- Establishes 2014 Third Quarter Guidance
and Updates 2014 Full Year Guidance -
Penn National Gaming, Inc. (PENN: Nasdaq):
Conference Call:
Today, July 24, 2014 at 10:00 a.m.
ET
Dial-in number:
212/231-2907
Webcast:
www.pngaming.com
Replay information provided
below
Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National
Gaming”, “Penn” or the “Company”) today reported second quarter
operating results for the three months ended June 30, 2014, as
summarized below.
Summary of Second Quarter
Results
(in millions, except per share data) Three
Months Ended
June 30,
2014 Actual 2014
Guidance (3) 2013 Actual Net revenues
(1) $ 652.1 $ 640.5
$ 761.4
Adjusted EBITDAR (1)
186.7 183.2
214.3 Rental expense related to Master Lease
(104.6 ) (104.3 )
-
Adjusted EBITDA (2)
82.1 78.9
214.3 Less: Impact of stock compensation, impairment
losses, insurance recoveries and deductible charges, depreciation
and amortization, gain/loss on disposal of assets, interest expense
- net, income taxes and other expenses (79.3 )
(73.4 ) (226.5 )
Net
income (loss) $ 2.8 $ 5.5
$ (12.2 )
Diluted earnings (loss) per
common share (4) $ 0.03 $
0.06 $ (0.16 ) (1) Adjusted EBITDAR is
adjusted EBITDA excluding rent expense associated with our Master
Lease with Gaming and Leisure Properties, Inc. (“GLPI”). Results
for the three months ended June 30, 2013 included net revenues of
$46.1 million and adjusted EBITDAR of $12.7 million related to
Hollywood Casino Perryville and Hollywood Casino Baton Rouge that
were contributed to GLPI on November 1, 2013 as part of the
spin-off. (2) Adjusted EBITDA is income (loss) from operations,
excluding the impact of stock compensation, impairment losses,
insurance recoveries and deductible charges, depreciation and
amortization and gain or loss on disposal of assets. Adjusted
EBITDA is also inclusive of income or loss from unconsolidated
affiliates, with our share of the non-operating items added back
for our joint venture in Kansas Entertainment, LLC (“Kansas
Entertainment”). A reconciliation of net income (loss) per
accounting principles generally accepted in the United States of
America (“GAAP”) to adjusted EBITDA and adjusted EBITDAR, as well
as income (loss) from operations per GAAP to adjusted EBITDA and
adjusted EBITDAR, is included in the accompanying financial
schedules. (3) The guidance figures in the table above present the
guidance Penn National Gaming provided on April 24, 2014 for the
three months ended June 30, 2014, adjusted to add back our share of
the impact of non-operating items for our joint venture in Kansas
Entertainment. (4) Since the Company reported a loss from
operations for the three months ended June 30, 2013, it was
required by GAAP to use basic weighted-average common shares
outstanding, rather than diluted weighted-average common shares
outstanding, when calculating diluted loss per common share.
Review of Second Quarter 2014 Results
vs. Guidance
Three Months Ended June 30, 2014
Pre-tax After-tax (in thousands)
Income, per guidance (1) $ 14,854 $ 5,494 EBITDA
variances: Positive operating segment variance excluding Argosy
Casino Sioux City 2,184 1,028 Argosy Casino Sioux City negative
variance (1,438 ) (891 ) Positive corporate overhead due to lower
liability based stock compensation 2,507
1,512 Total EBITDA variances from guidance 3,253
1,649 Impairment charge for Lawrenceburg vessel (4,560 )
(2,830 ) Other (617 ) (373 ) Tax variance -
(1,160 ) Income, as reported $ 12,930 $ 2,780
Three Months Ended June 30, 2014
2014 Guidance (1) Diluted earnings per common share $
0.03 $ 0.06 Argosy Casino Sioux City shortfall 0.01 - Liability
based stock compensation (0.02 ) - Impairment charge for
Lawrenceburg vessel 0.03 - Tax variance -
(0.02 )
Total $ 0.05 $ 0.04
(1) The guidance figures in the tables above present the
guidance Penn National Gaming provided on April 24, 2014 for the
three months ended June 30, 2014.
Timothy J. Wilmott, President and Chief Executive Officer of
Penn National Gaming, commented, “Second quarter consolidated
revenue, adjusted EBITDAR and adjusted EBITDA exceeded guidance as
our property-level operating results benefited from a somewhat more
stable operating environment and continued strong margins.
“Our Southern Plains and West segments generated slight
year-over-year improvements in adjusted EBITDAR margins despite
weaker than expected results at Argosy Casino Sioux City. Adjusted
EBITDAR margin for our East/Midwest segment declined by
approximately 100 basis points year-over-year as Hollywood Casino
at Charles Town Races and Hollywood Casino Lawrenceburg continued
to experience competitive pressures. We remain highly focused on
growing property-level adjusted EBITDAR as we actively manage
property level expenses, fine tune our gaming mix, continue to
build up customer databases at recently opened facilities, refine
marketing efforts and adjust food, beverage and entertainment
offerings. Reflecting these strategies to improve operating
efficiencies, consolidated second quarter 2014 adjusted EBITDAR
margin rose to 28.62%, representing a 47 basis point year-over-year
improvement.
