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Edited Transcript of SEAS earnings conference call or presentation 6-Aug-19 1:00pm GMT

Q2 2019 SeaWorld Entertainment Inc Earnings Call

ORLANDO Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of SeaWorld Entertainment Inc earnings conference call or presentation Tuesday, August 6, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gustavo Antorcha

SeaWorld Entertainment, Inc. - CEO & Director

* Marc G. Swanson

SeaWorld Entertainment, Inc. - CFO & Treasurer

* Matthew V. Stroud

SeaWorld Entertainment, Inc. - VP of IR

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Conference Call Participants

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* Anna Jeanne Lizzul

JP Morgan Chase & Co, Research Division - Analyst

* Brett Richard Andress

KeyBanc Capital Markets Inc., Research Division - Associate VP

* Bryan Daniel Goldberg

BofA Merrill Lynch, Research Division - Research Analyst

* Christopher Prykull

Goldman Sachs Group Inc., Research Division - Equity Analyst

* James Lloyd Hardiman

Wedbush Securities Inc., Research Division - MD of Equity Research

* Michael Arlington Swartz

SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst

* Steven Moyer Wieczynski

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst

* Timothy Andrew Conder

Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure

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Presentation

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Operator [1]

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Good morning, and welcome to SeaWorld's Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Matthew Stroud, VP of Investor Relations. Please go ahead.

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Matthew V. Stroud, SeaWorld Entertainment, Inc. - VP of IR [2]

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Thank you, and good morning, everyone. Welcome to SeaWorld's Second Quarter 2019 Earnings Conference Call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.seaworldinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call.

Joining me this morning are Gus Antorcha, Chief Executive Officer; and Marc Swanson, Chief Financial Officer.

This morning, we will review our second quarter 2019 financial results, and then we'll open up the call to your questions.

Before we begin, I'd like to remind everyone that our comments today will contain forward-looking statements within the meaning of the federal securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the Risks Factor section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time and will be included in our filings with the SEC that are available on our website. We undertake no obligation to update any forward-looking statements.

In addition, on the call, we may reference adjusted EBITDA and free cash flow, which are non-GAAP financial measures. More information regarding our forward-looking statements and reconciliations of adjusted EBITDA and free cash flow to the most comparable GAAP measure is included in our earnings release available on our website and can also be found in our filings with the SEC.

Now I would like to turn the call over to Gus Antorcha. Gus?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [3]

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Thank you, Matthew. Good morning, everyone, and thank you for joining us. We're pleased to report solid second quarter financial results.

For the sixth consecutive quarter, we saw organic growth in attendance, revenue and adjusted EBITDA. We achieved record net income and adjusted EBITDA in the second quarter and for the trailing 12-month period. Our second quarter net income was over $52 million, and our second quarter adjusted EBITDA was over $149 million. Our trailing 12-month net income was over $100 million, and our trailing 12-month adjusted EBITDA was over $443 million. These record-setting results were driven by both revenue growth and our cost efficiency initiatives.

We believe that attendance in the second quarter was positively impacted by calendar shift related primarily to the later timing of Easter and spring break in 2019 as well as a continuation of and refinement of our pricing, marketing and communication strategies and the positive reception of our new rides and compelling attractions and events. These factors were offset largely by unfavorable weather at most of our parks, particularly in the month of June.

We continue to see benefits from our expense reduction efforts and our enhanced culture of efficiency, and we're working relentlessly to identify and execute on additional cost reductions and efficiencies.

As you know, this year, we featured new one-of-a-kind rides, attractions and events at almost all of our parks and they have received positive feedback from our guests. This summer, we've many of our guests' favorite events going on, including our one-of-a-kind Sesame Parade in Orlando, San Diego and San Antonio, and our award-winning Electric Ocean event in each of our SeaWorld parks. In addition, our Busch Gardens parks are featuring our popular summer nights event. And later this month, Beer Fest will start in most of our theme parks. In mid-September, our popular Halloween events will start to roll out at all of our theme parks, giving guests another reason to visit.

While we're pleased with our year-to-date progress through the second quarter of 2019, we can do better. As we've communicated, we strongly believe there is additional opportunity to drive significantly improved financial performance and more intensely focus on continuing to execute throughout the remainder of our peak summer season and on into the fall.

