PRKS - NYSE

Hello, and welcome to SeaWorld's First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matthew Stroud, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to SeaWorld's first quarter 2023 earnings conference call. Today's call is being webcast and recorded. A press release was issued this morning and is available on our Investor Relations website at www.seaworldinvestors.com. Replay information for this call can be found in the press release and will be available on our website following the call. Joining me this morning are Marc Swanson, Chief Executive Officer; and Jim Forrester, Interim Chief Financial Officer and Treasurer. This morning we will review our first quarter financial results and then we will open the call up to your questions. Before we begin, I would like to remind everyone that our comments today will contain forward-looking statements within the meaning of the Federal Securities laws. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the Risk Factors section of our Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. These risk factors may be updated from time to time and will be included in our filings with the SEC that are available on our website. We undertake no obligation to update any forward-looking statements. In addition, on the call, we may reference non-GAAP financial measures and other financial metrics such as adjusted EBITDA and free cash flow. More information regarding our forward-looking statements and reconciliations of non-GAAP measures to the most comparable GAAP measure is included in our earnings release available on our website and can also be found in our filings with the SEC. Now, I would like to turn the call over to our Chief Executive Officer, Marc Swanson. Marc?

Thank you, Matthew. Good morning, everyone, and thank you for joining us. We're pleased to report another quarter of record financial results despite adverse weather across a number of our markets, particularly in our California market and a shift in the timing of the opening of our new rides. In the first quarter of 2022, we had seven of our 10 new rides and attractions opened, while this year in the first quarter, we only had two out of our 11 new rides and attractions open. This marks our eighth consecutive quarter where we have generated record financial results. I want to thank our ambassadors for their ongoing efforts as we prepare for what we anticipate will be another busy summer season. We continue to drive growth in total per capita spending in the quarter demonstrating the effectiveness of our revenue strategies, our pricing power, and the strength of consumer spending in our parks. Looking ahead, we are very encouraged by our group booking trends which are running well ahead of 2022 and we are really excited about our 2023 lineup of new rides, attractions, and events, several of which are some of the most anticipated rides of 2023 and looking forward to most of them opening in the coming weeks. On the international front, we are also thrilled for the opening of the fourth SeaWorld Park and the first SeaWorld branded park outside of the United States in Abu Dhabi on May 23, 2023. We are very proud of this project and along with our partners in Abu Dhabi are excited about introducing a new region of the world to the wonders of SeaWorld and introducing a next-generation SeaWorld Park, the first new SeaWorld branded park built in 35 years. SeaWorld Abu Dhabi is a custom-built approximately 183,000 square meters almost entirely indoor park that will feature over 100,000 marine animals, the world's largest multi-species aquarium, and eight different realms that showcase the complexity, interconnectivity, and beauty of life under the sea. I spent some time visiting this park last month and I could not have been more impressed by the facility, the staff, and of course the animals and attractions on display. It's really a one-of-a-kind, world-class venue, and we are excited to see this open. As a reminder, this is a licensing arrangement with our partner in Abu Dhabi and we will share more information once the park is operating. For 2023, the company has a truly exciting lineup of new rides, attractions, events, and upgrades, including four of the most anticipated roller coasters of 2023, according to USA Today. In February, Busch Gardens Tampa opened the Serengeti Flyer, the world's tallest and fastest Screaming Swing that takes riders up to 135 feet as speeds ranging -- as speeds reaching 68 miles per hour. In March, Aquatica San Antonio opened Kata's Kookaburra Cove, a newly expanded and upgraded 3,000 square foot area with multiple unique water play elements, waterspouts, all-new private cabanas, and a fully-themed splashpad and multi shade -- multiple shade structures. This month, SeaWorld Orlando will open Pipeline, The Surf Coaster, the first-of-its-kind surf coaster, with seats in a surfing position that rise and fall to mimic the sensation of riding a wave. The coaster will accelerate riders to 60 miles per hour through five airtime moments and an innovative wave curl inversion. Busch Gardens Williamsburg will open DarKoaster, the first all-indoor straddle coaster in North America where riders experience four launches at speeds up to 36 miles per hour through over 2,400 feet of track. Aquatica Orlando will open Turi's Kid Cove, an all-new water play area featuring watering palms, tipping buckets, spraying jets, water bobbles, and more. And Sesame Place Philadelphia will open Bert & Ernie's Splashy Shores, a water play area featuring water umbrellas, tipping buckets, spraying jets, water