SeaWorld Entertainment (SEAS) CEO Jim Atchison on Q2 2014 Results - Earnings Call Transcript

Aug.13.14 | About: SeaWorld Entertainment (SEAS)

SeaWorld Entertainment, Inc. (NYSE:SEAS)

Q2 2014 Earnings Conference Call

August 13, 2014 09:00 am ET

Executives

Jim Atchison – President & Chief Executive Officer

Jim Heaney – Chief Financial Officer

Gene Ballesteros – Senior Director of Investor Relations

Analysts

James Hardiman – Longbow Research

Alexia Quadrini – J.P. Morgan

Barton Crockett – FBR Capital Markets

Tim Conder – Wells Fargo Securities

Felicia Hendrix – Barclays

Robert Fishman – MoffettNathanson

Afua Ahwoi – Goldman Sachs

Tim Nollen – Macquarie Securities

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to SeaWorld Entertainment’s Q2 2014 Financial Results Conference Call. My name is Melissa and I will be your conference operator for today. (Operator instructions.) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Gene Ballesteros, Senior Director of Investor Relations and Corporate Treasurer. Please go ahead, sir.

Gene Ballesteros

Thank you. Good morning and welcome to our Q2 2014 Earnings Conference Call. Today’s call is being recorded and webcast live. Our Q2 earnings release was issued this morning and is available on the Investor Relations portion of our website at www.seaworldentertainment.com. Replay information for this call can be found in the press release and will be available on our website following the call.

Joining me this morning are Jim Atchison, our President and Chief Executive Officer, and Jim Heaney, our Chef 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 also be found in our filings with the SEC.

Now I’d like to introduce Jim Atchison. Jim?

Jim Atchison

Thanks, Gene! Good morning and thank you to everyone for joining us on our call. I will provide comments on our performance and other developments impacting the business and Jim Heaney will provide details surrounding our Q2 performance as well as update you on our 2014 guidance.

We were pleased to report attendance growth in the quarter despite a challenging comparison to the prior-year quarter which included the attendance benefit from opening Antarctica, our largest expansion ever at SeaWorld Orlando. The increase in attendance resulting from the shift in the timing of Easter and generally favorable weather in the quarter was partially offset by lower attendance at our destination parks. Jim Heaney will cover these attendance drivers in more detail in a few minutes.

As part of our ongoing and continuous efforts to drive growth and in light of the lower attendance at our destination parks we are undertaking a number of initiatives including a detailed review of our company-wide cost structure with an external advisor. Our intent is to drive significant cash cost savings in both 2014 and ’15. We intend to reinvest these savings into new attractions at our destination parks and return capital to shareholders through share repurchases. Stay tuned as we will announce more details on one of these leading-edge investments in the coming days.

In the near-term we are moving aggressively to address factors impacting revenue and attendance at our destination parks. Our variable pricing strategy continues in several of our park markets with our Your Day Priced Your Way ticket promotion along with other weekday pricing offers which have been well-received. Additionally, we are building on our successful and popular Halloween and Christmas events to help drive attendance during the last half of the year.

We also continue to ramp up our communication initiatives through our Truth campaign and other national marketing efforts to build and protect our brands as well as to counter the recent media attention from the legislation proposed in California. We’ve seen the early benefits of these initiatives and expect to build on them through 2014 and into 2015.

As we announced in our earnings release our Board of Directors has authorized a share repurchase program of up to $250 million of our common stock effective January 1, 2015. This authorization reflects our confidence in the health and long-term outlook of our company. We believe we can take advantage of volatile market conditions to buy back our shares while maintaining the flexibility to make strategic investments in our future.

On the international business development front we continue to make significant progress on our plans to expand our theme parks outside the US. We recently executed a letter of intent with Village Roadshow Theme Parks, a leading international entertainment and media company, to co-develop theme parks in Pan-Asia, India and Russia. This letter of intent, along with our previously announced memorandum of understanding with our partner in the Middle East, creates exciting opportunities for us to extend our parks and brands beyond our domestic borders.

As a quick update, on our last earnings call I announced that we had entered into a new multi-year strategic alliance with American Express. We continue to diligently work on branding integration with American Express inside our eleven parks. Additionally, we are developing consumer activation programs to enhance guest satisfaction and are also building co-marketing initiatives that will leverage American Express’ vast consumer targeting capabilities. These are just a few of the many opportunities to come from this mutually beneficial partnership.

On the mobile technology front, in July we announced an enhancement to our Parks mobile app that allow guests at our SeaWorld, Busch Gardens and Sesame Place theme parks to make unique purchases and redeem offers on their iPhone and Android mobile devices. We are excited about this new commerce feature which allows guests to use their mobile devices as a payment method for culinary merchandise and other in-park offerings.

