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Executives

Gene Ballesteros – Treasurer and Head, IR

Jim Atchison – President and CEO

Jim Heaney – CFO

Analysts

Scott Hamann – KeyBanc Capital Markets

Tim Conder – Wells Fargo Securities

Alexia Quadrani – JPMorgan

Afua Ahwoi – Goldman Sachs

Steven Kent – Goldman Sachs

Felicia Hendrix – Barclays

Barton Crockett – Lazard Capital Markets

Tim Nollen – Macquarie

Jason Bazinet – Citi

Bryan Goldberg – Bank of America Merrill Lynch

SeaWorld Entertainment Inc. (SEAS) Q2 2013 Earnings Call August 13, 2013 5:00 PM ET

Operator

Please stand by. Well, good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to SeaWorld’s Second Quarter 2013 Earnings Conference Call. My name is Kelsey, and I will be your conference operator today. At this time all participants are in a listen-only mode. After the prepared remarks the management from SeaWorld will conduct a question-and-answer session, and conference participants will be given instructions at that time. As a reminder, today’s conference is being recorded.

And now, I will turn the conference call over to Gene Ballesteros, the company Treasurer and Head of Investor Relations. Please go ahead, sir.

Gene Ballesteros

Good afternoon, everyone. And welcome to our second quarter earnings conference call which is being webcast. With me today are Jim Atchison, our President and Chief Executive Officer; and Jim Heaney, our Chief Financial Officer.

On this call we will review our year-to-date and second quarter results, which we released today after the market close. If you do not have a copy it is available on the Investor Relations portion of our website at seaworldentertainment.com. Replay information for this call can also be found in the press release and will be available on our website.

Before we begin, I’d first like to remind everyone that comments made during this call may 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 differ materially from those described in such statements. And we undertake no obligation to update such statements.

In addition, on the call we may also reference certain non-GAAP financial measures, more information regarding our forward-looking statements and reconciliations of non-GAAP financial measures to the most comparable GAAP measures are included in the earnings release, and can be found in our filings with the SEC.

With that, I’d like to turn the call over to Jim Atchison.

Jim Atchison

Thanks Gene. And thank you to everyone on the call for your interest in SeaWorld Entertainment. The second quarter was an extremely busy and productive time for our company. During a roughly 90-day period, we completed an Investor Road Show, launched our initial public offering, amended our credit facility, open our new Aquatica Water Park, in San Diego and opened the largest new attraction in the company’s history, Antarctica, Empire of the Penguin at SeaWorld Orlando.

All of this, while continuing to run 11 destination and regional parks across the country. I’m proud of what we accomplished in such a short period of time and look forward to building on these accomplishments in the future.

As reported in our press release issued earlier today, we achieved a record $649.9 million of revenue for the first half of 2013, an increase of 2% over 2012. These results were driven primarily by an 8% increase in total revenue per capita due to the success of our pricing and yield management strategies.

Adjusted EBITDA for the first half of the year was $138.1 million, an increase of 3% over the same period in 2012. We are pleased with our first half results particularly in light of the unfavorable timing of Easter this year, along with the unexpected adverse weather we experienced at our Florida and Virginia parks during the second quarter, and at all but one of our park locations in the month of June.

Well, over the long term, these weather effects tend to even out. We were impacted much more than normal during the second quarter by these adverse weather conditions.

Despite this unexpected challenge, we believe we are well positioned going into the second half of the year and into 2014. On May 24, Antarctica opened at SeaWorld Orlando to great anticipation from our guests. This new, one of a kind attraction has been well received and is driving a level of incremental interest and revenue we expected.

On June 1, we opened our new Aquatica Water Park in San Diego after an extensive renovation. Although the park was only open for one month in the quarter, we are pleased with the initial guest feedback and are excited to offer this companion park near SeaWorld San Diego.

Looking ahead into 2014, construction is underway on our new Falcon’s Fury attraction at our Busch Gardens Tampa Park. This attraction will be the tallest free-standing drop tower in North America, and compliments, our Busch Gardens Tampa offerings by providing our guests yet another unique thrill experience, at the top of a 335 foot tower. Falcon’s Fury will pivot guests 90 degrees in mid-air into a face-down dive position before plummeting towards the ground. This exciting addition will debut at Busch Gardens Tampa in 2014.

We also announced earlier this quarter, our multi-park, 50th Anniversary Celebration to be of surprises to commemorate the opening of the original SeaWorld Park in San Diego.

Scheduled for 2014, we will offer our guests an 18-month long celebration including new interactive experiences, shows, pathway performances, animal encounters and a surprise squad treating guests with prizes every day.

At our SeaWorld Park in San Diego, we are transforming the front gate area into a world beneath the waves. Explorer’s Reef will make entering the park more efficient and importantly transport our guests into the marine environment from the moment they arrive. Explorer’s Reef will feature a giant wave sculpture and touch pools where guests can interact with a variety of sharks and fish. This new interactive entrance realm will open in 2014.

We are excited about the quality and quantity of our new offerings scheduled for 2014, during which we will launch new attractions and shows at the majority of our 11 parks. Be sure to stay tuned in the coming months as we continue to announce additional attractions.

Lastly, we will see benefits going forward from the debt pay down and refinancing we completed during the quarter. With these improvements to our balance sheet, we expect to drive earnings and cash flow benefits going forward. Jim Heaney, will elaborate more on this in a few moments.