“Excluding the operations of Argosy Casino Sioux City, Penn
National Gaming’s second quarter adjusted EBITDA from its operating
segments exceeded guidance by approximately $2.2 million. Net
income and diluted earnings per common share were impacted by a
higher tax rate and a one-time pre-tax charge of approximately $4.6
million which was not contemplated in guidance, related to our
decision to divest the former Hollywood Casino Lawrenceburg
riverboat. Once the vessel is sold, our annual carrying costs of
approximately $350,000 will be eliminated. In addition, with the
implementation of several new cost management measures, we are on
track to realize full year corporate overhead expense reductions of
approximately 21% after excluding $25 million of spin-off costs
incurred last year.
“Throughout the quarter we aggressively pursued our rights
through the Iowa courts to prevent the loss of jobs associated with
the near-term closure of Argosy Casino Sioux City. While we are
very disappointed by the decisions in Iowa to date, Argosy Casino
Sioux City was one of the Company’s smallest facilities in terms of
its annual adjusted EBITDA contribution. In addition, our previous
guidance did not include any earnings contribution from this
facility for the second half of 2014 and the closure will result in
a $6.2 million reduction in our annual rent pursuant to the Master
Lease with GLPI.
“Penn National Gaming is making continued progress on its
expansion and development pipeline, which we anticipate will
generate solid returns on invested capital while further
diversifying our broad-based property portfolio. Construction is
nearing completion on our Dayton and Austintown video lottery
terminal facilities in Ohio, which will feature 1,000 and 850
gaming devices, respectively. Pending final regulatory approval, we
have scheduled the grand opening of Hollywood Gaming at Dayton
Raceway for August 28 and expect to begin harness racing on the new
all-weather racetrack on October 3. Located in North Dayton and
convenient to both I-75 and I-70, Hollywood Gaming at Dayton
Raceway will offer guests a range of entertainment, dining and
pari-mutuel experiences in an exciting, high energy setting, as
well as a grandstand that includes more than 1,000 enclosed seats
and a simulcast theater.
“We are proud of the significant economic opportunities that we
are creating in Dayton and Austintown. With nearly 500 permanent
team members, Hollywood Gaming at Dayton Raceway will be a
significant regional employer and we believe the facility can serve
as a catalyst for additional economic development in the area. In
Austintown, we recently held a highly successful job fair and
continue to anticipate completing staffing and announcing a
September 2014 grand opening date shortly.
“In addition to the Dayton opening, on August 28, we also plan
to open our new, $26 million, 154 room hotel at Zia Park Casino. We
believe the addition of lodging at this facility will deliver
attractive returns on invested capital as it will offer an amenity
that will allow us to further build relationships with key
customers from eastern New Mexico and western Texas and extended
stays.
“In Massachusetts, construction is proceeding on our $225
million Plainridge Park Casino. During the quarter, the
Massachusetts Supreme Judicial Court issued a decision permitting a
referendum on the November statewide ballot that would repeal the
2011 gaming legislation. Current public opinion polls indicate that
Massachusetts voters recognize the importance of the gaming act and
that residents understand and appreciate the substantial economic
and employment benefits that gaming will bring to the state. We
intend to actively engage in a broad-based coalition effort to
support the gaming act and are continuing as planned with the
construction of our facility, which will generate 1,000
construction related jobs and employ over 500 people, of which 90%
are planned to be hired from the local area. We estimate that, by
the time of the referendum, Penn National will have invested
approximately $104 million in the project, inclusive of the $42
million purchase price and $25 million license fee. Overall, the
project represents a significant opportunity for Massachusetts, its
residents and our shareholders and we look forward to an
anticipated June 2015 opening of this facility.
“Construction is also underway on the $360 million Hollywood
Casino-branded facility on the Jamul Indian Village’s land in
trust, which is located approximately twenty miles east of downtown
San Diego, directly off of State Route 94. Hollywood Casino
Jamul-San Diego is expected to open in mid-2016 and would be the
closest casino to downtown San Diego. When complete, the property
will include a three-story gaming and entertainment facility of
approximately 200,000 square feet, over 1,700 slot machines, 50
live table games, multiple restaurants, bars and lounges and 1,900
parking spaces. As with all of our developments, the project is
expected to create significant new construction and permanent jobs
in the region and will enable the Jamul Indian Village of
California to become economically self-sufficient. Penn National
Gaming expects to participate in the success of the project through
management and branding fees, as well as interest payments on funds
advanced to develop the project.
