- Establishes 2016 Fourth Quarter Guidance
and Updates 2016 Full Year Guidance -
Penn National Gaming, Inc. (PENN: Nasdaq):
Conference Call:
Today, October 27, 2016 at 9:00 a.m.
ET
Dial-in number:
212/231-2922
Webcast:
www.pngaming.com
Replay information provided
below
Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National
Gaming,” “Penn National,” “Penn,” or the “Company”) today reported
operating results for the three months ended September 30, 2016, as
summarized below.
Summary of Third Quarter
Results
(in millions, except per share data)
Three Months Ended September
30,
2016 Actual 2016 Guidance (2)
2015 Actual Net revenues $ 765.6
$ 767.3 $ 739.3
Net income $ 46.5 $
26.3 $ 4.9
Plus: Impact of stock compensation,
non-operating items forKansas JV, depreciation and amortization,
changes in theestimated fair value of contingent purchase price,
gain/loss ondisposal of assets, interest expense - net, income
taxes, andother expenses
164.8 186.0 205.4
Adjusted EBITDA (1) $ 211.3 $ 212.3 $
210.3
Diluted
earnings per common share $ 0.51 $ 0.29 $
0.05 (1) Adjusted EBITDA is income from
operations, excluding the impact of stock compensation, impairment
charges, insurance recoveries and deductible charges, depreciation
and amortization, changes in the estimated fair value of the
contingent purchase price payable to the previous owners of
Plainridge Racecourse 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” or “Kansas JV”). Adjusted EBITDA excludes
payments pursuant to the Company’s Master Lease (the “Master
Lease”) with Gaming and Leisure Properties, Inc. (“GLPI”), as the
transaction is accounted for as a financing obligation. Payments to
GLPI totaled $109.7 million and $109.0 million for the three months
ended September 30, 2016 and 2015, respectively. (2) The
guidance figures in the table above present the guidance Penn
National Gaming provided on July 28, 2016 for the three months
ended September 30, 2016.
Review of Third Quarter 2016 Results vs. Guidance
Three Months Ended September 30, 2016
Pre-tax After-tax (in thousands)
(unaudited) Income, per guidance (1) $ 31,305 $ 26,347
Adjusted EBITDA variances: Operating segment variance (6,148
) (3,769 ) Rocket Games acquisition, net of impact from delayed
opening of Jamul 942 600 Cash-settled stock-based awards variance
1,829 1,165 Other variance, primarily corporate overhead costs
2,347 1,496 Total Adjusted
EBITDA variances from guidance (1,030 ) (508 ) Insurance
gain on Alton flood 726 459 Foreign currency translation gains 371
235 Interest expense variance, mainly due to lower variable rent on
Columbus and Toledo 697 444 Gain on disposal of assets variance,
primarily due to Rosecroft sale 1,049 668 Interest income variance
related to Advances to Jamul Tribe 3,610 2,300 Other 334 205 Tax
variance primarily related to discrete items (2) -
16,385 Income, as reported $ 37,062
$ 46,535 (1) The guidance figure in the
table above presents the guidance Penn National Gaming provided on
July 28, 2016 for the three months ended September 30, 2016.
(2) Includes $12.0 million tax benefit for valuation allowance
reversals associated with deferred tax liabilities recorded on
intangibles in acquisition of Rocket Games, Inc. as well as a
favorable tax settlement for $9.8 million associated with certain
reserves.
Timothy J. Wilmott, President and Chief Executive Officer,
commented, “Third quarter regional gaming industry trends were
largely similar to the second quarter. Quarterly adjusted EBITDA of
$211.3 million was slightly below guidance as shortfalls at certain
properties were almost offset by lower corporate overhead and stock
based compensation expenses and initial contributions from Rocket
Games which we acquired in August. Although the delay in opening
Hollywood Casino Jamul – San Diego negatively impacted adjusted
EBITDA, it also resulted in additional interest income from our
loan with the Jamul Tribe.