On the media side, the second season of Sea Rescue premiered on October 6, 2012 and has already been seen by 59 million viewers, the combined viewership for season one, and season two is now over 86 million. Building on that strong momentum, I’m excited to announce another development in our media business.

This fall, we will premiere a new television series call, The Wildlife Docs. The first season is comprised of 26, 30-minute episodes that premiere on October 5. The Wildlife Docs is where you will meet Busch Gardens Tampa’s dedicated veterinary and team and animal care experts and the 12,000 animals that depend on them.

The Wildlife Docs offers a wealth of stories around life enriching wellness and preventive health programs to groundbreaking lifesaving medical procedures. Go behind the scenes to witness these dedicated professionals in their efforts to care for one of the world’s largest and most varied collection of wild animals.

Tune in Saturday mornings this fall, the Litton’s Weekend Adventure block on ABC and experience the heartwarming stories of the special bond between humans and animals.

Turning to our education and conservation efforts. We are proud to announce a scientific breakthrough at SeaWorld San Diego, when penguins conceive through artificial insemination, hatched healthy chicks this past quarter. The techniques and knowledge gained from this advancement has the potential to be applied to other bird species, including endangered species in the wild.

Another significant advancement in the care and wellbeing of marine mammals was achieved on July 18, when our team of skilled veterinarians successfully completed a cesarean section on a White-Tip Reef Shark at our Discovery Cove Park in Orlando. We are happy to say the mother shark and her four pups are healthy and doing well.

Also, in 2011, our company made an unprecedented commitment to eliminate the use of plastic bags in all of our parks. We are pleased to announce that earlier in the second quarter, this commitment was achieved. The elimination of plastic bags and the use of recycled paper bags is the demonstration of our commitment to the environment by keeping an estimated 4 million plastic bags from entering land-fills or waterways each year. This initiative also allows our guests to play a direct part in conservation and making a difference on the planet.

And finally, we are proud to announce that our Pet Adoption Program, Happy Tails is now an all SeaWorld and Busch Gardens cities nationwide. Since 2011, the program has helped place more than 37,000 dogs and cats into loving homes. Happy Tails provides two complimentary single-day admission tickets to pet lovers, who adopt a dog or cat from a participating shelter. It’s our way to say thank you to these adopters for giving these animals a second chance.

These are just a few highlights of our conservation and education efforts, which form a core part of our corporate culture and our overall guest experience.

And with that, I would like to now turn the call over to Jim Heaney, our CFO, who will update you in more detail on our financial performance.

Jim Heaney

Thanks, Jim, and good afternoon everyone. Before going to the financial detail, I want to point out the one-time items related to our initial public offering, debt refinancing and debt pay-down that occurred during the quarter.

As previously disclosed, we made $46.3 million payment to Blackstone related to the termination of our 2009 Advisory Fee Agreement. In addition we wrote-off $3.8 million of related prepaid advisory fees for the balance of 2013. A combined $50.1 million impact is shown on separate line in our earnings release.

The termination of this agreement will provide a good return on investment for the company as it drives over $6 million of annualized cash expense savings going forward.

For the IPO process, we also paid-down a fortune of our debt with the IPO proceeds, we paid off $140 million of our 11% senior notes and $37 million on our credit facility. At current rates, this pay-down will provide approximately $16.8 million of annualized to interest savings going forward.

In addition to our debt pay-down, we amended our credit facility in May, this amendment rolled our Term Loan A and Term Loan B into a new Term Loan B2 facility. The rate on this new facility is LIBOR plus 225 basis points with a 75 basis point floor. At current rates the amended terms will save the company approximately $12.6 million of annualized cash interest expense going forward.

The amendment also extends the maturity dates of the credit facility into 2020, reduces amortization payments and provides capacity to pay off the balance of our high cost senior notes when they’re redeemable in December 2014. This will also drive additional interest cost savings in 2015.

As a result of the financing activity in the quarter, we recorded a $32.4 million loss on early extinguishment of debt, which is comprised of a $15.4 million early redemption fee related to the pay-down of our senior note and the $17 million non-cash write-off of deferred financing fees and discounts due to the senior note pay-down and refinancing of our credit facility.

The total impact of these one-time expenses from the Advisory Fee Agreement termination and loss on early extinguishment of debt was $82.5 million pre-tax and $53.5 million after tax for the year-to-date period. We exclude these as one-time adjusted items in our GAAP adjusted net income as disclosed and reconciled in our earnings release.

For the first half of 2013, we reported record revenues $649.9 million, which is an increase of $11.6 million or 2% over the first half of 2012. This improvement was driven by an 8% increase in total revenue per capital from $59.84 in 2012 to $64.59 in 2013, offset by a 6% decrease in attendance from 10.7 million in 2012 to 10.1 million in 2013.

As mentioned in our earnings release, the most significant driver of the low attendance was expected impact of new pricing and yield management strategies that reduced attendance but increased revenue per capita and overall revenue.

The next largest driver was an unexpected impact from adverse weather in our Florida and Virginia parks in the second quarter, and that all but one of our park locations in June.

Lastly, the early timing of Easter in March causing overlap the spring break in many of our markets, which had a negative effect on attendance for the year-to-date period. From a quarterly perspective the early Easter also shifted attendance out of the second quarter, end of the first quarter as discussed in our prior earnings call.

Year-to-date admissions per cap increased by 10% from $36.78 in 2012 to $40.49 in 2013. As mentioned earlier the increase was a result of pricing and yield management strategies that reduced attendance but increased admission per caps and overall revenue.