For example, guests may purchase and redeem app-exclusive products such as a single ride quick queue and an in-moment product, enabling them to skip a line with a simple tap of their smartphone. In the coming months we will be adding other additional products including the ability to pre-order meals.

This latest announcement is part of the multi-year digital innovation strategy we launched in May with the introduction of mobile ticketing and responsive web design. Our company is among the first in the theme park industry to offer these innovative technologies. These investments go beyond new technology but also extend to park operations for a more interactive and connected guest experience. These mobile application tools allow us to create signature engagements and enhance, facilitate and improve our guests’ experience while providing more opportunity for in-park spending.

Finally, I’d like to update you on our media and entertainment businesses. I’m thrilled to announce that our Emmy-nominated television show Sea Rescue has been renewed and will return next year for its fourth season. I’m also excited to announce that our newest television show, The Wildlife Docs, has also been renewed and will return for its second season. Both shows will continue airing as part of the Litton’s Weekend Adventure on ABC stations. Together, these two shows have surpassed more than 218 million in viewership since April of 2012.

Now I’d like to hand the call over to Jim Heaney who will review our Q2 financial performance.

Jim Heaney

Thanks, Jim, and good morning everyone. I will go through our results for Q2 and then review our guidance for 2014.

For Q2 2014 the company generated revenue of $405.2 million, a decrease of 1% over Q2 2013. The decrease in revenue was driven by a 1.8% decrease in total revenue per capita from $62.67 in Q2 2013 to $61.54 in Q2 2014. This decrease was partially offset by a 0.3% increase in attendance.

The decrease in total revenue per capita was primarily the result of an increase in promotional offerings and an unfavorable change in the park attendance mix. Were it the same park attendance mix in Q2 2014 as in 2013 total revenue per capita would have been up 0.7% versus the reported 1.8% decline.

Attendance for the quarter improved when compared with Q2 2013. As Jim mentioned earlier attendance increased despite a challenging industry and competitive environment and a tough comparable quarter in 2013 that concluded the favorable attendance impact from the opening of Antarctica at SeaWorld Orlando.

Overall attendance improved due to the shift of Easter into Q2 2014 along with more favorable weather compared to Q2 2013. However, this increase was offset by lower attendance at our destination theme parks due to a number of factors including a late start to summer for schools in the company’s key source markets, new attraction offerings at competitors’ destination parks, and a delay in the opening of Falcon’s Fury at Busch Gardens Tampa. In addition, we believe attendance in the quarter was affected by demand pressures related to recent media attention from legislation proposed in California.

Cost of food, merchandise and other revenue increased by 2% from $33 million in 2013 to $33.7 million in 2014. As a percent of revenue these costs increased slightly from 8% in 2013 to 8.3% in 2014.

Operating expenses in the quarter decreased by 3% from $194.7 million in 2013 to $189.2 million in 2014. This decrease in operating expenses was primarily a result of a reduction in variable labor costs and other cost mitigation efforts employed by our park operators.

SG&A expenses in Q2 decreased by 6% from $62.2 million in 2013 to $58.6 million in 2014. This decrease was primarily related to the termination of our 2009 advisory agreement with Blackstone in April of 2013 and a decrease in equity compensation expense.

Adjusted EBITDA, a non-GAAP measure defined and reconciled in our earnings release, decreased 1% from $127.0 million in Q2 2013 to $126.1 million in 2014. The decline in adjusted EBITDA was a result of the decline in total revenue largely offset by reduced operating and SG&A expenses.

Depreciation and amortization expense increased from $40.4 million in Q2 2013 to $43.1 million in 2014. This increase was due to the impact of new asset additions partially offset by a drop-off from assets that are now fully depreciated.

Total interest expense in the quarter decreased by 10% from $22.9 million in 2013 to $20.6 million in 2014. This interest expense reduction reflects the redemption of $140 million of our senior notes and a $37 million pay down of our term loan with a portion of the net proceeds from our initial public offering last April. In addition we amended our credit facility in May, 2013, which reduced the interest rate and pushed out maturities to 2020. Cash interest expense in the quarter was $18.9 million versus $21.1 million in Q2 2013.

GAAP net income increased from a loss of $15.9 million during Q2 2013 to net income of $37.3 million in 2014. Diluted earnings per share increased from a loss of $0.18 in 2013 to earnings of $0.43 per share in 2014.

We ended Q2 with $63 million of cash and cash equivalents on our balance sheet and no amounts drawn on our revolving credit facility. Total long-term debt including current maturities was $1.651 billion which equates to a 3.9x net leverage ratio.

Before we open up the line for questions I want to provide an update on our guidance for 2014. 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.