“As previously announced, during the second quarter we formed a
strategic alliance with The Cordish Companies, developer and
operator of the highly successful Maryland Live!, to pursue the
development of ‘Live! Hotel & Casino New York,’ a world-class
gaming facility and resort proposed for Orange County, New York
with a budget in excess of $750 million. Our plans are expected to
include an upscale boutique hotel with over 300 rooms and luxury
suites; a destination spa and fitness center; over 3,000 slot
machines and more than 250 live table games; several marquee
restaurants including Bobby Flay Steak, Smorgasburg, The Cheesecake
Factory, Fornino, and Bobby’s Burger Palace; as well as a live
entertainment venue and a spacious conference center. The proposed
facility will be owned and managed by a 50/50 joint venture which
brings together two of the industry’s most financially sound
companies with proven gaming facility development and operations
skills as well as unrivalled records of developing and operating
highly successful regional gaming facilities in competitive
environments. Our proposal is one of 17 applications for up to four
casino licenses in three separate regions of New York State and
licenses are expected to be awarded later this year.
“Overall, second quarter results reflect our continued success
in efficiently operating our broadly diversified portfolio of new
and well-maintained regional gaming facilities. We believe our
proven management team, development pipeline and recently completed
new facility developments and property upgrades provide Penn
National Gaming with growth opportunities differentiated from our
peer group and we look forward to the near-term expansion of our
property portfolio with the opening of our newest facilities in
Dayton and Austintown this quarter.”
Development and Expansion Projects The table below
summarizes Penn National Gaming’s current facility development
projects:
Project/Scope
New
Gaming
Positions
Planned
Total
Budget
Amount
Expended
through
June 30,
2014
Expected
Opening
Date
(Unaudited, in
millions)
Zia Park Casino (NM) -
Addition of 154 room, five story hotel which will include six
suites, a breakfast room, a business center, meeting and exercise
rooms, as well as additional surface parking. -
$26 $15.3 Opening August 28, 2014
Dayton Raceway (OH) - Construction began in May
2013 at the site of an abandoned Delphi Automotive plant, with our
new Hollywood themed facility featuring a new 5/8 mile harness
racetrack and simulcasting and the ability to hold up to 1,500
video lottery terminals, as well as various restaurants, bars and
other amenities. 1,000 $165 (1) (2)
$15.9 Opening August 28, 2014
Mahoning
Valley Race Track (OH) - Construction began in May 2013 at
Austintown’s Centrepointe Business Park, with our new Hollywood
themed facility featuring a new one-mile thoroughbred racetrack and
simulcasting and the ability to hold up to 1,000 video lottery
terminals, as well as various restaurants, bars and other
amenities. 850 $161 (1) (2)
$15.9 September 2014
Plainridge Park Casino
(MA) - Construction is underway at the site of the Plainridge
Racecourse for our new gaming operation, which will be integrated
with the existing live harness racing and simulcasting, featuring
1,250 slot machines, as well as various dining and entertainment
options. 1,250 $225 (3)
$69.3 June 2015
Jamul Indian Village project
(CA) - Construction is underway at the site for this new Hollywood
Casino branded gaming operation which Penn will manage. The
facility is anticipated to feature over 1,700 slot machines, 50
live table games including poker, multiple restaurants, bars and
lounges. 2,100 $360 (4)
$24.1 Mid-2016
(1) Includes a relocation fee of $75
million based on the present value of the contractual obligation,
which is $7.5 million upon opening, and 18 additional semi-annual
payments of $4.8 million beginning one year after opening. For the
license fee, we paid $10 million in the second quarter of 2014,
which is included in the amount expended to date, and anticipate
paying the remaining license fee as follows: 1) $15 million upon
opening and 2) $25 million on the one year anniversary of the
commencement of gaming.
(2) GLPI is responsible for certain construction related real
estate costs associated with these projects that are not included
in the budgeted figures above. (3) Includes a $25 million license
fee, which was paid in March 2014 and $42 million purchase price,
both of which are included in the amount expended to date. (4) As
disclosed previously, this project will be accounted for as a loan.
Financial Guidance
Reflecting current operating trends, the table below sets forth
2014 third quarter and full year guidance targets for financial
results, based on the following assumptions:
- Horseshoe Baltimore opens in early
September 2014, impacting Hollywood Casino at Charles Town
Races;
- Miami Valley Gaming in Lebanon, Ohio,
opened in December 2013 and continues to impact Hollywood Casino
Lawrenceburg and Hollywood Casino Columbus;
- Belterra Park in Cincinnati, opened in
May 2014, impacts Hollywood Casino Lawrenceburg;
- Hollywood Gaming at Dayton Raceway
opens on August 28, 2014, impacting Hollywood Casino Columbus;
- Hollywood Gaming at Mahoning Valley
Race Track opens in September 2014;
- Operations at Argosy Casino Sioux City
cease in the near term;
- A full year contribution from the
Company’s management contract for Casino Rama;
- Full year 2014 rent expense of $419.3
million, with $104.0 million in the third quarter of 2014 which
contemplates additional rent related to the planned openings of
Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning
Valley Race Track and the closure of Argosy Casino Sioux City;
- Full year 2014 pre-opening expenses of
$8.2 million, with $5.4 million in the third quarter of 2014;
- Excludes costs that will be incurred
related to the November Massachusetts referendum;
- Depreciation and amortization charges
in 2014 of $178.7 million, with $39.0 million in the third quarter
of 2014;
- Estimated non-cash stock compensation
expenses of $10.4 million for 2014, with $2.7 million in the third
quarter of 2014;
- LIBOR is based on the forward yield
curve;
- A diluted share count of approximately
89.1 million shares for the full year 2014; and
- There will be no material changes in
applicable legislation, regulatory environment, world events,
weather, recent consumer trends, economic conditions, competitive
landscape (other than listed above) or other circumstances beyond
our control that may adversely affect the Company’s results of
operations.
