SeaWorld Entertainment, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35883

SeaWorld Entertainment, Inc.

(Exact name of registrant as specified in its charter)

Delaware		27-1220297
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6240 Sea Harbor Drive Orlando, Florida		32821
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (407) 226-5011

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SEAS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had outstanding 63,886,518 shares of Common Stock, par value $0.01 per share as of November 4, 2022.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		Page No.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1

PART I.	FINANCIAL INFORMATION	4

Item 1.	Unaudited Condensed Consolidated Financial Statements	4

	Unaudited Condensed Consolidated Balance Sheets	4

	Unaudited Condensed Consolidated Statements of Operations	5

	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit	6

	Unaudited Condensed Consolidated Statements of Cash Flows	8

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION	38

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	39

Item 6.	Exhibits	39

	Signatures	40

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” “targeted,” “goal” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ materially include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report on Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”), and under “Part II, Item 1A., Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, including this report, and are accessible on the SEC’s website at www.sec.gov, including the following:

•

the effects of the global Coronavirus (“COVID-19”) pandemic, or any related mutations of the virus on our business and the economy in general;

•

failure to hire and/or retain employees;

•

a decline in discretionary consumer spending or consumer confidence, including any unfavorable impacts from Federal Reserve interest rate actions which may influence discretionary spending, unemployment or the overall economy;

•

various factors beyond our control adversely affecting attendance and guest spending at our theme parks, including, but not limited to, weather, natural disasters, labor shortages, inflationary pressures, supply chain delays or shortages, foreign exchange rates, consumer confidence, the potential spread of travel-related health concerns including pandemics and epidemics (such as the recent declaration by the World Health Organization of Monkeypox as a global health emergency), travel related concerns, adverse general economic related factors including increasing interest rates, economic uncertainty, and recent geopolitical events outside of the United States, and governmental actions;

•

complex federal and state regulations governing the treatment of animals, which can change, and claims and lawsuits by activist groups before government regulators and in the courts;

•

activist and other third-party groups and/or media can pressure governmental agencies, vendors, partners, and/or regulators, bring action in the courts or create negative publicity about us;

•

incidents or adverse publicity concerning our theme parks, the theme park industry and/or zoological facilities;

•

environmental, social and corporate governance (“ESG”) matters or related incidents, including inclusion and diversity matters, our reporting of such matters, or sustainability ratings could negatively impact our business and results of operations;

•

a significant portion of our revenues have historically been generated in the States of Florida, California and Virginia, and any risks affecting such markets, such as natural disasters, closures due to pandemics, severe weather and travel-related disruptions or incidents;

•

seasonal fluctuations in operating results;

•

inability to compete effectively in the highly competitive theme park industry;

•

interactions between animals and our employees and our guests at attractions at our theme parks;

•

animal exposure to infectious disease;

•

high fixed cost structure of theme park operations;

•

changing consumer tastes and preferences;

•

cyber security risks to us or our third-party service providers, failure to maintain or protect the integrity of internal, employee or guest data, and/or failure to abide by the evolving cyber security regulatory environment;

•

technology interruptions or failures that impair access to our websites and/or information technology systems;

•

increased labor costs, including minimum wage increases, and employee health and welfare benefits;

•

inability to grow our business or fund theme park capital expenditures;

•

inability to realize the benefits of developments, restructurings, acquisitions or other strategic initiatives, and the impact of the costs associated with such activities;

•

inability to remediate an identified material weakness on a timely basis;

•

adverse litigation judgments or settlements;

•

inability to protect our intellectual property or the infringement on intellectual property rights of others;

•

the loss of licenses and permits required to exhibit animals or the violation of laws and regulations;

•

unionization activities and/or labor disputes;

•

inability to maintain certain commercial licenses;

•

restrictions in our debt agreements limiting flexibility in operating our business;

•

inability to retain our current credit ratings;

•

our leverage and interest rate risk;

•

inadequate insurance coverage;

•

inability to purchase or contract with third party manufacturers for rides and attractions, construction delays or impacts of supply chain disruptions on existing or new rides and attractions;

•

environmental regulations, expenditures and liabilities;

•

suspension or termination of any of our business licenses, including by legislation at federal, state or local levels;

•

delays, restrictions or inability to obtain or maintain permits;

•

financial distress of strategic partners or other counterparties;

•

tariffs or other trade restrictions;

•

actions of activist stockholders;

•

the ability of Hill Path Capital LP and its affiliates to significantly influence our decisions;

•

the policies of the U.S. President and his administration or any changes to tax laws;

•

changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital;

•

mandates related to COVID-19 vaccinations for employees;

•

changes or declines in our stock price, as well as the risk that securities analysts could downgrade our stock or our sector; and

•

risks associated with our capital allocation plans and share repurchases, including the risk that our share repurchase program could increase volatility and fail to enhance stockholder value.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date of this Quarterly Report on Form 10-Q or as of the date they were made or as otherwise specified herein and, except as required by applicable law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise.

All references to “we,” “us,” “our,” “Company” or “SeaWorld” in this Quarterly Report on Form 10-Q mean SeaWorld Entertainment, Inc., its subsidiaries and affiliates.

Website and Social Media Disclosure

We use our websites (www.seaworldentertainment.com and www.seaworldinvestors.com) and our corporate Twitter account (@SeaWorld) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about SeaWorld when you enroll your e-mail address by visiting the “E-mail Alerts” section of our website at www.seaworldinvestors.com. The contents of our website and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.

Trademarks, Service Marks and Trade Names

We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection with our business in the United States and in certain foreign jurisdictions, including SeaWorld Entertainment, SeaWorld Parks & Entertainment, SeaWorld^®, Shamu^®, Busch Gardens^®, Aquatica^®, Discovery Cove^®, Sea Rescue^® and other names and marks that

identify our theme parks, characters, rides, attractions and other businesses. In addition, we have certain rights to use Sesame Street^® marks, characters and related indicia through a license agreement with Sesame Workshop.

Solely for convenience, the trademarks, service marks, and trade names referred to hereafter in this Quarterly Report on Form 10-Q are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This Quarterly Report on Form 10-Q may contain additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are, to our knowledge, the property of their respective owners.

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	September 30,			December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	109,572		$	443,707
Accounts receivable, net		77,691			76,948
Inventories		60,283			29,478
Prepaid expenses and other current assets		28,472			17,263
Total current assets		276,018			567,396
Property and equipment, at cost		3,532,056			3,385,308
Accumulated depreciation		(1,843,004	)		(1,740,144	)
Property and equipment, net		1,689,052			1,645,164
Goodwill		66,278			66,278
Trade names/trademarks, net		157,000			157,000
Right of use assets-operating leases		132,569			132,217
Deferred tax assets, net		15,964			23,995
Other assets, net		18,607			18,266
Total assets	$	2,355,488		$	2,610,316
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable and accrued expenses	$	155,405		$	134,311
Current maturities of long-term debt		12,000			12,000
Operating lease liabilities		3,303			2,895
Accrued salaries, wages and benefits		19,160			22,156
Deferred revenue		182,267			154,793
Other accrued liabilities		57,726			45,811
Total current liabilities		429,861			371,966
Long-term debt, net		2,100,510			2,104,835
Long-term operating lease liabilities		117,458			117,046
Deferred tax liabilities, net		83,014			12,803
Other liabilities		44,947			37,582
Total liabilities		2,775,790			2,644,232
Commitments and contingencies (Note 8)
Stockholders’ Deficit:
Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares issued or outstanding at September 30, 2022 and December 31, 2021		—			—
Common stock, $0.01 par value—authorized, 1,000,000,000 shares; 96,255,843 and 95,541,992 shares issued at September 30, 2022 and December 31, 2021, respectively		963			955
Additional paid-in capital		705,954			711,474
Retained earnings (accumulated deficit)		126,893			(115,287	)
Treasury stock, at cost (30,993,771 and 19,953,042 shares at September 30, 2022 and December 31, 2021, respectively)		(1,254,112	)		(631,058	)
Total stockholders’ deficit		(420,302	)		(33,916	)
Total liabilities and stockholders’ deficit	$	2,355,488		$	2,610,316

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share amounts)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net revenues:
Admissions	$	313,574		$	296,694		$	739,941		$	635,699
Food, merchandise and other		251,633			224,512			600,776			497,211
Total revenues		565,207			521,206			1,340,717			1,132,910
Costs and expenses:
Cost of food, merchandise and other revenues		41,385			37,977			105,943			87,092
Operating expenses (exclusive of depreciation and amortization shown separately below)		215,899			195,113			559,320			460,192
Selling, general and administrative expenses		53,082			53,617			155,299			128,271
Severance and other separation costs		—			—			113			1,582
Depreciation and amortization		37,216			36,306			114,379			109,111
Total costs and expenses		347,582			323,013			935,054			786,248
Operating income		217,625			198,193			405,663			346,662
Other (income) expense, net		(66	)		(39	)		(110	)		156
Interest expense		30,556			28,372			82,736			90,455
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs		—			58,827			—			58,827
Income before income taxes		187,135			111,033			323,037			197,224
Provision for income taxes		52,578			8,936			80,857			12,249
Net income	$	134,557		$	102,097		$	242,180		$	184,975
Earnings per share:
Earnings per share, basic	$	2.00		$	1.29		$	3.39		$	2.35
Earnings per share, diluted	$	1.99		$	1.28		$	3.36		$	2.31
Weighted average common shares outstanding:
Basic		67,176			78,962			71,450			78,804
Diluted		67,569			79,950			72,130			80,065

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’ DEFICIT

(In thousands, except share amounts)

	Shares of Common Stock Issued			Common Stock			Additional Paid-In Capital			(Accumulated Deficit) Retained Earnings			Treasury Stock, at Cost			Total Stockholders' Deficit
Balance at December 31, 2021		95,541,992		$	955		$	711,474		$	(115,287	)	$	(631,058	)	$	(33,916	)
Equity-based compensation		—			—			6,982			—			—			6,982
Vesting of restricted shares		361,403			4			(4	)		—			—			—
Shares withheld for tax withholdings		(111,865	)		(1	)		(7,737	)		—			—			(7,738	)
Exercise of stock options		46,503			—			1,127			—			—			1,127
Repurchase of 1,535,427 shares of treasury stock, at cost		—			—			—			—			(109,905	)		(109,905	)
Net loss		—			—			—			(8,987	)		—			(8,987	)
Balance at March 31, 2022		95,838,033			958			711,842			(124,274	)		(740,963	)		(152,437	)
Equity-based compensation		—			—			2,549			—			—			2,549
Vesting of restricted shares		545,819			6			(6	)		—			—			—
Shares withheld for tax withholdings		(201,442	)		(2	)		(14,327	)		—			—			(14,329	)
Exercise of stock options		29,783			—			808			—			—			808
Repurchase of 6,341,755 shares of treasury stock, at cost		—			—			—			—			(354,652	)		(354,652	)
Net income		—			—			—			116,610			—			116,610
Balance at June 30, 2022		96,212,193			962			700,866			(7,664	)		(1,095,615	)		(401,451	)
Equity-based compensation		—			—			4,444			—			—			4,444
Vesting of restricted shares		13,432			—			—			—			—			—
Shares withheld for tax withholdings		(2,183	)		—			(115	)		—			—			(115	)
Exercise of stock options		32,401			1			759			—			—			760
Repurchase of 3,163,547 shares of treasury stock, at cost		—			—			—			—			(158,497	)		(158,497	)
Net income		—			—			—			134,557			—			134,557
Balance at September 30, 2022		96,255,843		$	963		$	705,954		$	126,893		$	(1,254,112	)	$	(420,302	)