Based on recent trends we expect our full-year 2014 revenue and adjusted EBITDA to be down approximately 6% to 7% and 14% to 16% respectively versus the prior year. This guidance assumes full-year revenue trends similar to the first half of the year and improving adjusted EBITDA trends in the second half of the year due to the partial year benefit of the cost optimization work Jim mentioned earlier in the call.

At this time we’d like to open up the line for questions. Operator?

Question-and-Answer Session

Operator

Thank you. At this time we’ll be conducting a question-and-answer session. (Operator instructions.) Our first question comes from the line of James Hardiman with Longbow Research. Please proceed with your question.

James Hardiman – Longbow Research

Hi, good morning. Thanks for taking my call. So you guys listed a whole bunch of factors as to why attendance was maybe I think lighter than a whole lot of people were hoping for. You quantified sort of the mix shift but maybe just help us compartmentalize those a little bit I guess through the lens of which of these items do you think are very much temporary in nature, which are the ones that are going to take a little bit longer to work your way through and which of these are sort of the new normal?

I guess as I look at some of these issues, the school calendar issue, the delayed ride you’ll get past that; some of the media exposure it seems like I think most people are looking past that long term. But just the competitive pressures I guess being the third bucket, those probably aren’t going anywhere. So help us think about those various items.

Jim Atchison

Sure, James, this is Jim Atchison. I’ll take a shot at that first and then Jim Heaney may have some comments as well. Let me first of all say that suffice to say we’re disappointed in the quarter’s results and performance and we’ve done some of the same analysis you’re describing here in your question – what is temporary, what is going to be short-lived and what might be a longer challenge for us.

As you kind of step back a little bit and you look at where we sat in mid-May as we did our Q1 earnings call we were coming off a strong April. We had really May off to a decent start; we had a good mix of attractions ahead of us. Nine of our eleven parks had major attractions coming up and we had some reasonable weather comps. So we had reason to believe that we would have a decent summer ahead. To be clear the vast majority of our organic performance is derived in the summer months.

So the challenge we had as we moved into the summer period now, getting to your comment around what’s temporary, what’s not, we immediately had a few headwinds. One of them clearly related to, as others have talked about in this space as well, the later school breaks that you mentioned and certainly our delay in opening Falcon’s Fury in Tampa were two unexpected consequences that we had to grapple with.

There were others, too. In our destination parks where we’re having the biggest challenge, our friends down the street at Universal delaying their opening of Harry Potter – that actually I think helped defer some visitation to the Orlando market. Those things I think will right themselves over time.

I think if there’s a dynamic that we’re going to address and it really relates to our comment on our cost focus, we really want to invest more aggressively in our destination markets. I think the competitive stakes and a bit of the arms race in Southern California and Orlando, in particular those two markets, is not going to wane. So I think that’s a more enduring challenge for us.

I think we had some short-term challenges as I described and we have some matters related to our brand management efforts. We talked a little bit about the legislation in California that affected our San Diego park and I think we’re well on our way to addressing a lot of that. But I think if there’s one thing that’s going to be enduring for us it’s really maybe trying to reposition our destination parks in those markets for a more competitive offering versus what else is happening in town.

James Hardiman – Longbow Research

That’s very helpful. And then just as I think about the guidance for the second half I get to revenues down 7%, 8%, EBITDA down somewhere in the low teens. I guess help me think about the revenue decline. Again, it seemed like some of the issues in the first half were temporary but you guys have things getting even worse it sounds like in the second half. I guess A) can you speak to July and early August trends at all, and B) how should I think about that revenue decline between sort of attendance and per caps? Thanks.

Jim Heaney

Sure, I can take that one. Yeah, if you look at the year in two pieces, the first half and the second half and focus on the top line, on the revenue line, in the first half revenues were down 5% in the first half of the year. And as you’ll recall on our last earnings call we mentioned revenues being down 3% through mid-May, so the turn really happened beginning in late May and then June. And our guidance basically projects out similar trends to what we saw in the first half but with a small incremental decline from what we saw in June, July, and August.

I will say the revenue trends appeared to bottom in June and then they improved in July and August, not to levels that we’d obviously like but from a trend perspective it looks like we bottomed out in June.

Jim Atchison

Yeah, the difficulty I’ll add, James, the difficulty we have there is you know, while our trends improved off of June and July and August those three months combined to be probably three-quarters of our EBITDA for the year. So our problem is quite sudden. It’s really a 75-day problem and therefore this business has limited operating leverage. It kind of flows both ways and in the short term there’s fewer levers we can work with. So having such a sudden impact on our top line is what’s driving a more precipitous decline in our bottom line.

James Hardiman – Longbow Research

Great. And then just clarification of that last point. July and August, was attendance actually up or was it just down less than it was in June?