Year-to-date impart per capita spending increased by 5% from $23.06 in 2012 to $24.10 in 2013. This growth was driven by targeted price increases, improved penetration and the impact of new product offerings.

Year-to-date cost of food, merchandize and other revenues decreased by 5% from $55.7 million in 2012 to $52.8 in 2013. As a percent of revenue, these costs declined from 22.6% in 2012 to 21.8% in 2013.

Year-to-date operating expenses decreased slightly from $368.7 million in 2012 to $367.9 million in 2013. This decrease was driven primarily by reduced variable costs and other cost management efforts offset by the impact of new attractions and the new Aquatica park in San Diego. As a percent of revenues, these cost declined from 57.8% in 2012 to 56.6% in 2013.

Year-to-date SG&A expenses increased by 11% from $91.8 million in 2012 to $102.2 million in 2013, this increase was primarily result of the timing of advertising and media spend, increased equity compensation expense and increases in our corporate staff, needed to support the company’s initial public offering and ongoing public company requirement. As percent of revenue, these costs increased from 14.4% in 2012 to 15.7% in 2013.

Year-to-date adjusted EBITDA, a non-GAAP measure defined and reconciled in our earnings release increased by 3% from $134.2 million in 2012 to $138.1 million in 2013. This improvement was driven by an increase in revenues from higher per cap spending and positive operating leverage.

Year-to-date, depreciation and amortization expense increased by 6% from $77.3 million in 2012 to $81.8 million in 2013, this increase is due primarily to asset additions we made during the last 12 months.

Year-to-date, interest expense decreased by 9% from $56.7 million in 2012 to $51.5 million in 2013, these savings were primarily result of partial quarter impact of the debt pay-down and refinancing discussed earlier that occurred during the second quarter.

Net loss for the year-to-date period was $56.2 million, including the Advisory Fee Agreement termination and loss on early extinguishment of debt. Adjusted for these items, non-GAAP adjusted net loss was $2.7 million in 2013 compared to $6 million net loss in 2012.

Non-GAAP adjusted free cash flow increased over the same period from $25.2 million in 2012 to $56 million in 2013, due to the improved operating results and lower capital expenditures which declined from $115.6 million in 2012 to $88 million in 2013.

For the second quarter net loss of $15.9 million including the Advisory Agreement termination and loss on early extinguishment of debt, adjusted for these items, non-GAAP adjusted net income declined by just 7% from $39.1 million in 2012 to $36.5 million in 2013. The decline was primarily result of lower revenues due to the decline in attendance from the factors mentioned earlier, offset by expense reductions and interest cost savings.

At the end of the second quarter, the company had $93.9 million of cash and cash equivalents with no amounts outstanding on our revolving credit facility. Total long term debt including the current maturities and discounts was $1.65 billion, $181 million reduction versus the $1.846 billion balance at the beginning of the year. Deferred revenue at the end of the quarter was $150 million which is up 7% over the comparable period of 2012.

This brings me to an update on our guidance for the full year 2013. The following estimates are based on current management expectations, please refer to the discussion of forward-looking statements in our earnings release and related SEC filings.

For 2013, we are reaffirming our adjusted EBITDA guidance in the $430 million to $440 million range. We are adjusting revenue guidance down slightly to a range of $1.45 billion to $1.48 billion as a result of the impact from the adverse weather in the second quarter.

With that, I’ll turn the call back to Jim Atchison.

Jim Atchison

Thank you, Jim. In closing, I would like to once again thank all of you for your interest in the company. I would also like to take a moment to thank all of our team members for their dedication, commitment and drive and staying focused on delivering personal, interactive and educational experiences to each of our guests.

At this time, we’ll turn the call back to the operator and open up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We’ll hear first from Scott Hamann with KeyBanc Capital Markets.

Scott Hamann – KeyBanc Capital Markets

Hi, good afternoon everyone. Just in terms of the guidance, what kind of visibility do you have with respect to the booking ticket sales that gives you confidence that the balance of the year is going to be stronger relevant in the first half?

Jim Atchison

Scott, this is Jim Atchison, thanks for your question. I’ll take that question. One of the things that we look at as we confirm and reaffirm our guidance for the year was, our year-to-date issues versus kind of our year-to-go issues. And in that respect what I’m speaking to is the weather impacts that affected us significantly in the second quarter in particular of the first half of the year. We don’t anticipate lingering throughout the second half of the year.

Let me also point out that implied in our $430 million to $440 million EBITDA guidance is about 4% to 6% full year growth rate, so that would require us to have about 4% to 7% growth in the second half of the year. The second half of the year, is, and particularly the quarter three is the far larger portion of the year for us.

So, we actually think with having Aquatica opened in San Diego, our Antarctica Park opened in Orlando, bear in mind those when we had about 30 days in the first half of the year, we feel good kind of reaffirming our guidance.

So, to give a little more context, our Q3 number is about 55% to 60% of our EBITDA for the year. And with these new attractions in place and the assets we have from them, we were here confirming this guidance as we move forward.

Scott Hamann – KeyBanc Capital Markets

Okay, and then, just on the – go ahead Jim.

Jim Heaney

I was going to add, the deferred revenue balance at $150 million is up 7% versus prior year and that’s another good predictor of our revenue performance going forward.

Scott Hamann – KeyBanc Capital Markets

Got it. Okay, and then just a question on dynamic pricing. It seems like there has been a few targeted pricing opportunities I guess primarily at SeaWorld Orlando, just curious how that pilot is going – something is little bit different for the industry and where do you think the opportunity could be as you kind of roll that out more broadly?

