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SeaWorld Entertainment, Inc. (NYSE:SEAS)

Q4 2013 Results Earnings Conference Call

March 13, 2014 05:00 PM ET

Executives

Gene Ballesteros - Treasurer and Head of Investor Relations

Jim Atchison - President and CEO

Jim Heaney - Chief Financial Officer

Analysts

Tim Conder - Wells Fargo Securities

Robert Fishman - MoffettNathanson

Barton Crockett - FBR Capital

Afua Ahwoi - Goldman Sachs

Amanda Bryant - Barclays

Tim Nollen - Macquarie

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to SeaWorld Fourth Quarter 2013 Financial Results Conference Call. My name is Jamie 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 this conference call is being recorded.

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

Gene Ballesteros

Thank Jamie. Good afternoon everyone and welcome to our fourth quarter and full year 2013 earnings conference call. Today’s conference is being recorded and webcast live. Our fourth quarter and full year earnings release was issued this afternoon and is available on the Investor Relations portion of our website at seaworldentertainment.com. Also available on our website, our presentation slides containing information covered in today’s call.

Replay information for this call can be found in the press release. And we will be available on our website following the call. Joining me this afternoon are Jim Atchison, our President and Chief Executive Officer and Jim Heaney, our Chief Financial Officer. They will review our financial results and discuss important factors impacting the business.

Before we begin, I’d like to remind everyone that our comments today 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 be materially different and we undertake no obligation to update these statements.

In addition, on the call we may 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.

Now I would like to introduce Jim Atchison. Jim?

Jim Atchison

Thanks, Gene and thank you to everyone for joining us on our call today. Driven by record fourth quarter total attendance at our SeaWorld branded parks in Orlando, San Diego and San Antonio, I'm pleased to report our third consecutive year of record revenue and adjusted EBITDA.

We ended the year with Adjusted EBITDA of $439.1 million, at the high end of our previously provided guidance range. We are pleased to deliver on the financial and operating commitments we made in our first year as a public company. Delivering these results in a challenging operating environment is a testament to the strength of our brands, company, management team and, most importantly, our team members.

2013 was the year of organizational transition, disciplined growth, domestic expansion and conservation milestones for our company. In April, through the launch of our IPO, we transitioned from being privately held to publicly traded on the New York Stock Exchange. Then in December, we followed up our first successful IPO with a secondary offering and concurrent share repurchase although operating and maintaining 11 parks, which are among the most exciting and entertaining theme parks anywhere in the world.

In May of last year, we opened a company's largest capital expansion ever Antarctica: Empire of the Penguin. This new realm located at SeaWorld Orlando has been extremely well received by our guests and we’re thrilled with this one of a kind attraction in animal habitat at our flagship park. Antarctica helped SeaWorld Orlando achieve record revenues and the park continues to be a top performer in our family of theme parks.

In June, we opened our 11th park Aquatica, San Diego, much to the delight of our guests in Southern California. This water park provides a great companion park to SeaWorld San Diego and we’re very pleased with its first full year performance.

Reflecting on our 2013 media developments, in October we launched the third season of our highly successful Sea Rescue television show. Sea Rescue showcases the dedicated SeaWorld Rescue team as they work to provide care and assistance to injured stranded or abandoned animals. Just this past January the first season of Sea Rescue received even greater distribution through iTune, where it is now available for download.

Also in October we debuted our second television show Wildlife Docs. This inspiring new show highlights the care our Busch Gardens, Tampa animal experts provide at our animal care center which opened in 2012. Impressively through the end of 2013, more than 135 million viewers have learned of our mission to care for the natural world we share by watching these two shows on Saturday mornings.

On the conservation side, I am happy to report that in the fourth quarter of 2013, our company surpassed a monumental milestone in our animal rehabilitation program. We have now rescued over 23,000 animals. This program spans more than 4 decades and is an integral component of our company’s dedication to wildlife. Whether it’s young male dolphin found stranded in the shallow waters on Florida’s East Coast, a pair of sea turtles fighting to survive with fish hooks lashed in their bodies or orphan sea lions found on the beaches in Southern California; our passionate animal care teams are on the call 24 hours a day 7 days a week to aid and the rescue, rehabilitation and relief of animals requiring assistance.