Jim Heaney

We’re not going to speak to attendance specifically. From a revenue perspective they were down less.

James Hardiman – Longbow Research

Got it. Great, thanks guys.

Operator

Thank you. Our next question comes from the line of Alexia Quadrini with J.P. Morgan. Please proceed with your question.

Alexia Quadrini – J.P. Morgan

Hi, thank you. A couple questions: first is Disney’s launch of My Magic Plus which I believe is fully rolled out, which encourages their guests who are coming to Orlando to pre-book their entire stay, do you think that has been an incremental sort of negative to your attendance trends in the sense that there’s that natural overflow that you might have otherwise seen from guests coming to the market?

Jim Atchison

This is Jim Atchison, Alexia. The My Magic Plus initiative that Disney has launched, we’ve obviously paid close attention to from both a business and a guest experience and the technology standpoint. I would say no. I don’t think that we could attribute any of our performance challenges to that offering in particular. It’s an interesting model and approach but we don’t think it’s had an effect on our business in a direct way.

Alexia Quadrini – J.P. Morgan

And then on the cost-cutting initiatives that you guys have highlighted and the announcements coming shortly in terms of how you can reinvest that in your attractions, is there any way you can sort of size up how significant that is? And would those reinvestments be focused in SeaWorld Orlando?

Jim Heaney

Sure. Yeah, our intent is we recognize that we need to invest more in our destination parks both in Orlando and California. But we want it to be self-funding so we’re initiating this cost optimization work with the intent of essentially funding all those capital investments and then some amount beyond that which would then be redeployed into share repurchases. So I can’t talk specifically to the amount that we’ll hit but it’s substantial and at minimum we’ll fund our capital reinvestment program.

Jim Atchison

And Alexia, to the point of would we see those investments in Orlando? Yes, I would say we would probably concentrate those incremental investments in our destination markets, and obviously Orlando is our biggest one. But you know, you would expect to see something in San Diego perhaps, too.

Alexia Quadrini – J.P. Morgan

Alright, thank you very much.

Operator

Thank you. Our next question comes from the line of Barton Crockett with FBR Capital Markets. Please proceed with your question.

Barton Crockett – FBR Capital Markets

Okay, great, thanks for taking the question. Switching gears a little bit to your share repurchase authorization, you’re starting out on January 1, 2015. Why then? Why not now? Is there some type of relationship to Blackstone – do they need to exit first before you guys can do it? And then on a related note you guys have your restricted payment basket which constrains the overall amount that you guys can put into cash returns. Would there be any cost in trying to go out to your lenders and maybe adjust that so you can return more over time?

Jim Heaney

Sure, I’ll start with the second question first. Yeah, as you’re aware there’s a window of opportunity to refinance or take out our senior notes in December. There’s a step-down and a call premium. Our expectation is as part of that process we would look to restructure some of our covenants and more specifically to your point focus on the restricted payment basket to give us more flexibility there. So yes, that’s our intent and our expectation going into refinancing this fall.

Operator

Thank you. Our next question comes from the line of Tim Conder with Wells Fargo Securities. Please proceed with your question.

Tim Conder – Wells Fargo Securities

Thank you. Gentlemen, just to sort of back up here a little bit on what you’re seeing, especially in Q2, if the attendance was more impacted by your destination parks it’s a little confusing given that Disney and Universal didn’t make any commentary that the school delays were impacting them. And clearly they are the destination parks only. So just a little bit of clarity there, and then looking at the price increase that you announced in May should we assume that on an effective basis that given the promotions that you commented on in your press release, that that effectively hasn’t held? And if so on a net basis, because we know that some of your single-day tickets are still up, if you look at the websites they’re up but on a net basis with others are we flat year-over-year now on the overall pricing across the parks?

Jim Atchison

Tim, this is Jim Atchison. I’ll let Jim Heaney address the pricing questions that you had. But before that let me get to your first question. So there’s no question the later school breaks had an impact on our business. It certainly isn’t the only factor as we’ve described but and I’m obviously familiar with the earnings announcements that Disney and Universal made. Now, in certain respects theirs maybe is less clear because their theme park segments are just that – segments of those bigger conglomerates. So I really can’t speak to them or that.

But I will say for us as an enterprise we definitely saw some effect from these delayed school breaks for sure – again, not the only factor that we’re dealing with but certainly one of them. But that was an issue for us.

Tim Conder – Wells Fargo Securities

Okay.

Jim Heaney

Hey, Tim. In regards to the pricing, one of the comments that we talked about earlier is that when you look at the per cap growth, while we reported a decline overall for the company if you look at kind of a same-stores adjusted number where the attendance mix would be the same, year-over-year we actually would have posted a per cap increase. What’s going on there is with the bulk of our decrease being in the destination parks, those are higher per cap parks and we’re getting growth in our lower per cap parks. So that mix dynamic impacts the reported total number.