	Shares of Common Stock Issued			Common Stock			Additional Paid-In Capital			Accumulated Deficit			Treasury Stock, at Cost			Total Stockholders' Deficit
Balance at December 31, 2020		94,652,248		$	946		$	680,360		$	(371,800	)	$	(415,309	)	$	(105,803	)
Equity-based compensation		—			—			4,473			—			—			4,473
Vesting of restricted shares		130,834			1			(1	)		—			—			—
Shares withheld for tax withholdings		(41,271	)		—			(1,971	)		—			—			(1,971	)
Exercise of stock options		116,634			1			2,392			—			—			2,393
Net loss		—			—			—			(44,884	)		—			(44,884	)
Balance at March 31, 2021		94,858,445			948			685,253			(416,684	)		(415,309	)		(145,792	)
Equity-based compensation		—			—			5,634			—			—			5,634
Vesting of restricted shares		653,146			7			(7	)		—			—			—
Shares withheld for tax withholdings		(213,601	)		(3	)		(10,554	)		—			—			(10,557	)
Exercise of stock options		82,491			1			1,638			—			—			1,639
Net income		—			—			—			127,762			—			127,762
Balance at June 30, 2021		95,380,481			953			681,964			(288,922	)		(415,309	)		(21,314	)
Equity-based compensation		—			—			13,049			—			—			13,049
Vesting of restricted shares		14,945			—			—			—			—			—
Shares withheld for tax withholdings		(3,427	)		—			(171	)		—			—			(171	)
Exercise of stock options		27,928			1			532			—			—			533
Repurchase of 1,533,998 shares of treasury stock, at cost		—			—			—			—			(82,717	)		(82,717	)
Net income		—			—			—			102,097			—			102,097
Balance at September 30, 2021		95,419,927		$	954		$	695,374		$	(186,825	)	$	(498,026	)	$	11,477

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Nine Months Ended September 30,
		2022		2021
Cash Flows From Operating Activities:
Net income	$	242,180		$	184,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		114,379			109,111
Amortization of debt issuance costs and discounts		4,685			4,842
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs		—			52,011
Deferred income tax provision		78,056			8,892
Equity-based compensation		13,975			23,156
Other, including loss on sale or disposal of assets, net		11,906			3,121
Changes in assets and liabilities:
Accounts receivable		1,160			(73,695	)
Inventories		(30,739	)		4,938
Prepaid expenses and other current assets		(4,401	)		1,667
Accounts payable and accrued expenses		11,176			27,969
Accrued salaries, wages and benefits		(2,996	)		11,587
Deferred revenue		17,815			58,643
Other accrued liabilities		7,779			1,287
Right-of-use assets and operating lease liabilities		469			314
Other assets and liabilities		3,430			(2,381	)
Net cash provided by operating activities		468,874			416,437
Cash Flows From Investing Activities:
Capital expenditures		(150,729	)		(73,591	)
Net cash used in investing activities		(150,729	)		(73,591	)
Cash Flows From Financing Activities:
Proceeds from issuance of debt, net		—			1,922,222
Repayments of long-term debt		(9,000	)		(2,029,728	)
Purchase of treasury stock		(617,756	)		(77,566	)
Payment of tax withholdings on equity-based compensation through shares withheld		(22,182	)		(12,699	)
Exercise of stock options		2,695			4,565
Debt issuance costs		(469	)		(23,142	)
Other financing activities		(427	)		(6,565	)
Net cash used in financing activities		(647,139	)		(222,913	)
Change in Cash and Cash Equivalents, including Restricted Cash		(328,994	)		119,933
Cash and Cash Equivalents, including Restricted Cash—Beginning of period		444,486			435,225
Cash and Cash Equivalents, including Restricted Cash—End of period	$	115,492		$	555,158
Supplemental Disclosure of Noncash Investing and Financing Activities:
Capital expenditures in accounts payable	$	32,671		$	22,094
Treasury stock purchases not yet settled in other accrued liabilities	$	5,298		$	—
Other financing arrangements	$	—		$	4,239

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the “Company”), owns and operates twelve theme parks within the United States. The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California; and Busch Gardens theme parks in Tampa, Florida; and Williamsburg, Virginia. The Company operates water park attractions in Orlando, Florida (Aquatica); San Antonio, Texas (Aquatica); Tampa, Florida (Adventure Island); and Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only theme park in Orlando, Florida (Discovery Cove) and Sesame Place theme parks in Langhorne, Pennsylvania and San Diego, California.

Impact of Global COVID-19 Pandemic

The Company’s results of operations for the three and nine months ended September 30, 2022 continued to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance from historical levels. Additionally, results of operations for the nine months ended September 30, 2021 were also impacted by the following factors: (i) capacity limitations, modified/limited operations and/or temporary park closures through the first half of 2021; (ii) decreased demand due to public concerns associated with the pandemic; and (iii) severe restrictions on international travel, some of which were in effect through the fourth quarter of 2021. In particular, the Company’s SeaWorld park in California was closed at the beginning of 2021 due to State of California guidance. The Company was able to reopen this park on February 6, 2021 on a limited basis, following California guidance for reopening zoos. Subsequently, on April 12, 2021, in accordance with California guidance, this park resumed operations as a theme park with restricted capacity and on June 15, 2021, capacity restrictions for this park were removed. Separately, during the first quarter of 2021, the Company’s Busch Gardens park in Virginia was also significantly impacted by state restrictions. At the beginning of 2021, the State of Virginia had a state mandated capacity restriction of approximately 4,000 guests at a time for this park. On February 1, 2021, in consultation with the State of Virginia, the Company further increased capacity to approximately 6,000 guests. The Company was able to further increase capacity for this park on April 1, 2021 to approximately 13,000 guests. On May 28, 2021, theme park capacity restrictions in the State of Virginia were removed. By the end of the second quarter of 2021, all of the Company’s 12 parks were open and operating without COVID-19 related capacity limitations.

The Company continuously monitors guidance from federal, state and local authorities and engages with governmental authorities as well as medical/scientific consultants, when necessary. The Company may adjust its plans accordingly as laws change and new information and guidance becomes available. The COVID-19 pandemic has had, and may continue to have, a material impact on the Company’s financial results.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K.

In the opinion of management, such unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the year ending December 31, 2022 or any future period due in part to the seasonal nature of the Company’s operations. Based upon historical results, the Company typically generates its highest revenues in the second and third quarters of each year and incurs a net loss in the first and fourth quarters, in part because seven of its theme parks were historically only open for a portion of the year. However, starting in 2021, the Company added additional operating days for three of these parks. In particular, the Company began year-round operations at its SeaWorld park in Texas and began to operate on select days on a year round basis at its Busch Gardens park in Virginia and its Sesame Place park in Pennsylvania. Additionally, on March 26, 2022, the Company opened its Sesame Place San Diego park which, on an annual basis, is expected to be open more operating days, weather permitting, than the Aquatica San Diego park it replaced.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including SEA. All intercompany accounts have been eliminated in consolidation.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions include, but are not limited to, the accounting for self-insurance, deferred tax assets and liabilities, deferred revenue, equity compensation, the valuation of goodwill and other indefinite-lived intangible assets and reviews for potential impairment of long-lived assets. Estimates are based on various factors including current and historical trends, as well as other pertinent company and industry data. The Company regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes. Actual results could differ from those estimates. Based on the uncertainty relating to the COVID-19 pandemic, the emergence of new variants, and the current operating environment, including but not limited to the impact or timing of government restrictions, any future capacity limitations due to social distancing guidelines, public sentiment on social gatherings, travel and attendance patterns, possible travel restrictions, effectiveness and adoption of vaccines, boosters and/or medications, supply chain disruptions, inflationary pressures, foreign exchange rates, and/or additional actions which could be taken by government authorities to manage the pandemic or other macroeconomic issues, the Company is not certain of the ultimate impact these factors could have on its estimates, business or results of operations.

Segment Reporting

The Company maintains discrete financial information for each of its twelve theme parks, which is used by the Chief Operating Decision Maker (“CODM”), as a basis for allocating resources and assessing performance. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all the Company’s theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target similar consumer groups. Accordingly, based on these economic and operational similarities and the way the CODM monitors and makes decisions affecting the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.

Restricted Cash

Restricted cash is recorded in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets. Restricted cash as of September 30, 2022 and December 31, 2021 consists primarily of advanced funds for which costs have yet to be incurred related to the Company’s international services agreements, as discussed in the “International Agreements” section which follows.

	September 30,		December 31,
	2022		2021
	(In thousands)
Cash and cash equivalents	$	109,572	$	443,707
Restricted cash, included in prepaid expenses and other current assets		5,920		779
Total cash, cash equivalents and restricted cash	$	115,492	$	444,486

Share Repurchase Programs and Treasury Stock

From time to time, the Company’s Board of Directors (the “Board”) may authorize share repurchases of common stock. Shares repurchased under Board authorizations are currently held in treasury for general corporate purposes. The Company accounts for treasury stock on the trade date under the cost method. Treasury stock at September 30, 2022 and December 31, 2021 is reflected within stockholders’ deficit. See further discussion of the Company’s share repurchase programs in Note 10–Stockholders’ Deficit.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

Admissions revenue primarily consists of single-day tickets, annual or season passes or other multi-day or multi-park admission products. For single-day tickets, the Company recognizes revenue at a point in time, upon admission to the park. Annual passes, season passes, or other multi-day or multi-park passes allow guests access to specific parks over a specified time period. For these pass and multi-use products, revenue is deferred and recognized over the terms of the admission product based on estimated redemption rates for similar products and is adjusted periodically. The Company estimates redemption rates using historical and forecasted attendance trends by park for similar products. Attendance trends factor in seasonality and are adjusted based on actual trends periodically. These estimated redemption rates impact the timing of when revenue is recognized on these products. Actual results could materially differ from these estimates based on actual attendance patterns. Revenue is recognized on a pro-rata basis based on the estimated allocated selling price of the admission product. For pass products purchased on an installment plan that have met their initial commitment period and have transitioned to a month-to-month basis, monthly charges are recognized as revenue as payments are received each month. For multi-day admission products, revenue is allocated based on the number of visits included in the pass and recognized ratably based on each admission into the theme park.

Food, merchandise and other revenue primarily consists of food and beverage, merchandise, parking and other in-park products and also includes other miscellaneous revenue which is not significant in the periods presented. The Company recognizes revenue for food and beverage, merchandise and other in-park products when the related products or services are received by the guests.

Deferred revenue primarily includes revenue associated with pass products, admission or in-park products or services with a future intended use date and contract liability balances related to licensing and international agreements collected in advance of the Company satisfying its performance obligations and is expected to be recognized in future periods. At September 30, 2022 and December 31, 2021, the long-term portion of deferred revenue included in other liabilities in the accompanying unaudited condensed consolidated balance sheets primarily relates to the Company’s international agreements, as discussed in the following section.

The following table reflects the Company’s deferred revenue balance as of September 30, 2022 and December 31, 2021:

	September 30,		December 31,
	2022		2021
	(In thousands)
Deferred revenue, including long-term portion	$	198,114	$	169,333
Less: Deferred revenue, long-term portion, included in other liabilities		15,847		14,540
Deferred revenue, short-term portion	$	182,267	$	154,793

The Company estimates approximately $149.0 million of the deferred revenue, short term portion, balance outstanding as of December 31, 2021 was recognized as revenue during the nine months ended September 30, 2022. For certain admission products, the Company estimated timing of redemption using average historical redemption rates.

International Agreements

The Company has previously received $10.0 million in deferred revenue which is recorded in other liabilities related to a nonrefundable payment received from a partner in connection with a project in the Middle East to provide certain services pertaining to the planning and design of SeaWorld Abu Dhabi, a marine life theme park on Yas Island (the “Middle East Project”), with funding received expected to offset internal expenses. The Middle East Project is on track with the park expected to open in 2023. The Company also receives additional funds from its partner related to agreed-upon services and reimbursements of costs incurred by the Company on behalf of the Middle East Project (the “Middle East Services Agreements”).

Revenue and expenses associated with the Middle East Project will begin to be recognized when substantially all the services have been performed which is anticipated to occur in 2023, when SeaWorld Abu Dhabi is expected to open. Revenue and expenses associated with the Middle East Services Agreements will be recognized upon completion of the respective performance obligations.