Turning now to the year ahead in just 8 days on March 21st, the SeaWorld brand will celebrate its 50th anniversary. We’re very excited to celebrate a sea of surprises with our guest at all 3 SeaWorld Parks over the next 18 months. The energy will be felt throughout parks with the addition of a new evening Shamu show a surprise squad delivering prizes in surprises added animal encounters and sets of new shows and entertainment.

In addition to our 50th Anniversary celebration we are excited to be opening new attractions in 9 of our 11 parks in 2014; from a thrilling 300 foot drop tower Busch Gardens, Tampa to a serene flow through aviary in Aquatica San Diego to an imaginative multi attraction land in Sesame Place. Our newest attractions present something for everyone in the family to enjoy. All of our 2014 attractions are on schedule and will open in the coming months and I would encourage to review our earnings presentation for details on our new attractions.

I also want to provide a progress update on our business development work. Our intellectual properties and theme parks are nature and education based concepts that easily transcend cultures and international boundaries. Our team is actively engaged with partners on both domestic and international fronts to expand our beloved brands beyond our existing parks. As we work through the details we hope to be in a position to share with you some of these great opportunities in the not too distant future.

Before I turn the call over to Jim to provide more detail on our financial results, I would like to take a moment to thank my management team, the park teams and all of our team members for their dedication to our guests, to our animals and to our company mission. We have posted three years of record performance and this achievement would not have been possible without their hard work and commitment to providing the absolute best experience possible. We are truly proud of what we do and how we get it done.

Now I would like to turn the call over to Jim to discuss our 2013 financial results in more detail and provide an update on our 2014 outlook. Jim?

Jim Heaney

Thanks Jim, good afternoon everyone. First I will touch on results for the fourth quarter followed by a full review of our 2013 performance and close with our guidance for 2014. For the fourth quarter, the company generated revenue of $272 million an increase of 3% over 2012. The increase in revenue was driven by a 5% increase in total revenue per capita from $58.11 in 2012, to $60.91 in 2013.

Partially offset by a 1.4% decrease in attendance. In the fourth quarter admissions per capita increased by 4%, while in-park per capita increased by 6%. Despite record fourth quarter attendance at the company’s SeaWorld branded parks, consolidated fourth quarter attendance declined by 1.4% to $4.5 million guests in 2013.

The attendance decline was the expected results of plan pricing and yield management strategies implemented at the beginning of the year. Sequentially attendance strength continue to improve in the fourth quarter affectively reversing the negative trend we saw in the first half of the year. Compared to 2012 fourth quarter attendance was down 1.4% versus 3.6% in the third quarter and 5.7% in the first half of the year.

Moving on to the full year 2013 results. The company delivered phenomenal 52% increase in adjusted free cash flow by increasing revenues, expanding margins, reducing interest expense and reducing capital expenditures. The strategy delivered for us in 2013 and we look to build on these same drivers again in 2014 is to drive additional free cash flow growth. For 2013, the company generated record revenue of $1.46 billion which is an increase of $36.5 million or 3% over the comparable period in 2012. This improvement was driven by a 7% increase in total revenue per capita from $58.37 in 2012 to $52.43 in 2013, partially offset by a 4.1% decrease in attendance.

Admissions per capita increased by 9% while in-park per capita increased by 4%. The decline in attendance was result of new pricing in yield management strategies implemented at the beginning of 2013 and the impact of adverse weather primarily in the second and in July.

For the full year 2014, we expect a more typical pattern of revenue growth from both per capita and attendance growth. The cost of food merchandise and other revenue decreased by 4% from $118.6 million in 2012 to $114.2 million in 2013. As a percent of revenue these costs decreased from 8.3% in 2012 to 7.8% in 2013.

These costs declined due to improved culinary margins and the benefits of leverage purchasing initiated by our strategic sourcing group. Operating expenses increased by 2% from $726.5 million in 2012 to $740 million in 2013. As a percent of revenue operating expenses decreased from 51% in 2012 to 50.7% in 2013.