“During the third quarter we continued to generate significant
cash flow from our operations, while we advanced $65.7 million for
the construction of Hollywood Casino Jamul – San Diego, and made an
initial payment of $60 million for Rocket Games. Reflecting this
activity and proceeds from the sale of Rosecroft Raceway,
traditional debt at September 30, 2016 was $1.67 billion, or $3
million higher than June 30, 2016 and $40.0 million lower than at
December 31, 2015. Penn National has significantly reduced its
leverage levels since the end of the third quarter as we announced
last week that the Company applied approximately $274 million
against our outstanding revolving credit facility resulting from
the proceeds received from the Jamul Tribe’s recent refinancing
transaction. Pro forma for the recent debt repayments, our total
adjusted EBITDA to GAAP debt leverage ratio at September 30 was
approximately 5.76x compared to 6.62x at December 31, 2015.
Reflecting the refinancing transaction, Penn National’s advances to
the Jamul Tribe have been reduced to a Term Loan C facility of up
to $108 million and a Term Loan C delayed draw commitment of up to
$15 million. These loans accrue interest at LIBOR (at a 1% floor)
plus 8.50%. Now that the project is operational, we will begin to
receive both principal and interest payments on these advances.
“In the third quarter, consistent with other businesses
dependent on consumer discretionary spending, the regional gaming
industry continued to experience uneven performance as a result of
what we believe to be a combination of macroeconomic factors and an
uncertain political landscape. During the quarter, rated player
visits and spend per visit, which accounts for approximately 65% of
play at our facilities, were stable though partially offset by
unrated customer segment softness in several of our key markets.
Notwithstanding this environment, we largely maintained third
quarter operating segment and consolidated EBITDA margins as we
lowered corporate expenses by $0.8 million on a year-over-year
basis, excluding the variation in cash settled stock based
compensation expense.
“Adjusted EBITDA margin growth in the Northeast segment
reflected continued improvements at Plainridge Park and three of
our four Ohio properties, while Hollywood Casino Toledo faced
challenges related to significant road construction on the
interstate to the property’s north and south. The adjusted EBITDA
margin decline in the South/West segment stems largely from two
properties -- one in New Mexico where visitation is being
significantly impacted by ongoing softness in the local oil markets
and the other by new competition in Mississippi -- which together
offset continued strength in our Las Vegas market operations. While
adjusted EBITDA margin fell slightly year over year in the Midwest
segment due mostly to a full quarter of lower margin, yet growing,
retail gaming operations, adjusted EBITDA from this segment showed
growth from year ago levels largely due to strength in Missouri and
the addition of Prairie State Gaming.
“Third quarter results reflect meaningful contributions from our
recent expansion and diversification investments, including
Plainridge Park Casino, Tropicana Las Vegas, Prairie State Gaming
and Rocket Games. During the quarter we continued to strategically
expand and diversify our revenue and adjusted EBITDA mix by
focusing on growth platforms that complement and leverage our core
regional gaming success and database of over three million active
customers. Rocket Games is an attractive addition to the Company’s
Penn Interactive Ventures operations, which are profitable, growing
and provide synergies to our casino business.
“Hollywood Casino Jamul – San Diego, developed for the Jamul
Indian Village of California (“JIV” or the “Tribe”), opened early
in the fourth quarter. This beautiful three-story gaming and
entertainment facility elevates the design and luxury of our
Hollywood brand to new levels and has the closest proximity to
downtown San Diego relative to other gaming offerings. With the
opening -- and the addition of fees resulting from the management
contract, licensing agreement and interest income from our
continued role as a lender -- Penn National has further diversified
its cash flows, which we intend to utilize to further reduce
leverage throughout 2017 before the expected commencement of the
Phase II capital investment program at Tropicana Las Vegas late
next year.
“Since last summer’s acquisition of Tropicana Las Vegas, we made
meaningful progress with our Phase I investments serving to make
the property both more profitable and more attractive to players.