As a result of the Middle East Project, approximately $11.0 million and $8.4 million of other related costs incurred are recorded in other assets in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively. Separately, approximately $14.2 million and $12.5 million of long-term deferred revenue is recorded in other liabilities in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively related to the Middle East Project, which both periods include the $10.0 million nonrefundable payment previously discussed.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As a result of the Middle East Services Agreements, approximately $1.8 million of costs incurred by the Company are recorded in prepaid expenses and other current assets as of September 30, 2022 and approximately $1.2 million of costs are recorded in other assets as of December 31, 2021 in the accompanying unaudited condensed consolidated balance sheets. Separately, deferred revenue of approximately $7.7 million is recorded in deferred revenue as of September 30, 2022 and approximately $2.0 million is recorded in other liabilities as of December 31, 2021 in the accompanying unaudited condensed consolidated balance sheets.

2. RECENT ACCOUNTING PRONOUNCEMENTS

The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”). There are no recent accounting pronouncements or recently implemented accounting standards that are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements or disclosures.

3. EARNINGS PER SHARE

Earnings per share is computed as follows:

	For the Three Months Ended September 30,
	2022						2021
	Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount
	(In thousands, except per share amounts)
Basic earnings per share	$	134,557		67,176	$	2.00	$	102,097		78,962	$	1.29
Effect of dilutive incentive-based awards				393						988
Diluted earnings per share	$	134,557		67,569	$	1.99	$	102,097		79,950	$	1.28

	For the Nine Months Ended September 30,
	2022						2021
	Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount
	(In thousands, except per share amounts)
Basic earnings per share	$	242,180		71,450	$	3.39	$	184,975		78,804	$	2.35
Effect of dilutive incentive-based awards				680						1,261
Diluted earnings per share	$	242,180		72,130	$	3.36	$	184,975		80,065	$	2.31

In accordance with the Earnings Per Share Topic of the Accounting Standards Codification (“ASC”), basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period (excluding treasury stock and unvested restricted stock awards). Unvested restricted stock awards are eligible to receive dividends, if any; however, dividend rights will be forfeited if the award does not vest. Accordingly, only vested shares of formerly restricted stock are included in the calculation of basic earnings per share. The weighted average number of repurchased shares during the period, if any, which are held as treasury stock, are excluded from shares of common stock outstanding.

Diluted earnings per share is determined using the treasury stock method based on the dilutive effect of unvested restricted stock and certain shares of common stock that are issuable upon exercise of stock options. During the three and nine months ended September 30, 2022, there were approximately 328,000 and 246,000 anti-dilutive shares excluded from the computation of diluted earnings per share, respectively. During the three and nine months ended September 30, 2021, there were approximately 178,000 and 143,000 anti-dilutive shares excluded from the computation of diluted earnings per share, respectively. The Company’s outstanding performance-vesting restricted awards of approximately 1,015,000 and 1,100,000 as of September 30, 2022 and 2021, respectively, are considered contingently issuable shares and are excluded from the calculation of diluted earnings per share until the performance measure criteria is met as of the end of the reporting period.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. INCOME TAXES

Income tax expense or benefit and the Company’s effective tax rate are based upon the tax rate expected for the full calendar year applied to the year-to-date pretax income or loss of the interim period, plus the tax effect of any year-to-date discrete tax items. The Company’s consolidated effective tax rate for the three months ended September 30, 2022 was 28.1% and differs from the effective statutory federal income tax rate of 21.0% primarily due to state income taxes including the effect of state tax rate changes enacted during the period. The Company’s consolidated effective tax rate for the nine months ended September 30, 2022 was 25.0% and differs from the effective statutory federal income tax rate of 21.0% primarily due to state income taxes, including the effect of state tax rate changes enacted during the period, and other compensation related items, partially offset by tax benefits related to equity-based compensation which vested during the period. The Company’s consolidated effective tax rate for the three and nine months ended September 30, 2021 was 8.0% and 6.2%, respectively, and differs from the effective statutory federal income tax rate of 21.0% primarily due to valuation allowance adjustments on federal and state carryforwards, state income taxes, and deductible equity-based compensation.

Due to the uncertainty of realizing the benefit from deferred tax assets, tax positions are reviewed at least quarterly by assessing future expected taxable income from all sources. Realization of deferred tax assets, primarily arising from net operating loss carryforwards and charitable contribution carryforwards, is dependent upon generating sufficient taxable income prior to expiration of the carryforwards. Based on its analysis, the Company believes that some of its deferred tax assets may not be realized. As of September 30, 2022 and December 31, 2021, the Company’s valuation allowance consisted of approximately $4.6 million and $4.8 million, respectively, net of federal tax benefit, on the deferred tax assets related to state net operating loss carryforwards.

The Company has determined that there are no positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an unrecognized tax benefit. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of the income tax provision (benefit) in the applicable period.

The computation of the estimated annual effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the forecasted pre-tax income or loss for the year, projections of the proportion of income and/or loss earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting in part from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s forecasted pre-tax income or loss for the year, which could create volatility in its estimated annual effective tax rate. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes. To the extent that the estimated annual effective tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs. The Company’s valuation allowances, in part, also rely on estimates and assumptions related to future financial performance. Given the macroeconomic environment, related in part to the COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, the Company’s valuation allowances may need to be further adjusted in the future.

The Inflation Reduction Act (“IRA”) of 2022 was signed into law on August 16, 2022. This legislation includes a 15% corporate alternative minimum tax and a 1% excise tax on stock repurchases among its key tax provisions effective for years beginning after December 31, 2022. The Company is continuing to evaluate the existing guidance but does not anticipate a material impact for either of these provisions. The Company will continue to evaluate the impact of the IRA as additional information becomes available.

5. OTHER ACCRUED LIABILITIES

Other accrued liabilities at September 30, 2022 and December 31, 2021, consisted of the following:

	September 30,		December 31,
	2022		2021
	(In thousands)
Accrued interest	$	13,656	$	17,372
Accrued taxes		12,997		784
Self-insurance reserve		8,470		8,210
Other		22,603		19,445
Total other accrued liabilities	$	57,726	$	45,811

As of September 30, 2022 and December 31, 2021, other accrued liabilities above includes approximately $10.9 million related to certain contractual liabilities arising from the temporary COVID-19 park closures. As of September 30, 2022, other accrued liabilities above also includes approximately $5.3 million related to share repurchases not yet settled. See further discussion of the Company’s share repurchase program in Note 10–Stockholders’ Deficit.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. LONG-TERM DEBT

Long-term debt, net, as of September 30, 2022 and December 31, 2021 consisted of the following:

	September 30,			December 31,
	2022			2021
	(In thousands)
Term B Loans (effective interest rate of 6.13% and 3.50% at September 30, 2022 and December 31, 2021, respectively)	$	1,188,000		$	1,197,000
Senior Notes due 2029 (interest rate of 5.25%)		725,000			725,000
First-Priority Senior Secured Notes due 2025 (interest rate of 8.75%)		227,500			227,500
Total long-term debt		2,140,500			2,149,500
Less: unamortized discounts and debt issuance costs		(27,990	)		(32,665	)
Less: current maturities		(12,000	)		(12,000	)
Total long-term debt, net	$	2,100,510		$	2,104,835

Refinancing Transactions

On August 25, 2021 (the “Closing Date”), SEA entered into a Restatement Agreement (the “Restatement Agreement”) pursuant to which SEA amended and restated its then existing senior secured credit agreement dated as of December 1, 2009 (as amended, restated, supplemented or otherwise modified from time to time, and the senior secured credit facilities thereunder (the “Existing Secured Credit Facilities”), and, as amended and restated by the Restatement Agreement (the “Amended and Restated Credit Agreement”)).

The Amended and Restated Credit Agreement provides for senior secured financing of up to $1,585.0 million, consisting of:

(i)

a first lien term loan facility (the “Term Loan Facility” and the loans thereunder, the “Term B Loans”), in an aggregate principal amount of $1,200.0 million which was fully drawn on the Closing Date. The Term Loan Facility will mature on August 25, 2028; and

(ii)

a first lien revolving credit facility (the “Revolving Credit Facility” (and the loans thereunder, the “Revolving Loans”) and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”), in an aggregate committed principal amount of $385.0 million, including both a letter of credit sub-facility and a swingline loan sub-facility. The Revolving Credit Facility will mature on August 25, 2026. On June 9, 2022, SEA entered into an incremental amendment to the Amended and Restated Credit Agreement to increase the revolving facility commitments under the Revolving Credit Facility by $5.0 million bringing the aggregate committed principal amount to $390.0 million as of such date.

Also on the Closing Date, SEA completed a private offering of $725.0 million aggregate principal amount of 5.250% unsecured senior notes due 2029 (the “Senior Notes”). See Senior Notes section for more details.

The Company used proceeds of the Term B Loans drawn on the Closing Date, together with the proceeds from the offering of the Senior Notes and cash on hand, to fully redeem the remaining $400.0 million of SEA’s then outstanding 9.500% second-priority senior secured notes due 2025 (the “Second-Priority Senior Secured Notes”) (the “Full Redemption”), to refinance the SEA’s Existing Secured Credit Facilities, and to pay related expenses of the offering and refinancing (collectively, the “Refinancing Transactions”). As a result of the Refinancing Transactions, on the Closing Date, SEA terminated its Existing Secured Credit Facilities and associated Term B-5 Loans and repaid all of its related outstanding obligations in respect of principal, interest and fees.

Prior to the Refinancing Transactions, on July 14, 2021, SEA completed a redemption of $50.0 million of its then outstanding Second-Priority Senior Secured Notes and separately on August 25, 2021, SEA completed another redemption of $50.0 million of its then outstanding Second-Priority Senior Secured Notes (collectively, the “Partial Redemptions”). Pursuant to the Partial Redemptions, the aggregate principal amount of the Second-Priority Senior Secured Notes were redeemed at a price equal to 103.000% of the respective principal amounts thereof, plus accrued and unpaid interest thereon to, but excluding, the respective redemption dates. In connection with the Refinancing Transactions, SEA also redeemed the remaining $400.0 million of its Second-Priority Senior Secured Notes (the “Full Redemption”). Pursuant to the Full Redemption, all of the aggregate principal amount of the Second-Priority Senior Secured Notes were redeemed at a price equal to the sum of (a) 100.000% of the outstanding principal amount of the Second-Priority Senior Secured Notes redeemed pursuant to the Full Redemption plus (b) approximately $34.3 million related to the Applicable Premium (as defined in the respective indenture), which is included in loss on early extinguishment of debt and write-off of discounts and debt issuance costs in the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2021, plus (c) accrued and unpaid interest thereon to, but excluding, the redemption date.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the Refinancing Transactions, SEA recorded a discount of $12.0 million and debt issuance costs of $12.5 million during the three and nine months ended September 30, 2021. Additionally, SEA wrote-off debt issuance costs and discounts of $21.5 million which is included in loss on early extinguishment of debt and write-off of discounts and debt issuance costs in the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2021.

Senior Secured Credit Facilities

Borrowings under the Term B Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, (i) a base rate equal to the higher of (a) the federal funds rate plus 1/2 of 1%, (b) the rate of interest quoted in the print edition of the Wall Street Journal, Money Rates Section, as the prime rate as in effect from time to time and (c) one-month Adjusted LIBOR plus 1% per annum (provided that in no event shall such ABR rate with respect to the Term B Loans be less than 1.50% per annum) (“ABR”), in each case, plus an applicable margin of 2.00% or (ii) a LIBOR rate for the applicable interest period (provided that in no event shall such LIBOR rate with respect to the Term B Loans be less than 0.50% per annum) (“LIBOR”) plus an applicable margin of 3.00%.

Borrowings under the Revolving Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, (i) ABR (provided that in no event shall such ABR rate with respect to the Revolving Loans be less than 1.00% per annum) plus an applicable margin equal to 1.75% or (ii) LIBOR (provided that in no event shall such LIBOR rate with respect to the Revolving Loans be less than 0.00%) plus an applicable margin of 2.75%. The applicable margin for borrowings of Revolving Loans are subject to one 25 basis point step-down upon achievement by the Company of certain corporate credit ratings.

In addition to paying interest on the outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee equal to 0.50% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The Company will also be required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.

The Senior Secured Credit Facilities require scheduled amortization payments on the term loans in quarterly amounts equal to 0.25% of the original principal amount of the Term B Loans, payable quarterly, with the balance to be paid at maturity.