bottles and a spraying water tower. Later this spring and summer, SeaWorld San Diego will open Arctic Rescue, the fastest and longest straddle coaster on the West Coast that takes riders through three launches at speeds up to 40 miles per hour. Water Country USA will open Riptide Race, the first dueling pipeline slide in Virginia, and Sesame Place San Diego will open The Count's Splash Castle, an enhanced water play area and expanded play structure which features three tipping buckets, four water slides, and over 100 other water play elements. And finally, we anticipate that SeaWorld San Antonio will open Catapult Falls, the world's first launched flume coaster features the world's steepest flume drop, North America's only flume with a vertical lift and the tallest flume drop in Texas. Now, let me give a brief update on some of our strategic initiatives. First, our cost and efficiency related work with our dedicated internal team and specialized outside consultants is progressing well and we are on a pace to deliver at the high end of our cost savings target of $30 million to $50 million. The team continues to find ways for us to source and organize more efficiently, replace labor with capital and technology, and eliminate unnecessary and/or redundant expenses. Second, on the digital transformation front, we continue to build out our CRM capabilities which are still in their infancy and rollout and improve our mobile app. On CRM, we see -- we really see upside opportunities for us ultimately having more rich data about our past members and guests and being able to more effectively engage analyze behavior and tailor messages and offerings. On the mobile app, we are excited about our performance today. Our recently rolled out app, which is being used by an increasing number of guests in our parks and has been downloaded more than 5 million times. As of the end of April, the number of active users is over 20% compared to prior year, and the total revenue generated on the app is up over 200% compared to prior year. Mobile ordering has been expanded to additional restaurants and is now operating at approximately 70% of our target restaurants. Mobile orders have had a 26% higher average order volume compared to non-mobile orders. While we are happy with these early results, we see additional upside from continuing to improve the app experience and functionality and continue to expand mobile ordering capability across our portfolio. We are excited about the potential of the app and its ability to improve the in-park guest experience, drive increases in revenue, and decreases in costs. Third, as you know, we have strategically increased our parks specific ROI investments this year in an effort to drive incremental revenue and/or decreased cost through expanding, enhancing, and improving our food and beverage and retail offering, park infrastructure and aesthetics, and generally improving the guest experience in journey around our parks and facilities. Many of the new improved and/or enhanced venues will be opening as we move into the summer season and others will be opening over the course of the rest of the year. We're really excited for our guests to experience these new venues and improvements and we began to see the benefits of these important investments. Fourth, on the international front, as I have already discussed, we are thrilled with the coming opening of SeaWorld Abu Dhabi and continue to make good progress on discussions related to other international opportunities and expect to have more to share in coming quarters. Fifth, on the hotel front, we also continue to make progress with our plans that we discussed last quarter, and as we communicated last quarter, expect to have our first hotel open in 2025 followed by our second hotel in 2026. We are working on design and planning for those two hotels and on-site selection for additional hotels across our park portfolio. We very much look forward to sharing more specifics in future quarters on what we expect to be really exciting and value creating projects. Very excited about the significant investments we are making and the many initiatives we have underway across our business that we expect will improve the guest experience, allow us to generate more revenue, and make us more an efficient and more profitable enterprise. We are building an even stronger and more resilient business that we are confident will deliver improved operational and financial results and meaningful increases in shareholder value. Let me briefly comment on our balance sheet, which continues to be strong. Our March 31, 2023 net total leverage ratio is 2.7 times and we had approximately $426.4 million of total available liquidity, including $54.8 million of cash on the balance sheet in advance of us starting our summer season where we generate the majority of our cash flow. This strong balance sheet gives us flexibility to continue to invest in and grow our business and to opportunistically allocate capital with the goal to maximize long-term value for shareholders. Despite the uncertain times that we're living in our financial position is strong, our business is resilient, and our first quarter results, along with the coming opening of our ride attraction and event lineup, the opening of new and improved venues, and other park upgrades and enhancements, and all of the initiatives that we have underway give us high confidence in our ability to continue to deliver meaningful growth and new records in revenue and adjusted EBITDA for 2023. With that, Jim will discuss our financial results in more detail. Jim?

