Income from Operations of $56.2 Million and
Adjusted EBITDA After Master Lease Payments of $68.8
Million
Enactment of Tax Cuts and Jobs Act Results
in Significant Recurring Free Cash Flow Benefit and Fourth Quarter
Non-Cash Deferred Tax Asset Write-off of $257 Million
Establishes 2018 First Quarter and Full Year
Guidance
Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National” or
the “Company”) today announced financial results for the three
months ended December 31, 2017 and established 2018 first quarter
and full year guidance.
Timothy J. Wilmott, Chief Executive Officer, commented: “The
fourth quarter concluded a successful and active year for Penn
National, and it marked another period of consolidated positive
revenue growth that exceeded both guidance and consensus estimates.
In addition, adjusted EBITDA after master lease payments of $68.8
million exceeded guidance by $2.0 million, before the impact of
several largely non-operational items, principally the impact of
higher cash-settled stock award expense, which rose significantly
due to the increase in our stock price.
Transformative Transaction
“The fourth quarter of 2017 will likely be best remembered for
the December 18, 2017 announcement of our agreement to acquire
Pinnacle Entertainment, Inc. (“Pinnacle Entertainment”) in a cash
and stock transaction valued at approximately $2.8 billion.
Following the closing of this transaction, which is expected to
occur in the second half of 2018, Penn National will enjoy
significantly greater operational scale and geographic diversity
from a combined 41 properties in 20 jurisdictions, including 15 of
the top 30 Metropolitan Statistical Areas in America.
“Financially, we expect the transaction to be immediately
accretive to free cash flow per share, and that it will increase
our annual revenue and adjusted EBITDA by over 60%, following the
planned divestitures of four casinos to Boyd Gaming Corporation and
the realization of approximately $100 million in synergies.
Following our initial integration discussions and recent visits to
Pinnacle’s properties and their Las Vegas Service Center, we came
away very impressed by their talented team members and are excited
about combining the companies. The visits also reinforced our
confidence in achieving our revenue and cost synergy
objectives.
“As a result of our ability to strategically fund the purchase
consideration with a combination of equity, debt and asset sale
proceeds, the transaction will result in only a modest near-term
increase in our traditional net leverage ratio. Importantly, the
combined entity will generate significant free cash flow, which we
initially intend to allocate to de-leveraging and other initiatives
that we believe will enhance long-term shareholder value. Based
upon preliminary discussions with regulators, we remain on schedule
to close the transaction in the second half of 2018.”
2017 Fourth Quarter Financial Highlights
- Net Revenues of $769.0 million exceeded
guidance by $12.4 million, as all three of the company’s operating
segments generated net revenue growth during the period;
- Income from Operations was $56.2
million;
- Adjusted EBITDA was $183.3 million, as
the quarter was negatively impacted by $10.6 million of additional
expense for our cash settled stock-based compensation awards due to
the rise in our stock price from September 30, 2017. Other impacts
included transaction costs of $5.1 million from our pending
acquisition of Pinnacle Entertainment and the impact to Tropicana
Las Vegas related to the October shooting as well as the resolution
of a significant legal claim and other costs;
- Adjusted EBITDA after Master Lease
payments was $68.8 million.
Continued Improvements to Industry-Leading Margins
Mr. Wilmott continued, “Excluding certain non-operational items
in the quarter, our consolidated fourth quarter 2017 Adjusted
EBITDA margins increased to 26.8%, marking a 43 basis point
improvement over the same quarter last year. Notably, we remain
well-positioned to leverage our expanding scale, purchasing power
and distribution capabilities to drive further margin improvements
through ongoing refinements in procurement, marketing and labor
management. Of note, our 2018 earnings guidance reflects the higher
end of our previously disclosed margin improvement targets for the
year.
Cash Flow Generation and Capital Allocation
“With Penn National’s solid fourth quarter operating cash flows,
the Company reduced traditional net debt by over $80 million during
the quarter. Our traditional net debt to total Adjusted EBITDA
after Master Lease payments ratio declined to approximately 2.49x
at December 31, 2017 from 2.95x at December 31, 2016. Our gross and
net leverage inclusive of the Master Lease declined to 5.78x and
5.46x at December 31, 2017, respectively, from 5.87x and 5.60x at
December 31, 2016, respectively, even after we allocated capital
for our second quarter acquisition of certain Tunica assets with
Gaming Leisure Properties, Inc. and approximately $25 million for
share repurchases during the year.
