SeaWorld Entertainment Inc

NYSE:PRKS

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to SeaWorld Entertainment's First Quarter 2018 Financial Results Conference Call. My name is Brandon, and I'll be your conference operator today. All participants will be in listen-only mode. 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, SeaWorld's Vice President of Investor Relations. Please go ahead, sir.

[Matthew Stroud, SeaWorld Entertainment, Inc.]

Thank you, and good morning, everyone. Welcome to SeaWorld's first quarter 2018 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 John Reilly, Interim Chief Executive Officer; and Marc Swanson, Chief Financial Officer. This morning, we will review our first quarter 2018 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 reconciliations 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 John Reilly. John?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Thank you, Matthew. Good morning, everyone, and thank you for joining us. I would like to discuss our progress over the last quarter and the encouraging trends we are seeing as we enter into our busiest period of the year. Then I'll hand it over to Marc to discuss our financial results.

We are pleased to report a strong first quarter financial results. We saw a solid growth in attendance, in-park per capita spending, revenue, season pass sales, and adjusted EBITDA in the quarter. Our new marketing and communications initiatives, the anticipation and receptivity of our new rides, attractions and events, and new pricing strategies all contributed to our strong performance. Additionally, attendance benefited from the earlier timing of Easter, which we also were able to take advantage of to sell season passes, drive visitation, and generate interest in our upcoming rides, events, and attractions.

While our start to 2018 has been strong, we know we have significant opportunity for further improvement. We are particularly pleased with our growth in season pass sales as this is an important strategic focus. Our season pass offerings provide some of the best value in the industry, and this year we've created even better offerings for our guests with increased benefits, access to more exciting one-of-a-kind and award-winning events, and more attractive pricing.

We also made season pass more of a priority in our communication and marketing efforts, including improving the positioning and featuring of our pass products and doing a much better job of communicating the highly-compelling value our pass offerings provide to our guests. We are also pleased with our growth in in-park per capita spending. We have a world-class team that continues to find ways to introduce new in-demand offerings and drive increased pricing and penetration of our food and beverage and other in-park offerings. As Marc will discuss in detail shortly, we're seeing the benefits from our expense reduction efforts and have adopted a new culture of efficiency across the enterprise. To be clear, we fully expect we will find and report to you on additional cost savings over the coming quarters.

We've begun to open our new rides and attractions for 2018. In March, we opened Taumata Racer at Aquatica San Antonio and through the end of April, we've opened Vanish Point at Adventure Island, and Battle for Eire at Busch Gardens Williamsburg.

On Thursday, May 10, we'll be opening Electric Eel at SeaWorld San Diego and on May 12, Ray Rush will be opening at Aquatica Orlando. With two more rides scheduled to open in 2018, later this month, Oscar's Wacky Taxi will open at Sesame Place, and Infinity Falls at SeaWorld Orlando should open in the early summer.

We continue to introduce new events as well. Last week, we introduced Inside Look at SeaWorld Orlando and will do so at SeaWorld San Antonio later this year. We were pleased with how this event performed at SeaWorld San Diego in the first quarter and anticipate it will do well in Orlando and San Antonio. And last week at Busch Gardens Tampa, we brought back free beer as a summer promotion. As many of you remember, beer sampling in our parks was wildly popular with our guests and it's something we haven't done in many years. Our guests have been vocal about wanting it back. We've heard them and this year we're bringing it back in Tampa as part of a summer promotion. We expect many happy guests and pass holders.

In addition, last week we also announced that SeaWorld Orlando will be opening a new Sesame land in spring 2019. Sesame Street at SeaWorld Orlando will replace our current children's area with the iconic Sesame Street neighborhood, including Abby Cadabby's garden, Big Bird's nest, Mr. Hooper's store, and the famous 123 stoop, as well as all the Sesame Street characters, exciting rides, dry and wet play areas, and interactive experiences designed for the entire family, including a daily Sesame Street Parade, SeaWorld Orlando's first ever parade.