Thank you, Marc, and good morning, everyone. It's good to be back with you for another quarter. During the first quarter, we generated record total revenue of $293.3 million, an increase of $22.7 million or 8.4% when compared to the first quarter of 2022. The increase in revenue was due to an increase in total revenue per capita of 9.2%, partially offset by a decrease in attendance of 0.7%. The decrease in attendance was primarily due to adverse weather across a number of our markets, particularly at our California parks, including during peak visitation periods. Attendance was also likely impacted unfavorably by the timing of new rides and attraction openings in 2023 compared to 2022. Our pricing and product strategies continue to drive higher realized pricing resulting in record total revenue per capita in the quarter of $86.84 compared to $79.54 in the first quarter of 2022. This increase was driven by improvements in both admissions per capita and in-park per capita spending. Admission per capita increased by 9.4% to a record $48.51 and in-park per capita spending increased by 8.9% to a record $38.33 in the first quarter of 2023 compared to the first quarter of 2022. The increase in admission per capita was primarily due to the realization of higher prices in our admissions projects and products, resulting from our strategic pricing efforts along with the net impact of the admissions product mix when compared to the prior-year quarter. In-park per capita spending improved primarily due to an increase in revenue related to the company's international services agreements, along with the impact of pricing initiatives when compared to the first quarter of 2022. Operating expenses increased $19.7 million or 12.9% when compared to the first quarter of 2022. The increase in operating expenses is primarily due to an increase in costs associated with our international services agreements, increased labor-related costs due to more optimal staffing, and an increase in legal costs, including approximately $3.5 million related to the previously disclosed temporary COVID-19 park closures, partially offset by structural cost savings initiatives when compared to the first quarter of 2022. Selling, general and administrative expenses increased $2.2 million or 4.8% compared to the first quarter of 2022. The increase in selling, general and administrative expenses is primarily due to a $3.6 million increase in third-party consulting costs including one-time costs of $1.7 million, partially offset by decreased marketing-related costs along with the impact of cost savings and efficiency initiatives. We generated a net loss of $16.5 million for the first quarter, the second lowest ever for the first quarter compared to a net loss of $9 million in the first quarter of 2022. And we generated record adjusted EBITDA of $72.4 million, an increase of $6.5 million when compared to the first quarter of 2022. The improvement in adjusted EBITDA for the first quarter of 2023 was primarily driven by an increase in total revenue per capita, partially offset by an increase in expenses when compared to the first quarter of 2022. Now turning to our balance sheet. Our current deferred revenue balance as of the end of the first quarter was $212.8 million, an increase of approximately 2.3% when compared to March of 2022. At the end of April 2023, our pass base which includes all pass products accounting premium, Fun Card, teacher, and preschool was at near-record levels for this time of year and down only approximately 1% compared to April of 2022. We feel well positioned with the current status of our pass base with most of our new rides and attractions opening in the coming weeks and the peak advertising and selling season approaching. We are also quite pleased that we continue to realize double-digit price increases on our pass products compared to prior year. As Marc mentioned, we have a very strong balance sheet position. As of March 31, 2023, our total available liquidity was $426.4 million including $54.8 million of cash and cash equivalents on our balance sheet and $371.6 million available on our revolving credit facility. Cash flow from operations was $50.3 million for the first quarter of 2023. We spent $69.8 million on CapEx in the first quarter of 2023, of which approximately $56.3 million was on core CapEx and approximately $13.5 million was on expansion and/or ROI projects. For 2023 as our investment estimates have been refined and completion timelines solidified, we expect to spend approximately $160 million to $175 million on core CapEx. We plan to spend between $90 million and $100 million of CapEx on high-conviction growth and ROI projects. In total, we still expect to spend approximately $250 million to $275 million in CapEx for 2023. We are excited about our ability to make these high-confidence ROI investments and sincerely look forward to the benefits and returns from these investments flowing through to our financial results. Now, let me turn the call back over to Marc who will share some final thoughts. Marc?