“Last month, Penn National secured the first license to operate
a Category 4 satellite casino in Pennsylvania pursuant to the
Commonwealth’s gaming expansion law passed last October. The
license will allow us to operate a new casino in York County and is
expected to generate incremental value for our shareholders while
helping to protect the Company’s existing investment at Hollywood
Casino at Penn National Race Course near Harrisburg.”
2017 Fourth Quarter Financial Statement Impacts
- Corporate overhead expenses increased
by $15.0 million versus 2016, primarily due to cash-settled stock
compensation charges of $9.2 million resulting from the
appreciation in Penn National’s share price, higher acquisition and
development costs for the Pinnacle transaction of $5.1 million and
higher bonus accrual expense of $0.6 million due to the Company’s
performance against its budget;
- Deferred tax asset write-off of $257.0
million due to the recent Tax Cuts and Jobs Act. The Company
anticipates that the application of the Tax Cuts and Jobs Act
provisions will increase its 2018 free cash flow by approximately
$30 million. Additionally, the anticipated one-time tax leakage
from the Pinnacle transaction will be reduced by approximately $20
million;
- Hollywood Casino Jamul-San Diego
continues to drive quarterly sequential operating improvements. The
Jamul Tribe is currently in default on its loan obligations and
given the lack of progress to resolve this issue, the Company
recorded an impairment charge of $48.5 million on its loan to the
Tribe.
Summary of Fourth Quarter Results
(in millions, except per share
data)
Three Months EndedDecember
31,
2017 Actual 2017 Guidance
(2) 2016 Actual Net revenues
$ 769.0 $ 756.6 $ 742.9
Net income
$ (308.7 ) $ 16.2 $ 5.0
Adjusted
EBITDA (1) $ 183.3 $ 206.1 $
195.9 Less: Master Lease payments 114.5
114.4 110.4
Adjusted EBITDA after
Master Lease payments (1) $ 68.8 $
91.7 $ 85.5
Diluted earnings per common share $
(3.40 ) $ 0.17 $ 0.05 1)
Adjusted EBITDA is income (loss) from operations, excluding
the impact of stock compensation, debt extinguishment and financing
charges, impairment charges, insurance recoveries and deductible
charges, depreciation and amortization, changes in the estimated
fair value of our contingent purchase price obligations, 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 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
was accounted for as a financing obligation. See below for
reconciliation of the difference between guidance and actual for
the current quarterly period, as well as the reconciliation of GAAP
to Non-GAAP measures for additional information. 2) The guidance
figures in the table above present the guidance Penn National
provided on October 26, 2017 for the three months ended December
31, 2017.
Review of Fourth Quarter 2017 Results vs. Guidance
Three Months Ended December
31, 2017 Pre-tax After-tax (in
thousands) (unaudited) Income, per guidance (1) $ 22,840
$ 16,217 Adjusted EBITDA variances: Operating segment
variance 2,055 1,305 Las Vegas shooting impact at Tropicana and
hurricane disruption (3,129 ) (1,997 ) Increase to property level
reserves and unfavorable Penn Interactive variance (4,171 ) (2,648
) Unfavorable medical claim experience (1,862 ) (1,183 )
Cash-settled stock-based awards variance (10,632 ) (6,753 )
Pinnacle acquisition costs (5,139 ) (3,264 ) Other variance
96 61
Total adjusted EBITDA
variances (22,782 )
(14,479 ) Contingent purchase price liability
variance (9,686 ) (6,153 ) Depreciation expense variance 1,553 986
Impairment of Jamul note receivable (48,465 ) (30,785 ) Other
variance 7 4 Deferred tax asset writeoff due to change in Corporate
tax rate to 21% - (256,983 ) Other tax variance -
(17,474 )
Income, as reported $
(56,533 ) $ (308,667 )
(1) The guidance figure in the table above presents
the guidance Penn National provided on October 26, 2017 for the
three months ended December 31, 2017.