But when you look park-to-park, ticket category-to-ticket category, most of our price increases are sticking and we’re pleased with how they’re behaving. There was obviously an increase in promotional activity during the quarter as well and that pressured our per caps.

Tim Conder – Wells Fargo Securities

Okay. As it relates to your planned investments in the destination parks, are these more short-term in nature because obviously a major attraction like Antarctica takes a couple of years in the planning? Or do you have things that you’re looking to materially accelerate? So I guess is it more changing of additional shows, of other let’s just call it softer CAPEX items, or items that would enhance the park; or are we talking a combination of larger CAPEX items and it would seem like to have an impact more immediately you’d have to accelerate a couple of projects?

Jim Atchison

Yeah, it’s a bit of both, Tim. We certainly have some projects that are already teed up and prepared to announce. As we hinted in the release we actually will make a significant announcement in the next couple days, and we have others that we can add in that will be of lesser CAPEX. But we’ll end up with a mix of both – we’ll have some significant new attractions that can be put in the pipeline and shifted in terms of priority, and we have some other as you say soft CAPEX attractions that will still add value and meaning to the visit and help our messaging. So it will be a bit of both.

Tim Conder – Wells Fargo Securities

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Felicia Hendrix with Barclays. Please proceed with your question.

Felicia Hendrix – Barclays

Hi, good morning everybody. I’m just wondering when we look at your new or your revised EBITDA guidance for the second half of the year, how much of that guidance is taking into consideration some of these cost saving initiatives that you’re discussing?

Jim Heaney

Sure, this is Jim Heaney. The cost initiative work, we initiated that a couple weeks ago and we have some big missions to pull out a big number out of our P&L. Given the nature of the types of costs we’re going after it’ll take some time to implement some of those so this year we expect a partial year benefit from those efforts, and you can see that through the improving EBITDA trend when you look first half, second half and what’s implied in our guidance. But the bulk of the savings will probably hit in 2015 and again we intend to use those to fund our incremental CAPEX program and buy back shares.

Felicia Hendrix – Barclays

Okay, thank you. And I’m still not clear on some of the attendance comments that you made. Maybe you could help clarify that for me. First in the release you mentioned that attendance in Q2 faced tough comps but attendance declined 9.5% last year so I was just wondering how that was a tough comp. And then I also don’t understand the commentary regarding the proposed legislation having an effect on attendance because that was resolved in early April and when you addressed this in May that didn’t come up as an issue at all. So I’m just wondering why you thought that was an issue in the quarter.

Jim Atchison

Hey Felicia, this is Jim Atchison. I think our release we mentioned a tough competitive environment, not so much tough comps. We actually had, I think we mentioned having favorable weather comps on the quarter if I’m not mistaken. So we actually did see a very, very tough kind of competitive environment, maybe more so than we expected obviously. And I think also as we got through the lapping of Antarctica I think in retrospect we realized that that attraction probably even had a bigger impact for us last year than maybe we had originally thought – so in that respect, lapping our own numbers made a challenge there.

With respect to the California legislation, as we spoke in May, realized that really the full year was quite ahead of us, and at that point in time we were really still grappling with just what impact there would be related to the news attention around that legislation. So I’m not sure that we had a clear view on what that would look like. That’s a rather unprecedented event for us and difficult to model in that respect.

Also our California park, although it’s year-round is the most seasonal of all of our parks, all of our fulltime parks. So it’s kind of still had not just the whole summer ahead but summer’s bigger for that park than even it is for say our Orlando park or Tampa park. So in that regard I think it was too early to call and tell what kind of impact we might have over the rest of the summer.

Felicia Hendrix – Barclays

Okay, just a point of clarification here in the first sentence of the release it does say the challenging industry and competitive environment but it also says a tough comparison to the prior-year quarter, which included the attendance benefit from SeaWorld. So that’s what was causing the confusion because it does say tough comparison to the prior-year quarter.

Jim Atchison

I see what you’re saying. Yeah, that’s a fair comment.

Felicia Hendrix – Barclays

Okay. And so you did mention before earlier that your attendance in the destination parks saw a bigger increase overall. Is there any way to quantify that for us?

Jim Atchison

I’m sorry, can you say your question one more time, Felicia?

Felicia Hendrix – Barclays

Yeah. You mentioned that your attendance saw a bigger decrease in the destination parks. I was wondering if you could quantify that?

Jim Heaney

Well, we’re not going to quantify that from an attendance perspective but I will say nine of our eleven parks performed exactly how we expected. A lot of them got new capital, new attractions and performed exactly as we expected. It was really our two big destination parks that caused a shortfall to our expectations. If those two parks had even matched what they did in the prior year we would have hit our numbers.