We're enthusiastic about the future and our increasing ability to deliver meaningful operational and financial improvements.

With that, I'd like to turn the call over to Marc to discuss our financial results. Marc?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [4]

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Thanks, Gus, and good morning, everyone. As Gus mentioned, we reported solid second quarter financial results. Second quarter attendance increased 0.8%. During the quarter, we generated revenue of $406 million, an increase of $14.1 million or 3.6% compared to the second quarter of 2018. This was driven by increases in in-park per capita spending, attendance and admissions per capita.

We reported net income of $52.7 million, an improvement of $30 million compared to the second quarter of 2018. Net income includes approximately $4.3 million of pretax expenses associated with a previously announced equity transaction and related agreements and $0.1 million of pretax expenses attributable to restructuring and other separation-related costs.

Net income in the second quarter of 2018 includes approximately $8.7 million of pretax expenses associated with separation-related costs and a legal settlement accrual recorded in the second quarter of 2018.

We reported adjusted EBITDA of $149.7 million. As Gus mentioned, this was a record for us and an improvement of $27.7 million compared to the prior year quarters. The adjusted EBITDA improvement was driven by an increase in total revenue and realization of cost savings initiatives.

Second quarter total revenue per capita was $62.82 compared to $61.10 in the second quarter of 2018 driven by an increase in in-park per capita spending and admissions per capita. In-park per capita spending increased 6.4% primarily due to pricing initiatives and the increased sales of in-park products.

We continue to make progress on the expense reduction front as evidenced by our declining costs and expanding adjusted EBITDA and margin. Last year, we identified significant opportunities that we began to execute on to streamline our business, reduce redundant expenses and operate more efficiently. Our efforts have continued into 2019 as we continue to identify additional cost-reduction opportunities and efficiencies.

As previously announced, in the second quarter, we repurchased approximately 5.6 million shares of common stock. All of the repurchased shares were held as treasury shares at June 30, 2019. Today, we announced that our Board of Directors has increased our share repurchase authorization back to $250 million.

Looking at our results for the first half of 2019. Total revenue was $626.6 million, an increase of $17.5 million or 2.9%. Total attendance was 9.8 million guests, an increase of 164,000 guests or 1.7%. Net income for the period was $15.6 million, an improvement of $55.8 million. Adjusted EBITDA was $166.1 million, an improvement of $41.8 million or 33.6%.

As I mentioned, net income for the first half of 2019 includes approximately $4.3 million of pretax expenses associated with a previously announced equity transaction and related agreements and $2.6 million of certain pretax expenses associated with separation-related costs.

Now turning to our balance sheet. Our current deferred revenue balance as of the end of the quarter was $163.1 million, an increase of approximately 3.3% when compared to the prior year's second quarter.

During the second quarter, we reported almost $113 million in capital expenditures. As many of you are aware, capital expenditures are seasonal in this industry and the first half of the year is particularly high as we work to complete projects in time for the peak summer season. We still anticipate approximately $150 million in core capital expenditures in 2019. This amount excludes capital expenditures associated with expansion and ROI capital expenditures including new properties, new revenue opportunities and/or cost reduction opportunities. We anticipate these noncore capital expenditures to be in the $30 million to $35 million range in 2019.

As noted in this morning's earnings release, our net leverage ratio was 3.55x, which is calculated by using adjusted EBITDA including estimated cost savings for the 12 months ended June 30, 2019 as defined in our amended credit agreement.

As you will see in the 10-Q that will be filed tomorrow morning, since the end of the second quarter, we have paid down $115 million of the $145 million that was drawn on our revolver.

We are pleased with the continued growth of net income and adjusted EBITDA in the second quarter of 2019. However, as Gus mentioned, we strongly believe we can do better and we have significant opportunity for further improvement. We will continue to focus on driving additional attendance and revenue while reducing our necessary costs and continuing to identify more efficient ways to operate our business. We are making progress, which gives us confidence that we are on our way to achieving our goal of delivering $475 million to $500 million of adjusted EBITDA by the end of 2020.

Now let me turn the call back over to Gus who will share some final thoughts. Gus?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [5]

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Thank you, Mark. Before we open the call to your questions, I have some closing comments.