Thank you, Jim. Before we open the call to your questions, I have some closing comments. In the first quarter of 2023 we came to the aid of 85 animals in need. Over our history, we have helped over 40,000 animals including bottlenose dolphins, manatees, sea lions, seals, sea turtles, sharks, birds, and more. I'm really proud of the team's hard work and their continued dedication to these important rescue efforts. I want to thank them and all our ambassadors for all they do to operate our parks. Also, I want to call out some recent awards received for some of our parks which underscore the quality of our assets and the enthusiasm for our parks and experiences. USA Today readers once again voted Aquatica Orlando as the Best Outdoor Water Park in the United States. They have voted the Mako Roller Coaster at SeaWorld Orlando as the best roller coaster in the United States. They have voted Tidal Surge at SeaWorld San Antonio as the best non-roller coaster ride, and they have voted Celtic Fyre live Irish step dancing at Busch Gardens, Williamsburg as the best theme park entertainment. Additionally, SeaWorld Orlando, Busch Gardens Tampa Bay, and Busch Gardens Williamsburg all placed in the Top 10 for best theme parks in the United States. The Iron Gwazi roller coaster at Busch Gardens Tampa Bay and the Emperor roller coaster at SeaWorld San Diego also placed in the Top 10 for best roller coasters in the United States, while Water Country USA in Williamsburg and Adventure Island in Tampa also placed in the Top 10 for Best Outdoor Water Parks in the United States. We are very proud that our parks are receiving this kind of recognition from readers of USA Today. We are certainly excited about 2023 with an exciting lineup of new rides, attractions, events, and new and improved in-park venues and offerings some of them opening in the coming weeks ahead as we start the busy summer season. We continue to believe there are significant additional opportunities to improve our execution, take advantage of clear growth opportunities, and continue to drive meaningful long-term growth in both revenue and adjusted EBITDA. We continue to have high confidence in our long-term strategy and in our ability to deliver significantly improved operating and financial results that we expect will lead to meaningfully increase value for stakeholders. Now, let's take your questions.

[Operator Instructions] Today's first question comes from Steve Wieczynski with Stifel. Please go ahead.

Yes. Hi, good morning, guys. Marc, so real quick, just first, a housekeeping question. Any idea in terms of the weather impact that you guys might have seen from an attendance standpoint? Is there any way you can kind of help us think about that or quantify that?

Yes. Hi, Steve. So I can help you with that. Obviously, the biggest impact was in California and I think you've heard our competitors talk about that as well. And that was over 100,000 in attendance lost alone just in California and then we have other markets, notably, Texas and Virginia, where we had some declines in weather. In fairness, we had a little bit better weather in a few spots. So when you net it all out, basically took us from being down 1% with the weather to probably up low-single digit percentages if you didn't have the weather impact.

Okay. That's perfect. Thanks for that, Marc. And then second question, obviously you had Abu Dhabi opening up in what a couple of weeks here and we're starting to get a lot of questions from investors about what this could look like from a return perspective. And just wondering if you could kind of help us and investors understand the flow through here. And how this is going to look in terms of the impact on the income statement, what the potential impacts it could have, and maybe what the ramp is going to look like? And look, maybe you guys aren't sure yet given the park hasn't opened, but just trying to get an understanding of how you're thinking about the financial impact of this new asset?

Sure. Well, we're really excited obviously about the park as I mentioned, opening here later this month. It is a licensing agreement and so we would share obviously some of the revenue and then a percent of the adjusted EBITDA. I would say, it's a little early, the parks not open right now as you mentioned, but I think you can expect that's going to likely deliver single digit millions this year and ramp accordingly on the go-forward basis obviously, depending on how popular the park is. We think it's a great park. I'm very excited for it. So I think over the longer term certainly it can expand from there. I think what you can expect us to do is as it gets opened and operating, we can provide some updates and some more details going forward, but certainly very excited about it.