Financial Guidance for the 2018 First Quarter and Full
Year
Reflecting the current operating and competitive environment,
the table below sets forth first quarter and full year 2018
guidance targets for financial results based on the following
assumptions:
- Excludes any impact related to the
Pinnacle Entertainment transaction;
- A half year contribution from the
Company’s management contract for Casino Rama;
- Does not anticipate any Adjusted EBITDA
contribution from the Company’s agreements with Jamul Indian
Village;
- Full year corporate overhead expenses
of $82.1 million, with $20.3 million to be incurred in the first
quarter;
- Depreciation and amortization charges
of $236.8 million, with $61.2 million in the first quarter;
- Full year rent payments to GLPI of
$461.3 million, with $115.7 million in the first quarter which
continues to be fully tax deductible;
- Maintenance capital expenditures of
$103.7 million, with $27.6 million in the first quarter;
- Cash interest on traditional debt of
$56.2 million, with $21.7 million in the first quarter;
- Interest expense of $467.4 million,
with $115.5 million in the first quarter, inclusive of interest
expense related to the Master Lease financing obligation with
GLPI;
- Interest expense includes $0.9 million
related to the maximum escalation that is projected to be incurred
at the conclusion of year five of the Master Lease on October 31,
2018;
- Cash paid for taxes of $41.1 million,
with $11.8 million in the first quarter;
- Our share of non-operating items (such
as depreciation and amortization expense) associated with our
Kansas JV will total $5.4 million, with $1.5 million to be incurred
in the first quarter;
- Estimated non-cash stock compensation
expenses of $11.4 million, with $2.8 million to be incurred in the
first quarter;
- LIBOR is based on the forward yield
curve;
- A diluted share count of approximately
93.3 million shares for the full year; 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 March 31, Full
Year Ending December 31,
2018Guidance
2017Actual (1)
2018 Guidance
2017 Actual (1) (in millions, except per share
data) Net revenues $ 817.3 $
776.2 $ 3,226.3 $ 3,148.0
Net income $ 38.6 $ 5.1 $
143.0 $ 502.9 Income tax provision 13.8 2.2
51.0 (498.5 ) Other - 25.1 - 26.2 Income from unconsolidated
affiliates (5.2 ) (4.5 ) (21.1 ) (18.7 ) Interest income (0.3 )
(2.6 ) (1.0 ) (3.6 ) Interest expense 115.5
115.0 467.4 466.8
Income from
operations $ 162.4 $ 140.3 $
639.3 $ 475.1 Loss (gain) on disposal of
assets 0.1 - 0.3 0.2 Impairment losses - - - 78.4 Insurance
recoveries - - - (0.3 ) Charge for stock compensation 2.8 2.2 11.4
7.7 Contingent purchase price 0.4 2.6 1.7 (6.8 ) Depreciation and
amortization 61.2 70.2 236.8 267.0 Income from unconsolidated
affiliates 5.2 4.5 21.1 18.7 Non-operating items for Kansas JV
1.5 1.9 5.4 5.9
Adjusted EBITDA $ 233.6 $
221.7 $ 916.0 $ 845.9 Master
Lease payments (115.7 ) (112.4 ) (461.3 )
(455.4 )
Adjusted EBITDA, after Master Lease payments
$ 117.9 $ 109.3 $ 454.7
$ 390.5 Diluted earnings per common
share $ 0.41 $ 0.06 $ 1.53 $ 5.39 (1) The
guidance table above includes prior period actual performance for
the comparative period.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Segment Information – Operations (in thousands) (unaudited)
NET REVENUES INCOME FROM
OPERATIONS ADJUSTED EBITDA Three Months Ended
December 31, Three Months Ended December 31, Three
Months Ended December 31, 2017 2016
2017 2016 2017 2016
Northeast (1) $ 383,737 $ 378,046 $ 91,366 $ 91,156 $ 117,177 $
114,905 South/West (2) 151,542 135,362 (28,340 ) 19,685 28,887
28,866 Midwest (3) 222,256 215,060 52,886 51,167 68,137 67,375
Other (4) 11,501 14,442 (59,744 )
(48,160 ) (30,890 ) (15,242 )
Total $
769,036 $ 742,910 $ 56,168
$ 113,848 $ 183,311
$ 195,904 NET
REVENUES INCOME FROM OPERATIONS ADJUSTED EBITDA
Twelve Months Ended December 31, Twelve Months Ended
December 31, Twelve Months Ended December 31,
2017 2016 2017 2016 2017
2016 Northeast (1) $ 1,584,119 $ 1,568,514 $ 408,693 $
397,524 $ 501,271 $ 489,070 South/West (2) 604,665 546,608 23,612
92,629 135,324 128,569 Midwest (3) 907,493 877,567 233,704 223,180
297,777 287,275 Other (4) 51,693 41,691
(190,902 ) (170,317 ) (88,426 ) (61,085 )
Total $ 3,147,970 $ 3,034,380
$ 475,107 $ 543,016
$ 845,946 $ 843,829
(1) The Northeast 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 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.