In addition, the Senior Secured Credit Facilities require the Company to prepay outstanding term loan borrowings, subject to certain exceptions, with:

beginning with the fiscal year ending on December 31, 2022, 50% (which percentage will be reduced to 25% and 0% if the Company satisfies certain net first lien senior secured leverage ratios) of annual excess cash flow, as defined under the Senior Secured Credit Facilities;

100% of the net cash proceeds of all non-ordinary course asset sales or other non-ordinary course dispositions of property, in each case subject to certain exceptions and reinvestment rights;

100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities.

The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time, without prepayment premium or penalty, except in connection with a repricing event in respect of the term loans as described below, subject to customary “breakage” costs with respect to LIBOR rate loans.

All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the absence of a default or event of default and the accuracy of representations and warranties in all material respects.

All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company on a limited-recourse basis and each of SEA’s existing and future direct and indirect wholly owned material domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of SEA’s capital stock directly held by the Company and substantially all of SEA’s assets and those of each guarantor (other than the Company), including a pledge of the capital stock of all entities directly held by SEA or the guarantors, in each case subject to exceptions. Such security interests consist of a first-priority lien with respect to the collateral.

As of September 30, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $370.3 million available under the Revolving Credit Facility, which was not drawn upon as of September 30, 2022.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Senior Notes

The Senior Notes will mature on August 15, 2029. Interest on the Senior Notes will accrue at 5.250% per annum and will be paid semi-annually, in arrears on February 15 and August 15 of each year.

On or after August 15, 2024, SEA may redeem the Senior Notes, in whole at any time or in part from time to time, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the 12-month period commencing on August 15 of the years as follows: (i) in 2024 at 102.625%; (ii) in 2025 at 101.313%; and (iii) in 2026 and thereafter at 100%. In addition, prior to August 15, 2024, SEA may redeem the Senior Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus the “Applicable Premium” and accrued and unpaid interest, if any, to, but excluding, the redemption date. Notwithstanding the foregoing, subject to the provisions set forth in the Indenture, at any time and from time to time on or prior to August 15, 2024, SEA may redeem in the aggregate up to 40% of the original aggregate principal amount of the Senior Notes (calculated after giving effect to any issuance of additional Senior Notes) in an aggregate amount equal to the net cash proceeds of one or more equity offerings at a redemption price equal to 105.250%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Additionally, upon the occurrence of specified change of control events, each holder will have the right to require SEA to repurchase all or any part of such holder’s notes at a purchase price in cash equal to 101%.

SEA’s obligations under the Senior Notes and related indenture are guaranteed, jointly and severally, on a senior secured basis, by the Guarantors, as defined, in accordance with the provisions of the indenture.

First-Priority Senior Secured Notes

The 8.750% first-priority senior secured notes (the “First-Priority Senior Secured Notes”) mature on May 1, 2025 and have interest payment dates of May 1 and November 1.

SEA may redeem the First-Priority Senior Secured Notes at its option, in whole at any time or in part from time to time, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the 12-month period commencing on May 1 of the years as follows: (i) in 2022 at 104.375%; (ii) in 2023 at 102.188%; and (iii) in 2024 and thereafter at 100%. SEA may also redeem in the aggregate (at a redemption price expressed as a percentage of principal amount thereof): (i) 100% of the First-Priority Senior Secured Notes after certain events constituting a change of control at a redemption price of 101%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date and (ii) up to 40% of the original aggregate principal amount of the First-Priority Senior Secured Notes with amounts equal to the net cash proceeds of certain equity offerings at a redemption price of 108.750%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The First-Priority Senior Secured Notes are fully and unconditionally guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and subject to certain exceptions, each of SEA’s subsidiaries that guarantees SEA’s existing senior secured credit facilities.

Second-Priority Senior Secured Notes

The Second-Priority Senior Secured Notes were scheduled to mature on August 1, 2025 and had interest payment dates of February 1 and August 1. See additional discussion in the preceding Refinancing Transactions section regarding the full redemption of the Second-Priority Senior Secured Notes in August 2021.

Restrictive Covenants

The Amended and Restated Credit Agreement governing the Senior Secured Credit Facilities and the indentures governing the Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), contain covenants that limit the ability of the Company, SEA and its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred shares; (ii) make dividend payments on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting their restricted subsidiaries; (vi) create liens on assets; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; and (viii) enter into certain transactions with their affiliates. These covenants are subject to a number of important limitations and exceptions and are based, in part on the Company’s ability to satisfy certain tests and engage in certain transactions based on Covenant Adjusted EBITDA, as defined in the related Debt Agreements. Covenant Adjusted EBITDA includes certain adjustments permitted under the relevant agreements, including but not limited to estimated cost savings, recruiting and retention costs, public company compliance costs, litigation and arbitration costs and other costs and adjustments as permitted under the Debt Agreements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Debt Agreements contain certain customary events of default, including relating to a change of control. If an event of default occurs, the lenders under the Debt Agreements will be entitled to take various actions, including the acceleration of amounts due under the Debt Agreements and all actions permitted to be taken by a secured creditor in respect of the collateral securing the Debt Agreements.

The Revolving Credit Facility requires that the Company, commencing as of the last day of the first full fiscal quarter after the Closing Date and subject to a testing threshold, comply on a quarterly basis with a maximum net first lien senior secured leverage ratio of 6.25 to 1.00. The testing threshold will be satisfied (and therefore the covenant must be complied with at the end of such quarter) if the aggregate amount of funded loans and issued letters of credit (excluding up to $30.0 million of undrawn letters of credit under the Revolving Credit Facility and letters of credit that are cash collateralized) under the Revolving Credit Facility on such date exceeds an amount equal to 35% of the then-outstanding commitments under the Revolving Credit Facility.

The Debt Agreements permit an unlimited capacity for restricted payments if the net total leverage ratio on a pro forma basis does not exceed 4.25 to 1.00 after giving effect to the payment of any such restricted payment. As of September 30, 2022, the net total leverage ratio as calculated under the Debt Agreements was 2.71 to 1.00.

As of September 30, 2022, SEA was in compliance with all covenants contained in the documents governing the Debt Agreements.

Long-term debt at September 30, 2022 is repayable as follows and does not include the impact of any future voluntary prepayments.

Years Ending December 31:	(In thousands)
Remainder of 2022	$	3,000
2023		12,000
2024		12,000
2025		239,500
2026		12,000
Thereafter		1,862,000
Total	$	2,140,500

Cash paid for interest relating to the Senior Secured Credit Facilities, the Senior Notes, and the First-Priority Senior Secured Notes, net of amounts capitalized, as applicable, was $82.4 million in the nine months ended September 30, 2022. Cash paid for interest relating to the Second-Priority Senior Secured Notes, the Senior Secured Credit Facilities, and the First-Priority Senior Secured Notes, net of amounts capitalized, as applicable, was $95.8 million in the nine months ended September 30, 2021.

7. FAIR VALUE MEASUREMENTS

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is required to be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Of the Company’s long-term obligations as of September 30, 2022 and December 31, 2021, the Term B Loans are classified in Level 2 of the fair value hierarchy and the First-Priority Senior Secured Notes and the Senior Notes are classified in Level 1 of the fair value hierarchy. The fair value of the Term B Loans approximates their carrying value, excluding unamortized debt issuance costs and discounts, due to the variable nature of the underlying interest rates and the frequent intervals at which such interest rates are reset. The fair value of the First-Priority Senior Secured Notes and Senior Notes was determined using quoted prices in active markets for identical instruments. See Note 6–Long-Term Debt for further details.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company did not have any assets measured on a recurring basis at fair value as of September 30, 2022 and December 31, 2021. The Company maintains its long-term liabilities at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet.

The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of September 30, 2022:

Quoted Prices in

Active Markets

Significant

for Identical

Other

Significant

Assets and

Observable

Unobservable

Balance at

Liabilities

Inputs

September 30,

(Level 1)

(Level 2)

(Level 3)

2022

(In thousands)

Long-term obligations ^(a)

833,125

1,188,000

—

2,021,125

(a)	Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet as current maturities of long-term debt of $12.0 million and long-term debt, net of $2.101 billion as of September 30, 2022.

The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2021:

Quoted Prices in

Active Markets

Significant

for Identical

Other

Significant

Assets and

Observable

Unobservable

Balance at

Liabilities

Inputs

December 31,

(Level 1)

(Level 2)

(Level 3)

2021

(In thousands)

Long-term obligations ^(a)

977,594

1,197,000

—

2,174,594

(a)	Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet as current maturities of long-term debt of $12.0 million and long-term debt, net of $2.105 billion as of December 31, 2021.

8. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Securities Class Action Lawsuit

On June 14, 2018, a lawsuit captioned Highfields Capital I LP et al v. SeaWorld Entertainment, Inc. et al, was filed in the United States District Court in the Southern District of California against the Company and certain of the Company’s former and present executive officers. The plaintiffs allege, among other things, that the defendants made false and misleading statements in violation of the federal securities laws and Florida common law, regarding the impact of the film Blackfish on SeaWorld’s business. The complaint further alleges that such statements were made to induce plaintiffs to purchase common stock of the Company at artificially-inflated prices and that plaintiffs suffered investment losses as a result. In May 2022, the parties reached a resolution of the matter, and the case has now been dismissed with prejudice. The full settlement amount is not considered material and was paid in the second quarter of 2022.

Sesame Workshop Arbitration

On February 4, 2022, Sesame Workshop delivered notice asserting that the Company failed to pay an additional royalty payment for 2021 under its licensing agreement with the Company (the “Licensing Agreement”). The Company had previously recorded the additional amount claimed but disputes the application and calculation of the additional payment. The amount accrued is the Company’s best estimate and, at this time, the Company does not anticipate any exposure to loss in excess of amounts accrued to be material. On June 27, 2022, Sesame Workshop initiated arbitration pursuant to the License Agreement. The Company intends to vigorously defend its position.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Lawsuits

In October 2018, the Company received a demand letter from attorneys representing certain former employees who claim that the terms of their respective separation agreements entitle them to certain favorable modifications made to certain performance vesting restricted shares (the “Tranche 3 Shares”) issued under the Company’s 2013 Omnibus Incentive Plan (the “Plan”).

In November 2020, the Company filed in the Court of Chancery of the State of Delaware an action for declaratory judgment seeking a determination that the threatened claims of the former employees are time-barred and without merit. In response, the defendant former employees filed a motion to dismiss or in the alternative to stay and compel arbitration. The parties agreed to arbitrate whether the former employees’ claims are subject to arbitration. On October 21, 2021, the arbitrator determined that disputes related to the former employees’ claims for the vesting of the Tranche 3 Shares are governed by the forum selection clauses of the equity award amendments rather than the Company’s dispute resolution process and notice of the arbitrator’s decision was filed with the Court of Chancery. On August 10, 2022, the defendant former employees filed answers, affirmative defenses and counterclaims. On October 10, 2022, the Company filed motions for judgment on the pleadings and to dismiss the counterclaims. In terms of potential exposure, the value of the total shares at issue for these certain former employees depends largely upon the Company’s current share price, which fluctuates daily. Approximately 300,000 shares are at issue. The Company believes that the former employees’ claims are without merit and intends to defend vigorously its positions. While there can be no assurance regarding the ultimate outcome of this matter, the Company believes that any potential loss would not be material.

On July 27, 2022, a purported class action was filed in the United States District Court for the Eastern District of Pennsylvania against the Company captioned Quinton Burns individually and Next Friend of K.B., a minor v. SeaWorld Parks & Entertainment, Inc. and SeaWorld Parks & Entertainment LLC, Civil Case No. 2:22-cv-09941 (the “Quinton Matter”). The Complaint states the putative class consists of Quinton Burns and K.B. Burns and similarly situated Black people. The Complaint alleges the Company engaged in disparate treatment of Class members based on their race and in so doing violated the Civil Rights Act of 1866 and Pennsylvania common law. The Complaint seeks compensatory and punitive damages and attorneys’ fees and costs as well declarative and injunctive relief. The Quinton matter is in the preliminary stages of litigation. The Company has been served with the Complaint, and the parties are engaged in initial discovery. The Company believes that the lawsuit is without merit and intends to defend the lawsuit vigorously. While there can be no assurance regarding the ultimate outcome of the litigation, the Company believes a potential loss, if any, would not be material.