So the impact this year you said kind of mid to upper single digit from an EBITDA perspective and then going forward, it should be higher than that?

Yes. Again, a little early to tell. I would probably model more in maybe the low to mid for this year. Just hard to know until we get it open. Low to mid-millions, sorry.

The next question comes from Mike Swartz with Truist Securities. Please go ahead.

Yes. Hi, good morning, guys. Just maybe a clarification question on deferred revenue in your season pass base. I think you said at the end of April. I'm just trying to do the math here, I think you said deferred revenue was up 2% at the end of the first quarter. You're seeing a double-digit increase in past products, then you're talking about the end of April, the pass base was only down 1%. So does that mean there is a pretty considerable uptick in season pass sales in the month of April? Am I reading that wrong?

Well, let me start and then if Jim wants to add anything he can. I think what we're seeing is, as Jim mentioned that, with the pass base down just about 1%. And remember that's versus a record last year of April of 2022 and without really many of our new rides open. So that -- the new rides are ahead of us and we think that's obviously a time that many people would look to buy a pass. So I think once we get those rides open and we would expect to see our pass base hopefully sales would be going up. Also, we'll have hopefully some more normalized weather. So the lack of weather and kind of the bad weather, I should say, and the rides not being open put a little bit of pressure on that number. So to be down 1% I think it's still a pretty good story with kind of the tailwinds ahead of us I think.

Yes. The only thing I would add, Marc is we did have a nice increase in our pass sales between March and April, which we are comfortable with. And on our deferred balance sheet for our deferred revenue, we did see an increase year-over-year respectable NORC in pass sales in our deferred revenue. So again, I think we're comfortable with where we are relative to our plan for the year.

Okay, perfect. That's helpful. And then just following up on the Abu Dhabi question prior. I think you had mentioned that that contributed to the in-park per caps in the first quarter. Any way to break out how much of the per cap, I think it was a 9% per cap growth is driven by those international agreements and is that how we should think about that revenue stream falling kind of in that in-park per cap number going forward? Would that'd be broken out a little differently or separately?

Yes, let me try to help you with that. So I think what you -- I would say there is about $5.5 million or so just over that in that number for the quarter. That's going to ebb and flow a little bit depending on obviously how the park performs and different things related to the revenue agreement. So hopefully that's a little bit of color. I won't necessarily model that in. Obviously, it's going to ebb and flow a little bit here on a go forward.

Okay. Thank you.

The next question comes from Phil Cusack with JPMorgan. Please go ahead.

Hi, one specific and one maybe bigger picture. The specific is, can you tell us more about the financing for your hotels, how do you think about owning and operating versus partnering with someone outside that will matter on the capital side, I imagine? And then a bigger picture question. What are the big levers you think to get back to record attendance? When you were at that record attendance and I know that was on a lot fewer potential, was it less competitive, was there more demand overall, do you think that the Blackfish issue is still weighing on the parks, how should we think about that? Thank you.