(2) The South/West reportable segment consists of the following
properties: Zia Park Casino, Hollywood Casino Tunica, Hollywood
Casino Gulf Coast, Boomtown Biloxi, the M Resort, Tropicana Las
Vegas, and 1st Jackpot Casino Tunica (f/k/a Bally’s Casino Tunica)
and Resorts Casino Tunica, which were acquired on May 1, 2017, as
well as our management contract with Hollywood Casino Jamul-San
Diego, which opened on October 10, 2016. The South/West segment
includes impairment charges of $48.5 million and $75.2 million for
the three and twelve months ended December 31, 2017. Our South/West
segment results for the twelve months ended December 31, 2016
include a $3.5 million benefit from a litigation settlement gain at
the Tropicana Las Vegas, which was partially offset by severance
charges and gaming floor disruption. The South/West segment
year-to-date results for the prior year also include additional
expenses of $1.6 million, which is primarily due to insurance
accrual adjustments.
(3) The Midwest reportable segment consists of the following
properties: Hollywood Casino Aurora, Hollywood Casino Joliet,
Argosy Casino Alton, Argosy Casino Riverside, Hollywood Casino
Lawrenceburg, Hollywood Casino St. Louis, Prairie State
Gaming, and includes the Company’s 50% investment in Kansas
Entertainment, which owns the Hollywood Casino at Kansas
Speedway.
(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, and Freehold Raceway. 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 National’s social gaming
initiatives, including Rocket Speed, Inc. During the twelve months
ended December 31, 2017, Penn Interactive Ventures settled the
contingent purchase price obligation for Rocket Speed which
resulted in a $22.2 million benefit.
The Other category also includes the Company’s corporate
overhead costs, which were $33.6 million and $104.6 million for the
three and twelve months ended December 31, 2017, respectively, as
compared to corporate overhead costs of $18.6 million and $69.8
million for the three and twelve months ended December 31, 2016,
respectively. See table below for reconciliation of corporate
overhead variances.
Corporate Overhead Year-Over-Year Variance
Reconciliation
Three Months Ended
Twelve Months Ended
December 31, 2017 vs 2016
(in millions)
Cash-settled, stock-based compensation $ 9.2 $ 23.0
Development and acquisition costs 6.0 9.4 Bonus expense 0.6 3.5
Other (0.8 ) (1.1 )
Year over year variance
$ 15.0 $ 34.8
Reconciliation of Comparable GAAP Financial Measures
To Adjusted EBITDA PENN NATIONAL GAMING, INC.
AND SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended December 31,
September 30, June 30, March
31, December 31, 2017 2017
2017 2017 2016 Net income
$ (308,667 ) $ 789,340 $
17,079 $ 5,104 $ 5,032 Income
tax provision (benefit) 252,134 (759,064 ) 6,225 2,198 2,242 Other
(1) 628 236 173 25,183 (299 ) Income from unconsolidated affiliates
(4,321 ) (4,781 ) (5,021 ) (4,548 ) (2,675 ) Interest income (367 )
(304 ) (235 ) (2,646 ) (4,147 ) Interest expense 116,761
118,236 116,768
114,996 113,695
Income from
operations $ 56,168 $ 143,663
$ 134,989 $ 140,287 $
113,848 Loss (gain) on disposal of assets 70 96 52 (45 ) 969
Charge for stock compensation 1,953 1,853 1,801 2,173 2,317
Contingent purchase price 9,953 (20,716 ) 1,362 2,560 2,388
Impairment charges (2) 48,465 24,317 5,635 - - Depreciation and
amortization 61,374 66,483 68,969 70,236 71,109 Insurance
recoveries (289 ) - - - - Income from unconsolidated affiliates
4,321 4,781 5,021 4,548 2,675 Non-operating items for Kansas JV
1,296 1,310 1,309
1,951 2,598
Adjusted
EBITDA $ 183,311 $ 221,787 $
219,138 $ 221,710 $ 195,904
Master Lease payments (114,532 ) (114,489 )
(113,968 ) (112,450 ) (110,420 )
Adjusted EBITDA, after Master Lease payments $
68,779 $ 107,298
$ 105,170 $ 109,260
$ 85,484 1) March 31,
2017 figures include debt extinguishment and financing charges of
$25.1 million. 2) Impairment charges of $48.5 million, $6.3 million
and $5.6 million for the three months ended December 31, 2017,
September 30, 2017 and June 30, 2017, respectively, were recorded
against the Company’s loan to the Jamul Tribe. Goodwill impairment
charges of $18.0 were also recorded for the three months ended
September 30, 2017.