As many of you know, we're one of the world's leading animal rescue organizations, and we're proud of our efforts to protect and save wildlife including more than 35,000 animal rescues in total. I know no company that does more to protect marine mammals and advance cetacean research, rescue and conservation than SeaWorld. During the second quarter, we helped rescue over 780 animals. It's our hope and expectation that our actions also inspire our guests to consider and protect animals, their habitat and the wild wonders of our world.

I want to thank our outstanding team of ambassadors for their efforts this summer, their focus on providing exceptional service and meaningful experiences to our guests. We have some of the best employees in the theme park industry, and I'm proud to be working with them.

As you know, I've been in the company now for 6 months. We have plenty of work to do on many fronts. I can tell you that I'm confident in the direction we're heading, and I'm very encouraged by the significant opportunities I see in our business. We will continue to test and refine our pricing and marketing strategies and make adjustments as necessary in order to deliver the significantly improved financial performance this company is capable of achieving.

As I've said before, we have an exceptional business model. We're focused on improving our execution with enhanced marketing and communications initiatives, more effective pricing strategies and the introduction of new compelling rides, attractions and events in every park every year. We will continue to identify and execute on cost and capital efficiency initiatives that we expect will contribute to meaningfully improved margins and profitability.

Through these efforts, we're confident we will deliver attendance, revenue and adjusted EBITDA growth that will result in meaningful increased shareholder value. We are excited about the future, and we look forward to sharing our progress with you.

Now let's take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from Steve Wieczynski with Stifel.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [2]

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So not sure how much you can say around the attendance metric for the quarter, but is there any way you can help us think about how attendance would have looked without the June weather impacts? And whether that could be around how attendance was trending through May? Or any color around how much June impacted you, would be helpful.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [3]

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Steve, it's Marc. I can take that question and then -- and Gus can add some comments. Look, as we said in the prepared remarks, we obviously benefited in the quarter from Easter and some other calendar shifts. But those impacts are things we can measure. And then what we do now is as we moved into -- particularly into June, we encountered significant weather. We had weather days that were among the worst Junes we've seen since 2010. And so we try to measure that as best we can. It's still an estimate, but it is something we can clearly see. And so that did have a headwind and it's significant enough that we did call it out. Now like there's a lot of factors that impact our attendance and there is obviously things beyond weather that we'd like to do better. And Gus can talk about some of his impressions on the quarter. But what I'll tell you is even with the weather headwinds and other factors, we're pleased with the quarter, we're pleased with the results, we're pleased that we're making progress towards our goal of $475 million to $500 million in adjusted EBITDA by the end of 2020. Let me have Gus give you his impressions on the quarter as well.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [4]

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Sure. Thanks, Marc. But I think to answer the question specifically, you're not going to break out in numbers. And so -- no, look, Marc, I think what you said is right, weather was a big headwind. We track it daily. We track attendance hourly, and we definitely saw a big headwind in the quarter, especially in June. As Marc said that we still managed to grow attendance and revenue that would have clearly been higher, but we managed to grow, which is good.

I think though as I'm building a team here and I'm looking at ways to push growth and continue pushing the growth that we've been able to deliver in the last 12 months, I see a lot of opportunity going further. We're tweaking our pricing, promotions, creative media, but we don't have everything running perfectly yet, and we're certainly making mistakes. We're learning as we go. But we're not optimal yet. And until then, when you throw a factor like weather, it complicates decisions and optimization you're trying to make. So I would say it was a big headwind, but there is more work we can do along the number of dimensions and we are. And we're learning as we go.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [5]

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Okay. Great. And then second question is going to be just a generic question about competition and kind of Star Wars. And as you look at San Diego, what if any impact have you seen since that opened up in L.A.? And then maybe how you guys are prepared in Orlando as they're set to roll that out here in the next, call it, 4 weeks or so?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [6]

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Yes, I'll give you my sense and Marc, if you want to comment as well, feel free. But in California, we had not seen a material impact since the opening of the Star Wars land at Disney. We've had a lot of weather in California. It's been well documented how wet this year has been. It continued in Q2. It's been colder, cooler, but for California it's cold, especially in Southern California. So that's been an issue, like I said, across multiple parks. But we've not seen a material impact from the Disney opening of Star Wars.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [7]