Yes. Hi, Phil, it's Marc. I can take that. So on the hotel financing, we don't have a final determination on that that we can share. So when we do, that's something that we can share on a go-forward basis. We're obviously excited about the hotel. We're one of the few in the industry that doesn't own our own hotels or have our own hotels. So we're excited for those possibilities. As far as the attendance of big picture what it takes to kind of get back to what we once did and I'll reference what we put out on some slides last quarter, we did over 25 million in attendance in 2008, which is probably what you're referencing and we're obviously several million less than that right now. So we -- I think we have to continue to do the things we're doing, make investments in our parks, and certainly you've seen and we have demonstrated that we are doing that. You heard Jim talk about some of the things we're doing for this year and you heard me talk about the rides and attractions. So continue to make investments in our parks, adding things like hotels, certainly, I think gives us -- should hopefully line up nicely with some tenants opportunities as well. We're refreshing venues in our parks. We've added more events to our parks. If I take back to where we once were. So trying to do things to drive more people. We have the CRM system, which we think still really learning how to use that. So there's -- I don't want to suggest that we've optimized that by any means. We have a lot of learning still to do on that and I think that can help drive our performance as well as we learn how to better utilize that. So those are some examples of things that we believe will drive us there. We've done a lot of work around conservation and rescue efforts and broadcasting those to people, we'll continue to do that. We know we need to do more of that. So I'm excited about the prospects on a go-forward basis. And also if you just think about it, the population of the United States continues to grow and we take our share of that. We're largely as you know, in markets that are I think very attractive from a population growth standpoint. When you're in states like Florida and Texas and California, Pennsylvania, Virginia, we like those locations. And so we feel poised that over the long term here we can begin to grow tenants and our goal is obviously to not only get back to what we once did but to do better than that.

Thanks, Marc. If I can follow up on the hotel. If you're going to open one in '25, I imagine breaking ground pretty soon is going to be important. Is there a time at which you're going to tell us about the financing side? Thank you.

What I can tell you is we will -- I think when we have more to share we will come back to you on that. We don't have anything to share right now.

Thanks again.

The next question is from James Hardiman with Citigroup. Please go ahead.

Hi. This is Sean Wagner on for James. I wonder if there's any quantification you can give on that ride timing that you called out, whether the first quarter hit from that or is there a benefit to 2Q as well that you can quantify?

Yes. Hi, Sean. So what I would tell you is kind of what I said in our prepared remarks. If you remember, last year we had a lot of the new rides were already opened in Q1. This year our ride opening is following kind of a more historically traditional opening time of right around Memorial Day or in that range into the summer. Obviously, so we would expect -- we build rides because we expect people will find them attractive and want to come and visit. So whatever what that lift ultimately ends up being still to be determined. But certainly, I think that would be a positive for the year going forward once we get these rides open. As I mentioned, a number of them are some of the most anticipated rides out there and should be a nice addition to our parks.

Yes. The only thing I would, Marc, we survey our guests periodically and know typically why they would come to our parks and we had a very good survey results last year for those rides we opened in 2022. We don't have that same level of detail on 2023, but we have a fair estimate that there was some impact and that's why we called that out.

Okay, understood. And is there any way we should think about operating expenses in SG&A this year, whether by growth rate or absolute numbers kind of what are the major pressure points there and how much of your savings that you've earmarked will come this year?

Well, let me just give you some high level thoughts on costs. I mean we have as you know a tremendous focus on costs. You heard me mention that. I think the team that is working on that has done a good job and is pacing well towards that $30 million to $50 million that we set out, we believe we're closer to the higher end of that. And that would include efforts around SG&A as well as OpEx. So we're going to -- I don't know that I have the exact number for you, obviously, we would like to target low single-digit expense growth. That's a good recipe over the long term. If we can grow our per caps and grow our attendance at single digits and then keep our costs in check by growing them at a lower -- at a low single-digit percentage as well that generally is a good recipe in this business. So that's what we would target. Hopefully, that's helpful.

Yes. Thank you very much.

The next question comes from Thomas Yeh with Morgan Stanley. Please go ahead.

Great. Thank you so much. Wanted to ask about group bookings. You mentioned some healthy recovery there from 2022 levels. Can you give us an update on where that stands relative to pre-COVID and maybe also just on international visitation compared to 2019, how that might be trending?

Yes, I can help you there. So let me start with international. I mean international was obviously up in Q1 versus 2022. It's still not up to 2019. So again, that is a reason to be optimistic in my opinion that we are still down roughly over 40% in Q1 to 2019 in international attendance. So we have more ground obviously to make up there. There's macro factors that you're obviously I'm sure aware of. There's things I'm sure we could be doing better as well. And so that's something that we're clearly working on. So that's a good opportunity I think for us. The group business is trending very well versus 2022. We have -- we're well ahead of kind of the typical pacing we would have this time of year and head in units versus 2022. Versus 2019, we're in line, if you will, it was still down slightly in Q1, but it's really close to being back to 2019 levels. The good news is we're driving more revenue out of the -- in most cases, the bookings we are doing.