Twelve Months Ended
December 31, 2017 2016 Net
income $ 502,856 $ 109,310 Income
tax provision (498,507 ) 11,307 Other (1) 26,220 1,679 Income from
unconsolidated affiliates (18,671 ) (14,337 ) Interest income
(3,552 ) (24,186 ) Interest expense 466,761
459,243
Income from operations $
475,107 $ 543,016 Gain (loss) on disposal of
assets 172 (2,471 ) Charge for stock compensation 7,780 6,871
Contingent purchase price (6,840 ) 1,277 Impairment charges 78,417
- Depreciation and amortization 267,062 271,214 Insurance
recoveries (289 ) (726 ) Income from unconsolidated affiliates
18,671 14,337 Non-operating items for Kansas JV 5,866
10,311
Adjusted EBITDA $ 845,946
$ 843,829 Master Lease payments (455,439 )
(442,287 )
Adjusted EBITDA, after Master Lease
payments $ 390,507 $ 401,542
Reconciliation of Comparable GAAP
Financial Measures To
Adjusted EBITDA By Segment
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended December 31,
2017
Northeast South/West
Midwest Other Total
Income (loss) from operations $ 91,366 $ (28,340 ) $
52,886 $ (59,744 )
$ 56,168 Charge for
stock compensation - - - 1,953
1,953 Impairment losses -
48,465 - -
48,465 Depreciation and amortization 15,896 8,828
9,098 27,552
61,374 Contingent purchase price 9,867 - 31 55
9,953 (Gain) loss on disposal of assets 48 (66 ) 84 4
70 Insurance recoveries - - (289 ) -
(289 )
Income (loss) from unconsolidated affiliates - - 5,031 (710 )
4,321 Non-operating items for Kansas JV (1) -
- 1,296 -
1,296 Adjusted EBITDA $
117,177 $ 28,887 $
68,137 $ (30,890 )
$ 183,311
Three Months Ended December 31,
2016
Northeast South/West
Midwest Other Total
Income (loss) from operations $ 91,156 $ 19,685 $
51,167 $ (48,160 )
$ 113,848 Charge for
stock compensation - - - 2,317
2,317 Depreciation and
amortization 23,195 9,130 9,589 29,195
71,109 Contingent
purchase price 98 - 6 2,284
2,388 Loss (gain) on disposal of
assets 456 51 316 146
969 Income from unconsolidated
affiliates - - 3,699 (1,024 )
2,675 Non-operating items for
Kansas JV (1) - - 2,598
-
2,598 Adjusted EBITDA
$ 114,905 $ 28,866
$ 67,375 $ (15,242 )
$ 195,904
Twelve Months Ended December 31,
2017
Northeast South/West
Midwest Other Total
Income (loss) from operations $ 408,693 $ 23,612 $
233,704 $ (190,902 )
$ 475,107 Charge
for stock compensation - - - 7,780
7,780 Impairment losses -
75,212 - 3,205
78,417 Depreciation and amortization 80,105
36,622 37,837 112,498
267,062 Contingent purchase price
12,529 - 13 (19,382 )
(6,840 ) (Gain) loss on
disposal of assets (56 ) (122 ) 168 182
172 Insurance
recoveries - - (289 ) -
(289 ) Income (loss) from
unconsolidated affiliates - - 20,478 (1,807 )
18,671
Non-operating items for Kansas JV - -
5,866 -
5,866 Adjusted EBITDA $
501,271 $ 135,324
$ 297,777 $ (88,426
) $ 845,946
Twelve Months Ended December 31,
2016
Northeast South/West
Midwest Other Total
Income (loss) from operations $ 397,524 $ 92,629 $
223,180 $ (170,317)
$ 543,016 Charge for stock
compensation - - - 6,871
6,871 Depreciation and amortization
92,373 35,831 38,210 104,800
271,214
Contingent purchase price
(1,277) - 6 2,548
1,277 (Gain) loss on disposal of assets
450 109 334 (3,364)
(2,471) Insurance recoveries - - (726) -
(726) Income (loss) from unconsolidated affiliates - -
15,960 (1,623)