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Yes. And Steve, what I would add -- I think we've said this in the few other quarters, specific to Orlando, we've competed here since the '70s, and we know we have a differentiated product. We have a good product, and we think we have a good value and a lot of things we can offer to consumers, and we've completed here for a long time. I've seen a lot of parks open, and so look we're always -- we feel good about continuing to compete in Orlando.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [8]

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The other thing I would add on Orlando is just my view is that investment in Orlando is a good thing for SeaWorld. That amount of capital, including what we're building, what the others are building in Orlando, is going to make Orlando an even bigger destination for tourism and vacations than it is today. And I think that's a positive thing for SeaWorld -- for Orlando and therefore, for SeaWorld. We're differentiated. We've a unique value proposition. We are -- we have our roller coasters, we have our lands like Sesame, we have our animals. And together, I think that provides a very compelling differentiated experience for family to come in and spend part of their vacation with us. And so I think if you see more investment coming to Orlando, I mean I'm encouraged by it, and I think it will drive visitation into the market, and I think it will benefit because of it.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [9]

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And can I ask one more quick one if I could? Just anything should we be aware of, Marc, for third quarter, whether its comparisons or anything like that? And maybe you should look at July, was weather pretty normal for you guys?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [10]

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Let me -- we won't -- I'll let Marc comment on shifts that you may want to take into account. But just -- as you know, we typically don't discuss specifics of the July performance, but there's a couple of things I would say. The weather trends we saw in June have continued in July. It was again a headwind in July. We managed through it. Our performance is okay. But it clearly would have been better without the weather impacts that we've seen. And this -- what we're seeing has been highly covered in the media, whether it's heat waves in the Northeast or wetter-than-usual weather down here in Florida or around California.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [11]

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Yes. And Steve, what I would call out on the Q3, there is a negative calendar shift. Specifically, there is 1 less weekend day in Q3 this year than last year. And so any weekend day in Q3 for the most part is pretty significant. So having 1 less is going to be a negative impact just from a timing standpoint.

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Operator [12]

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Our next question comes from James Hardiman with Wedbush Securities.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [13]

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So $20 million in OpEx in terms of year-over-year OpEx declines. I can't think of a precedent for that in the theme park space much less your business. Maybe put that in context, what's driving that? What types of costs are you taking out? And then as I think about sort of $5 million decline in the first quarter, I don't know, is there an Easter shift between 1Q and 2Q? Is that, I think, about costs? And it seems like given the 3Q was the biggest quarter of the year, I guess, is there any reason why costs couldn't be down another $20 million in the third quarter?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [14]

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Yes. So James, this is Marc. Let me kind of dial in some specifics and then Gus can comment kind of more qualitatively. But look, the decline in operating expenses that you see in the quarter primarily relates to reduction in labor cost as a result of our focus in cost efficiencies and a decrease in fixed asset write-offs. But I would say, it's -- again, back to the focus on cost efficiencies, which Gus can obviously talk about. As we think about kind of the rest of the year, what I'll tell you is we just have a tremendous focus, a relentless focus on cost. And we do feel there's opportunities that lie ahead, if you look, and we're not going to stop. I know we've given a $50 million goal as part of our 2020 goal, but we're not going to stop when we reach that level, and we are optimistic what we see is still to come in the future.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [15]

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Thanks, Marc. I would just echo some of Marc's comments. I think cost will be a focus for us in an ongoing way. I think we still have opportunity to continue pushing now. Now it's hard. Sometimes you push a little bit, you make mistake and you pull it back. And again, a lot of what this company has been doing and what I've focused on is making sure we're testing and we're learning as we go. But I think we will continue to push on the cost lever, and it's very much becoming a way we think about an approach to business. I came from one of the lowest cost operators in the cruise industry, and I think working with the team here, I think we're going to continue to find ways to become more efficient without -- and the true goal is without impacting the guest experience. And so I think I'm working closely with the teams to make sure that we continue that focus and continue to drive cost out of business.