The upgrades include a wide range of facility and operational
improvements intended to leverage the property’s high quality room
base, further improve the overall customer experience and provide
for a refreshed gaming floor that features new slots, improved
merchandising and refinements to the table game mix. We
successfully launched our Marquee Rewards player loyalty program at
the property earlier this year which has reduced our reliance on
the less profitable leisure and wholesale hotel segments. Phase I
upgrades also enabled us to partner with Food Network celebrity
chef Robert Irvine, who will open his first signature restaurant on
the Las Vegas Strip at Tropicana Las Vegas in 2017.
“We continue to develop a Phase II master plan for the property
that we expect will include additional food, beverage, retail,
entertainment and other non-gaming amenities and enhancements. The
plan seeks to further leverage returns from our 35 acres of
property and Strip frontage and is predicated on generating strong
near- and long-term returns. We continue to believe that with our
initial $360 million purchase price that we are well positioned to
create an important source of growth for Penn National based on the
quality of the asset and room base, our progress to date in
generating improved financial results, the successful application
of our player loyalty program to improve the effectiveness of our
hotel yielding strategies and the recent developments on the south
end of the Strip.
“While we are encouraged by this month’s opening in San Diego
and the economic contributions from other recent growth
initiatives, our current outlook and guidance for the fourth
quarter contemplates a continuation of the trends experienced
to-date in 2016, reasonable expectations for our newest facilities
ramping to their potential, and a realistic view of the impact of
new competition on Hollywood Casino at Charles Town Races. With
continued progress throughout 2016 in generating strong free cash
flow while actively and conservatively managing our capital
structure to de-lever and provide the financial flexibility to
support our near- and long-term growth initiatives, we believe Penn
National is well positioned to benefit from improvements in
consumer spending and to take advantage of opportunities for new
growth opportunities.”
Development and Expansion ProjectsThe table below
summarizes Penn National Gaming’s ongoing development
project:
Project/Scope
New Gaming
Positions
Planned Total
Budget
Amount
ExpendedthroughSeptember 30,2016
Date Opened
(in millions) (unaudited)
Jamul Indian Village project (CA) - Opened
our new Hollywood Casinobranded gaming operation, which Penn
manages, on Oct 10, 2016. Thefacility features over 1,731 slot
machines, 40 live table games, multiplerestaurants, bars and
lounges.
1,951 $407 (1) $326.0 October 10, 2016
(1)
As disclosed previously, funds advanced
for this project are accounted for as a loan. The budget and
expended amounts exclude the purchase of a $60 million subordinated
promissory note from the previous developer of the project during
the fourth quarter of 2015 for $24 million. Increase of $17 million
from 2nd Qtr 2016 primarily due to $10 million cost increase in
Offsite Improvements and $7 million is additional preopening costs
due to delay in opening from August to October.
Financial Guidance
Reflecting the current operating and competitive environment,
the table below sets forth 2016 fourth quarter and full year
guidance targets for financial results based on the following
assumptions:
- MGM National Harbor opens December 8,
2016 impacting Hollywood Casino at Charles Town Races;
- A full year contribution from the
Company’s management contract for Casino Rama;
- Full year corporate overhead expenses
of $74.2 million, with $23.0 million to be incurred in the fourth
quarter of 2016;
- Includes the impact of charges
associated with the Transition Services Agreement for our Chief
Financial Officer which reduced adjusted EBITDA by $1.4 million and
increased stock based compensation expense by $0.9 million in the
fourth quarter of 2016;
- Depreciation and amortization charges
in 2016 of $266.6 million, with $66.5 million in the fourth quarter
of 2016, which includes depreciation expense related to real
property leased from GLPI;
- Payments to GLPI of $442.7 million in
2016, with $110.8 million in the fourth quarter of 2016, which will
reduce our September 30, 2016, financing obligation by $12.6
million at December 31, 2016 with the remaining payments recorded
as interest expense;
- Our rent coverage ratio for year three
of the Master Lease at September 30, 2016 is 1.83 and we expect to
incur a rent escalation of $4.8 million at October 31, 2016, which
is the conclusion of year three of the Master Lease, of which $0.8
million will be incurred in 2016 and is reflected in interest
expense;
- Interest expense in 2016 of $459.6
million, with $114.0 million in the fourth quarter of 2016, which
includes the interest expense related to the Master Lease financing
obligation with GLPI;
- Our share of non-operating items (such
as depreciation and amortization expense) associated with our
Kansas JV will total $10.3 million for 2016, with $2.6 million to
be incurred in the fourth quarter of 2016;
- Estimated non-cash stock compensation
expenses of $7.5 million for 2016, with $3.0 million to be incurred
in the fourth quarter of 2016;
- LIBOR is based on the forward yield
curve;
- A diluted share count of approximately
91.2 million shares for the full year 2016; and
- There will be no material changes in
applicable legislation, regulatory environment, world events,
weather, recent consumer trends, economic conditions, oil prices,
competitive landscape (other than listed above) or other
circumstances beyond our control that may adversely affect the
Company’s results of operations.