Families will be able to walk down Sesame Street for the very first time at Sesame Street at SeaWorld Orlando brings the world-famous street to park guests, connecting them all to the fun, laughter, and learning of Sesame Street. We're working very closely with the Sesame Workshop to deliver a truly one-of-a-kind experience.

To summarize, we are pleased with our progress but recognize there is significant opportunity to further improve financial performance, and we are laser-focused on continuing to deliver as we enter into our peak season.

With that, I would like to turn the call over to Marc to discuss our financial results. I will then return to offer some final comments. Marc?

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Thanks, John, and good morning, everyone. As John mentioned, our financial results were encouraging. First quarter attendance increased 14.9%. The improved attendance results from a combination of factors including our new marketing and communication initiatives, the anticipation and receptivity of our new rides, attractions, and events, and new promotional pricing strategies. Attendance also benefited from the positive impact of the earlier timing of the Easter holiday in 2018, which shifted the start of spring break in some of our markets.

During the quarter, we generated revenue of $217.2 million, an increase of $30.8 million, or 16.5%, compared to the first quarter of 2017. The increase in revenue results from the growth in attendance and in-park per capita spending, partially offset by decreased admission per capita. We reported a net loss of $62.8 million, an increase of $1.7 million, compared to the first quarter of 2017. This net loss includes approximately $21.5 million of pre-tax expenses related to separation costs and a legal settlement accrual in the first quarter of 2018.

As you know, we typically incur a net loss in the first quarter because only 5 of our 12 parks are open for the full quarter. We reported an adjusted EBITDA loss of $0.1 million, an improvement of $30.2 million, compared to the prior-year quarter. This represents the best first quarter adjusted EBITDA, we've reported since 2013. Adjusted EBITDA was primarily driven by revenue increases due to growth in attendance and total revenue per capita spending, which almost entirely flowed through due to a focus on cost efficiencies and realization of cost savings initiatives.

The first quarter 2018 adjusted EBITDA calculation does not reflect certain add-back adjustments due to limitations in the company's credit agreement as noted in our earnings release. First quarter total revenue per capita increased to $67.36, compared to $66.41 in the first quarter of 2017, driven by solid in-park per capita spending, which more than offset a decrease in admissions per capita. The decline in admissions per capita, primarily results from the park attendance mix among other factors, partially offset by net price increases in our admissions product when compared to the first quarter of 2017. In-park per capita spending growth was primarily driven by sales of in-park products, particularly culinary and other in-park offerings.

In addition, it also benefited from other revenue increases, primarily associated with our international agreements. We continue to make solid progress on the expense reduction front and fully expect to achieve our targeted $40 million in net cost savings by the end of 2018. As you know, we identified an additional $25 million in cost savings in late 2017 and we are working to deliver as much of this as possible to the bottom line by the end of 2018.

In addition, we have renewed focus on expense controls. And as John mentioned, expect to identify further cost reductions that we will share with you in the coming quarters. As noted in this morning's release, our net leverage ratio decreased to 4.7 times adjusted EBITDA for the 12 months ended March 31, 2018. Our strong financial performance in the first quarter and our April year-to-date attendance revenue, and season pass results combined with a keen focus on reducing unnecessary costs provide increased optimism that we will drive meaningful adjusted EBITDA growth in 2018.

Before I turn the call back to John, let me share our thoughts about earnings guidance. We are not providing earnings guidance today, but we'll come back in August with additional thoughts about our plans and long-term goals for the company. As you know, John has been in his role for 10 weeks and we are still in the process of finalizing a permanent CEO.

Given the transition, we feel we will be in a much better position in August to provide details about our plans and long-term goals for the company. To be absolutely clear, we are highly-confident in our business, happy with our financial performance and year-to-date April results, and excited about the significant opportunities we see ahead.

Now, let me turn the call back over to John to share with you some thoughts about some near-term initiatives, as well as a framework for how we view our business. John?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Thank you, Marc. As you've heard today, we are confident in the direction we are heading and encouraged by the results we are seeing in our business. Our confidence extends to our long-term view and the significantly improved financial performance we believe this company can deliver over the next few years and beyond. As Marc said, we will share more details with you in August concerning our long-term goals.