Operating expenses increased due to higher labor cost, cost from new attractions and cost from our new Aqautica Park in San Diego, partially offset by ongoing expense reduction initiatives. SG&A expenses increased by 1% from $184.9 million in 2012 to $187.3 million in 2013. As a percent of revenue, SG&A cost decreased from 13% in 2012 to 12.8% in 2013. SG&A expenses increased due to additions to the corporate staff related to public company requirements and higher equity compensation expenses, offset by expense savings from utilizing more efficient marketing channels and consolidating our media buying.

Adjusted EBITDA, a non-GAAP measure defined and reconciled in our earnings release increased by 6% from $415.2 million in 2012 to $439.1 million in 2013.

Margins improved by 90 basis points from 29.2% in 2012 to 30.1% in 2013. Depreciation and amortization expenses decreased slightly from $167 million in 2012 to $166.1 million in 2013. This decrease was due to the impact of fully depreciated assets, partially offset by the impact of new asset additions.

Interest expense decreased by 16% from $111.4 million in 2012 to $93.5 million in 2013. These savings were a result of the $177 million debt pay down on our senior notes and term loan with the net proceeds from our IPO and our refinancing in may, that extended maturities and increased our loan covenant flexibility and reduced cash interest expense.

GAAP net income declined by 35% from $77.4 million in 2012 to $50.5 million in 2013, due to a onetime fee associated with terminating our advisory agreement with Blackstone, loss from early extinguishment of debt and costs from the secondary offering in December. [Excluding] these items, adjusted net income increased by 31% from $77.4 million in 2012 to $101.4 million in 2013.

At the end of year, the company had $116.8 million of cash and cash equivalents with no amounts outstanding on our revolving credit facility. Total long-term debt including current maturities and discount was $1.658 billion which equates to a 3.5 times net leverage ratio at the end of the year.

This brings me to our initial guidance for 2014. The following estimates are based on current management expectations. Please refer to discussions of forward-looking statements in our earnings release and related SEC filings.

For 2014 we’re initiating guidance for adjusted EBITDA in the $450 million to $465 million range and revenue in the $1.49 billion to $1.52 billion range. For the first quarter, attendance will be impacted by the shift of Easter into Q2 as well as a reduction in park days due to changes in our operating calendars. For Easter we’re projecting 250,000 shift in attendance out of Q1 into Q2, the impact of reduced park operating days will reduce attendance by additional 100,000 in the first quarter. We will also incur around $10 million of incremental operating and marketing expenses in the first quarter related to our 50th anniversary celebration. All these points are summarized on earnings release presentation on page 7.

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

Jim Atchison

Thank you, Jim. Before we open up for questions I would like to once again thank all of you for your interest in our company. We’re excited to be where we’re headed in 2014 and for the years beyond. We’re confident in the pricing and yield management changes we’ve implemented which allows our company to build attendance and per caps on top of that broader base. We believe that the compelling line up of new attraction is coming into 9 of our 11 parks this year will keep guests entertain amaze and passing through our gates all year along.

At this time I’ll ask Jamie to open up the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we’ll take our first question from Tim Conder with Wells Fargo Securities. Mr. Conder your line is…

Tim Conder - Wells Fargo Securities

Thank you. I apologize there. And I apologize for the background, we’re on the road here, but a few questions gentlemen and first of all congrats on the first year under your belt there. On the guidance, it would seem that your revenue is a little cautious here given the weather. And then so I guess that’s one component?

And then Disney, well talked about Disney’s raised prices a couple of weeks ago. Thoughts on that and I know you raised prices a lot last year, but just any thoughts on that? And then sort of the blend in the revenue, a mix between attendance and then what you can do on pricing or dynamic pricing another revenue measures?

Jim Atchison

Tim this is Jim Atchison. Thank you for your question; it’s quite a good one. I’ll make some remarks here about pricing overall and then I’ll ask Jim to comment on the guidance. With respect to the recent price increases that we have seen at Disney Universal, we certainly take note of them and monitor and measure kind of our pricing that we have throughout our parks not just our Orlando parks or Florida parks for that matter.

Really what we see is we are kind of happy with our plan as it plays out today. Might we contemplate additional price increases as we open up our summer attractions because we have such a strong attraction line-up, perhaps yes. So we will take a look at that and evaluate as the year moves along, but suffice to say we make our pricing decision independent of our competitors.

And if you really look back last year, it was in June I believe when we actually took our price increases in Orlando and Tampa. So we will take stock that changes in the market as we have done, but we will kind of stick with our plans.