Jim Atchison

No, Scott, we’re – as we’ve shared along the Road Show and at other times with along the way. The work we’ve been doing in dynamic pricing are very encouraged by. So, this new, we have some new offers that we’re introducing through the fall. They are fairly well fenced in terms of we have a week-day offer that’s only available online.

And while we’ve done promotions for years, this opportunity to do a promotion effectively that’s only online and only available Monday through Friday, we see as a great extension and kind of the next logical test and step for us with respect to dynamic pricing. So, we feel very good about that. It’s been very well received. We’ve had good results here in the Florida market in particular, so we’re encouraged by it.

Scott Hamann – KeyBanc Capital Markets

Great, thanks guys.

Jim Atchison

Thanks Scott.

Operator

We’ll now hear from Tim Conder with Wells Fargo Securities.

Tim Conder – Wells Fargo Securities

Thank you, maybe to follow on a little bit on the question about visibility gentlemen. You alluded to that you don’t expect the weather to continue to the impact that it had on the second quarter. I guess, first of all, can you quantify any of the impact in any way to the Virginia and the Florida parts in particular. And then, secondly, just any comment on July and August to date weather?

Jim Heaney

Okay, Tim, hi, afternoon. This is Jim Heaney. One way, it’s kind of sliced apart the attendance number are. If you look our year-to-date number, we were 605,000 down in attendance versus the prior year.

To break that down a little bit for you, a little over third of that was due to the pricing and yield management efforts that took place in the quarter, so that was somewhat of an expected impact. About a third, you can attribute to the adverse weather we had in Florida and Virginia, and as you mentioned, all the parks, except one in June.

And then the last piece was the compression of Easter, and spring break. That was a little bit less than a third of the variance versus the prior year. But those are basically the three drivers. The purposeful piece of it, you’ll see going forward, the Easter and weather effects are somewhat a function of obviously the weather, the Easter effect obviously won’t repeat in the second half and that’s one piece of attendance will pick up in the third and fourth quarters.

Jim Atchison

And Tim, this is Jim Atchison, I’ll add to that. With regards to the issues and the strategy we’ve been executing around pricing and yield management, the attendance declines that we see there are obviously offset by what you see as a 10% increase and admissions per capita. So, we feel good about the strategy and what it’s delivering for us. What we did anticipate in the Q2 was the significant impact weather would have.

Tim Conder – Wells Fargo Securities

Okay.

Jim Heaney

Yes, another way to look at that, if you attribute two or three points of the attendance decline, the pricing and that that against the 10% admission per cap increase, we like that trade-off. And having a couple – fewer bodies in the park is also good for our rating and the experience as well and we save operating cost.

Tim Conder – Wells Fargo Securities

Okay. Where gentlemen do you see on that trade-off I guess going forward here with the balance of the year or more so looking at the next year. Do you feel that you pushed the envelope enough in the short term on the admissions per cap, do you believe there is more opportunity on the in-park or how do you see that balance or dynamic on a go forward or is it more surgical would you say going forward?

Jim Atchison

I’ll borrow your line, surgical, Tim, this is Jim Atchison. One of the things, we feel that we’re – we still have a runway with respect to the sophistication we’ve been introducing around our pricing strategies.

And a lot of this relates less so to headline – top-line GA pricing, it relates much more to yield management and particularly channel management. For example, we’ve been very encouraged by the efforts we’ve seen round migrating more of our business to our mobile platforms and eCommerce platforms. To get some perspective on that, we launched a mobile commerce site earlier this year. And we had it in a much smaller format in prior years and our revenues are up 170% there.

Now, those are small numbers but they will grow over time for the percentages are a bit distorted. But having said that, our mobile efforts are enormous, the responses we’ve seen there have been very strong. So, we see more of the pricing being around the surgical process you described.

And along with that we’re very encouraged by our in-park efforts where we’re seeing much higher in-park experiences and equity dining sales related to the shift to more business on our own eCommerce site. We can more artfully offer those up-sales and upgrades on our own site than through third party. So, a lot of the work that we’re going to continue to benefit from on pricing is really going to be below the line and a bit back of house if you will.

Tim Conder – Wells Fargo Securities

Okay, okay, thank you Jim.

Operator

Alexia Quadrani with JPMorgan has the next question.

Alexia Quadrani – JPMorgan

Hi, thank you, just two questions. The first one is, when you typically see the sort of depressed attendance because of weather, weather related attendance drops. Do you tend to see sort of a catch up performance in the following months or so when the weather does improve or is it more kind of just more normalized attendance trends?

And then the second question is, given the anniversary event happening sort of over the next 18 months and the new attraction that you described the sort of terrifying attraction the drop one. Do you think there is still room to continue to kind of raise prices sort of these above average levels or will it be more difficult given the price raises here?

Jim Heaney

Alexia, hi, this is Jim Heaney. I’ll take the first one. When you think about the weather impact and the potential for bounce back, it really varies from market to market. In our regional parks which are more local based along those guests around season passes, we do tend to see a bounce-back, it’s fairly predictable in those markets. They definitely come back and they come back consistently when the weather improves and we’ve seen that year-over-year.

In the destination market, it’s a bit of a different dynamic. Guests come into market, there is a limited window visitation and then they experience that weather, they’re gone. So, you don’t see as much bounce-back in our destination parks.