In the near term, let me share with you what we are doing to drive this business forward and deliver the kind of results our stakeholders expect. As we have said before, we are improving our marketing and communications strategy, which we believe will help drive attendance. More specifically, we're optimizing our marketing spend to maximize our working media dollars and our channel mix including digital, social, and earned media, all of which will be focused on driving attendance.

We believe we are better communicating reasons to visit, including the breadth of offerings in our parks including our incredible animals, thrilling and family-oriented rides and attractions, exciting and award-winning events, and our highly compelling value proposition, which we believe is one of the best in the industry.

Also, we know we need to do a much better job of communicating about who we are as an organization and who we've always been. Our team includes an amazing group of highly skilled, experienced and devoted veterinarians, marine biologists, scientists and animal care specialists who devote their lives every single day to caring for our animals, rescuing and rehabilitating injured and stranded animals, making important scientific contributions to the understanding and protection of animals and their habitats, and inspiring and educating our guests.

We need to be much better at highlighting the efforts, dedication and passion of these team members and the amazing work they do for and on behalf of the animals in our care and the animals in their habitats in the wild.

As many of you know, we have made significant contributions toward animal rescue, animal research, conservation, the environment, and education. And we need to continue to showcase these activities through our marketing and communications strategy, so that more people know about this outstanding work.

We have begun on this effort with our Park to Planet initiative, which highlighted how people can see incredible animals in our parks, which are inspired by the planet, and how their patronage helps us achieve our mission to help species in the wild and our incredible animal care specialists' rescue and rehabilitation efforts.

These activities signal a more aggressive shift to better inform, better educate and engage prospective guests as well as season pass holders about who we are as an organization and what we do, particularly as it relates to animals and the habitats in which they live.

We have a revamped capital strategy that we believe will also help drive attendance growth with the goal of offering a new ride, attraction, show or event in every park, every year. To support this effort, we have a renewed more disciplined focus on efficiency of capital spend and return on investment.

We believe we can do more and spend less. Also, related to our capital strategy, we will better integrate our mission to educate and inspire guests to protect the animals and the wild wonders of our world into new attractions and rides at our SeaWorld parks.

We will work with our many conservation partners to ensure that each new attraction supports a common cause. These differentiated rides and attractions will help educate our guests on animal and habitat-related causes and provide financial support through retail and other opportunities. With the help of a leading pricing consultant, we're refining our pricing strategies for many of our products. We believe we can also improve execution on in-park opportunities, increasing the penetration of culinary, merchandise, and other in-park products.

We have a refocused season pass strategy. There's significant opportunity for growth in this area of our business as we believe we have one of the best pass values in the industry. As I touched on earlier, we've improved the structure of our pass products and introduce new promotional campaigns and marketing programs telling consumers about the benefit of our passes and the outstanding value they represent.

And we are more focused than ever on being efficient in delivering cost savings. As we have said before, we have already identified and expect to deliver on our previously announced cost savings initiatives by the end of 2018. As Marc and I both mentioned, we have a renewed focus on expense controls and expect to identify further cost reductions and efficiencies.

Before we open the call to your questions, I have some closing comments. I want to thank our outstanding team of ambassadors and leaders in all of our parks who are committed to our success as a company. I recently spent time visiting with our ambassadors and park leaders. They are focused on providing exceptional service and meaningful experiences to our guests. We have some of the best employees in the theme park industry and I'm especially proud to be working with them.

In particular, I want to thank our team members at Sesame Place who have received specialized training to ensure they have the requisite knowledge, skills, temperament and expertise to cater to all children including those with special needs, allowing that park to be designated as the first theme park in the world as a Certified Autism Center. We're very proud of that designation and our ability to offer specialized services to guests with autism and other special needs. We're confident and believe we're on the right path to deliver significantly improved financial results. We're excited about the future and we look forward to sharing our progress with you.