I will ask Jim to comment a little bit about our guidance as particularly as it relates to revenue.

Jim Heaney

Okay. Hey Tim, if you look at the revenue guidance and look at the below and high-end, it [equate] to somewhere between 2% and 4% growth rate. But the midpoint where it had about 3% which is about what we did in 2013. Our intent through the year is to get a little more precise on the revenue number, we’re pretty early in the year and we want to put out number that we are confident in early on.

So let me explain the range at this point, as far as where the revenue growth is going to come from, as we’ve talked about 2013 was all about pricing, we pushed the pricing lever pretty hard. Our expectation for 2014 is to get a more normal mix of revenue growth from both attendance growth and per cap growth.

Tim Conder - Wells Fargo Securities

And will that be around a [thirdish] roughly attendance in the balance per cap?

Jim Heaney

It could range somewhere between that in about a 50-50 split. The first quarter will look a little different, but when you blend the whole year together it’s somewhere between those guard rows.

Jim Atchison

And obviously the portion derived from price is going to be a function of both our pricing strategies and our ongoing yield management efforts. And I know that was also part of your question, Tim. So we feel very good about the strategies we put in place and how they are manifesting forth.

We have a number of initiatives that relate to those strategies that are also performing quite well related to kind of our channel management efforts, our mobile and eCommerce platforms, all of which are doing very well and we feel very good about.

So we’ll refine, as Jim said our guidance as the year evolves, but our business is so summer centric that it’s just off early in the year at this point.

Tim Conder - Wells Fargo Securities

And I think we’ve got an idea on this one and one more question here if I may. The flow through of incremental revenue to EBITDA with my calculations are right, those around 65% in ‘13 and in your implied guidance sort of around the midpoint would be around 40%. How much of that I guess is related to the 50th anniversary and/or was last year unusual or can you just sort of refresh or something overall framework there gentlemen?

Jim Heaney

Sure. Yes, you are right on both cases. In 2013, our flow through was very high from 66% and we outperformed kind of our long-term growth rate in that area in 2013. The driver that again was 2013; we pushed the pricing lever very hard even to the point where it impacted attendance and we got more muted revenue growth, but the flow through on that growth was very strong.

As you move into 2014, as you get a more normalize mixed of revenue growth from attendance net pricing the flow through is not a strong, but still strong and better than our base rate. And then layered on top of that is roughly $10 million of incremental cost related to 50th anniversary. So those are really few factors kind of impacting the flow through number.

Tim Conder - Wells Fargo Securities

Okay. Great, thank you gentlemen.

Operator

We’ll next go to Robert Fishman with MoffettNathanson.

Robert Fishman - MoffettNathanson

Yes hi, thanks guys. Given your continued expected significant growth in free cash flow over the coming years and de-levering of the balance sheet, how should we think about any increases to your dividend or other returns of capital for this year and going forward?

Jim Atchison

Well, Robert good question, I will ask Jim to make a comment or two about our overall leverage position, but let me talk for just a minute about our desire to return shareholder value and that’s something that we as management and our Board discuss with great consistency virtually every time we're together. So we will remain focused on that. And certainly dividend policy and share repurchase and there is other ways to get at that.

So, it's something we'll continue to evaluate and refine as we move along, we're 11 months since our IPO. And I know our Board has great interest in looking at our dividend policy, share repurchase policies and others. So, we'll continue to evaluate that.

I'll let Jim talk a little bit about our debt position and how that relates to the cash flow we're generating as well.

Jim Heaney

Okay. One thing I did want to point out, we did do a share buyback in December say every single [debt], we like buying our stock and that's an effective way for us to use our cash. We're going to pay our fourth dividend on April 1st, so that will be our fourth dividend paid out as a public company.

In regards to our capacity for dividend and share buybacks, as long as our leverage ratio is below four times, we can payout up to 7.5% of our market cap for dividends and share buybacks. If you do math on that, it's around $225 million capacity. And that’s get refreshes every year.

If you take our current dividend payout around $73 million that would leave around a $150 million, the company chose to, either to increase dividend or do incremental buyback.