Fortunately at our Orlando Park, when you think about the comps from first half to second half, we’ll get the full impact of Antarctica, second half of the year, which should buffer that effect.

Jim Atchison

Alexia, this is Jim Atchison. I’ll address your second question with respect to our kind of view on pricing as we move along. And what I’ll say is, while I mentioned previously on for Tim’s question that we do see the opportunity to continue to cultivate more per capita grow through effective yield management efforts and eCommerce and some of those behind the scenes channel management strategies.

Having said that we still think that there is room on headline pricing to your question, have we hit a ceiling, is there opportunity. We think there is opportunity there. If you couple the metrics, we pay close attention to is obviously our price value relationship that our guests respond to in our guest surveys. Same thing with our guest satisfaction score.

So, with the additional park attractions and offerings that we have out, and with very, very strong guest satisfaction and price value quotient, we think that there is still room for headline pricing. Although we think we’ll have probably greater impact even without the benefit of headline pricing, we’ll probably have a greater impact just through the sophistication we’ve introduced kind of below the line pricing.

Alexia Quadrani – JPMorgan

And the fact that some of your – someone is competing or the other parks in the Orlando area are also raising prices pretty aggressively. That is, it is probably benefit to you because it raise the ceiling or because maybe you get some attendance coming through there, if the price is too high, that’s the other part?

Jim Atchison

Well, speaking of Orlando market, it’s obviously an important market for us with having SeaWorld and Aquatica and Discovery Cove here. And we’re pleased with the performance in this important city, and we’re pleased with the performance of Antarctica. And that new attraction has given us the ability to command more prices.

The market itself has sophisticated competitors who continue to invest in their parks and accordingly are able to command higher pricing just as we have done with Antarctica. So, the nature of the marketplace went itself to being able to take, more price because of the significant investments that are made by us and others in this space. So, it’s an important market for us and one we’re very pleased with.

Alexia Quadrani – JPMorgan

Okay, thank you very much.

Jim Heaney

Thank you.

Operator

We will now hear from Afua Ahwoi with Goldman Sachs.

Afua Ahwoi – Goldman Sachs

Thank you, a couple of questions from me. First, on your operating expenses and personnel revenues, for this quarter came in a little higher than we were forecasting in them. I wonder, can you maybe talk about your ability to flex on your variable labor when you see sort of the weather driven attendance declines. I know some of your peers recorded earlier, we’re able to do somewhat of that. I was wondering if you have that opportunity at your park.

And then secondly, maybe on some of these on the pricing and the visitation were seen. Do you think, maybe some of the pricing is too aggressive maybe in some of the parks or is it sort of the outcome you expected?

Jim Heaney

Hi, it’s Jim. I’ll address the first one. As I mentioned in my earlier comments, our operating costs were essentially flat year-over-year. And at the parks, they are very nimble and they’re able to – as we get a closer in-view on attendance, just our operating cost as a percentage of revenue are, costs were down this year. Thus, we see attendance trends coming in closer to end, we’re going to adjust our labor, sapping levels and there is other variable cost, cost of sales that come down with volumes as well.

Knowing that we’re having a lower attendance quarter, we did some other things as well. We delayed hirings of our corporate staff. But bottom line, the business is very nimble and delivering these cost savings and again our operating costs were down year-over-year. And that’s absorbing the incremental costs from both the new Aquatica Park in San Diego and Antarctica Exhibit in Orlando.

Jim Atchison

Yeah, Afua, this is Jim Atchison. I’ll add just one comment on that, on the expense comment and then I’ll talk a little bit about some of the pricing sensitivity you mentioned. Further, with respect to expenses, we’ve had double-digit increases in our maintenance and related operating expenses, so, with respect to capital expenditures and our ongoing upkeep of our park.

So, what we’ve been able to do is benefit by having a model with getting much higher per capita out of our guests and with fewer guests we can be a bit more flexible on kind of the operating costs. So we have some variable cost savings there. That’s not a bad trade-off in model for us. So we feel good about that.

With respect to other markets where we feel that we were too aggressive on prices, as I’m sure you can appreciate well, there is a number of factors that go in and a number of strategies that go in related to managing our pricing across our 11 parks. Do we think every program worked exactly as we’d hoped to plan, of course not. But what we do think is that the big strategic directional decisions we made on price, we feel very good about.

In terms of measuring price resistant, I mentioned our guest’s satisfaction scores, price value scores but I’ll have to point out that the parks where we work, arguably more aggressive on price are not the markets where we struggled. Our struggles have really been driven by weather. So, despite the fact that maybe we had been more aggressive on headline pricing in some markets, that’s actually not where our challenges are.

Afua Ahwoi – Goldman Sachs

Okay, thank you.

Jim Heaney

We also have two levers to drive our per caps up, pricing is obviously a big part of that but as we’ve talked about before, we have an ability to drive up our per cap spending through our yield management efforts which is done multiple ways, it’s done through sales general shifts, shifting business to lower cost sales channels, driving guests to buy higher value ticket products. So, there is, multiple ways we can increase per caps and we’re not just limited to take our headline pricing up in terms of growing our per caps.

Afua Ahwoi – Goldman Sachs

Got it, thank you.

Operator

Our next question will come from Steven Kent with Goldman Sachs.

Steven Kent – Goldman Sachs

Hi, good afternoon. Just to continue on that question a little bit. But first, maybe you could address capital expenditures and what your expectations are. Jim, you noted that you’re going to have new coaster in Tampa, could you give us a sense of how expensive that is going to be. And also whether that puts you above the CapEx program percentages that you’ve talked about historically?