14,337 Non-operating items for Kansas JV -
- 10,311 -
10,311 Adjusted
EBITDA $ 489,070 $ 128,569 $
287,275 $ (61,085) $ 843,829
(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
December 31, Twelve Months Ended December 31,
2017 2016 2017 2016
Revenues Gaming $ 658,758 $ 631,644 $ 2,692,021 $
2,606,262 Food, beverage, hotel and other 148,009 145,642 601,731
575,434 Management service and licensing fees 2,845 2,781 11,654
11,348 Reimbursable management costs 6,236
7,177 26,060 15,997 Revenues
815,848 787,244 3,331,466 3,209,041 Less promotional allowances
(46,812 ) (44,334 ) (183,496 ) (174,661
) Net revenues 769,036 742,910
3,147,970 3,034,380
Operating
expenses Gaming 336,933 323,793 1,364,989 1,334,980 Food,
beverage, hotel and other 108,485 104,809 421,848 406,871 General
and administrative 151,664 122,174 514,776 463,028 Depreciation and
amortization 61,374 71,109 267,062 271,214 Reimbursable management
costs 6,236 7,177 26,060 15,997 Impairment charges 48,465 - 78,417
- Insurance recoveries (289 ) - (289 )
(726 ) Total operating expenses 712,868
629,062 2,672,863 2,491,364
Income from operations 56,168 113,848
475,107 543,016
Other income
(expenses) Interest expense (116,761 ) (113,695 ) (466,761 )
(459,243 ) Interest income 367 4,147 3,552 24,186 Income from
unconsolidated affiliates 4,321 2,675 18,671 14,337 Loss on early
extinguishment of debt (573 ) - (23,963 ) - Other (55 )
299 (2,257 ) (1,679 ) Total other
expenses (112,701 ) (106,574 ) (470,758 )
(422,399 )
Income from operations before income
taxes (56,533 ) 7,274 4,349 120,617 Income tax provision
252,134 2,242 (498,507 ) 11,307
Net (loss) income $ (308,667 ) $ 5,032 $
502,856 $ 109,310
Earnings (loss) per
common share: Basic earnings per common share $ (3.40 ) $ 0.06
$ 5.53 $ 1.21 Diluted earnings per common share $ (3.40 ) $ 0.05 $
5.39 $ 1.19
Weighted-average common shares
outstanding: Basic 90,827 85,943 90,854 82,929 Diluted 90,827
91,802 93,378 91,407
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Supplemental information (in thousands) (unaudited)
December 31, 2017 September 30, 2017
June 30, 2017 March 31, 2017
December 31, 2016 Cash and cash equivalents $ 277,953
$ 264,907 $ 224,399 $ 259,488 $ 229,510 Bank debt $ 730,788
$ 798,608 $ 812,002 $ 896,439 $ 962,703 Notes 399,249 399,229
399,208 399,227 296,895 Other long term obligations (1)
120,200 120,855 127,488 127,437 155,936
Total Traditional debt $ 1,250,237 $ 1,318,692 $ 1,338,698 $
1,423,103 $ 1,415,534 Traditional net debt $ 972,284 $
1,053,785 $ 1,114,299 $ 1,163,615 $ 1,186,024
1) Other long-term obligations at December 31, 2017 include
$105.4 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, and $13.8 million related to our
repayment obligation on a hotel and event center located near
Hollywood Casino Lawrenceburg.
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 National’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 and twelve months ended December 31, 2017
and 2016.
Three Months Ended December 31,
Twelve Months Ended December 31, 2017
2016 2017 2016 Cash flow
distributions $ 4,750 $ 4,300 $ 25,950 $ 25,800
The table below summarizes certain cash expenditures incurred by
the Company during the periods presented in this earnings
release.