(in millions, except per share data) Three Months
Ending September 30, Full Year Ending December
31, 2014 Guidance 2013
Actual
2014 Updated
Guidance
2014 Prior
Guidance (1)
2013 Actual Net revenues $ 633.5
$ 714.4 $ 2,547.8 $ 2,513.8
$ 2,918.8
Adjusted EBITDAR
164.4 185.0 690.9
686.2 776.1 Rental
expense related to Master Lease (104.0 )
- (419.3 ) (418.1 )
(69.5 )
Adjusted EBITDA 60.4
185.0 271.6
268.1 706.6 Less: Impact of
stock compensation, impairment losses, insurance recoveries and
deductible charges, depreciation and amortization, gain/loss on
disposal of assets, interest expense - net, income taxes, loss on
early extinguishment of debt and other expenses (55.1
) (143.7 ) (269.6 )
(257.7 ) (1,500.9 )
Net income (loss) $
5.3 $ 41.3 $ 2.0 $ 10.4
$ (794.3 )
Diluted earnings (loss) per
common share $ 0.06 $ 0.40 $
0.02 $ 0.12 $ (10.17 ) (1) The guidance
figures in the table above present the guidance Penn National
Gaming provided on April 24, 2014 for the full year ended December
31, 2014, adjusted to add back our share of the impact of
non-operating items for our joint venture in Kansas Entertainment.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Segment Information – Operations
(in thousands) (unaudited)
NET REVENUES ADJUSTED
EBITDAR Three Months Ended June 30, Three Months
Ended June 30, 2014 2013 2014
2013 East/Midwest (1) $ 361,357 $ 430,943 $ 112,309 $
138,394 West (2) 59,033 61,442 17,000 17,591 Southern Plains (3)
224,726 258,761 73,008 83,606 Other (4) 7,030 10,225
(15,647 ) (25,271 )
Total $
652,146 $ 761,371 $ 186,670
$ 214,320 NET
REVENUES ADJUSTED EBITDAR Six Months Ended June
30, Six Months Ended June 30, 2014 2013
2014 2013 East/Midwest (1) $ 710,805 $ 889,492 $
213,959 $ 285,939 West (2) 119,953 123,594 35,556 35,514 Southern
Plains (3) 448,483 527,105 146,949 168,312 Other (4) 13,985
19,426 (32,135 ) (51,838 )
Total
$ 1,293,226 $ 1,559,617 $
364,329 $ 437,927 (1)
The East/Midwest reportable segment consists of the
following properties: Hollywood Casino at Charles Town Races,
Hollywood Casino Bangor, Hollywood Casino at Penn National Race
Course, Hollywood Casino Lawrenceburg, Hollywood Casino Toledo and
Hollywood Casino Columbus. It also includes the Company’s Casino
Rama management service contract and the Mahoning Valley and Dayton
Raceway projects in Ohio, which the Company anticipates completing
in the third quarter of 2014, as well as the Plainville project in
Massachusetts, which the Company expects to open in the second
quarter of 2015. Current year results do not include results for
Hollywood Casino Perryville as it was contributed to GLPI on
November 1, 2013. This property had net revenues of $25.9 million
and $47.6 million and adjusted EBITDAR of $5.9 million and $9.3
million for the three and six months ended June 30, 2013,
respectively. Our East/Midwest segment results for the three and
six months ended June 30, 2014 included development costs of $1.6
million and $2.8 million, respectively, whereas results for the six
months ended June 30, 2013 included preopening charges of $0.2
million. (2) The West reportable segment consists of the
following properties: Zia Park Casino and the M Resort, as well as
the Jamul development project, which the Company anticipates
completing in mid-2016. (3) The Southern Plains reportable
segment consists of the following properties: Hollywood Casino
Aurora, Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino
Riverside, Argosy Casino Sioux City, Hollywood Casino Tunica,
Hollywood Casino Bay St. Louis, Boomtown Biloxi, and Hollywood
Casino St. Louis, and includes the Company’s 50% investment in
Kansas Entertainment, which owns the Hollywood Casino at Kansas
Speedway. Starting with the second quarter of 2014, adjusted EBITDA
and adjusted EBITDAR from our joint venture in Kansas Entertainment
exclude our share of the impact of non-operating items (such as
depreciation and amortization expense). The prior year amounts were
restated to conform to this new presentation. Additionally, current
year results do not include results for Hollywood Casino Baton
Rouge as it was contributed to GLPI on November 1, 2013. This
property had net revenues of $20.2 million and $41.1 million and
adjusted EBITDAR of $6.8 million and $13.7 million for the three
and six months ended June 30, 2013, respectively. (4) The
Other category consists of the Company’s standalone racing
operations, namely Beulah Park, Raceway Park, Rosecroft Raceway,
Sanford-Orlando Kennel Club, and the Company’s joint venture
interests in Sam Houston Race Park, Valley Race Park, and Freehold
Raceway, as well as the Company’s 50% joint venture with the
Cordish Companies in New York. Results in the prior year also
included the Company’s Bullwhackers property which was sold in July
2013. If the Company is successful in obtaining gaming operations
at these locations, they would be assigned to one of the Company’s
regional executives and reported in their respective reportable
segment. The Other category also includes the Company’s corporate
overhead costs, which was $14.4 million and $30.1 million for the
three and six months ended June 30, 2014, respectively, as compared
to corporate overhead costs of $25.7 million and $52.9 million for
the three and six months ended June 30, 2013, respectively.