And then, just maybe you could give us two or three examples of cost reductions that we might be able to look for over the next 12 to 18 months that might be able to give us some confidence that the margins will continue to improve?

Jim Heaney

Okay, Steven, I’ll take the first one. As we talked about before, we’re targeting 10% of revenue as far as total capital spending for the business starting 2014, directionally 70% of that or 7% is for attractions, events and shows and the remaining 30% or 3% is for maintenance and IT related CapEx.

The good news is for 2014, our capital plans are essentially locked in including the attraction that we talked about in Tampa. And we’re in-line with that commitment, but potentially a tad bit under it. So, we’re definitely in line to achieve those numbers and our 2015 plans are also fairly well baked and we see no reason to think will be variance area as well. So, on the capital side, we’re on good shape.

Jim Atchison

Yeah, Steve, this is Jim Atchison, I’ll comment too and I want to make sure that the attraction we referenced in Tampa is the drop tower, a very significant 335-foot drop tower. But I think you might have mentioned it as a coaster, so I just wanted to clarify. A fantastic attraction, we’re very, very excited about it. And we think it’s going to do just great in that market.

With respect to our expense efforts, we really are benefiting from having some very experienced operators throughout our business. And as we see, for example, the clients in attendance, whether it’s related – be it related to weather or related to the pricing strategies we put in place that are having less overall attendance but higher revenues. We’re able to manage that into additional savings and kind of our OpEx theory.

So, where we have savings you’ll see in kind of our labor categories, you’ll see in some of our costs to sales efforts which are also improving. And then, some of our other expenses just related to skill and efficiency, our success in migrating more business around eCommerce side, mobile commerce side is actually more efficient as well. So, it’s a lot of the OpEx and labor kind of savings that you’ll be seeing.

Our expenses related to maintenance programs and things like that those are actually up double – in the double-digit percents and probably won’t decline appreciably. We have very high maintenance there within our park. So, we will continue to be there.

And we’ve had good return on some of our marketing investments and over time, we may actually increase that. So, we’ll manage that as we move along. But I think you’ll see bigger savings related in the OpEx and labor area.

Steven Kent – Goldman Sachs

Okay, thank you.

Operator

Moving on to Felicia Hendrix of Barclays.

Felicia Hendrix – Barclays

Hi, good afternoon. Jim, thanks for the color earlier on the impact of various events on your attendance. Just, getting to Antarctica, I was wondering if also attendance was somewhat affected prior to the opening if people were waiting for the new attraction. I was just wondering if you could give us some color for perhaps the lift that you got as it opened.

Jim Heaney

Yeah, that’s a good question. Yeah, we did see that a bit in April and May, that down was offset by the up, increase in attendance we saw in June from the new Aquatica Park and Antarctica also was up in June. So those three things kind of washed out the quarter. And as we mentioned earlier, we’ll get the full impact and benefit of the new water park and Antarctica going forward in the third quarter.

Felicia Hendrix – Barclays

And so…

Jim Atchison

Yeah, and Felicia, this is Jim Atchison. Let me add to that, we’re very pleased with the performance of Antarctica, we do various surveys and collect data about the guest responses which has been very favorable. And we did see some pent up demand if you will relate to the late May opening of it. I mean, to be clear today, we’re still running one-and-hour and two-hour lines at Antarctica, which is a good problem to have but it’s still a problem to have. So we’re – we continue to try to manage that down but it speaks of the demand for the product too.

Felicia Hendrix – Barclays

And so, when we think about your revenue guidance which just tweaks a little bit but obviously you had the weather which you didn’t anticipate. Is it fair to say though that how Antarctica and even Aquatica are trending now are within plan?

Jim Heaney

Yeah, very much so. I mean, the weather, we’re unable to recoup particularly on the tourist side. We actually could because we have very strong season pass programs nearly 40% of our attendance comes from our season pass visitors overall. We can see some recovery of weather related fall-off that’s in the local nearby markets related to our pass holders who can still visit in the fall.

But it’s the tourists who are in town, particularly in our Florida market here, where we have a lot of concentration is where we’ve – we’re not able to recover that because they go back home. So, we do feel better about the fall in that respect.

Felicia Hendrix – Barclays

Okay. And then, just quickly on Aquatica. Now that it’s opening, just wondering how you’re thinking about the park, we talked a lot about pricing, but just your cost structure, is it kind of an evolutionary thing or are you kind of in a good spot right now?

Jim Heaney

We’re very pleased with this park. And our San Diego team is just on a dynamite job getting it opened and running and walking through the park as I did just a couple of week ago, the guests are just delighted with the result. We have, we’re delighted with both the operational and financial performance of it. And we think that – candidly that’s just going to get better over time as we get into the cadence of having two parts to market and joint ticketing and joint passes and things like that.

So, this is a very good fit for us, if you consider all of our park locations, San Diego was the only one that was a singular park if you will, even our Sesame Place park in Langhorne, Pennsylvania has both water park and dry elements included in it. So this recipe of having a satellite park in town is when we know well and we’re very pleased with.

Felicia Hendrix – Barclays

Okay, great. Thank you.

Operator

Moving on to Barton Crockett with Lazard Capital Markets.