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James Lloyd Hardiman, Wedbush Securities Inc., Research Division - MD of Equity Research [16]

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But just to clarify, I mean, it sounds like if you reduce labor costs that should be -- you should be able to continue that moving forward. I guess I'm not real clear on what the fixed asset write-offs are, but it also sounds like that as we move into the biggest quarter of the year, you should see as big or bigger of a benefit on the year-over-year basis?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [17]

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Yes. What I was just pointing out just simply because on the fixed assets is they're included in OpEx. But the bigger number, the bigger portion of the $20 million decline was the labor decrease that I talked about and Gus mentioned as well. So look, I think -- I don't think you're incorrect to assume that as you move into a bigger quarter that we're going to continue to focus on those reductions. And as Gus said, we have a lot of efforts around those initiatives.

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Operator [18]

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The next question comes from Brett Andress with KeyBanc Capital Markets.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [19]

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So nice growth in per cap. But is -- I guess you were testing the pricing strategy that you mentioned this quarter. I guess what did you learn about the attendance trade-off or any price elasticity with your customer?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [20]

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Sure. I'll take that. We've been testing. As you know, as we've communicated pricing, pricing strategy, promotional strategies for a while. I think we've learned both on structural pricing and promotional pricing, what moves attendance and what gets folks to move across different products. Hard for me to get into specifics because it's highly competitive as you can imagine, but we are learning. I will say, it's a little complicated when you have exaggerating shocks like weather. It just makes the learning more difficult as you can imagine. But we are learning on both promotional activity and structural pricing. And I can't really get into the details of exactly what because as I said, it's highly entirely competitive.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [21]

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Understood. And then Marc, just looking at the estimated future cost savings line going from $21 million to $12 million this quarter. I guess could you help tie that to your current cost savings target? And how much progress is left on that? And maybe how should we think about that line, I guess, trending from here?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [22]

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Yes. Sure, Brett, I can do that. Look, I think we've made good progress as you've seen on our cost savings. We're not going to stop when we reach $50 million. We have a lot of focus in this area. So that line of kind of the pro forma cost savings to come. Look, as we identify things and execute on them, they go into that bucket. What I can tell you, that's what we have today, but that -- there is a continual focus on that. So I don't want to guide you to specific number other than to say that we're going to continue to focus on cost, and I think we're optimistic we'll continue to find more opportunities.

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Operator [23]

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The next question will come from Alexia Quadrani with JPMorgan.

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Anna Jeanne Lizzul, JP Morgan Chase & Co, Research Division - Analyst [24]

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This is Anna Lizzul on for Alexia. Just looking ahead in terms of attendance, how do you see your expectations for Q3 given the expanded Florida market with the new attractions at Disney and Universal? And just wondering if you're seeing any stronger advance booking to the parks.

And also as a follow-up, could you give any color on the season pass renewals? And overall, do you have any additional unique season passholders than you did a year ago?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [25]

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Yes. I can -- this is Marc. I can start with your question on pass and then just a quick comment on Q3. Look, I think, on pass, that's an area that we'll continue to focus on. We've talked about that for the last several quarters. We have a lot of focus on that area. We will continue to focus on that area. There is opportunities to do better on pass, and there is opportunities to grow that further, and we'll continue to focus on that.

I would call your attention to the deferred revenue increase, went up 3.3%. It would have been up in the 5% range if not for the write-off of the Zhonghong fees that we used to have in our deferred revenue. And as you know, our deferred revenue, the biggest component of that is season pass. So -- look, we're pleased with the growth in deferred revenue, and we've a lot of focus on pass.

Specifically, your question on Q3, the only thing I'd remind you of this is, I think, one of the things I pointed out to Steve is a negative calendar shift in the quarter was 1 less weekend day. But I can let, maybe, Gus -- if Gus wants to talk more qualitative, I think, your question was more on competition to come in Orlando and maybe other markets.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [26]

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I think we talked about competition already, I believe, as Orlando grows ahead, it will benefit SeaWorld. And then on the quarter, actually, we won't talk specifics about the quarter. I made some comments in July on how that started at a high level.

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Anna Jeanne Lizzul, JP Morgan Chase & Co, Research Division - Analyst [27]

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Okay. Are you seeing any more advance bookings for the parks given the general competition?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [28]

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Yes. Again, I think we're not going to comment on the specifics.

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Operator [29]

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Our next question will come from Michael Swartz with SunTrust.