Felicia Hendrix – Barclays

Okay, that’s helpful. And just finally do we have any update on Falcon’s Fury?

Jim Atchison

We’re very excited to be opening it soon. I don’t think we’ve set a firm announcement date yet so I don’t want to misspeak and mess up any of that but it will be opening very, very soon.

Felicia Hendrix – Barclays

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Robert Fishman with MoffettNathanson. Please proceed with your question.

Robert Fishman - MoffettNathanson

Yeah, hi guys. Can you share with us any additional color around the impact of your brand in the marketplace and maybe any survey work that you’ve done that compares how your brand is perceived today versus maybe a year ago?

Jim Atchison

You know, Robert, obviously the health of all of our brands – and we have several between SeaWorld and Busch Gardens and Sesame Place Park and our water parks and so forth. But the health of our brands is something that we put a lot of attention and focus on. We are always looking at relevant research that is available more broadly from other sources and things that we conduct of our own initiatives to measure and see.

What we see is relative brand health of course with the SeaWorld brand which is probably where you’re going on that question, but at the same time we see opportunities for us to further kind of build on that brand and build on the fifty years of history we have. So we’re endeavoring to do that.

But I think in terms of trajectory we feel like if we’re getting better or worse, we feel like we’re getting better. So that’s probably as far as I can lean into that.

Robert Fishman - MoffettNathanson

Okay. And with the Southwest Airlines ending its sponsorship recently do you mind helping to size the total sponsorship revenues that you generated last year? And is any of the lower guidance, does that that expect any other sponsors to cancel their relationship with you?

Jim Atchison

Sure, I’ll talk more broadly about that because I don’t think we detail our sponsorship numbers precisely. But our sponsorship dollars in aggregate as a company will be relatively flat to prior year. It could be up a little or maybe down slightly but nothing meaningful. The relationship with Southwest was a terrific one and one we’re very proud to have enjoyed together for twenty-five years but it’s really a promotional relationship.

There were not significant dollars exchanged; it was really a collaborative marketing relationship with a partner that we did for 25 years and it had a great run. And we certainly wish them well and it’s a great opportunity for us to look at another airline partner as well.

Robert Fishman - MoffettNathanson

Okay. And then maybe lastly with the expected step-up in CAPEX is there any way you can help us size the increases as a percent of total revenue over the next few years and whether these debt restrictions come into play here also?

Jim Heaney

Sure. As you can imagine we’ve looked at all that, and the outlook at this point would be we’ve talked in the past about a 10%-ish number – 70% of that for attractions and 30% for maintenance CAPEX. With the program we’re starting going forward we expect that number to be closer to 13% of revenue, and for modeling purposes I would flex that number out for the foreseeable future. As we mentioned earlier some of the investments are more short-term in nature, quick wins, quick hits, but then there’s other projects that are larger and take longer to build. So I’d model that 13% out for the foreseeable future.

Robert Fishman - MoffettNathanson

Okay, thanks guys.

Operator

Thank you. Our next question comes from the line of Afua Ahwoi with Goldman Sachs. Please proceed with your question.

Afua Ahwoi – Goldman Sachs

Hey, thanks. Two questions from me: first in the past I know your rhetoric may be around some of your competitors opening I think specifically a big attraction, like the Harry Potter was how you thought it would be – good for the whole market and would also sort of lift others including you. Can you maybe update us? It sounds like at least from your comments maybe that may not be the case, but just to clarify that? And then I’m sorry just to go back to the Q2 attendance, I guess the only thing that I’m still a little confused about is you only had roughly a month of Antarctica last Q2 so this Q2 you should have two months which should see a bigger boost. I guess I’m just a little confused as to why that didn’t help a little bit. Thanks.

Jim Atchison

Sure. Let me talk about the competitive dynamic in Orlando. You know, Afua, as we’ve shared before we actually think that investments in destination markets like Orlando are actually a good thing overall. So in this case I think the major investment by Universal opening in early July was probably not ideal. I think it probably hurt us a little bit in June but I think overall that’s probably a good thing for the market. I do think it helps drive the destination overall. It may hurt us more in the immediate term here because of just the timing of events as they are but I think overall it’s actually a good thing for the market.

With respect to attendance in Q2 we had modest, very slight attendance growth. That’s kind of no small feat – there’s others in the space that didn’t have attendance growth at all, that had declines despite the Easter shift. So from an attendance standpoint we would have liked to have done better, we would have hoped to have done better but Antarctica, as the first 60 days opening of a major attraction actually is going to have quite a spike in attendance. So lapping that opening is probably the most precise time to have a more challenging comp. So having said that we did benefit from better weather and those factors may have washed a bit.