Let me close with a reminder that part of our mission is to help rescue and rehabilitate animals. We're one of the world's leading animal rescue organizations, and in the first four months of 2018, we helped rescue over 700 animals. That's about six animals every day of the year so far. More than 100 animals have been returned to the wild this year alone including 9 manatees and 28 sea turtles, many that have suffered cold weather shock, as well as more than 40 seals and sea lions. We are proud of our efforts to protect and save wildlife including the more than 31,000 animal rescues in total, and we hope our actions also inspire guests to protect the animals and the wild wonders of the world.

With that, I will open up the call for questions.

[Operator]

We will now begin the question-and-answer session. Our first question comes from Steven Wieczynski with Stifel. Please go ahead.

[Bradley Joseph Boyer, Stifel, Nicolaus & Co., Inc.]

Hey, guys. This is actually Brad on for Steve. Thanks for taking the questions here. First question for you is just around how you're thinking about margins. Historically, you guys had always called out a couple hundred basis point drag from animals relative to some of your other peers out there. As I think through some of these cost savings opportunities that you both have kind of quantified today and it sounds like you guys think there's more beyond what's being quantified, how should we think about that going forward? I believe it was 300 basis point to 400 basis points, but I could be wrong, but do those old ranges still hold or do you think that you can narrow that gap based on what you see on the cost side today?

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Hey, Brad. It's Marc. I can take that question. So, as we think about our margins, we have a continuous focus on efficiencies, and if you look back in 2013 was our high watermark of just over 30% margin. And so, we're going to do everything we can to continue to find efficiencies, to offset any sort of cost pressures, and to close that gap between us and some of our competitors. So, I would leave it at that. And I think just know that we have a tremendous amount of focus on this to close those gaps and to find efficiencies in our costs.

[Bradley Joseph Boyer, Stifel, Nicolaus & Co., Inc.]

Perfect. Thanks. And then, shifting to revenues, you guys talked a little bit about pass, but I know another strategic focal point for you guys is to drive visitation from 100 or 200 miles, in particularly, in San Diego and Orlando. Just curious if you could provide an update or comment as to what you're seeing there? That'd be helpful. Thanks.

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah, Brad. This is John. We're really focused on our pass performance and our pass results, and clearly that will have the biggest benefit in the same day in the local markets for our parks. We're not going to break down the dynamics by market for competitive reasons, but we believe pass is a significant opportunity. We have award-winning events, we have an incredible attraction line up in front of us and we think if we do a better job marketing and communicating these pass products as one of the best values in the industry and one of the best values in any market including San Diego and Orlando, we're going to do very well in the near range mileage to our parks.

[Bradley Joseph Boyer, Stifel, Nicolaus & Co., Inc.]

Perfect. Thanks. And then last one for me. Obviously, there's been some news out recently around some of the international development stuff, seems to be a part of the story that's been largely overlooked due to some of the, obviously, headwinds here in the U.S. But I'm just curious how we should think about that just as far as timing is concerned on the Hainan Island project. And then secondarily, if you could just kind of give us some color as to where things stand today as far as the pace of conversations you're having with third parties and what have you? That would be helpful. Thanks.

[John T. Reilly, SeaWorld Entertainment, Inc.]

Sure. This is John, I'll take that. So, SeaWorld hasn't approved or announced any new actions or new projects in China at this point. We do continue to work with Zhonghong. We've looked at sites in the past and we continue to have dialogue with them. So, we don't have any news for you on the international front today. Our work in the Middle East continues as well, but we'll get back to you when we do have developments on that front.

[Bradley Joseph Boyer, Stifel, Nicolaus & Co., Inc.]

All right. Thanks a lot, guys, and congrats on a great quarter.

[Matthew Stroud, SeaWorld Entertainment, Inc.]

Thanks.

[Operator]

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

[Michael A. Swartz, SunTrust Robinson Humphrey, Inc.]

Hey, good morning, everyone. Just wanted to touch on the Seven Seas Food Festival. I believe this is the first year of that attraction or festival in the Orlando Park. Just thoughts on what you saw this year. I know you extended that for a couple of weeks, so I'd assume it was successful. But could you add any commentary about maybe how that impacted the quarter from a per cap standpoint or at attendance standpoint as well?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Sure. This is John. I'll take that. In terms of – I'll take the per cap part first. One factor that we found from our event strategy is that they do have the power to drive in-park per capita performance and that is one of the factors in the 6.4% in-park per capita growth that you saw in Q1, very strong performance on the in-park side. We believe we have a world-class culinary team. This is the second year for Seven Seas in Orlando.