Three Months Ending December 31, Full Year
Ending December 31,
2016
Guidance
2015
Actual
2016
RevisedGuidance
2016
PriorGuidance (1)
2015 Actual (in millions, except per
share data) Net revenues $ 748.3 $
734.0 $ 3,039.8 $ 3,030.5
$ 2,838.4 Net income $
(13.9 ) $ (9.1 ) $
90.4 $ 98.9 $ 0.7 Income tax
provision 24.0 (6.1 ) 33.1 26.3 55.9 Other - (1.1 ) 1.3 2.4 (5.9 )
Income from unconsolidated affiliates (3.1 ) (2.6 ) (14.7 ) (14.9 )
(14.5 ) Interest income (4.2 ) (4.1 ) (24.2 ) (27.2 ) (11.5 )
Interest expense 114.1 113.6
459.6 463.1
443.1
Income from operations $ 116.9
$ 90.6 $ 545.5 $ 548.6
$ 467.8 Loss (gain) on disposal of assets - 0.5 (3.4
) (2.3 ) 1.3 Impairment losses - 40.0 - - 40.0 Charge for stock
compensation 3.0 1.8 7.5 7.1 8.2 Contingent purchase price 0.6 0.6
(0.5 ) (0.6 ) (5.4 ) Depreciation and amortization 66.5 67.7 266.5
266.6 259.5 Income from unconsolidated affiliates 3.1 2.6 14.7 14.9
14.5 Non-operating items for Kansas JV 2.6
2.5 10.3 10.3
10.4
Adjusted EBITDA $
192.7 $ 206.3 $ 840.6 $
844.6 $ 796.3 Diluted earnings per
common share $ (0.15 ) $ (0.10 ) $ 0.99 $ 1.08 $ 0.01
(1) The guidance figures in the table above present the
guidance Penn National Gaming provided on July 28, 2016 for the
full year ended December 31, 2016.
PENN NATIONAL
GAMING, INC. AND SUBSIDIARIES
Segment Information – Operations
(in thousands) (unaudited)
NET REVENUES INCOME FROM
OPERATIONS ADJUSTED EBITDA Three Months Ended
September 30, Three Months Ended September 30, Three
Months Ended September 30, 2016 2015
2016 2015 2016 2015
Northeast (1) $ 395,748 $ 406,552 $ 101,752 $ 107,148 $ 124,421 $
124,880 South/West (2) 135,169 118,266 19,337 22,307 28,506 29,463
Midwest (3) 221,172 209,115 56,343 52,521 71,644 68,910 Other (4)
13,508 5,364 (38,132) (39,804) (13,311) (12,991)
Total $
765,597 $ 739,297 $ 139,300 $ 142,172 $
211,260 $ 210,262 NET
REVENUES INCOME FROM OPERATIONS ADJUSTED EBITDA
Nine Months Ended September 30, Nine Months Ended
September 30, Nine Months Ended September 30,
2016 2015 2016 2015 2016
2015 Northeast (1) $ 1,190,469 $ 1,120,272 $ 306,368 $
274,995 $ 374,165 $ 339,107 South/West (2) 411,245 345,516 72,944
81,910 99,703 99,586 Midwest (3) 662,506 622,652 172,013 160,631
219,900 210,344 Other (4) 27,250 15,951 (122,157) (140,314)
(45,843) (59,014)
Total $ 2,291,470 $
2,104,391 $ 429,168 $ 377,222 $ 647,925
$ 590,023 (1) The Northeast segment consists
of the following properties: Hollywood Casino at Charles Town
Races, Hollywood Casino Bangor, Hollywood Casino at Penn National
Race Course, Hollywood Casino Toledo, Hollywood Casino Columbus,
Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning
Valley Race Course, and Plainridge Park Casino. It also includes
the Company’s Casino Rama management service contract. Our
Northeast segment results for the three and nine months ended
September 30, 2015 included preopening costs of $0.3 million and
$9.2 million, respectively. (2) The South/West segment
consists of the following properties: Zia Park Casino, Hollywood
Casino Tunica, Hollywood Casino Gulf Coast, Boomtown Biloxi, the M
Resort and Tropicana Las Vegas, which was acquired on August 25,
2015, as well as the Hollywood Casino Jamul-San Diego project with
the Jamul Indian Village, which opened on October 10, 2016.