Corporate overhead costs decreased by $11.3 million and $22.8
million for the three and six months ended June 30, 2014,
respectively, as compared to the corresponding period in the prior
year, primarily due to lower payroll costs of $4.0 million and $8.9
million primarily attributed to lower liability based stock
compensation charges of $1.9 million and $5.9 million, as well as
decreased compensation costs due to the fact that certain members
of Penn’s executive management team transferred their employment to
GLPI as part of the spin-off, lower spin-off transaction costs and
development costs of $4.3 million and $7.8 million, lower lobbying
costs of $1.3 million and $1.8 million, transition service fees
received from GLPI of $0.4 million and $1.2 million, and a
reduction in various other items due to cost containment measures.
Additionally, the Other category includes $0.9 million for the
three and six months ended June 30, 2014 in costs from our New York
joint venture.
Reconciliation of Net income (loss)
(GAAP) to Adjusted EBITDA and Adjusted EBITDAR
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended Six Months
Ended June 30, June 30, 2014
2013 2014 2013 Net income (loss)
$ 2,780 $ (12,180 ) $
7,317 $ 53,091 Income tax provision 10,150
38,567 16,950 81,334 Other 1,823 (2,402 ) 192 (3,066 ) Income from
unconsolidated affiliates (1,473 ) (3,821 ) (3,956 ) (5,542 )
Interest income (790 ) (343 ) (1,257 ) (605 ) Interest expense
10,892 27,060 22,187
54,984
Income from operations $
23,382 $ 46,881 $ 41,433
$ 180,196 Loss (gain) on disposal of assets 3 285 (47
) 2,675 Insurance deductible charges - 2,500 - 2,500 Impairment
losses 4,560 71,846 4,560 71,846 Charge for stock compensation
2,517 5,450 5,096 11,701 Depreciation and amortization 47,183
80,615 94,549 157,686 Income from unconsolidated affiliates 1,473
3,821 3,956 5,542 Non-operating items for Kansas JV 2,939
2,922 5,860 5,781
Adjusted EBITDA $ 82,057 $
214,320 $ 155,407 $ 437,927
Rental expense related to Master Lease 104,613
- 208,922 -
Adjusted
EBITDAR $ 186,670 $ 214,320
$ 364,329 $ 437,927
Reconciliation of Income (loss) from
operations (GAAP) to Adjusted EBITDA and Adjusted EBITDAR
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Segment Information (in thousands) (unaudited)
Three Months Ended June 30,
2014
East/Midwest West
Southern Plains Other Total
Income (loss) from operations $ 17,003 $ 7,426
$ 17,970 $ (19,017 )
$ 23,382
Charge for stock compensation - - - 2,517
2,517 Impairment
losses 4,560 - - -
4,560 Depreciation and amortization
25,911 1,692 17,573 2,007
47,183 (Gain) loss on disposal of
assets (30 ) - 39 (6 )
3 Income (loss) from unconsolidated
affiliates - - 2,621 (1,148 )
1,473 Non-operating items for
Kansas JV (1) - -
2,939 -
2,939
Adjusted EBITDA $ 47,444 $ 9,118
$ 41,142 $ (15,647 ) $
82,057 Rental expense related to Master Lease
64,865 7,882 31,866
-
104,613 Adjusted
EBITDAR $ 112,309 $
17,000 $ 73,008 $
(15,647 ) $ 186,670
Three Months Ended June 30,
2013
East/Midwest West
Southern Plains Other Total
Income (loss) from operations $ 97,819 $
14,260 $ (30,619 ) $ (34,579 )
$
46,881 Charge for stock compensation - - - 5,450
5,450 Impairment losses - - 71,846 -
71,846 Insurance
deductible charges - - 2,500 -
2,500 Depreciation and
amortization 40,469 3,321 32,730 4,095
80,615 Loss (gain) on
disposal of assets 106 10 180 (11 )
285 Income (loss) from
unconsolidated affiliates - - 4,047 (226 )
3,821
Non-operating items for Kansas JV (1) -
- 2,922 -
2,922 Adjusted EBITDA $
138,394 $ 17,591 $
83,606 $ (25,271 )
$ 214,320
Six Months Ended June 30, 2014
East/Midwest West
Southern Plains Other Total
Income (loss) from operations $ 26,605 $
15,482 $ 39,197 $ (39,851 )
$
41,433 Charge for stock compensation - - - 5,096
5,096 Impairment losses 4,560 - - -
4,560