We also have that event in SeaWorld San Antonio and SeaWorld San Diego. And if both of the Busch Gardens parks, we have the Busch Gardens Food & Wine Festival, which actually started in Williamsburg. So, we see this as with our other events as a compelling reason for people in the local markets to buy a pass. Many – some of our events are award-winning and Seven Seas and Food & Wine, in particular, I think reinforce our culinary capabilities and differentiate us in the marketplace. So, as you can see with the extension in Orlando, we're very pleased with these events and they continue to build every year.

[Michael A. Swartz, SunTrust Robinson Humphrey, Inc.]

Okay. Thank you. And then, just a commentary through April sounded that – I think in the press release you mentioned that was positive. But could you give us I guess a sense of maybe where you stand today in terms of attendance and how you're thinking about revenue, just given what you've seen through April?

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Hey, Michael. It's Marc. So, we're not going to comment specifically on any numbers, but I think as I said in my prepared remarks, I mean we're confident where we stand at the end of April. Our year-to-date results through the end of April, we're confident and excited about the rest of the year.

[Michael A. Swartz, SunTrust Robinson Humphrey, Inc.]

Okay. Great. Thank you.

[Operator]

Our next question comes from Barton Crockett with B. Riley FBR. Please go ahead.

[Barton Crockett, B. Riley FBR, Inc.]

Okay. Thank you for taking the question. A lot of these calls in the past have been dominated by discussions of attendance in Latin America, Brexit impacts, animal activism kind of headwinds in San Diego, I don't hear any of that on this call. I was wondering if that suggests that these aren't issues right now? And if you could give us a little bit about the color about what you're seeing about those three kind of button (25:58) points at this moment?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. Barton, this is John, and I'll take the question. On the communications front, we've cited marketing communications as a near-term priority for this company. And we've taken – we're spending a lot of time in prioritizing our marketing work, improving our strategies to drive attendance, and maximize our spend, but part of that is our communications strategy.

And as I said earlier, our zoological team in our parks are some of the most dedicated professionals, I think, that you'd meet in any industry in the world. They dedicate their lives to animals, and we are committed to doing a better job telling the story of the work that they do on behalf of animals in our parks and animals in the wild. And we're going to be more disciplined on that communications front going forward. We brought in leading firms to assist us with that effort. So, it's a priority going forward.

On the international front, we did see an increase in international in the first quarter. Visitation from most markets are up. We did see a decline in the UK, but at a moderated pace. We're really focused on execution in that market. And we believe in the past, we may not have executed as well as we could have on sales, marketing, and the communications side, and we're redoubling our efforts there.

So, what I'd say is we are focused on communication and messaging as a company, and better telling the story of the good that we do in rescue and many other areas. But we're also keenly focused on the core business and that means focusing on marketing, pricing, our CapEx strategy and our cost efficiency. And we believe by doing that, we can unlock significant value here.

[Barton Crockett, B. Riley FBR, Inc.]

Okay. If I could drill in just a little bit on San Diego. I mean, we in the world kind of looks at this lease data, which is supposed to be roughly correlated to revenues and it tells an incredible story of like a 30% growth in lease payments, which presumably means a lot of growth in revenues. Is that a reasonable picture of what you're seeing? Is there just a real rebound there? And does that suggest that some of the marketing is really kind of – or time has really kind of ended some of the animal concerns that were headwind in that park in the past?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah, Barton. I'll take the question. Yeah. I spent nine years off and on in the San Diego market. It's an incredible market in Los Angeles. It's been a resilient market. We've been operating there since 1964. We have a lot of history there and a lot of people have an affinity to the SeaWorld brand in Southern California. We're not going to comment on the specifics for the market for competitive reasons.