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Michael Arlington Swartz, SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst [30]

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Just maybe a higher level question around some of the cost reductions you are generating, particularly maybe in-park or the operating side of things. I mean you're running it around -- I think it's around high 40s right now as a percentage of sales. Is there anything that you benchmark that too? Or anything longer term that you're targeting in terms of just operating expenses as a percentage of sales, just to give us a little more color of maybe where you think the business can go?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [31]

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Sure. Thanks for the question. We'll make sure you understand. You're talking about the margins of our in-park spend or you're talking about the park margin?

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Michael Arlington Swartz, SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst [32]

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Total park spend as a percentage of revenue?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [33]

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Okay. Yes. So let me -- I'll give a few comments. So I think there's significant opportunity in-park. I -- if you look at other industries, specifically cruise industry, they've been very focused and I came from a cruise industry on driving spend within the property. And I think that's significant opportunity for us. I see it on food and beverage side. I think food in theme parks generally leaves a lot to be desired. Now people don't come to theme parks for food, but people eat at theme parks. And so I think there is both improvement in the offer as well as how we merchandise and what we sell. There is also opportunity around beverage category. I think there's significant opportunity in the retail category and that's primarily given the margins, it's -- you want to drive sales and sell-through. And so it gets a lot of what we're selling and how we are merchandising it, but I think there is material opportunity for us there as well as margins do matter. And I think there is cost opportunities as well. And so we're looking at how we drive lower cost within the items that we sell inside the parks.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [34]

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And Michael, this is Marc. What I would just add to piggyback on that is we also -- you've heard us talk a little bit about our geological interactions, and so that's a component of in-park spend that we are optimistic about. I mean you know we have a world-class zoological collection. And we now -- it's a really neat experience to get up close and interact with some world-class unique animals and that's something that only SeaWorld can offer in a lot of different ways. So that is an area that we have a tremendous amount of focus on as well.

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Michael Arlington Swartz, SunTrust Robinson Humphrey, Inc., Research Division - Senior Analyst [35]

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Okay. Great. And then maybe just on -- as you talk about CapEx, this ROI piece, have you ever given any color as to maybe what you look to generate in terms of payback on some of those investments?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [36]

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Yes. I mean what I can tell you is, I mean, we look for obviously near-term returns on those things. So returns that are going to be fairly quick in nature. But I mean there's lots of factors that go into our CapEx spending, but obviously we do have a process to try to again make sure we're covering the ones that we believe have very near-term return.

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Operator [37]

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The next question will come from Tim Conder with Wells Fargo Securities.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [38]

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Gentleman, congrats on the ongoing execution. I wanted to go back on a couple of questions that have been touched on and maybe try to get a little more color, if I may. Let's go to the competition. In San Diego, it appears from things that we've seen that maybe things got excessively hyped by Disney, the media and maybe scared a few folks away along with the delay of a major ride until January now. How, if any way, do you think that that's benefited yourselves and other folks in the market? And I guess, also, in Orlando, and one we're seeing live here. We've seen Disney kind of be to a degree, promotional, are you seeing that people have delayed visitation maybe to Disney, whether they haven't gone at all, cut out a day? And is that benefiting yourself and maybe Universal or anyone else? Just any color on that, that's question one. And then if you could give us some additional color, again year-to-date or year-over-year, how your unique guests have changed, season pass units, dining pass units? That would be helpful.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [39]

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Jim, let me -- this is Marc. Let me start with your first question -- your second question and then Gus can answer the first one. Look, on unique visitors, it's a metric we look at over a kind of the rolling 12-month period. So we have seen a small increase in unique visitors. And then I'll let Gus talk about kind of maybe -- and I think you talked about this already a little bit on the California competition, but...

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [40]

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Yes. So you may comment on Orlando and then San Diego. I think you have seen Universal and Disney coming with some promotional offers over the summer, not sure exactly why, you'd have to ask them. I think we manage to the demand we see, and we have not seen, like I said before, significant impact in San Diego, a material impact in San Diego based on what they opened up at Disney World. So it's a little hard to parse out, you're asking whether it's on negatives or positives. I think what we can say is we just haven't seen the impact.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [41]

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Okay. Gus and Marc, any additional color on the season pass or dining pass units year-over-year? Or Gus, you ever want to take that part?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [42]

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No. Look, I think, for competitive reasons, we're in not going to get into specifics. I mean, again, I would -- it's a focus area of ours. It's an area also that can be impacted by weather. I mean we know locals and passholders are kind of most stable that they can avoid weather, right? So when there is bad weather, they tend to stay home. But what I would point to you is we continue to grow deferred revenue, and I think we're pleased with that deferred revenue.