Afua Ahwoi – Goldman Sachs

Okay. I actually have just a follow-up on that: from comments you’ve made in the past, I think just adding a third… Because last year you said roughly about a third of the decline in attendance in Q2 ’13 was because of the weather. So if we do that calculation plus the Easter shift that alone maybe should have given you about 500,000 more visitors. So does that mean those didn’t materialize or was the weakness in the destination parks just much weaker to offset all of that?

Jim Heaney

I think the best way to frame it is we did put those numbers out last year and I think they’re still directionally correct. If you look at our portfolio of parks, nine of the eleven performed as I said earlier exactly how we expected. The weakness was really focused in our two big destination parks in Florida and California. The Harry Potter delay, it was going to open in June and then it was moved to July so there was a lot of deferred visitation to Orlando; and then as you flip over to July, then we’re comp’ing up against a big opening of the new attraction. So I think that pattern is kind of why we saw the attendance decline kind of bottom out in June and then it’s begun to recover, not to prior-year levels but the trajectory’s improved since then and we kind of view it as stabilized at this point.

Afua Ahwoi – Goldman Sachs

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Tim Nollen with Macquarie. Please proceed with your question.

Tim Nollen – Macquarie Securities

Good morning, thank you. I haven’t done all the math but you mentioned a $250 million share repurchase and you’re saying you expect to offset that as well as investments with your cost savings. That looks like a really big cost savings therefore to fund that. I guess we’ll wait to hear from you on what that will entail but if there’s anything you can say on that now. And then also in terms of the investments do you actually have land to expand outward in Orlando or would you be doing more in-park expansions? Then I have a follow-up, please.

Jim Atchison

Tim, I’ll talk to the later part of your question and Jim can talk about our share repurchase initiative. We do have undeveloped if you will land and adjacency to our three parks in Orlando, so that is certainly an opportunity for us and that’s, you know, a great benefit that we have here in this important Orlando market. We also have other real estate holdings at some of our other locations that provide some opportunities for us. So we’ll evaluate that and judge that as we kind of move along.

I’ll let Jim talk a little bit about the share repurchase program, but what I will say about the cost question you had is that we’ve really, as we’ve shared this morning, the biggest challenges that we’ve seen here, this really kind of arrived within the last 75 days. So our focus is dealing with the suddenness of it, and unfortunately that’s the peak of our season. So the efforts on our cost initiatives are newly underway and it probably wouldn’t be fair for me to speculate as to kind of the size of prize and things like that.

We’re focused on being smart about how we do it and looking at it, and making sure we don’t do anything that ever affects safety, animal welfare or guest experience or our employee morale. So those things aside we’ll be very thoughtful about what we do and how we do it.

Jim Heaney

Sure, and in regards to the share repurchase, keep in mind that’s a multi-year authorization. There’s no defined endpoint so that could run out multiple years. In regards to the CAPEX program, again we’re taking our CAPEX guidance up from 10% of revenue to 13% and the differential being this incremental investment in our destination parks. They’ll be an announcement later this week on one of the larger investments we’re making and again that’s contemplated in the 13%.

Tim Nollen – Macquarie Securities

And the follow-up I had was actually about your international expansions. How does that factor into the investments you’re talking about in the 13% CAPEX per year? Would that all be incremental? And I’m assuming with partners obviously your actual cash contribution to that is some minority stake – could you comment on that?

Jim Heaney

Sure. As we’ve said in the past our international strategy is largely based on a capital-light structure where we would not be investing material capital into those projects. So yeah, the 13% would include those efforts although we don’t expect to be putting a lot of material capital work internationally.

Tim Nollen – Macquarie Securities

Okay, thanks.

Operator

Thank you. Our next question comes from the line of Barton Crockett with FBR Capital Markets. Please proceed with your question.

Barton Crockett – FBR Capital Markets

Okay, great, I wanted to come back with a follow-up. When I asked earlier, I’m not sure if maybe I missed the response but I was curious about the start of the share repurchase. It seems to start on January 1, 2015. Is there some type of caveat that Blackstone needs to be done kind of exiting before you guys can start buying back from the rest of the public shareholders? Does that in any way affect the pace of repurchase here?

Jim Heaney

No, no it doesn’t. The January 1 ’15 was largely based on the fact that we’ve used up the bulk of our capacity this year. And given the sudden change in our outlook we thought it made sense to stabilize the business and then begin those efforts in 2015 once we’ve actualized the benefits of our cost reduction program. So it has nothing to do with Blackstone.

Barton Crockett – FBR Capital Markets

Okay, alright. And then if I can ask you about the pricing – you cited promotions as a headwind in the quarter. Are those still a headwind? And I thought you guys were going through a process of kind of paring back promotions and so I assumed the pricing would stabilize. Is there some type of change in strategy at this point?