(3) The Midwest segment consists of the following properties:
Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino
Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg, and
Hollywood Casino St. Louis and Prairie State Gaming, which was
acquired on September 1, 2015, and includes the Company’s 50%
investment in Kansas Entertainment, which owns the Hollywood Casino
at Kansas Speedway. Results for the nine months ended September 30,
2015 included a property tax refund of approximately $2.0 million.
(4) The Other category consists of the Company’s standalone
racing operations, namely Sanford-Orlando Kennel Club, and the
Company’s joint venture interests in Sam Houston Race Park, Valley
Race Park, Freehold Raceway and Rosecroft Raceway, which was sold
on August 2, 2016. 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 Penn
Interactive Ventures, the Company’s interactive division which
represents Penn’s social gaming initiatives. The Other
category also includes the Company’s corporate overhead costs,
which were $16.6 million and $51.2 million for the three and nine
months ended September 30, 2016, as compared to $13.7 million and
$60.5 million for the three and nine months ended September 30,
2015. Corporate overhead costs included cash-settled stock-based
compensation charges of $2.6 million and $7.5 million for the three
and nine months ended September 30, 2016 compared to a credit of
$1.2 million and a charge of $15.1 million for the corresponding
periods in the prior year.
Reconciliation of
Comparable GAAP Financial Measures To Adjusted EBITDA
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended Nine Months
Ended September 30, September 30, 2016
2015 2016 2015 Net income
$ 46,535 $ 4,900 $
104,278 $ 9,752 Income tax provision (9,473 )
35,380 9,065 62,016 Other (404 ) (2,672 ) 1,978 (4,805 ) Income
from unconsolidated affiliates (3,505 ) (3,759 ) (11,662 ) (11,895
) Interest income (8,202 ) (3,083 ) (20,039 ) (7,396 ) Interest
expense 114,349 111,406 345,548
329,550
Income from operations $
139,300 $ 142,172 $ 429,168
$ 377,222 Loss (gain) on disposal of assets (2,781 )
276 (3,440 ) 801 Charge for stock compensation 1,517 2,025 4,554
6,446 Contingent purchase price (30 ) (6,651 ) (1,111 ) (5,944 )
Depreciation and amortization 67,903 66,141 200,105 191,785
Insurance recoveries (726 ) - (726 ) - Income from unconsolidated
affiliates 3,505 3,759 11,662 11,895 Non-operating items for Kansas
JV 2,572 2,540 7,713
7,818
Adjusted EBITDA $ 211,260
$ 210,262 $ 647,925
$ 590,023
Reconciliation of Comparable GAAP Financial Measure To
Adjusted EBITDA By Segment PENN NATIONAL GAMING,
INC. AND SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended September 30, 2016
Northeast South/West Midwest
Other Total Income (loss) from
operations $ 101,752 $ 19,337 $ 56,343 $
(38,132 )
$ 139,300 Charge for stock
compensation - - - 1,517
1,517 Depreciation and amortization
22,975 9,097 9,593 26,238
67,903 Contingent purchase price
(293 ) - - 263
(30 ) Loss (gain) on disposal of
assets (13 ) 72 64 (2,904 )
(2,781 ) Insurance
recoveries - - (726 ) -
(726 ) Income from
unconsolidated affiliates - - 3,798 (293 )
3,505
Non-operating items for Kansas JV (1) -
- 2,572 -
2,572 Adjusted EBITDA $ 124,421
$ 28,506 $ 71,644
$ (13,311 ) $
211,260
Three Months Ended September 30,
2015
Northeast
South/West Midwest Other
Total Income (loss) from operations $ 107,148 $ 22,307 $