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Operator [43]

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The next question comes from Bryan Goldberg with Bank of America Merrill Lynch.

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Bryan Daniel Goldberg, BofA Merrill Lynch, Research Division - Research Analyst [44]

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I was wondering if we could get back to some of the comments you made on the pricing strategy. I'm just curious looking out a couple of years, where do you see the greatest opportunities from a pricing standpoint for the business? Is it in-park, the food and beverage side, in-park experiences? Or is it more on the admission side? I'm just curious how you're thinking about that. And what milestones should we be looking for progress in that regard? And then I have a follow-up.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [45]

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Your question relate to pricing specifically or revenue. Well, I'll answer both. I think when you think about pricing, you don't work on and decide on pricing in isolation. Pricing works together with many other factors and it's very much tied to the strategy that we've articulated and that we're pursuing. So we focus on capital, adding new ride, adding new events, new lands and that generates demand and then we've got to market that. In order for it to generate demand, we have to market that effectively. So get that creative media, media placement, our digital strategy and then you've got a price to capture that demand, and ultimately, that drives revenue and drives return. I think what the path we're down is to work on all these levers in parallel and pricing is just one of those. I think we've done a lot and will continue to do a lot. You've seen us -- the promotional activity we've talked about. We've changed our structural pricing. We've made changes to our pass program. All of those work together. They influence each other obviously. And you'll continue to see us fine-tune and refine those. I'd like to see us get sharper, more focused on what we do on media and creative as well as pricing and those 2 work together with each other.

As far as milestones, I think you'd like to see progress every quarter, every 2 quarters on what we were able to realize in terms of our per capita revenue. Over the long term, that's really how you'd evaluate the pricing strategies. Do they -- are they leading to growth in both revenue and per cap and that's the goal we have and we're working towards that.

Now things happen in the quarter, you adjust in the quarter, you adjust to what you're seeing. And so in a particular quarter, it may be a little up, it may be a little down, but over the long term, I think that's the milestone we're working towards.

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Bryan Daniel Goldberg, BofA Merrill Lynch, Research Division - Research Analyst [46]

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All right. And my follow-up is related on international. I mean I appreciate the unfavorable weather trends you've seen so far this year. But I'm curious we haven't had an update on international visitation trends in a little while. So I'm curious, what you're seeing in terms of your top 3 source markets, I think, Canada, U.K. and Brazil? Any color there would be greatly appreciated.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [47]

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Brian, it's Marc. I can take that question. I think -- look, we have seen some softness in Brazil, and so that is down. We don't -- as we said, we can't -- we don't necessarily control obviously exchange rates and political environments, but the things we can execute on, we do try to execute on.

Outside of Brazil, if you kind of exclude them from the equation, when you look at the rest of the international category, we're pleased overall, but Brazil is one area where we'd like to see an improvement.

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Operator [48]

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The next question comes from Tyler Batory with Jenny Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [49]

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So most of my questions have been answered. But just a couple more from me. I just wanted to circle back on the CapEx side of things. I mean, this year, you guys were able to open up all your new attractions before the peak season. How significant was that in terms of driving results in the second quarter? And then could you discuss, I mean, why was that such an issue for you guys in the past? Is there any reason why you wouldn't expect to open everything on time next year as well?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [50]

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I don't know why it was an issue historically, to be honest. I do think there's been a relentless focus on making sure we open ride as early as we can, so we benefit from the openings, and it was great to see us deliver on that this year and the team is very focused on continuing to do that. I do think the rides have been well received and certainly helpful to attendance. We measure satisfaction. And I talked to guests that are in the various lines on the coasters, having written many of them myself and they're great additions to the park, and so they clearly help improve the experience for our guests in the park and they clearly help or allow us to market new features and new things for our guests to experience.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [51]

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Okay. And then I also want just to tie the knot here on the admission per cap in the quarter specifically. Can you just explain what sort of impact does the Easter shift and then the bad weather, what sort of impact do those 2 events have on your admissions per cap?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [52]