Other Matters

The Company is a party to various other claims and legal proceedings arising in the normal course of business. In addition, from time to time the Company is subject to audits, inspections and investigations by, or receives requests for information from, various federal and state regulatory agencies, including, but not limited to, the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (“APHIS”), the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”), the California Occupational Safety and Health Administration (“Cal-OSHA”), the Florida Fish & Wildlife Commission (“FWC”), the Equal Employment Opportunity Commission (“EEOC”), the Internal Revenue Service (“IRS”) the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).

Other than those matters discussed above, from time to time, various parties also bring other lawsuits against the Company. Matters where an unfavorable outcome to the Company is probable and which can be reasonably estimated are accrued. Such accruals, which are not material for any period presented, are based on information known about the matters, the Company’s estimate of the outcomes of such matters, and the Company’s experience in contesting, litigating and settling similar matters. Matters that are considered reasonably possible to result in a material loss are not accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be determined. At this time, management does not expect any such known claims, legal proceedings or regulatory matters to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

License Commitments

Pursuant to the License Agreement with Sesame Workshop, the Company pays a specified annual license fee and a specified royalty based on revenues earned in connection with sales of licensed products, all food and beverage items utilizing the licensed elements and any events utilizing such elements if a separate fee is paid for such event. The Company’s principal commitments pursuant to the License Agreement include, among other items, the opening of a second standalone park (“Standalone Park”) (the Company opened the Standalone Park in San Diego on March 26, 2022) and minimum annual capital and marketing thresholds. After the opening of the second Standalone Park (counting the existing Sesame Place Standalone Park in Langhorne, Pennsylvania), SEA has the option to build additional Standalone Parks in the Sesame Territory within agreed upon timelines. The License Agreement has an initial term through December 31, 2031, with an automatic additional 15-year extension plus a five-year option added to the term of the License Agreement from December 31st of the year of each new Standalone Park opening. As of September 30, 2022, the Company estimates the combined remaining liabilities and obligations for the License Agreement commitments could be up to approximately $25.0 million over the remaining term of the agreement. See further discussion concerning royalty payments for the year 2021 in the Sesame Workshop Arbitration section.

Anheuser-Busch, Incorporated (“ABI”) has granted the Company a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark and certain related domain names in connection with the operation, marketing, promotion and advertising of certain of the Company’s theme parks, as well as in connection with the production, use, distribution and sale of merchandise sold in connection with such theme parks. Under the license, the Company is required to indemnify ABI against losses related to the use of the marks.

9. EQUITY-BASED COMPENSATION

In accordance with ASC 718, Compensation-Stock Compensation, the Company measures the cost of employee services rendered in exchange for share-based compensation based upon the grant date fair market value. The cost is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. The Company recognizes the impact of forfeitures as they occur.

Equity compensation expense is included in operating expenses and in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
	(In thousands)
Equity compensation expense included in operating expenses	$	961	$	3,297	$	3,615	$	5,799
Equity compensation expense included in selling, general and administrative expenses		3,483		9,752		10,360		17,357
Total equity compensation expense	$	4,444	$	13,049	$	13,975	$	23,156

During the three and nine months ended September 30, 2021, cumulative equity compensation expense was recorded related to certain performance vesting restricted awards which were previously not considered likely of vesting.

Omnibus Incentive Plan

The Company has reserved 15.0 million shares of common stock for issuance under its Omnibus Incentive Plan (the “Omnibus Incentive Plan”), of which approximately 7.3 million shares are available for future issuance as of September 30, 2022.

Bonus Performance Restricted Units

During the nine months ended September 30, 2022, the Company granted approximately 115,000 performance-vesting restricted units (the “Bonus Performance Restricted Units”) in accordance with its annual bonus plan for 2022 (the “2022 Bonus Plan”). The 2022 Bonus Plan provides for bonus awards payable 50% in cash and 50% in performance-vesting restricted units (the “Bonus Performance Restricted Units”) and is based upon the Company’s achievement of specified performance goals, including the achievement of certain cost targets, as defined by the 2022 Bonus Plan, with respect to the year ended December 31, 2022 (“Fiscal 2022”). The total number of units eligible to vest into shares of stock is based on the level of achievement of the targets for Fiscal 2022 which ranges from 0% (if below threshold performance), to 100% (if at target performance) with opportunities to earn above 100% when achievement is above the target performance for certain metrics.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company also had an annual bonus plan for the fiscal year ended December 31, 2021 (“Fiscal 2021”), under which certain employees were eligible to vest in Bonus Performance Restricted Units based upon the Company’s achievement of certain performance goals with respect to Fiscal 2021. Based on the Company’s actual Fiscal 2021 results, a portion of these Bonus Performance Restricted Units vested and were converted into approximately 120,000 shares in the nine months ended September 30, 2022 and the remaining unvested units forfeited in accordance with their terms.

Long-term Incentive Performance Restricted Awards

During the nine months ended September 30, 2022, the Company granted long-term incentive plan awards for 2022 (the “2022 Long-Term Incentive Grant”) which were comprised of approximately 50,000 nonqualified stock options (the “Long-Term Incentive Options”) and approximately 160,000 performance-vesting restricted units (the “Long-Term Incentive Performance Restricted Units”) (collectively, the “Long-Term Incentive Awards”).

Long-Term Incentive Options

The Long-Term Incentive Options vest over three years, with one-third vesting on each anniversary of the date of grant, subject to continued service through the applicable vesting date. Equity compensation expense for these options is recognized for each tranche over the vesting period using the straight-line method. Upon stock option exercises, authorized but unissued shares are issued by the Company.

Long-Term Incentive Performance Restricted Units

The Long-Term Incentive Performance Restricted Units are eligible to vest during the three-year performance period beginning on January 1, 2022 and ending on December 31, 2024 (or, extended through December 31, 2025, as applicable) (the “Performance Period”) based upon the Company’s achievement of specified performance goals during the Performance Period. The total number of Long-Term Incentive Performance Restricted Units eligible to vest will be based on the level of achievement of the performance goals and ranges from 0% (if below threshold performance) up to 150% (for maximum performance). Upon achievement of at least the threshold performance goals, 50% of the award for a given level of performance will vest, with the remaining 50% subject to a one-year performance test period. Performance for the test period must meet or exceed the prior year’s performance before up to the remaining 50% of the units can be earned.

Other

During the nine months ended September 30, 2022, a portion of the previously granted long-term incentive performance restricted units under the 2019 Long-Term Incentive Plan vested based on the Company’s actual Fiscal 2021 results. The remainder of the 2019 Long-Term Incentive Plan awards are eligible to vest in 2023 and/or 2024.

The Company recognizes equity compensation expense for its performance-vesting restricted awards ratably over the related performance period if the performance condition is probable of being achieved. If the probability of vesting changes for performance-vesting restricted awards in a subsequent period, all equity compensation expense related to those awards, that would have been recorded, if any, over the requisite service period had the new percentage been applied from inception, will be recorded as a cumulative catch-up or reduction at such subsequent date.

10. STOCKHOLDERS’ DEFICIT

As of September 30, 2022, 96,255,843 shares of common stock were issued in the accompanying unaudited condensed consolidated balance sheet, which includes 30,993,771 shares of treasury stock held by the Company and excludes 1,514,970 unvested restricted stock awards or deferred stock units held by certain participants in the Company’s equity compensation plans or members of the Company’s Board (see Note 9–Equity-Based Compensation).

Share Repurchase Programs

The Board had previously authorized a share repurchase program of up to $250.0 million of the Company’s common stock (the “Former Share Repurchase Program”). In March 2022, the Board approved a replenishment to the Former Share Repurchase Program of $228.2 million, bringing the total amount authorized back up to $250.0 million at that time. Under the Former Share Repurchase Program, during the nine months ended September 30, 2022, the Company repurchased 3,563,086 shares for an aggregate total of approximately $250.0 million, leaving no amount remaining under the Former Share Repurchase Program.

In May 2022, the Board approved a $250.0 million share repurchase program (the “May Share Repurchase Program”). Under the May Share Repurchase Program, during the nine months ended September 30, 2022, the Company repurchased 5,085,752 shares for an aggregate total of approximately $250.0 million, leaving no amount remaining under the May Share Repurchase Program.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In August 2022, the Board approved a new $250.0 million share repurchase program (the “Share Repurchase Program”). Under the Share Repurchase Program, during the nine months ended September 30, 2022, the Company repurchased 2,391,891 shares for an aggregate total of approximately $123.1 million, leaving approximately $126.9 million available under the Share Repurchase Program as of September 30, 2022. Subsequent to September 30, 2022, the Company repurchased an additional 1,214,882 shares for an aggregate total of approximately $60.8 million, leaving approximately $66.1 million remaining under the Share Repurchase Program as of October 31, 2022.

Collectively, as a result of the repurchase programs disclosed above, the Company has repurchased a combined total of 3,163,547 shares for an aggregate combined total of approximately $158.5 million during the three months ended September 30, 2022 and a combined total of 11,040,729 shares for an aggregate combined total of approximately $623.1 million during the nine months ended September 30, 2022.

Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time limits and could be suspended or discontinued completely at any time. The number of shares to be purchased and the timing of purchases will be based on the Company’s trading windows and available liquidity, general business and market conditions, and other factors, including legal requirements, share ownership thresholds, debt covenant restrictions, future tax implications and alternative investment opportunities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to our “theme parks” or “parks” in the discussion that follows includes all of our separately gated parks. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.

Introduction

The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2021.

Business Overview

We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States. Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.

Recent Developments

Impact of Global COVID-19 Pandemic

Our results of operations for the three and nine months ended September 30, 2022 continued to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance from historical levels. Additionally, results of operations for the nine months ended September 30, 2021 were also impacted by the following factors: (i) capacity limitations, modified/limited operations and/or temporary park closures through the first half of 2021; (ii) decreased demand due to public concerns associated with the pandemic; and (iii) severe restrictions on international travel, some of which were in effect through the fourth quarter of 2021. See further discussion in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

As approved vaccines continue to be distributed, the operating environment has improved and COVID-19 related capacity limitations have been eliminated; however, there can be no certainty relating to the impact of new variants and the extent and effectiveness of the vaccines, boosters and/or medications or how they will impact these factors and others, including domestic or international travel, group events and group-related attendance, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings. See the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Current Operating Environment

Our Board has formed a number of committees designed to provide further assistance from Board members with expertise in certain areas by providing enhanced oversight over the operations of the Company. As a result, in the current operating environment, certain members of our Board, including our Chairman of the Board, are actively involved in overseeing certain key operating activities.

The current condition of the overall labor market, including wage inflationary pressures, the challenging current operating environment and COVID-19 related factors has led to increased turnover and challenges in meeting our staffing goals. These staffing challenges have also led to wage pressures and less than optimal staffing levels, which have impacted and could continue to impact our ability to open some of our food and beverage outlets, caused us to temporarily close some rides or attractions, caused longer wait times in certain areas of our parks, which has and could continue to impact the guest experience. To address these items, we continue our efforts to recruit and retain talent, optimize staffing levels and focus on park operations from the guest perspective, among other initiatives. We have also been impacted by significant inflationary pressures (particularly relating to the costs for labor, goods, freight, services and capital projects), supply chain disruptions (which has, at times, impacted ride availability) and higher interest rates. We continue our focus on cost reduction and efficiency opportunities as well as incremental pricing and revenue opportunities to help offset cost pressures.

For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section. For other factors concerning the current operating environment or the global COVID-19 pandemic, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Principal Factors and Trends Affecting Our Results of Operations

Revenues

Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for food and beverage, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12-month term), season passes (including our Fun Card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products. Revenue from these admissions products are generally recognized based on attendance. Certain pass products are purchased through monthly installment arrangements which allow guests to pay over the product’s initial commitment period. Once the initial commitment period is reached, these products transition to a month-to-month basis providing these guests access to specific parks on a monthly basis with related revenue recognized monthly.

Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:

•

Admission Per Capita. We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix (including the impact of pass visitation rates), and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than local guests. A higher mix of complimentary tickets will lower admissions per capita. Pass visitation rates are the number of visits per pass. A higher number of visits per pass would yield a lower admissions per capita as the related revenue is recognized over more visits. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks.

•

In-Park Per Capita Spending. We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of food and beverage, retail merchandise, parking, other in-park products, and other miscellaneous revenue, including online transaction fees, not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing, product offerings, the mix of guests (as domestic and international guests typically generate higher in-park per capita spending than local guests or pass holders), guest penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors.

Total revenue per capita, admissions per capita and in-park per capita spending are key performance metrics that we use to assess the operating performance of our parks on a per attendee basis and to make strategic operating decisions. We believe the presentation of these performance metrics is useful and relevant for investors as it provides investors the ability to review operating performance in the same manner as our management and provides investors with a consistent methodology to analyze revenue between periods on a per attendee basis. In addition, investors, lenders, financial analysts and rating agencies have historically used similar per-capita related performance metrics to evaluate companies in the industry.

See further discussion in the “Results of Operations” section which follows and in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For other factors affecting our revenues, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Attendance

The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.

As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets and certain guests has been and/or could be impacted by public concerns over the COVID-19 pandemic, the number of

reported cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines, boosters and/or medications for adults and children, and overall public safety sentiment. We continuously monitor factors impacting our attendance, making strategic operations, marketing and sales adjustments as necessary.

Costs and Expenses

Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, park operating hours, new parks and/or incremental operating days, new and/or enhanced events, attendance levels, supply chain issues, and inflationary pressures, among other factors. The mix of products sold compared to the prior year period can also impact our costs as retail products generally have a higher cost of sales component than our food and beverage or other in-park offerings.

We continue our focus on reducing costs and improving operating margins and streamlining our labor structure to better align with our strategic business objectives. Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities, including technology initiatives, which we believe will further strengthen our business and, in some instances, improve our guest experiences.

See the “Impact of Global COVID-19 Pandemic” and the “Current Operating Environment” section for further details. For other factors affecting our costs and expenses, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Seasonality

The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were only open for a portion of the year. As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred a net loss in the first and fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year. Even for our five theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns.

Due in part to the temporary park closures, along with capacity limitations and/or modified/limited operations and other COVID-19 related impacts on our attendance, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future. Furthermore, any changes to the operating schedule of a park such as increasing operating days for our historically seasonal parks, could change the impact of seasonality in the future. During the first nine months of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days on a year round basis at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania. Additionally, on March 26, 2022, we opened our Sesame Place San Diego park which has been, and is expected to continue to be, open more operating days than the Aquatica San Diego park it replaced, particularly in the first and fourth quarters of the year. Incremental operating days generally are expected to drive incremental attendance and revenue.

See “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Results of Operations

The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table presents key operating and financial information for the three months ended September 30, 2022 and 2021:

	For the Three Months Ended
	September 30,						Variance
	2022			2021			#			%
Summary Financial Data:	(In thousands, except per capita data)
Net revenues:
Admissions	$	313,574		$	296,694		$	16,880			5.7	%
Food, merchandise and other		251,633			224,512			27,121			12.1	%
Total revenues		565,207			521,206			44,001			8.4	%
Costs and expenses:
Cost of food, merchandise and other revenues		41,385			37,977			3,408			9.0	%
Operating expenses (exclusive of depreciation and amortization shown separately below)		215,899			195,113			20,786			10.7	%
Selling, general and administrative expenses		53,082			53,617			(535	)		(1.0	%)
Depreciation and amortization		37,216			36,306			910			2.5	%
Total costs and expenses		347,582			323,013			24,569			7.6	%
Operating income		217,625			198,193			19,432			9.8	%
Other income, net		(66	)		(39	)		(27	)		(69.2	%)
Interest expense		30,556			28,372			2,184			7.7	%
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs		—			58,827			(58,827	)	NM
Income before income taxes		187,135			111,033			76,102			68.5	%
Provision for income taxes		52,578			8,936			43,642		NM
Net income	$	134,557		$	102,097		$	32,460			31.8	%
Other data:
Attendance		7,336			7,226			110			1.5	%
Total revenue per capita	$	77.05		$	72.13		$	4.92			6.8	%
Admission per capita	$	42.75		$	41.06		$	1.69			4.1	%
In-park per capita spending	$	34.30		$	31.07		$	3.23			10.4	%

NM – Not Meaningful.

Admissions revenue. Admissions revenue for the three months ended September 30, 2022 increased $16.9 million, or 5.7%, to $313.6 million as compared to $296.7 million for the three months ended September 30, 2021. The improvement was a result of an increase in admission per capita and an increase in attendance. Total attendance for the third quarter of 2022 increased approximately 0.1 million guests, or 1.5%, when compared to the prior year quarter. Attendance benefitted largely from an increase in demand primarily from international guests when compared to the prior year quarter, which was impacted by more severe COVID-19 related restrictions on international travel. Attendance during the third quarter was also unfavorably impacted by adverse weather, including the impacts of Hurricane Ian in September 2022, which led to closures at our parks in Florida and Virginia for a combined 15 operating days. We estimate that adverse weather, including the impact of Hurricane Ian, contributed to a decline of approximately 90,000 guests during the quarter. Admission per capita increased by 4.1% to $42.75 for the three months ended September 30, 2022 compared to $41.06 in the three months ended September 30, 2021, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter.

Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended September 30, 2022 increased $27.1 million, or 12.1%, to $251.6 million as compared to $224.5 million for the three months ended September 30, 2021. The increase results from an increase in in-park per capita spending and the increase in attendance. In-park per capita spending increased by 10.4% to $34.30 in the three months ended September 30, 2022 compared to $31.07 in the three months ended September 30, 2021. In-park per capita spending improved due to a combination of factors including pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded venues and/or other in-park offerings.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended September 30, 2022 increased by $3.4 million, or 9.0%, to $41.4 million as compared to $38.0 million for the three months ended September 30, 2021. These costs represent 16.4% and 16.9% of the related revenue earned for the three months ended September 30, 2022 and 2021, respectively. The decrease as a percent of related revenue partly relates to higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives which were partially offset by the impact of inflationary pressures.

Operating expenses. Operating expenses for the three months ended September 30, 2022 increased by $20.8 million, or 10.7%, to $215.9 million as compared to $195.1 million for the three months ended September 30, 2021. The increase in operating expenses is primarily due to costs associated with new and/or expanded attractions and events, along with high inflationary pressures and an increase in legal accruals as compared to the prior year quarter. These factors were partially offset by a decrease in non-cash equity compensation expense along with structural cost savings initiatives when compared to the third quarter of 2021. Operating expenses for the third quarter of 2021 were also impacted by approximately $9.2 million of nonrecurring contractual liabilities and legal costs resulting from the temporary COVID-19 park closures. Operating expenses as a percent of revenue were 38.2% and 37.4% for the three months ended September 30, 2022 and 2021, respectively.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2022 decreased $0.5 million, or 1.0%, to $53.1 million as compared to $53.6 million for the three months ended September 30, 2021. The decrease in selling, general and administrative expenses is primarily due to a decrease in non-cash equity compensation expense and the impact of cost savings and efficiency initiatives. These factors were partially offset by increased marketing and third-party consulting costs when compared to the prior year quarter. Selling, general and administrative expenses as a percent of revenue were 9.4% and 10.3% for the three months ended September 30, 2022 and 2021, respectively.

Depreciation and amortization. Depreciation and amortization expense for the three months ended September 30, 2022 increased by $0.9 million, or 2.5%, to $37.2 million as compared to $36.3 million for the three months ended September 30, 2021. The increase primarily relates to new asset additions partially offset by the impact of asset retirements and fully depreciated assets.

Interest expense. Interest expense for the three months ended September 30, 2022 increased approximately $2.2 million, or 7.7%, to $30.6 million as compared to $28.4 million for the three months ended September 30, 2021. The increase primarily relates to increased interest rates on variable debt, partially offset by the net impact of lower interest on fixed debt as a result of the Refinancing Transactions. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details.

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs. Loss on early extinguishment of debt and write-off of discounts and debt issuance costs for the three months ended September 30, 2021 primarily relate to a write-off of discounts and debt issuance costs resulting from the Refinancing Transactions during the three months ended September 30, 2021. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q and the “Our Indebtedness” section which follows for further details.

Provision for income taxes. Provision for income taxes for the three months ended September 30, 2022 was $52.6 million compared to $8.9 million for the three months ended September 30, 2021. Our consolidated effective tax rate was 28.1% for the three months ended September 30, 2022 compared to 8.0% for the three months ended September 30, 2021. The effective tax rate in the three months ended September 30, 2022 was primarily impacted by state income taxes, including the effect of tax rate changes enacted during the quarter. The effective tax rate in the three months ended September 30, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits, changes in state tax rates and tax impacts of equity-based compensation. See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Our results for the nine months ended September 30, 2022 are not directly comparable to the nine months ended September 30, 2021 primarily due to COVID-19 related impacts including a temporary park closure and capacity limitations at some of our parks in 2021. See “Impact of Global COVID-19 Pandemic” and “Attendance” for further details. The following table presents key operating and financial information for the nine months ended September 30, 2022 and 2021:

	For the Nine Months Ended
	September 30,					Variance
	2022			2021		#			%
Summary Financial Data:	(In thousands, except per capita data)
Net revenues:
Admissions	$	739,941		$	635,699	$	104,242			16.4	%
Food, merchandise and other		600,776			497,211		103,565			20.8	%
Total revenues		1,340,717			1,132,910		207,807			18.3	%
Costs and expenses:
Cost of food, merchandise and other revenues		105,943			87,092		18,851			21.6	%
Operating expenses (exclusive of depreciation and amortization shown separately below)		559,320			460,192		99,128			21.5	%
Selling, general and administrative expenses		155,299			128,271		27,028			21.1	%
Severance and other separation costs		113			1,582		(1,469	)		(92.9	%)
Depreciation and amortization		114,379			109,111		5,268			4.8	%
Total costs and expenses		935,054			786,248		148,806			18.9	%
Operating income		405,663			346,662		59,001			17.0	%
Other (income) expense, net		(110	)		156		(266	)	NM
Interest expense		82,736			90,455		(7,719	)		(8.5	%)
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs		—			58,827		(58,827	)	NM
Income before income taxes		323,037			197,224		125,813			63.8	%
Provision for income taxes		80,857			12,249		68,608		NM
Net income	$	242,180		$	184,975	$	57,205			30.9	%
Other data:
Attendance		17,002			15,250		1,752			11.5	%
Total revenue per capita	$	78.86		$	74.29	$	4.57			6.2	%
Admission per capita	$	43.52		$	41.69	$	1.83			4.4	%
In-park per capita spending	$	35.34		$	32.61	$	2.73			8.4	%

NM – Not Meaningful.

Admissions revenue. Admissions revenue for the nine months ended September 30, 2022 increased $104.2 million, or 16.4%, to $739.9 million as compared to $635.7 million for the nine months ended September 30, 2021. The improvement was a result of an increase in attendance and an increase in admission per capita. Total attendance for the first nine months of 2022 increased by approximately 1.8 million guests, or 11.5%, when compared to the first nine months of 2021. Attendance benefitted primarily from an increase in demand resulting from a return to more normalized operations when compared to the first nine months of 2021, which included COVID-19 related impacts including limited operating days, a temporary park closure, capacity limitations at some of our parks and more severe restrictions on international travel. Admission per capita increased by 4.4% to $43.52 for the nine months ended September 30, 2022 compared to $41.69 for the nine months ended September 30, 2021, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset by the net impact of the admissions product mix when compared to the prior year period.