Depreciation and amortization 52,734 3,241 34,824 3,750
94,549 (Gain) loss on disposal of assets (117 ) 65 17 (12 )
(47 ) Income (loss) from unconsolidated affiliates -
- 5,074 (1,118 )
3,956 Non-operating items for Kansas JV (1)
- - 5,860
-
5,860
Adjusted EBITDA 83,782 18,788 84,972
(32,135 ) 155,407 Rental expense related to
Master Lease 130,177 16,768
61,977 -
208,922 Adjusted EBITDA $
213,959 $ 35,556 $
146,949 $ (32,135 )
$ 364,329
Six Months Ended June 30, 2013
East/Midwest West
Southern Plains Other Total
Income (loss) from operations $ 203,646 $
26,307 $ 21,419 $ (71,176 )
$
180,196 Charge for stock compensation - - - 11,701
11,701 Impairment losses - - 71,846 -
71,846
Insurance deductible charges - - 2,500 -
2,500 Depreciation
and amortization 82,157 6,627 60,714 8,188
157,686 Loss
(gain) on disposal of assets 136 2,580 268 (309 )
2,675
Income (loss) from unconsolidated affiliates - - 5,784 (242 )
5,542 Non-operating items for Kansas JV (1) -
- 5,781 -
5,781 Adjusted EBITDA $
285,939 $ 35,514 $
168,312 $ (51,838 )
$ 437,927 1) Starting with the second
quarter of 2014, adjusted EBITDA and adjusted EBITDAR from our
joint venture in Kansas Entertainment exclude our share of the
impact of non-operating items (such as depreciation and
amortization expense). Prior periods were restated to conform to
this new presentation.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Consolidated Statements of
Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, Six
Months Ended June 30, 2014 2013
2014 2013 Revenues Gaming $
576,158 $ 679,829 $ 1,146,841 $ 1,397,754 Food, beverage and other
110,574 121,044 215,444 242,904 Management service fee 3,105
3,667 5,563 6,714
Revenues 689,837 804,540 1,367,848 1,647,372 Less promotional
allowances (37,691 ) (43,169 ) (74,622 )
(87,755 ) Net revenues 652,146 761,371
1,293,226 1,559,617
Operating expenses Gaming 284,107 341,889 570,184 703,907
Food, beverage and other 80,403 88,910 157,941 179,175 General and
administrative 107,898 128,730 215,637 264,307 Rental expense
related to Master Lease 104,613 - 208,922 - Depreciation and
amortization 47,183 80,615 94,549 157,686 Impairment losses 4,560
71,846 4,560 71,846 Insurance deductible charges -
2,500 - 2,500 Total
operating expenses 628,764 714,490
1,251,793 1,379,421 Income from
operations 23,382 46,881 41,433
180,196
Other income (expenses)
Interest expense (10,892 ) (27,060 ) (22,187 ) (54,984 ) Interest
income 790 343 1,257 605 Income from unconsolidated affiliates
1,473 3,821 3,956 5,542 Other (1,823 ) 2,402
(192 ) 3,066 Total other expenses
(10,452 ) (20,494 ) (17,166 ) (45,771 )
Income from operations before income taxes 12,930 26,387
24,267 134,425 Income tax provision 10,150
38,567 16,950 81,334
Net
income (loss) $ 2,780 $ (12,180 ) $ 7,317 $
53,091
Earnings (loss) per common share: Basic
earnings (loss) per common share $ 0.03 $ (0.16 ) $ 0.08 $ 0.55
Diluted earnings (loss) per common share $ 0.03 $ (0.16 ) $ 0.08 $
0.51
Weighted-average common shares outstanding:
Basic 78,458 78,306 78,189 77,932 Diluted 88,936 78,306 88,813
103,932
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Supplemental information
(in thousands) (unaudited)
June 30, 2014 December
31, 2013 Cash and cash equivalents $ 251,299 $ 292,995
Bank Debt $ 735,110 $ 748,777 Notes 300,000 300,000 Other
long term obligations 20,689 (1) 2,015 Total Debt (2)
$ 1,055,799 $ 1,050,792 1) Other long term obligations
include contingent purchase price consideration measured at its
estimated fair value of $18.5 million that is payable over ten
years to the previous owners of Plainridge Racecourse. 2) Although
our joint venture in Kansas Entertainment is accounted for as an
equity method investment and is not consolidated, this joint
venture had no debt outstanding at June 30, 2014 or December 31,
2013.