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Tyler, it's Marc. I can take that one. So we're not going to give specifics, but what I can tell you is, obviously, the visitation mix in the quarter benefited the admissions per cap. You obviously had Easter come in and then when you have weather, your -- some of your locals and passholders tend to be able to react to that and not come obviously. So -- but look, having said that, as Gus mentioned, I mean, we did increase prices on certain products in the quarter. We do believe when you look at this business over the long term that we can grow pricing at very inflationary level and that's our goal and that's what we look to do. Having said that, we're always focused on driving total revenue. And as Gus mentioned, we're going to test and learn and test and optimize certain price points, and at times, that could be at odd with admissions per cap. But look, over the long term, we do feel we can grow both per cap and revenue -- and attendance, sorry.

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Operator [53]

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Our next question comes from Chris Prykull with Goldman Sachs.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [54]

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I just wanted to ask about whether you could give some color around maybe the breakdown between the domestic tourist customer and the local customer. What are you seeing from each of those cohorts year-to-date? And maybe how are you targeting each of them specifically via pricing and promotion/marketing? And what has the reaction been in -- for each of those types of customers?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [55]

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Yes. Let me -- this is Marc. I can give you some comments. Again, not getting into specifics, but I think I alluded to this pretty clearly. I mean, obviously, when you look at local and domestic, weather is going to have an impact probably more so on your local guests. And so again, they can -- they're in the markets, they can come again when weather improves. Having said that, I think, we're pleased with what we're seeing in the domestic category. I don't want to get into specifics, but I think we are pleased with what we're seeing there.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [56]

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And I think the second part of your question was how we target and how we think about those markets. And again, for competitive reasons, can't get into the detail, but there are ways that we've been working on and we're going to continue working on how we shape and target offers to different customer segments geographically. That's something we have started to do, and so we're building capability there. It's something we're going to get better at because the -- whether it's international or domestic or local, they behave slightly differently. And so our ability to talk and communicate to them is an important capability for us to build.

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Christopher Prykull, Goldman Sachs Group Inc., Research Division - Equity Analyst [57]

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Got it. And then maybe just any update on the potential for new Sesame Place Park. I know there was a time line that was originally laid out there. How are you thinking about that? Are you thinking about delaying it by a year? And what would the ramifications be?

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [58]

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We are working towards the time line to open that park -- plan and open that park. When we have something specific to share, we'll share it. But we are working on it.

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Operator [59]

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And our last question today is a follow-up from Tim Conder with Wells Fargo Securities.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [60]

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Gentlemen, just wanted to check on the Infinity Falls. I know the delay in that opening last year was due to some issues with the ride OEM. Have you or do you anticipate any potential recovery related to that?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [61]

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Yes, Tim, it is Marc. I can take that question. I mean, look, obviously, last year, at this time, we were disappointed. The rides hadn't opened. We were highly disappointed, it hadn't opened. It opened in the fall, and so now we get the benefit of having basically a new ride for a lot of people who are visiting this summer along with the new Sesame Street area over the park as well. So look, we are excited to have that ride in the portfolio and have it open.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [62]

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Was there any recovery or do you anticipate any, Marc, from that?

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [63]

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Yes. I mean I just think, like, on a year-over-year basis, I mean just last year we didn't have that ride. This year, we do. I think that's an added benefit. But as far as, like, specific kind of breakdown, I don't know that we'll get into that. And you mean recovery as far as...

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [64]

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A monetary recovery for the delays from the OEM? I'm sorry.

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Marc G. Swanson, SeaWorld Entertainment, Inc. - CFO & Treasurer [65]

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I don't think we're going to comment on that or can't comment on that.

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Operator [66]

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Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Gus Antorcha for any closing remarks.

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Gustavo Antorcha, SeaWorld Entertainment, Inc. - CEO & Director [67]

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Thank you, Chad. On behalf of Marc and the rest of the management team here at SeaWorld, I want to thank you for joining us this morning. I also want to thank again our ambassadors for their contributions and their efforts every day to exceed our guests' expectations and to further our mission to protect animals. As you can tell from the comments that we made and the discussion in the call, we're confident about our business, and we look forward to talking in the coming months to all of you. Thank you.

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Operator [68]

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