Three Months Ended December 31,
Twelve Months Ended December 31, 2017
2016 2017 2016 Master Lease
rental payments $ 114,532 $ 110,420 $ 455,439 $ 442,287 Cash income
tax (refunds)/payments (21,615 ) 307 (43,067 ) (11,412 ) Cash
interest expense on traditional debt 7,356 16,432 54,785 60,889
Maintenance capital expenditures 27,597 27,074 74,228 78,505
Share Repurchase Program
During the 2017 fourth quarter, Penn National did not repurchase
any shares of its common stock. In the twelve month period ended
December 31, 2017, the Company repurchased a total of 1,264,149
common shares for $24,770,470. As a result, Penn National has the
authority to repurchase an additional $75.2 million by February
2019.
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 and financing
charges, impairment charges, insurance recoveries and deductible
charges, depreciation and amortization, changes in the estimated
fair value of our contingent purchase price obligations, 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 an
alternative to operating income, as an indicator of the Company’s
operating performance, as an alternative to cash flows from
operating activities, as a measure of liquidity, or as any other
measure 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.
Adjusted EBITDA after Master Lease payments is a measure we
believe provides useful information to investors because it is an
indicator of the performance of ongoing business operations after
incorporating the cash flow impact of Master Lease payments to
GLPI. Finally, adjusted EBITDA after Master Lease payments is the
metric that our executive management team is measured against for
incentive based compensation purposes.
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 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 9:00 am ET today, both of which are open to
the general public. The conference call number is 212/231-2912.
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 December
31, 2017, the Company operated twenty-nine facilities in seventeen
jurisdictions, including California, Florida, Illinois, Indiana,
Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New
Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and
Ontario, Canada. At December 31, 2017, in aggregate, Penn National
Gaming operated approximately 36,200 gaming machines, 810 table
games and 4,800 hotel rooms. The Company also offers social online
gaming through its Penn Interactive Ventures division.
Important Additional Information
In connection with the proposed Pinnacle transaction, Penn
National intends to file with the Securities and Exchange
Commission (the “SEC”) a registration statement on Form S-4 that
will contain a joint proxy statement of Penn National and Pinnacle
Entertainment and a prospectus of Penn National (the “join proxy
statement/prospectus”), as well as other relevant documents
concerning the proposed Pinnacle transaction. This press release
does not constitute an offer to sell or the solicitation of an
offer to buy any securities or a solicitation of any vote or
approval. Shareholders of Penn National and stockholders of
Pinnacle Entertainment are urged to read the registration statement
and the joint proxy statement/prospectus regarding the proposed
Pinnacle transaction when it becomes available and any other
relevant documents filed with the SEC, as well as any amendments or
supplements to those documents, as they will contain important
information. Investors will be able to obtain a free copy of the
registration statement and the joint proxy statement/prospectus (if
and when it becomes available), as well as other filings containing
information about Penn National and Pinnacle Entertainment, without
charge, at the SEC’s website at www.sec.gov. Copies of the
documents filed with the SEC by Penn National can be obtained,
without charge, by directing a request to Justin Sebastiano, Penn
National Gaming, Inc., 825 Berkshire Boulevard, Suite 200,
Wyomissing, Pennsylvania 19610, Tel. No. (610) 401-2029. Copies of
the documents filed with the SEC by Pinnacle Entertainment can be
obtained, without charge, by directing a request to Vincent Zahn,
Pinnacle Entertainment, Inc., 3980 Howard Hughes Parkway, Las
Vegas, Nevada 89169, Tel. No. (702) 541-7777.
Participants in the Solicitation
Penn National, Pinnacle Entertainment, and certain of their
respective directors, executive officers and employees may be
deemed to be participants in the solicitation of proxies in respect
of the proposed Pinnacle transaction. Information regarding Penn
National’s directors and executive officers is available in Penn
National’s Annual Report on Form 10-K for the year ended December
31, 2016, which was filed with the SEC on February 24, 2017, and
its proxy statement for its 2017 Annual Meeting, which was filed
with the SEC on April 25, 2017. Information regarding Pinnacle
Entertainment’s directors and executive officers is available in
Pinnacle Entertainment’s Annual Report on Form 10-K for the year
ended December 31, 2016, which was filed with the SEC on February
28, 2017, and its proxy statement for its 2017 Annual Meeting,
which was filed with the SEC on March 14, 2017. Other information
regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, will be contained in the joint proxy
statement/prospectus and other relevant materials filed with the
SEC. Free copies of this document may be obtained as described in
the preceding paragraph.
