- First Quarter saw Continued Improvements
to Industry Leading Adjusted EBITDA Margins, with all Three
Operating Segments Generating Year over Year Growth -
- Increases 2018 Full Year Guidance
-
Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National” or
the “Company”) today announced financial results for the three
months ended March 31, 2018, initiated 2018 second quarter guidance
and increased its full year guidance.
Timothy J. Wilmott, Chief Executive Officer, commented: “We are
pleased to report that Penn National delivered a strong first
quarter that exceeded our guidance. We are achieving significant
benefits from our ongoing margin enhancement initiatives, which
helped all three operating segments generate year over year
adjusted EBITDA growth. In addition, more than half of our
properties achieved year-over-year EBITDA growth and 65% of our
gaming operations delivered adjusted EBITDA margin increases
despite having to navigate difficult weather impacts during the
quarter.
2018 First Quarter Financial Highlights:
- Net revenues of $816.1 million; a 5.1%
increase
- Income from operations of $172.1
million, up 22.7%;
- Adjusted EBITDA of $242.6 million, up
6.6%;
- Adjusted EBITDA after master lease
payments of $126.7 million, up 10.2%;
- Adjusted EBITDA margins increased by 42
basis points to 29.72%, with 15 of our 23 gaming operations
delivering improved margins; and
- Traditional net debt ratio declined to
2.25x from 2.49x and gross and net leverage inclusive of master
lease obligations declined to 5.45x and 5.20x, respectively, from
5.78x and 5.46x at December 31, 2017.
Margin Enhancement Plan
Mr. Wilmott continued, “We continue to make great strides with
the margin enhancement plan we announced last October, and we are
only in the early stages of implementation. We are confident we
will continue to expand margins throughout the year based on
ongoing refinements we are making in procurement, marketing, and
labor. As a result, our increased 2018 guidance reflects adjusted
EBITDA margins that are above our previously disclosed margin
improvement targets for the year.”
Pinnacle Acquisition Update
“On March 29, shareholders of both Penn National and Pinnacle
Entertainment, Inc. (PNK: Nasdaq) (“Pinnacle”) overwhelmingly
approved our proposed merger, with over 99% of all votes cast in
favor of the transaction. Additionally, we have secured regulatory
approvals, subject to customary conditions, from Pennsylvania (both
the Gaming Control Board and the Racing Commission), West Virginia
and Illinois. This week and over the coming months we’ll be
appearing before additional regulatory bodies to seek their
approvals. Based on our progress to date, we remain confident of
closing the transaction in the second half of this year. In the
meantime, having visited all of the Pinnacle properties, as well as
their Las Vegas Service Center on multiple occasions, we remain
very impressed by their talented property and corporate teams and
continue to make meaningful progress with our integration planning.
As we’ve learned more about Pinnacle’s operations and processes, we
are confident our $100 million of cost synergy objectives are well
within reach,” said Wilmott.
As previously reported, following the closing of the proposed
transaction, 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.
As a result of Penn National’s ability to 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 the Company’s traditional net leverage ratio. The
combined entity will generate significant free cash flow, which the
Company initially intends to allocate to de-leveraging and other
initiatives that it believes will enhance long-term shareholder
value.
Recent Development Activity
“During the quarter, Penn National was the winning bidder for
two of Pennsylvania’s new Category 4 ‘satellite casino’ licenses,
which were created through the gaming expansion law approved last
October. The licenses allow us to operate up to 750 slot machines
and initially up to 30 table games at each facility in the areas of
York County and Berks/Lancaster County. We sought to strategically
locate our satellite casinos in these areas, as a means of
protecting the existing market for Hollywood Casino at Penn
National Race Course while also penetrating new, more populous
areas. While we have not yet determined a specific site in either
location, we will be exploring several viable options in the near
term. We are confident these facilities will yield attractive
returns on our investments.
“With the operating momentum across our business and significant
and growing free cash flow, Penn National continues to have the
financial flexibility to select from a range of alternatives to
further enhance shareholder value including leverage reduction,
additional share repurchases, and pursuing additional
opportunistic, accretive tuck-in acquisitions,” concluded
Wilmott.