Barton Crockett – Lazard Capital Markets

Okay, great. Thank you for taking the question. I wanted to first step back and talk a little bit about consolidation in the industry. I just kind of forget your kind of updated box in terms of what you see as beneficial potentially over time for SeaWorld and where the most opportunities lie between kind of regional tuck-ins, combinations with larger operators in the U.S., maybe combinations with people outside the U.S. where there is really no geographic overlap or where do you see any appeal or potential in those categories?

Jim Atchison

Sure, Barton, this is Jim Atchison. Our efforts around developments are something we have a lot of energy towards and for good reason. Our brands are just beloved and well respected and well recognized internationally. So I’ll start maybe backwards with your question.

On the international front, we continue to have candidly great interest on development opportunities for our partnering brands. And we explore those and it’s a matter of identifying the right partner and the right geography and then striking your ideal. So those efforts are alive and well and quite active.

Domestically speaking, either we have a great portfolio of brands and that as we contemplate, where we might have other development opportunities. Domestically we realized that – for example, the success we’ve seen in our Aquatica Park in San Diego is a great model, that’s now our third Aquatica Park that’s a new brand for us. We just launched the first one in 2008.

Discovery Cove continues to do very, very well. And there is not a lot of markets domestically that could support a real premium brand like that. But on the other hand there is a lot of interest there and certainly lot of interest internationally.

As we focus around the rest of our portfolio, we are very confident and comfortable with the brands that we have and the parks that we have. So I don’t know I see launching a lot of new Greenfield parks in the immediate term. However, we’ll always look at opportunistic acquisitions in ways that we can maybe repurpose, reposition an existing asset in a way that gets us another location and a way to introduce our brands to the new markets. So, we’re very active there but I would say that it will be opportunistic domestically and we’re quite aggressive and active internationally.

Barton Crockett – Lazard Capital Markets

Okay, great. And then if I could switch a slightly different topic, just a number. With all the changes in your debt structure, could you give us some sense of what you think is a good kind of rate, quarterly rate right now for interest expense at this point?

Jim Heaney

Yeah. If you take our total interest cost savings from all the refinancing and pay-down, the run rate will drop by about $29 million going forward. So, if you take our run rate prior to the score’s activity, and take out $29 million that’s a pretty good run rate to use for modeling.

Barton Crockett – Lazard Capital Markets

You mean that the rate that you had that you reported this quarter or the rate that you reported last quarter, when you mean run rate?

Jim Heaney

The prior quarter.

Barton Crockett – Lazard Capital Markets

Prior quarter, okay, great. Thank you.

Jim Heaney

Thanks.

Operator

Well now hear from Tim Nollen with Macquarie.

Tim Nollen – Macquarie

Hi, thanks, couple of things please. I don’t know if I’ve heard of the deferred revenue reference before, the 7% increase that you mentioned. I just wonder if you could put that in context what has that number, been in the past few quarters and how good indication is that really of future quarterly or annual revenue growth. Maybe if you could also just describe what is in that $150 million what income that fits that number?

And then secondly, can you say anything more about Antarctica, what’s the – if you can sort of guess what the boost to attendance was or pricing or demand, if there is any way we can try to figure out how to model in a full quarter’s impact of that very successful expansion? Thanks.

Jim Heaney

Okay, this is Jim Heaney. I’ll take the first one. Deferred revenue is revenue basically we’ve received the cash from our guests for passes and those types of things. We amortize that revenue over the expected period of their visitation. The number varies by wide amount by season so for comparison purposes, we don’t compare to the prior quarter or the quarter before that because it’s not really relevant. What’s relevant is to compare the deferred revenue balance to the prior year period at the same time.

So, $150 million, we’re up 7% over the prior year and basically that implies that there is $150 million more revenue on our books that we’ve already received cash for that will recognize over the next 12 months.

Tim Nollen – Macquarie

Okay.

Jim Atchison

And Tim, this is Jim Atchison, and I understand of course your desire to kind of get more framing around Antarctica. As you know, we don’t provide a lot of granularity around new attractions, obviously for competitive reasons. What I can tell you is we’re very pleased with the performance of this attraction. Our cluster of parks in Orlando are our highest performing group on a year-to-date basis. And if we had not been perhaps hit by weather significantly, it would have – as an enterprise, it would be that much further ahead.

So, we’re pleased with the results. What the full impact will look like, particularly for the Q3 or for the rest of ‘14, time will tell. But, well, let me also frame though that we build an attraction not just for obviously a quarter or a summer or even a year, this is something that’s a big game changer for us. And in terms of our brand and the guest experience and we’re very pleased with it. And obviously it will be a major attraction for many, many years to come.

And lastly, I’ll point out that in the Florida market, different than many regional markets, new attractions tend to have a longer life because the turnover of visitors within the market is greater than that of a regional market. So, we anticipate Antarctica being major attraction, major drawing and very well received for quite some time to come.

Tim Nollen – Macquarie

Okay. I know you don’t necessarily try to – you don’t run the business on a quarter-by-quarter basis, obviously. So, I understand but, your revenue guidance for the rest of the year is just – is barely moved from your previous figure. And I guess what, even if you can’t necessarily quantify that am I right to assume that the success in Antarctica and I have six full months to come in the coming year, has a lot to do with offsetting what was revenue shortfall at least in our model in Q2?

Jim Heaney

Sure. One way to look at the guidance and kind of peel it apart, if you look at what it requires on the second half of the year, it would be 2% to 6% revenue growth over the prior year in the second half. Couple of things that are different in the second half was obviously the Easter impact, hopefully of improved weather and we’ve picked up the full impact of Antarctica and Aquatica. So there is, lots of things going in our direction in the second half.