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. Specifically, forward-looking statements
may include, among others, statements concerning: our expectations
of future results of operations and financial condition;
expectations for our properties or our development projects; the
timing, cost and expected impact of planned capital expenditures on
our results of operations; our expectations with regard to the
impact of competition; our expectations with regard to acquisitions
and development opportunities, as well as the integration of any
companies we have acquired or may acquire; the outcome and
financial impact of the litigation in which we are or will be
periodically involved; the actions of regulatory, legislative,
executive or judicial decisions at the federal, state or local
level with regard to our business and the impact of any such
actions; our ability to maintain regulatory approvals for our
existing businesses and to receive regulatory approvals for our new
businesses; our expectations relative to margin improvement
initiatives; our expectations regarding economic and consumer
conditions; and our expectations for the continued availability and
cost of capital. As a result, 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 margins; the
impact of significant competition from other gaming and
entertainment operations; 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,
and increased costs; 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 or the award of additional
gaming licenses proximate to 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 for any of our operations 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 to continue to ramp up
operations at our recently opened facilities; our expectations for
the continued availability and cost of capital; the impact of
weather; changes in accounting standards; the risk of failing to
maintain the integrity of our information technology infrastructure
and safeguard our business, employee and customer data; factors
which may cause the Company to curtail or suspend the share
repurchase program; with respect to Hollywood Casino Jamul-San
Diego, particular risks associated with the repayment, default or
subordination of our loans to the Jamul Indian Village Development
Corporation (“JIV”), the subordination of our management and
intellectual property license fees (including the prohibition on
payment of those fees during any default under JIV’s credit
facilities), sovereign immunity, local opposition (including
several pending lawsuits), access, the impact of well-established
regional competition on property performance and the impact of our
ongoing relationship with the Jamul Tribe on the term of our
management agreement; with respect to our Plainridge Park Casino in
Massachusetts, the ultimate location and timing of the other gaming
facilities in the state and the region; with respect to our social
and other interactive gaming endeavors, risks related to the social
gaming industry, employee retention, cyber-security, data privacy,
intellectual property and legal and regulatory challenges, as well
as our ability to successfully develop innovative new games that
attract and retain a significant number of players in order to grow
our revenues and earnings; with respect to Illinois Gaming
Investors, LLC, d/b/a Prairie State Gaming, risks relating to
recent acquisitions of additional assets and the integration of
such acquisitions, potential changes in the VGT laws, 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; with respect to our proposed casino in York County
Pennsylvania, risks related to ongoing litigation surrounding
Pennsylvania’s gaming legislation and the ultimate location of
other gaming facilities in the state; risks related to the
acquisition of Pinnacle Entertainment by Penn National and the
integration of the businesses and assets to be acquired; the
possibility that the proposed transaction does not close when
expected or at all because required regulatory, shareholder or
other approvals are not received or other conditions to the closing
are not satisfied on a timely basis or at all; the risk that the
financing required to fund the transaction is not obtained on the
terms anticipated or at all; the possibility that the Boyd Gaming
Corporation and/or GLPI deals do not close in a timely fashion or
at all; potential adverse reactions or changes to business or
employee relationships, including those resulting from the
announcement or completion of the transaction; potential litigation
challenging the transaction; the possibility that the anticipated
benefits of the transaction are not realized when expected or at
all, including as a result of the impact of, or issues arising
from, the integration of the two companies; the possibility that
the anticipated divestitures are not completed in the anticipated
timeframe or at all; the possibility that additional divestitures
may be required; the possibility that the transaction may be more
expensive to complete than anticipated, including as a result of
unexpected factors or events; diversion of management’s attention
from ongoing business operations and opportunities; litigation
relating to the transaction; risks associated with increased
leverage from the transaction; and other factors as discussed in
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, 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/20180208005313/en/
Penn National Gaming, Inc.William J. Fair, 610-373-2400Chief
Financial OfficerorJCIRJoseph N. Jaffoni, Richard Land,
212-835-8500penn@jcir.com
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