Summary of First Quarter Results
(in millions, except per share data)
Three Months Ended
March 31,
2018 Actual
2018 Guidance (3) 2017 Actual Net
Revenues $ 816.1 $ 817.3
$ 776.2
Net income $ 45.4
$ 38.6 $ 5.1
Adjusted EBITDA (1)
(2) $ 242.6 $ 233.6
$ 227.4 Less: Master Lease payments
115.9 115.7 112.4
Adjusted EBITDA after Master Lease payments (1) (2)
$ 126.7 $ 117.9 $ 115.0
Diluted earnings per common
share $ 0.48 $ 0.41
$ 0.06 1)
During the first quarter of 2018, the Company changed its
definition of Adjusted EBITDA to exclude preopening costs,
significant transaction costs and the variance between our budgeted
and actual costs incurred on cash-settled stock based awards. See
Note 2 below for the components of the definition. We believe these
changes will enhance comparability with our competitors’ definition
of Adjusted EBITDA. Prior period results were reclassified to
conform to the current period presentation. 2) 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, the difference between budget and actual
expense for cash-settled stock-based awards, preopening and
significant transaction costs 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. 3) The
guidance figures in the table above present the guidance Penn
National provided on February 8, 2018 for the three months ended
March 31, 2018.
Review of First Quarter 2018 Results vs. Guidance
Three Months Ended March 31,
2018 Pre-tax After-tax (in
thousands) (unaudited) Income, per guidance (1) $
52,313 $ 38,559 Adjusted EBITDA variances: Favorable
operating segment variance 6,443 4,789 Favorable flooding impact on
Hollywood Lawrenceburg 855 660 Other variance, mainly due to
Corporate overhead 1,568 1,210
Total
adjusted EBITDA variances 8,866
6,659 Cash-settled stock-based awards variance
7,462 5,760 Pinnacle transaction costs (6,093 ) (4,703 ) Impairment
and debt extinguishment costs (1,500 ) (1,158 ) Other variance 78
58 Tax variance - 262
Income, as
reported $ 61,126 $ 45,437
(1) The guidance figure in the table above
presents the guidance Penn National provided on February 8, 2018
for the three months ended March 31, 2018.
Financial Guidance for the Second Quarter and Full Year
2018
Reflecting the current operating and competitive environment,
the table below sets forth full year and second quarter 2018
guidance targets for financial results based on the following
assumptions:
- Excludes any impact related to the
Pinnacle 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;
- Corporate overhead expenses of $80.6
million, with $20.2 million to be incurred in the second
quarter;
- Depreciation and amortization charges
of $235.8 million, with $59.7 million in the second quarter;
- Rent payments to GLPI of $461.8
million, with $116.0 million in the second quarter which continues
to be fully tax deductible;
- Maintenance capital expenditures of
$103.8 million, with $40.5 million in the second quarter;
- Cash interest on traditional debt of
$59.9 million, with $8.2 million in the second quarter;
- Interest expense of $471.6 million,
with $116.6 million in the second quarter, inclusive of interest
expense related to the Master Lease financing obligation with
GLPI;
- Interest expense includes the impact of
the five-year variable rent reset related to the Master Lease
effective November 1, 2018, which reduces 2018 annual rent by $1.9
million;
- Interest expense also 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 taxes of $26.2 million, with $12.0
million in the second quarter;
- Our share of non-operating items (such
as depreciation and amortization expense) associated with our
Kansas JV will total $5.2 million, with $1.3 million to be incurred
in the second quarter;
- Estimated non-cash stock compensation
expenses of $11.4 million, with $2.8 million to be incurred in the
second quarter;
- LIBOR is based on the forward yield
curve;
- A diluted share count of approximately
93.6 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 June 30,Full Year Ending
December 31, 2018
Guidance
2017
Actual (1)
2018 RevisedGuidance
2018 PriorGuidance (2)
2017 Actual (1) (in millions, except per share data)
Net revenues $ 839.9 $ 796.5
$ 3,235.7 $ 3,226.3 $
3,148.0 Net income $ 45.4