During the second quarter of 2014, Penn refined its definition
of adjusted EBITDA and adjusted EBITDAR to add back our share of
the impact of non-operating items (such as depreciation and
amortization) at our joint ventures which have gaming operations.
At this time, Kansas Entertainment, the operator of Hollywood
Casino at Kansas Speedway, is Penn’s only joint venture that meets
this definition. Kansas Entertainment does not currently have, nor
has it ever had, any indebtedness. Attached below is a quarterly
summary of the Company’s historical and revised adjusted EBITDA
that Penn reported over the past five quarters.
Three months ended March 31, 2014
December 31, 2013 September 30, 2013
June 30, 2013 March 31, 2013
Adjusted EBITDA as historically reported $ 70,429 $ 80,779 $
182,070 $ 211,398 $ 220,748 Non-operating items for Kansas
JV 2,921 2,913 2,902 2,922 2,859
Adjusted EBTIDA as revised $ 73,350 $ 83,692 $ 184,972 $ 214,320 $
223,607
Diluted Share Count Methodology
In connection with the spin-off, Penn National Gaming completed
its exchange and repurchase transaction with an affiliate of
Fortress Investment Group, LLC (“Fortress”) on October 11, 2013,
which resulted in the repurchase of $627 million of its Series B
Preferred Stock and the issuance of 8,624 shares of Series C
Preferred Stock, which is equivalent to 8,624,000 common shares
upon sale by Fortress to a third party.
Reconciliation of GAAP to Non-GAAP Measures
Adjusted EBITDA and adjusted EBITDAR are used by management as
the primary measure of the Company’s operating performance. We
define adjusted EBITDA as earnings before interest, taxes, stock
compensation, debt extinguishment charges, impairment charges,
insurance recoveries and deductible charges, depreciation and
amortization, gain or loss on disposal of assets, and other income
or expenses. Adjusted EBITDA is also inclusive of income or loss
from unconsolidated affiliates, with our share of non-operating
items (such as depreciation and amortization) added back for our
joint venture in Kansas Entertainment. Adjusted EBITDAR is adjusted
EBITDA excluding rent expense associated with our Master Lease
agreement with GLPI. Adjusted EBITDA and adjusted EBITDAR have
economic substance because they are used by management as a
performance measure to analyze the performance of our business, and
are especially relevant in evaluating large, long-lived casino
projects because they provide a perspective on the current effects
of operating decisions separated from the substantial
non-operational depreciation charges and financing costs of such
projects. We also present adjusted EBITDA and adjusted EBITDAR
because they are used by some investors and creditors as an
indicator of the strength and performance of ongoing business
operations, including our ability to service debt, fund capital
expenditures, acquisitions and operations. These calculations are
commonly used as a basis for investors, analysts and credit rating
agencies to evaluate and compare operating performance and value
companies within our industry. In addition, gaming companies have
historically reported adjusted EBITDA as a supplement to financial
measures in accordance with GAAP. In order to view the operations
of their casinos on a more stand-alone basis, gaming companies,
including us, have historically excluded from their adjusted EBITDA
calculations certain corporate expenses that do not relate to the
management of specific casino properties. However, adjusted EBITDA
and adjusted EBITDAR are not a measure of performance or liquidity
calculated in accordance with GAAP. Adjusted EBITDA and adjusted
EBITDAR information is presented as a supplemental disclosure, as
management believes that it is a widely used measure of performance
in the gaming industry, is the principal basis for the valuation of
gaming companies, and that it is considered by many to be a better
indicator of the Company’s operating results than net income (loss)
per GAAP. Management uses adjusted EBITDA and adjusted EBITDAR as
the primary measures of the operating performance of its segments,
including the evaluation of operating personnel. Adjusted EBITDA
and adjusted EBITDAR should not be construed as alternatives to
operating income, as indicators of the Company’s operating
performance, as alternatives to cash flows from operating
activities, as measures of liquidity, or as any other measures of
performance determined in accordance with GAAP. The Company has
significant uses of cash flows, including capital expenditures,
interest payments, taxes and debt principal repayments, which are
not reflected in adjusted EBITDA and adjusted EBITDAR. It should
also be noted that other gaming companies that report adjusted
EBITDA information may calculate adjusted EBITDA in a different
manner than the Company and therefore, comparability may be
limited.
A reconciliation of the Company’s net income (loss) per GAAP to
adjusted EBITDA and adjusted EBITDAR, as well as the Company’s
income (loss) from operations per GAAP to adjusted EBITDA and
adjusted EBITDAR, is included above. Additionally, a reconciliation
of each segment’s income (loss) from operations to adjusted EBITDA
and adjusted EBITDAR is also included above. On a segment level,
income (loss) from operations per GAAP, rather than net income
(loss) per GAAP is reconciled to adjusted EBITDA and adjusted
EBITDAR due to, among other things, the impracticability of
allocating interest expense, interest income, income taxes and
certain other items to the Company’s segments on a segment by
segment basis. Management believes that this presentation is more
meaningful to investors in evaluating the performance of the
Company’s segments and is consistent with the reporting of other
gaming companies.