Food, merchandise and other revenue. Food, merchandise and other revenue for the nine months ended September 30, 2022 increased $103.6 million, or 20.8%, to $600.8 million as compared to $497.2 million for the nine months ended September 30, 2021. The increase results from the increase in attendance discussed above, along with an improvement in in-park per capita spending. In-park per capita spending increased by 8.4% to $35.34 for the nine months ended September 30, 2022 compared to $32.61 for the nine months ended September 30, 2021. In park per capita spending improved due to a combination of factors including, pricing initiatives, improved product quality and mix and the impact of new or enhanced and/or expanded venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance when compared to the prior year period. In-park per capita spending was also unfavorably impacted by less than optimal staffing, particularly during the first quarter of 2022, which impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the nine months ended September 30, 2022 increased $18.9 million, or 21.6%, to $105.9 million as compared to $87.1 million for the nine months ended September 30, 2021. These costs represent 17.7% and 17.5% of the related revenue earned for the nine months ended September 30, 2022 and 2021, respectively. The increase as a percent of related revenue partly relates to the impact of inflationary pressures which were partially offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.

Operating expenses. Operating expenses for the nine months ended September 30, 2022 increased by $99.1 million, or 21.5%, to $559.3 million as compared to $460.2 million for the nine months ended September 30, 2021. Operating expenses in the first nine months of 2021 were impacted by limited operating days, a temporary park closure and capacity limitations due to the COVID-19 pandemic. As a result, the increase in operating expenses in the first nine months of 2022 primarily results from an increase in labor-related costs and other operating costs due to a return to more normalized operations and an increase in attendance. Operating expenses were also impacted by inflationary pressures, partially offset by the impact of structural cost savings initiatives when compared to the first nine months of 2021. Operating expenses as a percent of revenue were 41.7% for the nine months ended September 30, 2022 and 40.6% for the nine months ended September 30, 2021.

Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 30, 2022 increased $27.0 million, or 21.1%, to $155.3 million as compared to $128.3 million for the nine months ended September 30, 2021. The increase is primarily due to increased marketing-related costs and increased third-party consulting costs, partially offset by a decrease in non-cash equity compensation expense and the impact of cost savings and efficiency initiatives. Selling, general and administrative expenses as a percent of revenue were 11.6% for the nine months ended September 30, 2022 and 11.3% for the nine months ended September 30, 2021.

Depreciation and amortization. Depreciation and amortization expense for the nine months ended September 30, 2022 increased $5.3 million, or 4.8%, to $114.4 million as compared to $109.1 million for the nine months ended September 30, 2021. The increase primarily relates to new asset additions partially offset by the impact of asset retirements and fully depreciated assets.

Interest expense. Interest expense for the nine months ended September 30, 2022 decreased $7.7 million, or 8.5%, to $82.7 million as compared to $90.5 million for the nine months ended September 30, 2021. The decrease primarily relates to the net impact of a lower average outstanding balance on our variable debt and lower interest on fixed debt as a result of the Refinancing Transactions, partially offset by increased interest rates on variable rate debt. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details.

Loss on early extinguishment of debt and write-off of discounts and debt issuance costs. Loss on early extinguishment of debt and write-off of discounts and debt issuance costs for the nine months ended September 30, 2021 primarily relate to a write-off of discounts and debt issuance costs resulting from the Refinancing Transactions during the nine months ended September 30, 2021. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q and the “Our Indebtedness” section which follows for further details.

Provision for income taxes. Provision for income taxes for the nine months ended September 30, 2022 was $80.9 million compared to $12.2 million for the nine months ended September 30, 2021. Our consolidated effective tax rate was 25.0% for the nine months ended September 30, 2022 compared to 6.2% for the nine months ended September 30, 2021. The effective tax rate in the nine months ended September 30, 2022 was primarily impacted by state income taxes, including the effect of tax rate changes enacted during the period, and other compensation related items, partially offset by tax benefits related to equity-based compensation which vested during the period. The effective tax rate in the nine months ended September 30, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, state tax income taxes and deductible equity-based compensation. See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Supplemental comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2019

We believe a comparison of selected financial results for the nine months ended September 30, 2022 to the nine months ended September 30, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business. As such, the following supplemental discussion provides an analysis of selected operating results for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2019. The selected summary financial data for the first nine months of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended September 30, 2019.

	For the Nine Months Ended
	September 30,				Variance
	2022		2019		#			%
Selected Summary Financial Data:	(In thousands, except per capita data)
Net revenues:
Admissions	$	739,941	$	624,789	$	115,152			18.4	%
Food, merchandise and other		600,776		475,444		125,332			26.4	%
Total revenues		1,340,717		1,100,233		240,484			21.9	%
Selected costs and expenses:
Cost of food, merchandise and other revenues		105,943		87,062		18,881			21.7	%
Operating expenses (exclusive of depreciation and amortization)		559,320		495,917		63,403			12.8	%
Selling, general and administrative expenses		155,299		174,601		(19,302	)		(11.1	%)
Other data:
Attendance		17,002		17,925		(923	)		(5.1	%)
Total revenue per capita	$	78.86	$	61.38	$	17.48			28.5	%
Admission per capita	$	43.52	$	34.86	$	8.66			24.8	%
In-park per capita spending	$	35.34	$	26.52	$	8.82			33.3	%

Admissions revenue. Admissions revenue for the nine months ended September 30, 2022 increased $115.2 million, or 18.4%, to $739.9 million as compared to $624.8 million for the nine months ended September 30, 30, 2019. The increase in admissions revenue was primarily a result of an increase in admission per capita which offset a decrease in attendance of approximately 0.9 million guests, or 5.1%. Admission per capita increased by 24.8% to $43.52 in the 2022 period compared to $34.86 in the 2019 period. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix when compared to the first nine months of 2019. Attendance declined primarily due to a decline from international guest visitation and group-related attendance, partially offset by the impact of increased incremental operating days when compared to 2019. Excluding international guest visitation and group-related attendance, attendance increased by approximately 2.2% when compared to the first nine months of 2019.

Food, merchandise and other revenue. Food, merchandise and other revenue for the nine months ended September 30, 2022 increased $125.3 million, or 26.4%, to $600.8 million as compared to $475.4 million for the nine months ended September 30, 2019, primarily as a result of an increase in in-park per capita spending, partially offset by a decrease in attendance. In-park per capita spending increased by 33.3% to $35.34 in the first nine months of 2022 compared to $26.52 in the first nine months of 2019. In-park per capita spending improved primarily due to pricing initiatives, improved product quality and mix and the impact of new or enhanced and/or expanded venues and/or events or other in-park offerings during the first nine months of 2022 when compared to the first nine months of 2019. In-park per capita spending was unfavorably impacted by less than optimal staffing, particularly during the first quarter of 2022, which impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the nine months ended September 30, 2022 increased $18.9 million, or 21.7%, to $105.9 million as compared to $87.1 million for the nine months ended September 30, 2019. These costs represent 17.7% and 18.3% of the related revenue earned for the nine months ended September 30, 2022 and 2019, respectively. The decrease as a percent of related revenue partly relates to higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives which were partially offset by the impact of inflationary pressures.

Operating expenses. Operating expenses for the nine months ended September 30, 2022 increased $63.4 million, or 12.8%, to $559.3 million as compared to $495.9 million for the nine months ended September 30, 2019. The increase primarily results from operating costs associated with incremental operating days, new, enhanced and/or expanded venues, events and attractions, along with inflationary pressures, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives. Operating expenses were 41.7% of total revenues for the nine months ended September 30, 2022 compared to 45.1% for the nine months ended September 30, 2019.

Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 30, 2022 decreased $19.3 million, or 11.1%, to $155.3 million as compared to $174.6 million for the nine months ended September 30, 2019. The decrease primarily relates to a targeted reduction in marketing related costs, a decrease in third-party consulting costs and the impact of cost savings and efficiency initiatives, partially offset by an increase in non-cash equity compensation expense. As a percentage of total revenue, selling, general and administrative expenses were 11.6% for the nine months ended September 30, 2022 compared to 15.9% for the nine months ended September 30, 2019.

Liquidity and Capital Resources

Overview

Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash typically include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), share repurchases and/or other return of capital to stockholders, when permitted. As of September 30, 2022, we had a working capital ratio (defined as current assets divided by current liabilities) of 0.6. We typically have operated with a working capital ratio of less than 1.0 due to a significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances. Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we, or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under our Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.

Share Repurchases

See Note 10–Stockholders’ Deficit in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Company’s share repurchase programs.

Other

We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our revolving credit facility will be adequate to meet the capital expenditures, debt service obligations and working capital requirements of our operations for at least the next 12 months.

The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:

	For the Nine Months Ended September 30,
	2022			2021
	(Unaudited, in thousands)
Net cash provided by operating activities	$	468,874		$	416,437
Net cash used in investing activities		(150,729	)		(73,591	)
Net cash used in financing activities		(647,139	)		(222,913	)
Net (decrease) increase in cash and cash equivalents, including restricted cash	$	(328,994	)	$	119,933

Cash Flows from Operating Activities

Net cash provided by operating activities was $468.9 million during the nine months ended September 30, 2022 as compared to $416.4 million during the nine months ended September 30, 2021. The change in net cash provided by operating activities was primarily impacted by improved operating performance, including increased sales of admission and other products and the impact of decreased interest payments in the nine months ended September 30, 2022 when compared to the nine months ended September 30, 2021.

Cash Flows from Investing Activities

Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the nine months ended September 30, 2022 consisted primarily of capital expenditures of $150.7 million largely related to future attractions. Net cash used in investing activities during the nine months ended September 30, 2021 consisted primarily of $73.6 million of capital expenditures.

The following table presents detail of our capital expenditures for the periods indicated:

	For the Nine Months Ended September 30,
	2022		2021
Capital Expenditures:	(Unaudited, in thousands)
Core^(a)	$	100,197	$	44,046
Expansion/ROI projects^(b)		50,532		29,545
Capital expenditures, total	$	150,729	$	73,591

^(a)	Reflects capital expenditures for park rides, attractions and maintenance activities.

^(b)	Reflects capital expenditures for park expansion, new properties, and revenue and/or expense return on investment (“ROI”) projects.

The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements. Historically, we generally expect to fund our capital expenditures through our operating cash flow.

Cash Flows from Financing Activities

Net cash used in financing activities during the nine months ended September 30, 2022 results primarily from share repurchases of $617.8 million and payment of tax withholdings on equity-based compensation through shares withheld of $22.2 million. Net cash used in financing activities during the nine months ended September 30, 2021 results primarily from net debt repayments of $130.6 million, which includes the Refinancing Transactions and payments on the Second-Priority Senior Secured Notes, $77.6 million used to repurchase shares and the payment of tax withholdings on equity-based compensation through shares withheld of $12.7 million. The Refinancing Transactions primarily consisted of $1,934.6 million in repayments of our Term B-5 Loans and Second-Priority Senior Secured Notes, approximately $34.3 million related to a premium paid for redemption of our Second-Priority Senior Secured Notes, and approximately $23.1 million in debt issuance costs partially offset by net proceeds from our Term B Loans and the Senior Notes of $1,922.2 million. See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements for further details.

Our Indebtedness

We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below. As of September 30, 2022, our indebtedness consisted of senior secured credit facilities, 5.25% unsecured senior notes (the “Senior Notes”) and 8.75% first-priority senior secured notes (the “First-Priority Senior Secured Notes”).

See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details related to our long-term debt.

Senior Secured Credit Facilities

SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended and restated pursuant to a credit agreement (the “Amended and Restated Credit Agreement”) dated August 25, 2021 (the “Senior Secured Credit Facilities”).

As of September 30, 2022, our Senior Secured Credit Facilities consisted of $1.188 billion in Term B Loans which will mature in August 2028, along with a $390.0 million Revolving Credit Facility, which had no amounts outstanding as of September 30, 2022 and will mature in August 2026. As of September 30, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $370.3 million available for borrowing under the Revolving Credit Facility.

Senior Notes and First-Priority Senior Secured Notes

As of September 30, 2022, SEA had outstanding $725.0 million in aggregate principal amount of Senior Notes due on August 15, 2029 and $227.5 million in aggregate principal amount of First-Priority Senior Secured Notes, due on May 1, 2025.