So, those are really the guard rails that we're working with. We're evaluating our strategy. So, as Jim mentioned, we continue to work with our Board to refine our strategy and that's kind of where we are today.

Robert Fishman - MoffettNathanson

Okay. Thank you. That's very helpful. In your prepared remarks, you mentioned the international opportunity. Can you provide any additional color on how you’re thinking about these partnerships and that potential size and scale of investments and returns there?

Jim Atchison

Sure Robert, as I mentioned in my remarks, we continue to feel very good about the reception we received for our brands and our content and our parks. As we have explored opportunities overtime, we refined that process quite a bit and are now focused on really talking to specific partners in specific locations and are very encouraged by the results that we’ve received so far.

So, as I said, I think we’ll be excited to share some news in the not too distant future nothing that I here today. But maybe Jim can just eliminate a little bit kind of the methodology we’ve gone through and kind of -- give you an idea where we are in the process.

Jim Heaney

Sure. As Jim said, we’ve made a lot of progress in this area. And we have a very disciplined process when we look at these projects. And to give you some context of where we are in that process, the first step in looking at business development project is the market assessment then we go to a site selection process geographically where we will locate our park and where in that geographic location makes most sense. Picking a partner is important that will be the next step. And then what you or at that stage you move into negotiations hopefully signing a deal, construction and then park opening.

The best way to characterize where we are right now is we moved to the first three stages, market assessment, site selection and partner selection, we’ve really moved into the negotiating stage. We can’t speculate on the outcome of those negotiations, but we’ve made a lot of progress over the last 90 days I mean we’re pretty far into this process.

Robert Fishman - MoffettNathanson

Okay. Thank you. And if I could just clarify one more, so does your full year guidance that we just hear in last question, does that contemplate any future price increases across your parks or just as you gave right now?

Jim Heaney

Not specifically, last year we took pricing in Florida in June and our revenue guidance should probably contemplate something similar.

Jim Atchison

Jim is right, our guidance includes our existing pricing strategies and also our guidance is reflective of the atmosphere as we see it through the quarter thus far in Q1.

Robert Fishman - MoffettNathanson

Okay. Thanks a lot guys.

Operator

We will take our next question from Alexia Quadrani with JPMorgan.

Unidentified Analyst

Hi, good afternoon it’s Nadia -- in for Alexia. I just wanted to follow-up on the pricing strategy for 2014 more specifically. How should we think about promotions for ‘14? Do you expect to have more or less versus 2013?

Jim Atchison

You know Nadia, we have a very disciplined approach to kind of our promotional strategy as it relates to our general admissions pricing. And one thing that I will point out is because of our intense focus on the 50th anniversary and the few surprises throughout parks, so we do have promotions associated with that offer or I should say associated with that anniversary. So you will see promotions related to that.

One thing we do focus on is we try not to do a lot of promotions; we do a handful of them. We tend to keep them rather fenced and specific around a rather precise objective. So you will see promotions throughout the year. I wouldn’t frame it as any more than you saw last year, really I think what you will see is going to be things related to our 50th anniversary and other unique offers that we have found and our guest find compelling.

Unidentified Analyst

And just one more question before I turn it back over. Can you provide any color on how season passes are tracking so far, I believe you raised prices on season passes late last year?

Jim Atchison

Well, we don’t give any real color on our annual pass strategy particularly at this point in the year because it’s so early in the selling season. All I can say is we feel good about the plan we have in place and how it’s progressing. But being as early as it is in the selling season, we don’t really give more details than that at this point.

Jim Heaney

We can’t mention the impact of passes, our attendance last year was consist with prior year’s, kind of for about 39% of our attendance and within the pass category, we grew revenues about 9% last year. So we have good momentum in that area and expect to build on that this year.

Unidentified Analyst

Okay, great. Thank you very much.

Operator

(Operator Instructions). We will take our next question from Barton Crockett with FBR Capital.

Barton Crockett - FBR Capital

Okay, great. Thank you for taking the question. I guess a couple of [questions] if I could. First on your share repurchase, you know what you could cut there; buying back a portion of what Blackstone was basically exiting. Could you tell us how going forward you think about Blackstone relationship is share repurchase? Do you maybe to be completely out of the stock where you guys buyback shares from other shareholders?