Jim Heaney

No, I wouldn’t say there’s a change in strategy but when you do see abrupt changes in your demand outlook particularly on the attendance side we will run more promotions to generate attendance the way the business model works here. You’re better off doing that as opposed to just letting the attendance declines happen, so we’ve been more aggressive than we expected to be with promotions but that’s kind of an (inaudible) of running the business.

Barton Crockett – FBR Capital Markets

Okay. Alright, thank you very much.

Operator

Thank you. Our next question comes from the line of James Hardiman with Longbow Research. Please proceed with your question.

James Hardiman – Longbow Research

Hi, a couple follow-ups from me. So judging by sort of the results since you’ve been a public company and certainly with what the stock is doing today I think this is, you’re functionally telling us this is sort of a turnaround at least in the short term. I guess obviously without getting into guidance what’s your level of confidence that as we look to next year you can be back in sort of growth mode much less sort of the growth that maybe you had anticipated from a long-term perspective coming into this year, coming into last year?

Jim Atchison

Well you know, look James, as I said with your first question we’re certainly disappointed with the quarterly results, but at the same time we’re very bullish on our plans and vision moving ahead. We have beloved brands and you know, a terrific team and a great following from our guests. So we really think we’ll be growing from this base and getting a solid plan together over the coming months that we’ll share more broadly, but we feel quite confident in the longer-term trajectory of the business.

Every business is going to have a rough patch, a rough quarter, whatever it might be, it’s important and incumbent upon us as management to kind of take the actions and put forth the efforts to try to get back on that trajectory. And we feel quite confident that we can do that.

James Hardiman – Longbow Research

Great. And then I guess maybe just clarify the competitive environment. I think from an investors’ standpoint, the two things that a lot of people were focused on were the Harry Potter addition at Universal and then Magic Plus at Disney. Harry Potter obviously didn’t open until Q3 and then the Disney Magic Plus you said was a non-issue. So are there specific attractions in Orlando, in Southern California that you can speak to that were an issue? Or was it that some of your competitive parks were getting a little bit more aggressive on pricing? Can you sort of give us a little bit more specifics there?

Jim Atchison

I think there’s different issues. In California I think our challenges related more to the media attention from the legislative initiative that was at work through much of this quarter, and so that was probably our biggest headwind in California. I think the Orlando dynamic really comes into play with some of the collection of other factors – the delayed school breaks up North, certainly lapping Antarctica. And while I would agree that My Magic Plus probably hasn’t had a significant impact on the business there’s just other competitive dynamics – the Fantasyland opening that Disney has in full now is a tough comp as is Harry Potter. So I think those are probably the bigger issues. I think the more competitive issues are related to the Orlando market.

James Hardiman – Longbow Research

Got it. And then just last question with respect to the international agreement, Six Flags at least started getting a revenue bump pretty quickly after signing those agreements. I guess A) is any revenue contemplated in your guidance for this year, and B) how should we think about just sort of the pace of that – when should we start to see some of those benefits?

Jim Atchison

Well, we don’t have any kind of revenue in our plan today. What we are going to do is focus on negotiating the best terms and conditions for the long-term deal that we can, and so we feel very good about our ongoing work with our partners in the Middle East to strike the right deal. We’re very excited and encouraged to be off and running with the Village Roadshow folks so you know, whether that ends up creating some revenue in the immediate term or not will really depend on the puts and takes of how we negotiate the deal. And we’re really focused on the best overall deal, less so on any immediate impact of it.

James Hardiman – Longbow Research

Got it, thanks guys.

Operator

Thank you. Ladies and gentlemen, we’ve come to the conclusion of our allotted time for questions. I’d like to turn the floor back over to Mr. Atchison for closing comments.

Jim Atchison

Thank you, Melissa. Listen, thanks all of you for your questions and your continued interest in our company.

Before I close today’s call I want to take a moment to express how proud I am of all of our team members and their dedication and commitment to our mission and values. Last month nine of our eleven theme parks were recognized by Trip Advisor, the world’s largest travel website, in their 2014 Traveler’s Choice Awards. Discovery Cove, our all-inclusive reservation-only day resort was named the #1 Amusement Park in the World.

In addition to Discovery Cove all three of our SeaWorld parks and our two Busch Gardens-branded parks were also ranked among the Top 25 Amusement Parks in the United States; and three of our water parks were among the Top 25 Water Parks in the Nation. We’re honored to receive this recognition from Trip Advisor travelers who have firsthand experience in our parks.

I’d like to congratulate all our team members on this extraordinary accolade and thank them for their commitment to creating unforgettable, interactive and educational experiences for our guests.

That concludes today’s call and thank you all again for your time.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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