52,521 $ (39,804 )
$ 142,172 Charge for stock
compensation - - - 2,025
2,025 Depreciation and amortization
24,350 6,971 9,984 24,836
66,141
Contingent purchase price
(6,651 ) - - -
(6,651 ) (Gain) loss on disposal of
assets 33 185 34 24
276 Income from unconsolidated
affiliates - - 3,831 (72 )
3,759 Non-operating items for
Kansas JV (1) - - 2,540
-
2,540
Adjusted EBITDA $ 124,880
$ 29,463 $ 68,910
$ (12,991 ) $ 210,262
Nine Months Ended September 30,
2016
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 306,368 $ 72,944 $ 172,013
$ (122,157 )
$ 429,168 Charge for stock
compensation - - - 4,554
4,554 Depreciation and amortization
69,177 26,701 28,621 75,606
200,105 Contingent purchase
price (1,374 ) - - 263
(1,111 ) (Gain) loss on
disposal of assets (6 ) 58 18 (3,510 )
(3,440 )
Insurance recoveries - - (726 ) -
(726 ) Income from
unconsolidated affiliates - - 12,261 (599 )
11,662
Non-operating items for Kansas JV - -
7,713 -
7,713 Adjusted EBITDA $ 374,165
$ 99,703 $ 219,900
$ (45,843 ) $
647,925
Nine Months Ended September 30,
2015
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 274,995 $ 81,910 $ 160,631
$ (140,314 )
$ 377,222 Charge for stock
compensation - - - 6,446
6,446 Impairment Losses - - - -
- Depreciation and amortization 70,016 17,091 29,846 74,832
191,785 Contigent purchase price (5,944 ) - - -
(5,944 ) (Gain) loss on disposal of assets 40 585 28
148
801 Income from unconsolidated affiliates - - 12,021
(126 )
11,895 Non-operating items for Kansas JV -
- 7,818 -
7,818 Adjusted EBITDA $
339,107 $ 99,586 $
210,344 $ (59,014 )
$ 590,023 (1) Adjusted EBITDA
excludes our share of the impact of non-operating items (such as
depreciation and amortization) from our joint venture in Kansas
Entertainment.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015 Revenues
Gaming $ 654,591 $ 651,284 $ 1,974,618 $ 1,861,539 Food, beverage,
hotel and other 147,554 124,721 429,792 350,905 Management service
and licensing fees 3,130 2,871 8,567 7,614 Reimbursable management
costs 5,965 - 8,820
- Revenues 811,240 778,876 2,421,797 2,220,058 Less
promotional allowances (45,643 ) (39,579 )
(130,327 ) (115,667 ) Net revenues 765,597
739,297 2,291,470 2,104,391
Operating expenses Gaming 336,669 334,219
1,011,187 942,730 Food, beverage, hotel and other 102,110 89,151
302,062 249,883 General and administrative 114,376 107,614 340,854
342,771 Depreciation and amortization 67,903 66,141 200,105 191,785
Reimbursable management costs 5,965 - 8,820 - Insurance recoveries
(726 ) - (726 ) - Total
operating expenses 626,297 597,125
1,862,302 1,727,169 Income from
operations 139,300 142,172
429,168 377,222
Other income
(expenses) Interest expense (114,349 ) (111,406 ) (345,548 )
(329,550 ) Interest income 8,202 3,083 20,039 7,396 Income from
unconsolidated affiliates 3,505 3,759 11,662 11,895 Other
404 2,672 (1,978 ) 4,805
Total other expenses (102,238 ) (101,892 )
(315,825 ) (305,454 )
Income from operations
before income taxes 37,062 40,280 113,343 71,768 Income tax
(benefit) / provision (9,473 ) 35,380
9,065 62,016
Net income $ 46,535
$ 4,900 $ 104,278 $ 9,752
Earnings
per common share: Basic earnings per common share $ 0.52 $ 0.06
$ 1.16 $ 0.11 Diluted earnings per common share $ 0.51 $ 0.05 $
1.14 $ 0.11
Weighted-average common shares
outstanding: Basic 83,065 80,243 81,917 79,803 Diluted 91,422
91,280 91,330 90,794
PENN NATIONAL GAMING, INC.