Jim Atchison

Well, I think to answer your question directly, Barton, no; they don’t need to be, not as a technical matter of course, so no. I think as everyone is aware, Blackstone still has a significant position in the company, but our decision around share repurchase is really a function of the Board and management’s view of how to return value to shareholders, be that through dividends, be that through share repurchase other ways.

As Jim had shared, we’re generating significant free cash flow and we will continue to do so. There is a not a lot of glory in sitting on piles of cash, so we’ll continue to work with our Board and others about efficient ways to return value to shareholders. Philosophically, speaking for Jim as well, we see the benefit in value and share repurchase and as evidenced by the repurchase we had with the secondary. So, it is something that we think is a great way to return value.

Barton Crockett - FBR Capital

Okay, great. And then if I could switch gears just to get you there to touch on the big thing I guess that’s been in the media. I mean obviously, the animal activist is in discussion from the documentary, from legislation, from fans making statements, it’s been in the news and I think you have a fair response to that in terms of that being unfair given everything you guys do, the health conservation to make up part of your brand. But leaving aside the fairness, I was just wondering if you could comment on whether there is any impact you’ve noticed at all on satisfaction or attendance or the desirability of SeaWorld for international licensees and just had any impact of any of that?

Jim Atchison

Well, let me say, it’s a fair question, and as you might expect, we get asked it from time to time. The assertions made by the broader animal activist community are just a fundamental mischaracterization of how we care for animals and the important work we do with respect to conservation and education and science, and I’ll add inspiration by the millions people, who get close and connected with our animals and maybe leave our parks inspired in some way to make a difference for wildlife and wild places. And for that we make no apologies, we’re very proud of the work we do and how we do it.

With respect to the impact on our business, I get asked that a lot too. And as much as we’re asked it, we can see no noticeable impact on our business. If you follow this, even this recent announcement, our SeaWorld Parks had record attendance in the fourth quarter of the year and are outperforming our other parks by considerable margin.

With respect to national surveys and data that we collect around our reputation efforts and image, there is awareness of the movie that kind of peaks in and drops at CNN, who is one of the owners of the movie by the way. CNN shows it repeatedly from time-to-time. So, that does spike on occasion. But our surveys don’t reflect any shift in sentiment about intent to visit our parks.

Matter of fact, the movie in some ways has actually made perhaps more interest in marine mammal parks and actually even about us. So, we have seen that reflected through certain visitor profiles and certain guest comments and things we get. So, the movie did not get an Oscar nomination in January. And we continue to take kind of proactive efforts around communicating with our guests and business partners and others.

But ultimately, the assertions by the animal rights, animal activist community, they don’t necessarily burden themselves with fact and we have to deal with that from time-to-time. But we have seen no impact on the business.

Barton Crockett - FBR Capital

Okay, that’s very helpful. Thank you.

Operator

We’ll take our next question from Afua Ahwoi with Goldman Sachs.

Afua Ahwoi - Goldman Sachs

Hey, thank you. Two questions from me. First I think last quarter, on the third quarter call, you indicated that October to November attendance was running flat with prior years and then obviously the fourth quarter was negative. So that would suggest a meaningful drop off in December. So maybe you can address that. And then the second question was on the expenses, on the marketing expenses.

Can you remind us how much was in the 2013 because -- how much was stepped up in 2013, because of Antarctica? And I guess next year -- this year we’re stepping it up again, because of the 50th anniversary celebration. So, I’m just wondering how much of inflation we had in your expenses over the last two years and how can we expect that to normalize as these peak spending periods sort of move away? Thanks.

Jim Atchison

Afua, I’ll ask Jim Heaney to comment a little bit on the expense number and then I’ll comment on the attendance reference you made.

Jim Heaney

Hi, Afua. You’ll see in our 10-K which we’ll be filed later this month that our marketing and sales expenses were actually lower in 2013 than they were in 2012. So, there was really no ramp up going into Antarctica. Antarctica was -- every year we open up new attractions and there is incremental marketing spend behind that. So year-over-year, there really wasn’t an impact from Antarctica. The impact to 2014, the $10 million we mentioned is being incremental spending in Q1, about half of that is marketing and the rest is what I call operational expenses, largely around entertainment. So, I’d look for that $5 million increase for ‘14 but ‘13, to your earlier, there really wasn’t increase.