On top of that if you think about our run rate of per cap growth at 8%, we can even afford a small attendance decline and hit those numbers comfortably. All those factors combined kind of drove our comfort level and drove the guidance that we provided in the earnings release.

Tim Nollen – Macquarie

Okay. That’s very helpful. Thank you.

Operator

Jason Bazinet with Citi has the next question.

Jason Bazinet – Citi

I just had one question on the attendance maybe for Mr. Atchison. You reported 9% attendance decline and I think attributed about 3% or 30% of that to the weather. And since you’ve been with the firm long time, much longer than it’s been public, can you just provide some historic perspective on sort of weather related attendance issues, in other words, would you describe this as the worst set of weather circumstances that have affected the firm or it sort of happens every year or something like this happens just any sort of context?

Jim Atchison

Yeah, Jason, I’m happy to answer that and I appreciate that you’re asking it actually. I mean, if you look at the Nova website for example for Orlando, the weather – the rainfall is up 136% above norm in April and 140% or so in May and 133% in June, it’s a little bit better in July. So, that’s 136% of normal, 146% of normal, that kind of thing. So you can know it’s a great site for it.

What I will say is that, over time we have periods of very challenging weather. What I will say is that often they are related to singular events like hurricanes, or a hurricane or hurricane season that was particularly challenging. We do have obviously five of our parks in Florida and a lot of concentration in Florida. And so, there is, times when that has affected us to a greater degree. And then, with our parks in the mid-Atlantic in Virginia, that can – it call actually follow-up all the way up there.

So, what I will say is that the Q2 weather that we’ve had by my experience recollection is very unusual particularly for Florida. So, I would characterize it as quite out of the norm and the fact that maybe we have a concentration in Florida is perhaps why it maybe it hits us more profoundly. But we’ve dealt with difficult weather patterns before, this does tend to come and go. The fundamentals of our business, we’re quite pleased, we’ve been very strong. So, we get past the weather I think things will happen.

Jason Bazinet – Citi

Very good. Thank you.

Operator

Our next question will come from Bryan Goldberg with Bank of America Merrill Lynch.

Bryan Goldberg – Bank of America Merrill Lynch

Hi, thanks, one for Jim Heaney and then a couple of Jim Atchison. Jim, you mentioned year-to-date SG&A expenses were up about 11% I think. And you also called out the timing of advertising and media spend. So, can you help us think about how that line item is going to trend or how we should think about modeling it in the third and fourth quarter? I assume, will the growth rate be down in third and fourth quarter?

Jim Heaney

Yeah, we’re not providing specific guidance SG&A expense. But what I could tell you is the spread of that – as changes here do the timing of sales and marketing expenses. I think the best way to model is would be to take our year-to-date run rate and basically replicate that for the last two quarters.

Bryan Goldberg – Bank of America Merrill Lynch

Okay, thanks. And then, I guess, a question about Orlando. I guess, looking into July, and with really June, there has, been some fairly high profile openings or upgrades going on in some of your peer parks in Orlando namely Disney and Universal. And I guess, could you just update us what you’re seeing in terms of competition right now in Orlando?

Jim Atchison

Sure, Bryan. What I’ll say is the – there is a lot going on in this town. And overall that’s quite a good thing for the marketplace because I think both in the near-term and certainly over the longer-term it tends to grow the definition. And as such, it gets more people to market and then we can, I guess, each compete to get them to our parks.

So, there have been significant investments in town that’s a very good thing. We’ve been a big part of that as well with Antarctica and I think overall it’s creating a great vacation experience and plenty of options and make it a more attractive destination.

Bryan Goldberg – Bank of America Merrill Lynch

Okay, thanks. And then, finally, I know it’s small but I guess, every little bit helps in Virginia. I’m just wondering with the food and wine festivals that you guys put on in Busch Gardens in the quarter, I’m just wondering, is that something that you anticipate bringing back next year and what else can you do to drive improvements at that park going forward?

Jim Atchison

We’re very pleased with the results of the food and wine festivals at Busch Gardens. This park is European themed park so that it’s built in various villages of Italy and England and Germany and so forth. So, it lends itself nicely to this type of a program. And our team there just did a phenomenal job in execution both from an entertainment and culinary standpoint.

We’re pleased with that and in a park like that where we can offer events and I’ll couple that by saying we have a terrific Halloween program there, and a very, very successful Christmas program. These shoulder season events help to mitigate summer concentration of risk and also even just the attendance. It’s more comfortable, it’s cooler in the spring and then in the fall gives something more for – to help our annual pass program.

So, we think that the shoulder season strategy that we do in our Williamsburg Park have been growing and some of our other parks, is a very good one. So, we’re pleased with it and the food and wine festival was a great new addition.

Bryan Goldberg – Bank of America Merrill Lynch

Okay, thanks a lot.

Operator

And ladies and gentlemen, that is all the time we have for questions. Mr. Atchison, I’ll turn the conference back to you for closing or additional remarks.

Jim Atchison

Great. Thank you very much. I just want to thank everybody for their participation in this call today and for those who were asking questions, those questions, we appreciate those as well. We’re very confident in our business model. We feel very good about the strategies we’re executing and the initiatives we’ve put in place and the team that does the work. So, we’re encouraged about the year remaining for us and in 2014. And thank you all for your time and attention today.

Operator

And again ladies and gentlemen that does conclude our conference for today. We thank you all for your participation.

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