Okay, makes sense. And then back on costs, any incremental color, and just maybe overall labor hours this year, how should we think about maybe just staffing levels and how that might look during peak season compared to last year? Is there an opportunity to kind of pull some stuff out with the tech initiatives that you're kind of putting in place?

Yes. I would say -- it's Jim. For overall labor hours, I think we feel comfortable that our staffing is somewhat improved in many of our areas. There's still a couple of pockets that we would like to see, especially in a few of our select locations. What is more comfortable to me is the recent labor rate from Department of Labor said that inflationary pressures was about 4.5% year-over-year, our labor rate has much less than that measurably less. And so I think we're pleased with, at least the labor expense side of the equation. Labor hours, we do have some initiatives in place to make ourselves more efficient. As mentioned last quarter, there are couple technology projects that we look forward to at our main entrances. We are doing some things with modifying our restaurants in the capital spend to make them more efficient. And we're also doing some very detailed labor hour analysis and making sure we've got the right labor at the right place, right time that will also moderate our labor hour growth year-over-year to support our expected attendance.

The next question comes from Eric Wold with B. Riley Securities. Please go ahead.

Thank you. Two questions. I guess, one just a follow-up on the last comment or last topic. You mentioned that you are at about 70% of the planned restaurants for mobile ordering. Can you get to a 100% this season, is that at '24 or maybe later plan and then what is the ultimate goal around that? Is the goal to actually drive reduced labor-staffing in those restaurants, when it's fully implemented or is the goal more on driving the higher basket sizes and purchases from consumers?

Yes. Hi, Eric. Let me give you just some high level comments and then Jim can fill in maybe on the timing that he talked about. Look, the goal with the mobile ordering in the app in general is of several fold. I mean, one is we want it to be a better experience for our guests. So certainly that's a key component of better guest experience with an app whether it's being able to order food or a quick queue or buy a reserve seat or have them app download whatever it may be, we like that from a guest satisfaction standpoint. We know clearly that people spend more when they're buying through the app. So that's another advantage. And then I guess the third thing would be, obviously some of these mobile order locations we believe we can staff more efficiently, and ultimately so we have lower costs. So it's a combination of all those things that I think are kind of the goal in the app. And then as far as how we're thinking about the target and the timing of that, you want to talk about that?

Yes. Sure, Marc. So as part of our capital spend that I mentioned, we do have a significant amount of that dedicated to changing our service style of our restaurants, and as part of that installing mobile ordering and retrofitting on those legacy restaurants. We will of course design new ones in the future to incorporate that. But that's going to be a multi-year project, we've got some very major restaurants and we're approaching the busy season. So we're somewhat limited in the ability to take down restaurants all at the same time to do some of these retrofits. So we'll do it methodically over 2023 and 2024 is our goal for that. As far as the labor, I would only add that while we are going to be more efficient, a lot of times when we're in constrained labor environment we're able to take the labor and move them to other locations -- other revenue generating areas, so that it also helps us to maximize revenue there.

Thank you. And then just a follow-up question and a question on obviously you're repurchasing a lot of shares over recent years, obviously, and the interest rates have moved higher. What point does the focus of excess capital shift towards reducing the debt, what would you see as the optimal ratio, leverage ratio over the coming years?

Yes. Hi, Eric. I mean, what I would tell you is, I mean, we're obviously comfortable where we are with the ratio we have now. We're at 2.7 times. Not that we wouldn't be comfortable lower than that or even higher than that, but we don't really guide to a target. What we do is work with our Board on what's the best use of cash and so we'll continue to do that going forward.

Thank you.

The next question comes from Ben Chaiken with Credit Suisse. Please go ahead.

Hi, how's it going? Last year, you highlighted a bucket of transitory inflation costs. When you look at the operating environment today, are those kind of transitory items you highlighted in '22 rolling off or is it pretty sticky versus what you were seeing last year? Thanks.