Jim Atchison

And also -- this is Jim Atchison, and I’ll comment on a little bit of your remark. And I am not sure if I heard your question properly but I’ll try to frame it, and you can tell me if I’ve missed anything. But in 2013, as we have reported throughout the year and in our third quarter call in November, our attendance has continued to improve sequentially. If you look at the first half of the year, attendance was down 5.7% to prior year, then in the third quarter it was down 3.6% to the fourth quarter down 1.4%. So, we continue to be encouraged by the results we’re seeing. And bear in mind, those numbers on attendance are coupled with rather dramatic increases in per cap. So, we actually are quite pleased with our pricing and revenue management strategies and the effects on attendance whatever they are, they’re actually improving with each passing quarter, so moving from down 5.7 in the first half to down 3.6 to down 1.4.

Afua Ahwoi - Goldman Sachs

Okay.

Jim Heaney

Yes. Another way to think about the attendance in the quarter was our SeaWorld branded parks were up in attendance and our other parks were down which nets down to the 1.4% decline. One thing you will recall, I think on our last call as we talked about the late Thanksgiving and the compression with Christmas. So, I think that explains a little bit of the trend difference between where we were going into Thanksgiving where we came out at the end of the year. But our Christmas performance was very strong and the fourth quarter was a really good quarter for us.

Afua Ahwoi - Goldman Sachs

Okay, thank you.

Operator

We will next go to Amanda Bryant with Barclays.

Amanda Bryant - Barclays

Great, thank you. Most of my questions have already been asked and answered but just to kind of follow-up on the last question with respect to your attendance, obviously you had some very specific promotions in the fourth quarter to drive specifically weekday attendance. And just give us a little color in terms of how successful those promotions were? Thank you.

Jim Heaney

Sure. Our promotional activity was actually little bit in the fourth quarter in comparison to prior year. We experimented with dynamic pricing with lot of our holiday events which we got some exciting results from that. But overall, the promotional activity was I’d say typical or even a little lighter than normal in the quarter. And we finished the year strong with good Christmas. The compression with Thanksgiving and Eastern and basically losing a week I think hurt us a little bit but outside of that we are pleased with the quarter.

Jim Atchison

And Amanda with respect to your comments about the weekday offer, this is part of our evolution along the lines of getting more sophisticated with dynamic pricing. And it’s an offer that we put together and first tried last year and we feel very good about it. It’s framed rather precisely as a weekday offer. And we were encouraged by the results of it, and the incrementality that it drove. So, it’s something we will kind of keep in our tool chest from time-to-time, but we will continue to push and evolve the notion of having a more dynamic fluid pricing algorithm for our business. And we see that as a way to continue to drive meaningful revenue growth over the longer term.

Amanda Bryant - Barclays

Great, thank you.

Operator

The next question is form Tim Nollen with Macquarie.

Tim Nollen - Macquarie

Hi, thanks. I wanted to ask about your expansions please. Is there any way to give a number in terms of additional square footage or incremental CapEx or something like that to give us an idea of what it means about what your expansions are domestically? And then on your international, I appreciate your comments, I didn’t realize you were that far along in terms of getting something else going internationally. And correct me if I’m wrong, I think I heard you said your net debt figure was 2.5 times. How do you think about your debt levels and the balance between doing an international expansion versus doing shareholder returns?

Jim Heaney

Okay. One correction, it was 3.5 times.

Tim Nollen - Macquarie

3.5. 2.5 [seem low to mid]. So I heard that wrong. 3.5.

Jim Heaney

It was for 2.5.

Tim Nollen - Macquarie

Yes. I was surprised, okay 3.5. Thanks.

Jim Heaney

In regards to international development, I’ll let Jim talk about domestic. All of the ideas on the table now being contemplated are largely capital light. So we wouldn’t have to take on debt to make those happen, and we are with partners right now that are willing to fund the projects. So that won’t have any impact obviously on our balance sheet. That would be -- what you give up from that is maybe a little bit lower share of the profits, but internationally we think that strategy makes sense and we’ll keep our powder dry for doing something domestically.