AND SUBSIDIARIES
Supplemental information
(in thousands) (unaudited)
September 30, 2016 June 30, 2016
March 31, 2016 December 31, 2015
Cash and cash equivalents $ 201,768 $ 221,360 $ 214,238 $ 237,009
Bank Debt $ 1,217,420 $ 1,203,740 $ 1,230,031 $ 1,239,049
Notes 296,734 296,573 296,413 296,252 Other long term obligations
(1) 156,803 167,504 167,968 175,658
Total Traditional Debt $ 1,670,957 $ 1,667,817 $ 1,694,412 $
1,710,959 Financing obligation with GLPI (2) $ 3,526,709 $
3,539,030 $ 3,551,981 $ 3,564,629 Total
Debt $ 5,197,666 $ 5,206,847 $ 5,246,393 $ 5,275,588 1)
Other long term obligations at September 30, 2016 include
$118.9 million for the present value of the relocation fees due for
both Hollywood Gaming at Dayton Raceway and Hollywood Gaming at
Mahoning Valley Race Course, $14.4 million related to our repayment
obligation on a hotel and event center located near Hollywood
Casino Lawrenceburg, $21.2 million related to a corporate airplane
loan and $2.3 million related to capital lease obligations.
2) The financing obligation is calculated based on the present
value of the future minimum lease payments over the remaining lease
term, which includes all renewal options since they were reasonably
assured of being exercised at lease inception. The Master Lease,
which became effective November 1, 2013, has an initial term of 15
years, with four renewal options of 5 years. The payment structure
includes a fixed component, a portion of which is subject to an
annual escalator of up to 2% if certain rent coverage ratio
thresholds are met, and a component that is based on the
performance of the facilities, which is prospectively adjusted
every five years by an amount equal to 4% of the average change to
net revenues of all facilities under the Master Lease (other than
Hollywood Casino Columbus and Hollywood Casino Toledo) during the
preceding five years, and monthly by an amount equal to 20% of the
change in net revenues of Hollywood Casino Columbus and Hollywood
Casino Toledo during the preceding month.
Master Lease payments to GLPI are recorded as interest expense
and a reduction to our financing obligation. The table below
reflects the total payments to GLPI for the three and nine months
ended September 30, 2016 and 2015 and the treatment of these
payments on Penn’s financial statements.
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015 Reduction in GLPI
financing obligation $ 12,321 $ 11,154 $ 37,920 $ 35,452 Amount
attributable to interest expense 97,389 97,804
293,947 291,869 Total payments to GLPI $ 109,710 $ 108,958 $
331,867 $ 327,321
The Company’s definition of adjusted EBITDA adds back our share
of the impact of non-operating items (such as depreciation and
amortization) at our joint ventures that 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. The table below presents cash flow
distributions we have received from this investment for the three
months ended September 30, 2016 and 2015.
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015 Cash flow
distributions $ 8,150 $ 8,050 $ 21,500 $ 22,050
Diluted Share Count Methodology
In connection with the 2013 spin-off of Penn National Gaming’s
real estate assets and the formation of Gaming and Leisure
Properties, Inc., Penn National Gaming completed an 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. During the three months ended September 30, 2016,
Fortress sold 516 shares of Series C Preferred Stock, which
converted upon sale into 516,000 shares of common stock. As a
result, Fortress held 6,931 shares of Series C Preferred Stock as
of September 30, 2016, which is equivalent to 6,931,000 shares of
common stock upon sale by Fortress to a third party.