Clearly, you can see some of the trends through the lease data that is available to you. But the same strategies that we're focused on enterprise-wide are marketing and communications. We think we're making significant improvements in San Diego on that front. We've made significant changes to our pass offerings in that market with the Southern California value pass, that you've probably seen a lot of media about that and certainly, the consumers in Los Angeles and San Diego have been very responsive to that.

But finally, I'd say, the park experience in that park is really, I believe, transforming before our eyes. We've got incredibly strong – the strongest event calendar that we've had in that park with Seven Seas as we mentioned before, with Inside Look, which the San Diego team debuted this year. And then just this weekend, we launched the Sesame Street Parade in San Diego. And this week we'll be opening Electric Eel.

So, I think it's important to highlight just how quickly the park experience is evolving and I think when you focus on the in-park experience, consumers respond.

[Barton Crockett, B. Riley FBR, Inc.]

Okay. And then just one final issue here. We were guesstimating that Easter might have been an $250,000 or about 9% kind of impact on attendance. Do you guys have any comments on whether that's in the ballpark or anything to say about how much Easter contributed?

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Hey, Barton. It's, Marc. Yeah. We're comfortable saying with Easter – it's an estimate and obviously – but it's in the range of $175,000 to $200,000 impact on attendance. So, it's less than half of our growth. So, there's still underlying attendance strength outside of the Easter shift.

[Barton Crockett, B. Riley FBR, Inc.]

Okay. That's great. Thank you, guys.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Sure.

[Operator]

Our next question comes from Brett Andress with KeyBanc Capital Markets. Please go ahead.

[Brett Andress, KeyBanc Capital Markets, Inc.]

Hey, good morning. I was just hoping if we could get a update on where we are on the progress of those cost savings buckets? I guess how much of the $40 million bucket and how much of the other $25 million bucket did you make progress against during the quarter?

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Hey, Brett. It's Marc. As both John and I said we're on – fully expect to deliver on those initiatives. What I would call your attention to, which I think is a really good story in Q1, is if you look at our revenue increase of almost $31 million, almost all of that flowed through to adjusted EBITDA. So, in the face of increased attendance much higher attendance, higher revenue, which is – both have associated variable costs with them, whether it's cost of sales associated with the revenue and then just more attendance and more labor around that, we were able to offset almost all of that costs through other initiatives. So, we are doing a good job on that and we're able to flow through a lot more of our revenue growth to adjusted EBITDA.

[Brett Andress, KeyBanc Capital Markets, Inc.]

Got it. Thank you. And then the 300-mile in performance. I think that you called out was strong, but as this marketing program gains traction, can you shed some light on your U.S. domestic and international bookings and pre-buys as we head into the really the peak season, just any color that you're seeing there?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. Well, as we said on our last call, we've launched on the SeaWorld brand side our Park to Planet campaign, which is a marketing campaign, but it's actually more than that. There's in-park activation. We believe it better tells the story of the good that a visit to our parks does for animals in the wild. So, we are focused on our pass and our near-in attendance, but also, we believe we have some strong initiatives on the domestic front with Park to Planet and other domestic advertising going forward. And we expect to see results from that this summer.

[Brett Andress, KeyBanc Capital Markets, Inc.]

But are you seeing bookings and pre-buy ahead of that that's maybe in line or above your expectations?

[John T. Reilly, SeaWorld Entertainment, Inc.]

We're not going to comment on individual sources of residency, but we're pleased with the campaign thus far.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Yeah. And I think I'd go back, Brett, to – again we said we're happy with our results through the end of April, and so I think we can leave it at that, and confident in the rest of the year.

[Brett Andress, KeyBanc Capital Markets, Inc.]

No. That's fair. I appreciate it. And then just lastly two kind of housekeepings. If we look at these, I think "unadjustables" that you had in 4Q and 1Q, do you anticipate more of those as we go throughout the year, and I guess given the parameters in your credit agreement? And then, also, can you give us the deferred revenue number in growth in the first quarter? I may have missed it, but if you have that, thank you.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Yeah. So, on the add-backs, we've called those out and those will occur from time to time as we have unusual items or things that we cannot add back. As you know, our credit agreement caps the amount of things we can add back and, in some cases, with unusual items only allows us to add back the net of tax amount. So, that's why we simply just show those in a table. And then, on your question about deferred revenue, it will be up when you see the Q. It's up about $5.6 million or about just over 4%.