Covenant Compliance

As of September 30, 2022, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA

We define Adjusted EBITDA as net income plus, (i) income tax provision, (ii) interest expense, consent fees and similar financing costs, (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) loss on extinguishment of debt, (vi) certain non-cash charges/credits including those related to asset disposals, (vii) certain business optimization, development and strategic initiative costs, (viii) merger, acquisition, integration and certain investment costs, and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.

Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Covenant Adjusted EBITDA as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).

Covenant Adjusted EBITDA is defined as Adjusted EBITDA plus certain other items as defined in the Debt Agreements, including estimated cost savings among other adjustments. Cost savings represent annualized estimated savings expected to be realized over the following 24 month period related to certain specified actions including restructurings and cost savings initiatives, net of actual benefits realized during the last twelve months. Other adjustments include (i) recruiting and retention costs, (ii) public company compliance costs, (iii) litigation and arbitration costs, and (iv) other costs and adjustments as permitted by the Debt Agreements.

We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, we believe the presentation of Covenant Adjusted EBITDA for the last twelve months is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Debt Agreements. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA and Covenant Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States of America (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and are not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA, Covenant Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA and Covenant Adjusted EBITDA as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net income for the periods indicated:

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Last Twelve Months Ended September 30,
	2022		2021		2022		2021		2022
	(Unaudited, in thousands)
Net income	$	134,557	$	102,097	$	242,180	$	184,975	$	313,718
Provision for income taxes		52,578		8,936		80,857		12,249		68,444
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs^(a)		—		58,827		—		58,827		—
Interest expense		30,556		28,372		82,736		90,455		108,923
Depreciation and amortization		37,216		36,306		114,379		109,111		153,928
Equity-based compensation expense ^(b)		4,472		13,076		15,554		24,331		32,241
Loss on impairment or disposal of assets and certain non-cash expenses^(c)		3,540		1,291		12,555		4,978		14,676
Business optimization, development and strategic initiative costs ^(d)		4,656		2,307		14,050		5,654		17,155
Certain investment costs and other taxes		53		56		1,053		472		1,411
COVID-19 related incremental costs^(e)		4,957		13,560		5,930		17,928		10,564
Other adjusting items^(f)		1,598		451		5,275		304		6,273
Adjusted EBITDA ^(g)	$	274,183	$	265,279	$	574,569	$	509,284	$	727,333
Items added back to Covenant Adjusted EBITDA as defined in the Debt Agreements:
Estimated cost savings^(h)										3,000
Other adjustments as defined in the Debt Agreements⁽ⁱ⁾										18,561
Covenant Adjusted EBITDA ^(j)									$	748,894

(a)

Reflects a loss on early extinguishment of debt and write-off of discounts and debt issuance costs associated with the Refinancing Transactions. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

(b)

Reflects non-cash equity compensation expenses and related payroll taxes associated with grants of equity-based compensation. For the three and nine months ended September 30, 2021 and the twelve months ended September 30, 2022, includes equity compensation expense related to certain performance vesting restricted awards which were previously not considered probable of vesting. See Note 9–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

(c)

Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals including asset write-offs and costs related to certain rides and equipment which were removed from service. Includes approximately $2.6 million for the three months ended September 30, 2022 and approximately $6.5 million for the nine and twelve months ended September 30, 2022 related to non-cash self-insurance reserve adjustments.

(d)

For the three and nine months ended September 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $2.5 million and $7.6 million, respectively of third-party consulting costs and (ii) $1.8 million and $5.6 million, respectively of other business optimization costs and strategic initiative costs.

For the three and nine months ended September 30, 2021, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $1.7 million and $2.2 million, respectively of third-party consulting costs; (ii) $1.6 million of severance and other separation costs in the nine months ended September 30, 2021 associated with positions eliminated and (iii) $1.0 million and $2.1 million, respectively of other business optimization costs and strategic initiative costs.

For the twelve months ended September 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $9.7 million of third-party consulting costs and (ii) $6.6 million of other business optimization costs and strategic initiative costs.

(e)

For the three, nine and twelve months ended September 30, 2022, includes approximately $4.1 million of certain legal matters related to the temporary COVID-19 park closures. For the twelve months ended September 30, 2022, also includes approximately $3.1 million of certain incremental, nonrecurring, temporary incentives paid to attract employees to return or remain in the workforce during the COVID-19 related environment and approximately $1.7 million of contract termination or modification costs related to impacts from the temporary COVID-19 park closures.

For the three and nine months ended September 30, 2021, includes approximately $9.2 million and $10.4 million, respectively, of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and approximately $4.1 million and $6.9 million, respectively, of incremental temporary labor related costs incurred to prepare and staff the parks and certain incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.

(f)

Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. Includes approximately $3.6 million for the nine and twelve months ended September 30, 2022 related to a legal settlement.

(g)	Adjusted EBITDA is defined as net income before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above.

(h)

Our Debt Agreements permit the calculation of certain covenants to be based on Covenant Adjusted EBITDA, as defined above, for the last twelve-month period further adjusted for net annualized estimated savings we expect to realize over the following 24-month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Debt Agreements and does not impact our reported GAAP net income.

(i)

The Debt Agreements permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs, if any.

(j)	Covenant Adjusted EBITDA is defined in the Debt Agreements as Adjusted EBITDA for the last twelve-month period further adjusted for net annualized estimated savings among other adjustments as described in footnotes (h) and (i) above.

Contractual Obligations

There have been no material changes to our contractual obligations as September 30, 2022 from those previously disclosed in our Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on February 28, 2022.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2022.

Recently Issued Financial Accounting Standards

Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Inflation

The impact of inflation has affected, and will continue to affect, our operations significantly. The cost of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, other costs, such as the costs of fuel, construction, repairs and maintenance, labor, freight, utilities and insurance are all subject to inflationary pressures. For further discussion, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Interest Rate Risk

We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.

Prior to 2021, we previously managed interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fixed a portion of our variable-rate long-term debt. We have no interest rate swap agreements outstanding as of September 30, 2022. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At September 30, 2022, approximately $1.2 billion of our outstanding long-term debt represents variable-rate debt.

Interest rates have remained at relatively low levels on a historical basis; however, recently interest rates have been rising, which could increase our borrowing costs on variable debt. Assuming an average balance on our revolving credit borrowings of approximately $390.0 million, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $15.8 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $11.9 million.

COVID-19 Risks and Uncertainties

For further discussion of the adverse impacts of the COVID-19 pandemic, or any related mutations of the virus, or the risks of other outbreaks of pandemic or contagious diseases (such as the recent declaration by the World Health Organization of Monkeypox as a global health emergency), on our business and financial performance, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any controls and procedures also is based on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based upon this evaluation, our management, including our principal executive officer and principal financial officer, have concluded that a material weakness in our internal control over financial reporting still exists as initially disclosed as of September 30, 2021. Specifically, the Company does not have sufficient policies and procedures related to Board oversight of certain Board engagement within the Company’s control environment. Accordingly, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Notwithstanding the above, the control deficiency did not result in a material misstatement of any of the Company’s annual or interim consolidated financial statements. Further, management believes and has concluded that the consolidated financial statements for the prior periods and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

Changes in Internal Control over Financial Reporting

Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, other than those disclosed in the status update section.

Status Update

Management and our Board of Directors are committed to remediating the above noted material weakness to address the deficiency within the control environment which resulted from a lack of sufficient policies and procedures surrounding the frequency, manner and extent in which Board members engage with management, resulting, in part, from increased Board engagement with management, as disclosed in Part I, Item 2, “Current Operating Environment” included elsewhere in this Quarterly Report on Form 10-Q. As a result, management and the Board determined that it should establish and/or enhance additional policies and procedures relating to Board engagement and establish a process to evaluate adherence to these policies and procedures. Based upon a recommendation of the Audit Committee, the Board formed a committee (the “Committee”) and engaged independent consultants to advise the Committee and management as it relates to this deficiency to develop and execute on a remediation plan.

Management has performed an initial risk assessment to address this deficiency. As a result of this assessment, management and the Committee identified actions to remediate the material weakness, including the following actions:

•

Updated and further revising policies related to Board and management interactions and communications.

•

Enhanced our evaluation of the control environment by increasing the frequency and broadening the scope of the fraud risk assessment.

•

Named a lead director whose responsibilities, amongst others, include acting as a liaison and monitoring Board and management engagement.

•

Implemented additional regular sessions between senior management and the Board.

•

Designed and implemented certain new controls and enhanced existing controls such as:

Increased testing of certain transactional and entity level controls.

Initiated and conducted training and education for members of the Board and certain members of senior management regarding the internal control framework and corporate policies related to Board and management engagement.

Management will continue to perform ongoing risk assessment procedures, including continued enhancement, design and implementation of relevant controls, and will assess and test the effectiveness of these remediation efforts. The material weakness cannot be considered remediated until remediation efforts have operated for a sufficient period of time and management has concluded, that the material weakness has been resolved. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

See Note 8–Commitments and Contingencies under the caption “Legal Proceedings” in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details concerning our other legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Item 1A. to Part I of our Annual Report on Form 10-K, as filed on February 28, 2022, except as set forth in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, as filed on August 5, 2022 and to the extent factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, which is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the third quarter of 2022. The following table sets forth information with respect to shares of our common stock purchased by the Company during the periods indicated:

Period Beginning	Period Ended	Total Number of Shares Purchased⁽¹⁾⁽²⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
July 1, 2022	July 31, 2022		771,656	$	45.92		771,656	$	—
August 1, 2022	August 31, 2022		717,548	$	53.48		717,154		211,644,248
September 1, 2022	September 30, 2022		1,676,526	$	50.58		1,674,737		126,941,523
			3,165,730				3,163,547	$	126,941,523

(1)

Except for the 3,163,547 shares of our common stock repurchased as described in footnote (2) all purchases were made pursuant to our Omnibus Incentive Plan, under which participants may satisfy tax withholding obligations incurred upon the vesting of restricted stock by requesting that we withhold shares with a value equal to the amount of the withholding obligation.

(2)

Our Board had previously approved a $250.0 million share repurchase program (the “May Share Repurchase Program”). Pursuant to the May Share Repurchase Program, during the quarter ended September 30, 2022, we repurchased 771,656 shares for an aggregate total of approximately $35.4 million, leaving no amount remaining under the May Share Repurchase Program as of July 29, 2022.

On August 4, 2022, we announced that our Board approved a new $250.0 million share repurchase program (the “Share Repurchase Program”). Under the Share Repurchase Program, during the quarter ended September 30, 2022, we repurchased 2,391,891 shares for an aggregate total of approximately $123.1 million, leaving approximately $126.9 million available as of September 30, 2022. Subsequent to September 30, 2022, we repurchased 1,214,882 shares for an aggregate total of approximately $60.8 million, leaving approximately $66.1 million remaining under the Share Repurchase Program as of October 31, 2022.

Under the Share Repurchase Program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time limits and could be suspended or discontinued completely at any time.

All of the common stock is held as treasury shares as of September 30, 2022. The number of shares to be purchased and the timing of purchases was based on our trading windows and available liquidity, general business and market conditions and other factors, including legal requirements, share ownership thresholds, debt covenant restrictions, future tax implications and alternative opportunities. See Note 10–Stockholders’ Deficit in the notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 Plans

Our policy governing transactions in our securities by our directors, officers and employees permits such persons to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the SEC under the Exchange Act. Our directors, officers and employees have in the past, and may from time to time, establish such stock trading plans. We do not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically do not undertake to disclose the adoption, amendment, termination or expiration of any such plans.

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:

Exhibit No.		Description

10.1*†		Offer Letter of Employment, Agreed and Accepted the 1st day of August 1, 2022, between SeaWorld Entertainment, Inc. and Jim Hughes

10.2*†		Form of Performance Stock Unit Grant Notice and Restricted Stock Unit Agreement (Employees – Annual Incentive Plan Award)

10.3*†		Form of Option Grant Notice and Option Agreement (Employees—Time-Based Matching Options)

31.1*		Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 has been formatted in Inline XBRL.

* †		Filed herewith. Identifies exhibits that consist of a management contract or compensatory plan or arrangement

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SEAWORLD ENTERTAINMENT, INC.
		(Registrant)



Date: November 9, 2022		By: /s/ Michelle F. Adams
		Michelle F. Adams
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)