Reconciliation of GAAP to Non-GAAP Measures
In addition to GAAP financial measures, adjusted EBITDA is used
by management as an important 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, changes in the estimated fair value of contingent
purchase price to the previous owners of Plainridge Racecourse,
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 EBITDA excludes payments
associated with our Master Lease agreement with GLPI as the
transaction was accounted for as a financing obligation. Adjusted
EBITDA has economic substance because it is used by management as a
performance measure to analyze the performance of our business, and
is 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 because it is 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 is not a
measure of performance or liquidity calculated in accordance with
GAAP. Adjusted EBITDA information is presented as a supplemental
disclosure, as management believes that it is a widely used measure
of performance in the gaming industry, is used in the valuation of
gaming companies, and that it is considered by many to be a key
indicator of the Company’s operating results. Management uses
adjusted EBITDA as an important measure of the operating
performance of its segments, including the evaluation of operating
personnel. Adjusted EBITDA 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. 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, as well as the Company’s income (loss) from
operations per GAAP to adjusted EBITDA, is included above.
Additionally, a reconciliation of each segment’s income (loss) from
operations to adjusted EBITDA 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 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 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 9:00 am ET today, both of which are open to
the general public. The conference call number is 212/231-2920.
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 and video gaming terminal
operations with a focus on slot machine entertainment. At September
30, 2016, the Company operated twenty-seven facilities in seventeen
jurisdictions, including Florida, Illinois, Indiana, Kansas, Maine,
Massachusetts, Maryland, Mississippi, Missouri, Nevada, New Jersey,
New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario.
At September 30, 2016, in aggregate, Penn National Gaming operated
approximately 33,400 gaming machines, 800 table games and 4,600
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 its expectations
are based on reasonable assumptions within the bounds of its
knowledge of its 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: the assumptions included in our financial guidance; the
ability of our operating teams to drive revenue and adjusted EBITDA
margins; our ability to obtain timely regulatory approvals required
to own, develop and/or operate our facilities, or other delays,
approvals or impediments to completing our planned acquisitions or
projects, construction factors, including delays, unexpected
remediation costs, local opposition, organized labor, and increased
cost of labor and materials; 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); 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, social,
sweepstakes based and VGTs in bars and truck stops); 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 (especially in new business lines) and to
agree to terms with, and maintain good relationships 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 ability to maintain
market share in established markets and ramp up operations at our
recently opened facilities; our expectations for the continued
availability and cost of capital; the outcome of pending legal
proceedings, changes in accounting standards; the impact of
weather; with regard to our recently completed restatement, risks
relating the remediation of any material weaknesses and the costs
to strengthen our internal control structure, potential
investigations, litigation or other proceedings by governmental
authorities, stockholders or other parties, and the risks related
to the impact of the recent restatement of the Company’s financial
statements on the Company’s reputation, development projects, joint
ventures and other commercial contracts; the ability of the Company
to generate sufficient future taxable income to realize its
deferred tax assets; with respect to the recently opened Hollywood
Casino-Jamul near San Diego, California, particular risks
associated with the repayment or subordination of project loans ,
sovereign immunity, local opposition (including several pending
lawsuits), access, regional competition and property performance;
with respect to our Plainridge Park Casino in Massachusetts, the
ultimate location and timing of the other gaming facilities in the
state and region; with respect to our social and other interactive
gaming endeavors, including our recent acquisition of Rocket Games,
risks related to ultimate profitability, retention of certain key
employees cyber-security, data privacy, intellectual property and
legal and regulatory challenges; with respect to Prairie State
Gaming, risks relating to the closing of a pending acquisition and
the integration of all new acquisitions, our ability to
successfully compete in the VGT market, our ability to retain
existing customers and secure new customers, risks relating to
municipal authorization of VGT operations and the implementation
and the ultimate success of the products and services being
offered; and other factors as discussed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2015,
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161027005541/en/
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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