it to the fourth quarter of 2021. Is that the correct way to think about it?

Yes, I believe it was mentioned that the estimate for the year is over 370,000. Of that total, 75,000 was accounted for in the fourth quarter compared to 2022. I think you have the figures correct; just ensure you make the appropriate adjustments for both the quarter and the year. And remember, this is an estimate, but we strive to provide the most accurate information possible.

On the margin front, this illustrative EBITDA walk isn't guidance, but it suggests that something above 50% margins is possible. However, margins have declined in the past two years. We also have the hotel business, which I assume will likely reduce margins below 40%. Can you help me understand the long-term margin potential for this business? You transitioned from a margin business in the 20% range to one in the 40% range, but there has been some decline recently. Please help us consider the near and medium-term outlook for margins.

Sure. I mean I think what I would point out, you kind of alluded to it, is look, if you look at where we are here at the end of 2023 and where we were back in like 2019, 2018, there's been tremendous expansion in the margin. And that's even with this year all the weather impacts that we had. And the way I think about it, I think the way as a company, we think about it is if we had gotten some of that weather-impacted attendance, that flows through at a very high rate, right? So, I don't think you would have had a whole lot of incremental costs for those incremental people that we lost to weather. And so if you kind of do that math, I think you get margins that obviously would have been better than what we've shown here in 2023. But I don't have anything to guide you to. What I think about, the way we think about it, the way the Board thinks about it, it's kind of what I said, grow attendance a little bit a year, grow our pricing on admissions and in-park a little bit a year, have some new initiatives in there that, hopefully, more people are buying the product, that type of thing, to maybe be even a little stronger on the pricing and then just watch our costs. And if we do that, margins should expand. I don't know how high they could ultimately go, but that's how we think about the business.

And that's even contemplating hotels, which I'm assuming would be, to some degree, margin dilutive, but maybe not enough to really move the needle?

I wanted to emphasize that while hotel margins are generally lower, our hotels are located on or near our parks, which provides us with a competitive advantage. This is something that other players in the industry have recognized as beneficial. We plan to collaborate closely with the Board and engage with various stakeholders to ensure that any hotel developments we pursue are well-structured. Our goal is to achieve a cash-on-cash return of over 20%, which we acknowledge is higher than average. However, we believe it is achievable by attracting more park visitors and encouraging them to spend more time and money. It's important to view this as a comprehensive strategy, and we have multiple options for how to proceed. Ultimately, if we don't see the necessary returns, we won't move forward with a project that doesn't meet our criteria.

Thanks so much. Yes. Can you help us unpack the missing piece on the group and international visitation? Just help us think through what possibly could stimulate that return? And what you're kind of seeing in terms of the dynamics that might be keeping it below 2019 levels?

Sure, Thomas. So, we previously discussed this on a slide. International visitation, in particular, is down significantly, and the overall group numbers are also down, but not as much as international. In the group business, we have a dedicated team focusing on this area, and we are observing improved bookings for 2024 compared to 2023. Additionally, we are experiencing increased revenue from these bookings. I believe our group business has more short-term potential than international visitation. We are also making changes by introducing new venues and modifying some existing ones. Our parks have exceptional locations for hosting group and corporate events, as well as gatherings like church groups, providing unique experiences that stand out. Regarding international visitation, there are certainly macro factors at play that others have mentioned as well. We cannot control aspects like airlift and exchange rates. To better address this in 2024, we are allocating more resources to this area. A team will travel to the United Kingdom this year to engage with people and ensure they understand our parks, what we offer, and how we can strengthen our connections with them moving forward in that market. We are committed to increasing our efforts here, although it will depend on international macro factors. I cannot predict when international visitation will return to pre-pandemic levels, but I am confident that it eventually will, especially since most of our international visitors come to Florida. With all the attractions in Florida, it remains a strong market for international visitors, although the timeline for a return to 2019 levels remains uncertain.

Okay, that's helpful. On Slide 13 and 14, you mentioned targeting per caps growing by 2% to 5% annually. Is it accurate to say that this year you were dealing with weather challenges, which resulted in increased promotional activity and possibly affected per caps alongside attendance? How much of this do you believe is within your control as opposed to being influenced by competitor promotional efforts and your potential responses to them?

Yes, that's a good question. Regarding per caps, there are a few points to consider. First, we intend to achieve pricing growth each year, which is a key aspect of our strategy. However, we are also focused on total revenue, which is ultimately what is most important. There may be times when we offer promotions or implement strategies that could impact per caps but result in higher total revenue. Over the long term, we believe we can continue to grow pricing as part of our strategy, but we will also take opportunities to test and learn. For instance, if we need to respond to weather impacts, we might run a promotion to encourage additional visitation. This approach is all linked because we believe it will lead to increased total revenue. Therefore, total revenue is the main focus, while we aim to maximize pricing along the way.

Hi, thank you for taking my questions. I wanted to ask about the $85 million in cost savings and the $50 million in 2024. I think the slides indicate that's a gross number. Can you give us any color on how you're thinking about maybe the net cost savings there?

Yes, as far as the debt cost savings, again, we've illustrated that we think we're going to achieve about $50 million of that $85 million in 2024. We think a large portion of that is going to flow through, and that's what we're planning on as far as our budget for this year. While there is a little bit of increase due to inflation or expansion, we think an appreciable amount of that will actually flow through the bottom-line.

Yes, Robert, we have many initiatives aimed at improving cost efficiency. However, we are still facing some pressures, particularly with utilities and insurance costs. We are actively working on plans to manage these issues as effectively as possible. Despite these challenges, we are maintaining a strong focus on addressing these matters.

And I think the other thing to that is we did some investment in 2023 to set us up for success in 2024 to mitigate costs, especially in cost of sales and some of our contracts to be renegotiated at better rates. So, that's why we feel more confident in the ability to deliver this number in 2024 and beyond.

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

Thank you, Scott. Look, thanks, everyone, for letting us walk you through those slides. If you do have questions, follow-up questions, reach out to Matthew or myself or Jim, and we're happy to answer any additional questions you may have. I know it was a little long, but we wanted to get some information out there. So, just reach out if you do have any follow-up. So, on behalf of Jim and myself and the rest of the team here at United Parks & Resorts, we 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. So, thank you, and we look forward to speaking next quarter.

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