Sep 24, 2020
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Down Nearly 50%, SeaWorld Entertainment Could Still Make Money

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SAN DIEGO CA – JUNE 21: A general view of the ambience at the premiere of Sea World San Diego s. [+] GETTY IMAGES Theme park and entertainment company SeaWorld Entertainment (NYSE: SEAS) is a comparatively small player among giants including Disney (NYSE: DIS) and Comcast(NYSE: CMCSA) owned Universal. But it is only as badly hit through the travel halt restrictions on consumer movement and the terror that the pandemic has infused


The stock is down more than 48% this year (as of July 15 2020) revenue in Q1 2020 was down 30% leading to a $58 million operating loss and the worst is yet to come as the demand slump might be the highest in the second one quarter. SeaWorld saw nearly $90 million in cash outflow from operations and capital expenditures in Q1 2020


How bad could the whole year be? Is the balance sheet strong enough to survive? We assess the Impact Of The Covid-19 Recession On SeaWorld Entertainment in an interactive dashboard with a focus on SeaWorld s liquidity reserves and cost structure. We find that if annual revenue fall 30% SeaWorld can still generate around $350 million of free cash flow from operations


However it had a small operational runway if demand dropped to zero according to its beginning year cash pile. This required it to manage its liquidity reserves carefully. To do that SeaWorld extended its line of credit by taking total debt to $1. 78 billion. The 1st two quarters are likely to account for the bulk of the sales decline


For the whole year there’s a good chance that SeaWorld s revenue could drop to less than $1 billion vs $1. 4 billion in 2019. This will imply net income declining from $89 million to net loss of $-29 million leading to nearly a 35% fall in free cash flow from operations. The excellent news is this cash flow will still be healthy at around $230 million


This is enough to cover SeaWorld s capital expenditures which we believe usually are curtailed this year. In a different way to examine SeaWorld s financial resilience is understanding its cost structure and break even point. We estimate that variable operating expenses were $830 Mil in 2019 representing 70% of total operating expenses


According to this we calculate that variable operating expenses represent 59% of revenues and determine that break-even operating income could be supported by a transformation in annual revenue of -37% vs 2019. Thus we consider SeaWorld in a comparatively safe zone. To sum things up SeaWorld Entertainment is facing a pointy demand slump but is in a good position from a cash flow perspective if it can limit the whole year revenue decline to 30%


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