United Parks & Resorts Inc. (PRKS): Navigating Challenges, Investing for the Future

Published on November 17, 2024 | Ticker: PRKS

United Parks & Resorts Inc. (PRKS) is a leading theme park and entertainment company that owns and operates a diverse portfolio of 13 differentiated theme parks across the United States and the United Arab Emirates. With a history spanning over six decades, the company has established itself as a renowned player in the industry, captivating guests with its unique zoological collections, thrilling rides, and immersive experiences.

Business Overview and History

United Parks & Resorts, previously known as SeaWorld Entertainment, Inc., was founded over 60 years ago and has grown to become a prominent name in the theme park industry. The company's portfolio includes the iconic SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; San Diego, California; and Abu Dhabi, United Arab Emirates, as well as the Busch Gardens theme parks in Tampa, Florida and Williamsburg, Virginia. Additionally, the company operates water park attractions, including Aquatica in Orlando, Florida and San Antonio, Texas, as well as the Discovery Cove and Sesame Place theme parks.

Over the years, United Parks & Resorts has demonstrated resilience in navigating various challenges. In the early 2010s, the company faced negative publicity and a decline in attendance following incidents involving the treatment of animals at its parks. This led to increased regulation and scrutiny around the company's zoological practices. United Parks worked diligently to address these issues, enhance its animal care standards, and rebuild its reputation.

The company has consistently invested in enhancing its guest experiences, expanding its theme park offerings, and diversifying its revenue streams. Many of United Parks' theme parks showcase a zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows, and other attractions with broad demographic appeal. The parks are designed to deliver memorable experiences and a strong value proposition for guests.

More recently, United Parks & Resorts has successfully navigated the disruptions caused by the COVID-19 pandemic, which resulted in temporary park closures and other operational challenges. The company implemented cost reduction measures and enhanced health and safety protocols to safely reopen and serve guests during this period.

Financial Performance and Liquidity

For the fiscal year ended December 31, 2023, United Parks & Resorts reported total revenue of $1.73 billion, which remained consistent with the previous year's figure. The company's net income for the same period was $234.2 million, with an operating cash flow of $504.92 million and free cash flow of $200.08 million.

In the most recent quarter ended September 30, 2024, the company reported revenue of $545.90 million, net income of $119.677 million, operating cash flow of $97.656 million, and free cash flow of $34.698 million. Compared to the same quarter in the previous year, these figures represent year-over-year declines of 0.4%, 3.1%, 15.9%, and 71.9% in revenue, net income, operating cash flow, and free cash flow, respectively. The decreases were primarily due to a 1.4% decline in attendance, partially offset by increases in admission per capita and in-park per capita spending.

As of September 30, 2024, the company's balance sheet remained strong, with total assets of $2.58 billion and a net total leverage ratio of 2.98x. United Parks & Resorts had approximately $759 million in total available liquidity, including $77 million in cash on the balance sheet, providing the company with the flexibility to continue investing in its business and capitalizing on growth opportunities.

The company's debt-to-equity ratio stood at -4.94, while its current ratio and quick ratio were 0.64 and 0.52, respectively. United Parks & Resorts maintains a $700 million revolving credit facility, of which $682.5 million was available as of September 30, 2024.

Operational Highlights and Initiatives

During the third quarter of 2024, United Parks & Resorts faced some operational challenges, including the impact of a negative calendar shift and adverse weather conditions, particularly in Florida. These factors resulted in a decrease in attendance by approximately 100,000 guests or 1.4% compared to the prior-year quarter. However, the company was able to partially offset the impact through an increase in total revenue per capita, which grew by 1.0% to $77.66.

The company's primary revenue streams consist of admissions revenue and food, merchandise, and other revenue. Admissions revenue includes single-day tickets, annual or season passes, and other multi-day or multi-park admission products. Food, merchandise, and other revenue encompasses in-park spending on food and beverage, retail merchandise, parking, and other services, as well as revenue from international agreements.

Key performance metrics for the third quarter of 2024 included:

Total Attendance: 7.03 million guests, down 1.4% year-over-year

Admission Per Capita: $42.24, an increase of $0.19
In-Park Per Capita Spending: $35.42, an increase of $0.57
Total Revenue Per Capita: $77.66, an increase of $0.76

To navigate these challenges, the company has continued to focus on enhancing the guest experience, expanding its product offerings, and leveraging technology to drive operational efficiencies. Some of the key initiatives underway include:

1. Investing in new rides and attractions: United Parks & Resorts is set to debut several exciting new experiences in 2025, such as an immersive flying attraction at SeaWorld Orlando, a reimagined drop tower at Busch Gardens Tampa Bay, and the reinvention of the iconic Journey to Atlantis coaster at SeaWorld San Diego.

2. Advancing the mobile app: The company's mobile app has seen significant traction, with over 12 million downloads and a 35% increase in average transaction value for food and beverage purchases made through the app compared to point-of-sale orders.

3. Expanding the CRM program: The company's Customer Relationship Management (CRM) program is generating incremental revenue by supporting its marketing strategy and providing deeper insights into guest preferences.

4. Driving international growth: United Parks & Resorts continues to progress several discussions on new international projects, with plans to announce new additions in the coming quarters.

5. Optimizing real estate opportunities: The company is refining its hotel plans and exploring opportunities to develop and monetize its substantial land holdings, aiming to unlock additional value for shareholders.

Outlook and Risks

Looking ahead, United Parks & Resorts remains cautiously optimistic about its future prospects. The company has reported strong indicators for 2025, including double-digit growth in intended date ticket sales, group bookings, and Discovery Cove bookings, as well as a successful launch of its enhanced premium pass program.

However, the company is not immune to industry-wide challenges. Factors such as weather volatility, labor shortages, inflationary pressures, and the potential impact of new competition in the Orlando market could pose risks to the company's operational and financial performance. United Parks & Resorts has demonstrated its ability to navigate these obstacles in the past, but continued vigilance and strategic execution will be crucial going forward.

The theme park industry has seen a compound annual growth rate (CAGR) in revenue of approximately 3-5% over the past 5 years, driven by factors such as increasing consumer spending, new ride and attraction openings, and growth in international visitation. However, the industry has also faced headwinds from weather-related disruptions, labor shortages, and inflationary pressures.

For the full year 2024, United Parks & Resorts no longer expects to achieve record revenue and record adjusted EBITDA due to significant weather impacts, particularly from Hurricane Milton. The company expects to spend approximately $250 million on capital expenditures in 2024, with $180 million allocated to core CapEx and approximately $70 million to ROI or growth projects.

Despite these challenges, the company remains optimistic about its performance in 2025. The recently launched "best pass benefits program ever" for 2025 has led to double-digit sales growth in pass products, which is expected to drive a strong pass base for the remainder of 2024 and into 2025. Additionally, the company reports that its four key demand indicators for 2025 – intended date ticket sales, group bookings, Discovery Cove bookings, and the new premium pass program – are all trending up double-digit percentages compared to the prior year.

Conclusion

United Parks & Resorts has a rich history and a strong presence in the theme park industry. Despite facing recent operational challenges, the company has remained resilient and is actively investing in initiatives to enhance the guest experience, drive operational efficiencies, and explore new growth opportunities. With a solid financial position and a focus on long-term value creation, United Parks & Resorts appears well-positioned to navigate the industry's evolving landscape and deliver sustainable growth for its shareholders.

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