Conference Call, Webcast and Replay Details
Penn National Gaming is hosting a conference call and
simultaneous webcast at 10:00 am ET today, both of which are open
to the general public. The conference call number is 212/231-2907.
Please call five minutes in advance to ensure that you are
connected prior to the presentation. Questions will be reserved for
call-in analysts and investors. Interested parties may also access
the live call on the Internet at www.pngaming.com. Please allow 15
minutes to register and download and install any necessary
software. A replay of the call can be accessed for thirty days on
the Internet at www.pngaming.com.
This press release, which includes financial information to be
discussed by management during the conference call and disclosure
and reconciliation of non-GAAP financial measures, is available on
the Company’s web site, www.pngaming.com in the “Investors” section
(select link for “Press Releases”).
About Penn National Gaming
Penn National Gaming owns, operates or has ownership interests
in gaming and racing facilities with a focus on slot machine
entertainment. At June 30, 2014, the Company operated twenty-seven
facilities in eighteen jurisdictions, including Florida, Illinois,
Indiana, Iowa, Kansas, Maine, Massachusetts, Maryland, Mississippi,
Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania,
Texas, West Virginia, and Ontario. At June 30, 2014, in aggregate,
Penn National Gaming’s operated facilities featured approximately
30,900 gaming machines, 790 table games and 2,900 hotel rooms.
Forward-looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements can be identified by the use of forward
looking terminology such as “expects,” “believes,” “estimates,”
“projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should” or
“anticipates” or the negative or other variations of these or
similar words, or by discussions of future events, strategies or
risks and uncertainties, including future plans, strategies,
performance, developments, acquisitions, capital expenditures, and
operating results. Actual results may vary materially from
expectations. Although the Company believes that our expectations
are based on reasonable assumptions within the bounds of our
knowledge of our business, there can be no assurance that actual
results will not differ materially from our expectations.
Meaningful factors that could cause actual results to differ from
expectations include, but are not limited to, risks related to the
following: our ability to obtain timely regulatory approvals
required to own, develop and/or operate our facilities, or other
delays or impediments to completing our planned acquisitions or
projects, including favorable resolution of any related litigation,
including the ongoing appeal by the Ohio Roundtable addressing the
legality of video lottery terminals in Ohio and litigation against
the Ohio Racing Commission concerning opposition to relocating the
Company’s Toledo racetrack to the Dayton area; our ability to
secure federal, state and local permits and approvals necessary for
our construction projects; construction factors, including delays,
unexpected remediation costs, local opposition, organized labor,
and increased cost of labor and materials; our ability to maintain
agreements with our horsemen, pari-mutuel clerks and other
organized labor groups; with respect to the proposed Jamul project
near San Diego, California, particular risks associated with
financing a project of this type, sovereign immunity, local
opposition (including several pending lawsuits), and building a
complex project on a relatively small parcel; the passage of state,
federal or local legislation (including referenda) that would
expand, restrict, further tax, prevent or negatively impact
operations in or adjacent to the jurisdictions in which we do or
seek to do business (such as a smoking ban at any of our
facilities); with respect to our Massachusetts project, the
ultimate location of the other gaming facilities in the state and,
more significantly, the outcome of the referendum to repeal the
gaming legislation in Massachusetts which could result in
substantial litigation as well as a significant loss to our
investment in the state; with respect to our joint venture project
in New York, risks related to our ability to secure local support
for our site, licensing from the state and the extent and location
of other applications and competition; the effects of local and
national economic, credit, capital market, housing, and energy
conditions on the economy in general and on the gaming and lodging
industries in particular; the activities of our competitors and the
rapid emergence of new competitors (traditional, internet and
sweepstakes based and taverns); increases in the effective rate of
taxation at any of our properties or at the corporate level; our
ability to identify attractive acquisition and development
opportunities and to agree to terms with partners/municipalities
for such transactions; the costs and risks involved in the pursuit
of such opportunities and our ability to complete the acquisition
or development of, and achieve the expected returns from, such
opportunities; our expectations for the continued availability and
cost of capital; the outcome of pending legal proceedings; changes
in accounting standards; our dependence on key personnel; the
impact of terrorism and other international hostilities; the impact
of weather; and other factors as discussed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013,
subsequent Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, each as filed with the United States Securities and
Exchange Commission. The Company does not intend to update publicly
any forward-looking statements except as required by law. In light
of these risks, uncertainties and assumptions, the forward-looking
events discussed in this press release may not occur.
Penn National Gaming, Inc.Saul V. Reibstein, 610-401-2049Chief
Financial OfficerorJCIRJoseph N. Jaffoni / Richard Land,
212-835-8500penn@jcir.com
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