[Brett Andress, KeyBanc Capital Markets, Inc.]

Thank you. Appreciate it. Good luck.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Sure.

[Operator]

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

[Timothy Andrew Conder, Wells Fargo Securities LLC]

Thank you. A lot of my questions have been answered, but just two wanted to maybe drill into a little bit more here, gentlemen. First of all, back to the UK-Brazilian guest trends, it would seem that, historically, your results in Orlando, in particular, could be more influenced by the international guests coming than some of your larger competitors just because of those guests stay longer, have more flexibility in their schedules.

So, as we go forward here it seems like that is a focus and that could be a swing factor for you more so than would be in the market, granted the ongoing competitive pressures and how you reposition yourself as a value in the market.

But just any more color on that and if you would anticipate that on an annualized basis would we see some growth in the Brazilian guests, and maybe stabilization on an annualized basis in the UK guests?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. Tim, this is John. On the international front, I'd just say again, we're pleased that we saw some growth in the first quarter. Most of our markets were up and we think that's a positive sign. We want to drive more growth in these markets going forward. For the U.K. specifically, we believe we have strategic opportunity there to drive better results in terms of our marketing, our communications, and our sales plans there, and we have significant effort underway to improve performance there.

[Timothy Andrew Conder, Wells Fargo Securities LLC]

Okay. Okay. And then, gentlemen, on the Sesame Place development, and I apologize I missed a very early part of the call. So, my apologies to yourself and everyone else on the call if you commented on that, but just an update maybe on the timing there?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Sure. We feel great about our agreement with the Sesame Workshop. I think as you can see with the parade expansions that are going into San Antonio and San Diego this summer. The timing for the second Sesame Place park is unchanged from the information previously available in 2021.

[Timothy Andrew Conder, Wells Fargo Securities LLC]

Okay. Okay. Congrats, again, gentlemen on the good real start here (37:07).

[John T. Reilly, SeaWorld Entertainment, Inc.]

Thank you.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Thank you.

[Operator]

Our next question comes from Matthew Brooks with Macquarie. Please go ahead.

[Matthew Brooks, Macquarie Capital (USA), Inc.]

Good morning, guys. I was wondering are you able to tell us how much revenue did you recognize on international agreements in the first quarter?

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Yeah. It was just over a $1 million in the first quarter.

[Matthew Brooks, Macquarie Capital (USA), Inc.]

All right. And you've opened some new rides already. Can you tell us anything about the consumer reaction, so far? And maybe any extra color about how it boosted season pass sales in those parks?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. As we said, we think the line-up of attractions that we have is a key factor in our strong first quarter pass sales performance that we've had. And we're committed to keeping that momentum to show that this is an incredible pass value and an incredible park experience. Many of the attractions that have opened thus far or some of the attractions that have opened thus far have been waterpark attractions. So, we actually would expect to see benefit from those in the summer.

With everything that we've opened thus far, we've been on track and we're pleased with the consumer response to the attraction that we have. Electric Eel in San Diego will be opened this week. I had an opportunity to ride it last week. It's an incredible ride. I think it's even more incredible because of the site there in San Diego over Mission Bay. It's a thrilling experience. Wacky Taxi at Sesame Place is progressing very well. We're excited about that and that will be open on time or early.

And Infinity Falls in Orlando is our biggest project for SeaWorld Orlando. We plan to open it as early in the summer as we possibly can. Going forward, clearly, we want to open our attractions earlier and we have all efforts to get that one open as soon as we can. The site is shaping up and we think it's going to be an incredible attraction.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Hey, Matthew. It's Marc. On the international, it's about $1.8 million.

[Matthew Brooks, Macquarie Capital (USA), Inc.]

Okay. Thank you very much.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Sure.

[Operator]

Our next question is from Chris Prykull with Goldman Sachs. Please go ahead.