Jim Atchison

Yes. And Tim, this is Jim Atchison, I will comment a little bit on the domestic development question’s part of your question as well. This is an area that we continue to work diligently on and we feel there is some great opportunities. Good example is the acquisition and then repurposing and reinvesting and opening of our 11th park with a product in San Diego last year.

So the -- I will say, I think the market throughout the Continental U.S. is rather a well developed for kind of larger format parks but actually some of our most compelling brands are actually smaller format parks, Discovery Cove is a boutique park that’s a rather small footprint in nature, the one in Orlando was about 35 acres, our Sesame Place Park in Langhorne, Pennsylvania is not much larger than that and also is just a great dynamic product featuring those brands, our Aquatica water park where we combine animals in a water park environment is really just a stunning kind of new entry into water park category.

So the domestic opportunities we have are rather significant and some of that relates to just a portfolio of products we have versus big and small parks. We can do small and mid-size things throughout the U.S., and we can do bigger things overseas perhaps. So, we’ll continue to be quite focused on that and we feel very good about the development initiatives we’re pursuing. And as we mentioned I think before too, we’ll have good news to share on that front.

Tim Nollen - Macquarie

Okay. Thanks.

Operator

And we have time for one more question today. We’ll go to Tim Conder with Wells Fargo Securities.

Tim Conder - Wells Fargo Securities

Thank you. Just a couple of things here gentlemen. CapEx, D&A expectations for ‘14 and then on the international component, once you negotiate and get a contract signed, what would be the timeframe between construction and anticipated park opening?

Jim Atchison

Yes, Tim this is Jim Atchison. I’ll comment on the latter part of your question, I’ll let Jim come back to the first part. But with respect to an international development, we feel confidently that from good time that we would perhaps enter into the definitive agreement with our partner, we could have a one of our smaller mid-size format parks open within maybe 24 months to 30 months, 36 months something in that range. A bigger format park like a full size SeaWorld park, if you will. It’s probably going to add 18 months to that window. We have some distinct advantages here, having multiple of each of these concepts from which to draw from and to kind of accelerate the architecture and engineering pieces. So, we think that the full build out of a park could be anywhere from 2.5 to 4.5 years.

However, as we consider how to best monetize this intellectual property and our brands, part of that involves fees for the use of licensing of our trademarks and names and those would potentially monetize even before the park opening with respect to marketing value and ongoing commitments as well as kind of technical advisory fees related to the development of concept.

So, it might not all be so back loaded I guess is my point. But once we defined for sure the terms and conditions of any agreement, we can add more color on that.

Tim Conder - Wells Fargo Securities

Okay.

Jim Heaney

Tim, regarding the depreciation and amortization question, we expect D&A to largely stay where it is, maybe tick up 2% or 3% in 2014.

And then on CapEx, one thing we did in our earnings presentation is detailed a little extra color on our expectation for this year. Given that we understand and delayed some spending this year, we expect about one point of spending to shift out of ‘13 into ’14, so that would make our 2014 CapEx come in around 11% of revenue versus 10%.

Tim Conder - Wells Fargo Securities

Okay.

Jim Heaney

If you look at the total spend for the two years combined, it’s essentially the same, it was really just the timing variance.

Tim Conder - Wells Fargo Securities

Okay, great. Thank you.

Operator

That concludes today’s question-and-answer session. Mr. Atchison, at this time I will turn the conference back over to you for any additional or closing remarks.

Jim Atchison

Thanks so much, Jamie. Before our closing, I would like to once again thank all of our team members for continuing to deliver safe, personal, interactive and educational experiences to each of our guests. The safety of our guests, team members and the welfare of our animals continues to be foremost to our operations. And I again thank our team for all their work and dedication to making our parks among the safest, well maintained and highest visited theme parks in the world. Our team members are truly the best in the industry.

I am extremely pleased with our company’s record performance in 2013. Yet as strong as ‘13 was we’re looking forward to another great year in 2014. Beginning next week with the start of our 50th anniversary celebration and continuing with the amazing new attractions we have opening later in the spring, you can expect the same determination and dedication all year through as we continue to create a differentiated memorable guest experience. We’ll make it only be found in our parks, delivering strong financial performance and providing solid returns to our shareholders.

Thank you all very much for your interest and engagement today.

Operator

Thank you for your participation. This does conclude today’s call.

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