Yes. Ben, I would say that we continue to be mindful of the cost pressures we have seen moderation in many areas, like I mentioned already, about the labor. I think we're very pleased at our ability to manage labor rates either through a reduction in overtime hours of being more efficient or be more targeted at our labor rate growth allowance then a abroad shotgun approach we're very target on that. The other is with cost of sales. We've had very dedicated negotiations with our vendor partners to ensure we're getting the best pricing of that. So we've seen moderation there. I think going forward, we've sort of reset our rate close to that. We continue to look at some of our inflationary pressures. But in general, I think we were at a new fairly good baseline.

That's helpful. And then I think if I heard you correctly, I think you said you saw a nice step up in pass sales between March and April. Is it a fair assumption that this kind of correlates with some attendance trends you're seeing or was there something else? Thanks.

Well, I think what I would tell you is we're -- without commenting on attendance. I think we -- as we get closer to opening our rides and things like that, that's a driver. A lot of times people buying pass products and so we have those rides ahead of us, obviously.

Okay, thanks.

The next question comes from Chris Woronka with Deutsche Bank. Please go ahead.

Hi, good morning, guys. Thanks for all the details so far. I was hoping we could maybe drill down a little bit into the customer buckets or the segmentation and if we think about your presentation is local and then group and then international. And we're probably talking a little bit more about the Florida parks. Have you noticed any -- is there any delineation in I guess I would say, kind of in park spend among those groups or any change over the past three, six,nine9 months?

Look, I don't know that we're going to break that out or provide any more detail. I think what you can read into is obviously our per caps have been growing and for quarter over quarter for some time now, and that's with different -- so our levels of visiting in our parks throughout the year. So I think we're generally pleased with the spending that we're seeing across our parks and from the folks coming to visit our parks. There's a number of new things in our parks specifically here in Orlando that I think are compelling to people when they do visit whether they're a local or a tourist.

Okay, fair enough. Thanks, Marc. And then just follow up with Abu Dhabi now opening, is it licensing or perhaps joint venture thing is that's something that could be on the table domestically, whether it's for a larger park or even a smaller kind of sesame size things that is that something you never look at?

Well, look, without getting into specifics, I think what I can tell you is, we certainly entertain a lot of different things. And so we will continue to do that. So yes, I mean, the right opportunity, the right situation, we would certainly look at it, whether it's domestic or international.

Okay, very good. Thanks.

The last question today comes from Barton Crockett with Rosenblatt Securities. Please go ahead.

Okay. Thanks for squeezing me in. I wondered -- I was curious about the description of the cadence ride construction and a little bit of explanation about why things are starting later this year than last year. Is that by design, in other words, this is the optimal time to build and launch your new rides for best impact on the season or does this reflect maybe kind of labor markets and construction markets just not being quite as efficient or is open as they were last year when we were able to get things out sooner?

Yes. So, Barton, I can take that one. I mean, if you remember, most of the rides we opened in 2022 we had under construction during the COVID time period. So they were in a lot of cases fairly far along when COVID hit. You remember a lot of them were going to open in 2020 and got delayed due to COVID. So there was less kind of runway to have to complete those rides, which was a pretty big advantage and why we were able to open them earlier. Obviously, we're opening them now in many cases here in the coming weeks and that is a more like you said, kind of historically more traditional time to open new rides. I mean, just like any construction projects, we certainly have our challenges in certain rides with construction delays, whether it's weather impacted or labor whatever it may be. So you have a lot of different things. So we'll work through that and I'm excited that we're going to be delivering a compelling lineup for guests to enjoy as we move into the summer.

Okay, that's it. Thank you.

This concludes our question-and-answer session. I would now like to turn the call back to CEO, Marc Swanson for any closing remarks.

Thank you, MJ. On behalf of Jim and the rest of the management team at SeaWorld Entertainment, we want to thank you for joining us this morning. As you heard today, we are confident in our long-term strategy, which we believe will drive improved operating and financial results and long term value for stakeholders. Thank you. And we look forward to speaking with you next quarter.