[Christopher Prykull, Goldman Sachs & Co. LLC]

Good morning, guys. Thanks for taking the questions. Just a quick one on the revamped capital strategy and you mentioned every park gets a new attraction every year. I think that makes sense. How should we think about CapEx as a percentage of revenue under that strategy? And how do you think about that on a park-by-park basis? Do you need to spend more, for example, in Orlando to compete effectively versus Disney and Universal or just spend smarter? And then, just secondarily, do you have the attraction line-up set for next year already?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. This is John, Chris. And we do have the attraction line-ups set. And one of our key strategies is to set that line-up earlier and earlier. That will help us get the best cost for the projects that we develop and to be able to open them earlier. So, in terms of how you should think about the total spend, our previous target, we believe, will hold. We want to do better than that target, and we're working harder to do better than that target. And we think that the way that we have to do that is to be more cost-efficient in the attractions that we're developing in our parks.

We need to challenge the expenses and make sure that they're driving attendance, driving the consumer experience, driving revenue. And we think we can do a much better job than we've done. When you look at – when we look at our competitive space, we see that our competitors are able to launch multiple attractions with an efficient capital spend, and we have a strong effort underway to get there.

In terms of a market-by-market spend analysis, for competitive reasons, we aren't going to disclose what it would be market by market, but we think our new strategy positioned us very well to compete in each market. And the other thing I would add is we have a highly differentiated product with our animal collections, with thrill rides, with award-winning events. And we think our capital strategy can be efficient and continue to add to that and give us more frequency while spending less per project.

[Christopher Prykull, Goldman Sachs & Co. LLC]

Great. That's helpful color. And then, I just wanted to go back to an earlier question on your domestic tourist customer. And I know you don't want to share any advance purchase trends, but maybe just a high-level question. Why you've struggled to capture that customer over the past one to two years and sort of why do you expect this to change in 2018? Just any color there would be helpful.

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. The color I provide there is that we realize that our marketing and our communications strategy and execution is an opportunity across the enterprise. And I'll tell you how we're addressing it and that should indicate where we see opportunity. First, we're optimizing the spend, so that we can maximize our working media dollars and that means spending more money for working media and less on below-the-line expenses and marketing.

We're also optimizing our spend through our channel mix. Digital, social and earned media are increasingly important. And one of the areas for opportunity, I'd say looking in the rear-view mirror would be that we didn't put significant or enough effort to maximize those channels, so digital, social and earned are very important for us going forward.

And then just the last thing I would add is just we have to better communicate the breadth of our offerings to differentiate offering with animals, thrill rides, events, our Sesame IP, and we think there's a great story to tell and we want to better tell it going forward.

[Christopher Prykull, Goldman Sachs & Co. LLC]

That's helpful. And then, maybe just lastly for me. It sounds like San Diego off to a great start, new attractions coming on line is still there and also in Orlando. Are you happy with your performance in Orlando year-to-date through April?

[John T. Reilly, SeaWorld Entertainment, Inc.]

Yeah. I'd say if you look at our first quarter only five of our 12 parks were open for the entire quarter and three of those parks were in Orlando. So, you can make your assessment from that information. We think we're well-positioned in the market. As I said SeaWorld is differentiated from the competitors in the market. We have what's been recognized as the best water park in Orlando with Aquatica. And then we have a five-star experience at Discovery Cove. So, we feel good about our position in the market.

[Christopher Prykull, Goldman Sachs & Co. LLC]

I got it. Thanks so much for taking the questions and good luck over the summer.

[John T. Reilly, SeaWorld Entertainment, Inc.]

Thanks a lot.

[Marc G. Swanson, SeaWorld Entertainment, Inc.]

Thank you.

[Operator]

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

[John T. Reilly, SeaWorld Entertainment, Inc.]

Thank you. On behalf of Marc and I and the management team at SeaWorld Entertainment, we want to thank you for joining us this morning. We're enthusiastic about our 2018 year and we look forward to talking with you over the coming months. And we'll talk to you, again, in August. Thank you.

[Matthew Stroud, SeaWorld Entertainment, Inc.]

Thanks.

[Operator]

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