$ 17.1 $ 151.2 $ 143.0
$ 473.5 Income tax provision 16.6 6.2 54.3 51.0
(498.5 ) Other - 0.2 0.8 - 26.2 Income from unconsolidated
affiliates (5.4 ) (5.0 ) (21.5 ) (21.1 ) (18.7 ) Interest income
(0.3 ) (0.3 ) (1.0 ) (1.0 ) (3.6 ) Interest expense 116.6
116.8 471.6 467.4
466.8
Income from operations $
172.9 $ 135.0 $ 655.4 $
639.3 $ 445.7 Loss (gain) on disposal of
assets 0.1 - 0.3 0.3 0.2 Impairment losses - 5.6 0.6 - 107.8
Insurance recoveries - - - - (0.3 ) Charge for stock compensation
2.8 1.8 11.4 11.4 7.7 Contingent purchase price 0.5 1.4 2.4 1.7
(6.8 ) Cash-settled stock award variance - 6.1 (7.5 ) - 23.5
Pre-opening and significant transaction
costs
- 2.2 6.1 - 9.7 Depreciation and amortization 59.7 69.0 235.8 236.8
267.0 Income from unconsolidated affiliates 5.4 5.0 21.5 21.1 18.7
Non-operating items for Kansas JV 1.3 1.3
5.2 5.4 5.9
Adjusted EBITDA $ 242.7 $ 227.4
$ 931.2 $ 916.0 $ 879.1
Master Lease payments (116.0 ) (113.9 ) (461.8
) (461.3 ) (455.4 )
Adjusted EBITDA, after Master
Lease payments $ 126.7 $ 113.5
$ 469.4 $ 454.7 $ 423.7
Diluted earnings per common share $ 0.49 $ 0.18 $
1.62 $ 1.53 $ 5.07 (1) The guidance table above
includes prior period actual performance for the comparative
period. (2) The guidance figures in the table above present the
guidance Penn National provided on February 8, 2018 for the three
months ended March 31, 2018.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Segment Information – Operations
(in thousands) (unaudited)
NET REVENUES INCOME FROM OPERATIONS
ADJUSTED EBITDA Three Months Ended March 31, Three
Months Ended March 31, Three Months Ended March 31,
2018 2017 2018 2017 2018
2017 Northeast (1) $ 414,167 $ 393,465 $ 115,691 $ 102,633 $
132,007 $ 126,574 South/West (2) 161,296 139,820 35,886 27,118
45,049 36,341 Midwest (3) 230,086 228,338 65,517 61,529 81,155
78,106 Other (4) 10,536 14,601 (44,960 )
(50,993 ) (15,665 ) (13,576 )
Total
$ 816,085 $ 776,224 $
172,134 $ 140,287 $
242,546 $ 227,445 (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. During the three months
ended March 31, 2018, net revenues were $21.8 million higher due to
reimbursable costs associated with our management service contract
for Casino Rama following the implementation of the new revenue
accounting standard effective January 1, 2018. (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. (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.
The Other category also includes the Company’s corporate
overhead costs, which were $18.8 million and $18.3 million for the
three ended March 31, 2018 and 2017, respectively.
Reconciliation of Comparable GAAP
Financial Measures To
Adjusted EBITDA
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended March 31, December
31, September 30, June 30, March 31,
2018 2017
2017
2017 2017 Net
income $ 45,437 $ (338,060 )
$ 789,340 $ 17,079 $
5,104 Income tax provision (benefit) 15,689 252,134 (759,064
) 6,225 2,198 Other (1) 878 628 236 173 25,183 Income from
unconsolidated affiliates (5,361 ) (4,321 ) (4,781 ) (5,021 )
(4,548 ) Interest income (249 ) (367 ) (304 ) (235 ) (2,646 )
Interest expense 115,740 116,761
118,236
116,768 114,996
Income from
operations $ 172,134 $ 26,775
$ 143,663 $ 134,989 $
140,287 Loss (gain) on disposal of assets 55 70 96 52 (45 )
Charge for stock compensation 2,929 1,953 1,853 1,801 2,173
Contingent purchase price 1,134 9,953 (20,716 ) 1,362 2,560
Cash-settled stock award variance (7,462 ) 10,632 1,583 6,092 5,164
Pre-opening and significant transaction costs 6,093 5,138 1,848
2,174 571 Impairment charges (2) 618 77,858 24,317 5,635 -
Depreciation and amortization 60,390 61,374 66,483 68,969 70,236
Insurance recoveries - (289 ) - - - Income from unconsolidated
affiliates 5,361 4,321 4,781 5,021 4,548 Non-operating items for
Kansas JV 1,294 1,296
1,310 1,309
1,951
Adjusted EBITDA $
242,546 $ 199,081
$ 225,218 $
227,404 $ 227,445
Master Lease payments (115,874 )
(114,532 ) (114,489 )
(113,968 ) (112,450 )
Adjusted EBITDA,
after Master Lease payments $ 126,672
$ 84,549 $
110,729 $ 113,436
$ 114,995 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 million were also recorded for the
three months ended September 30, 2017.
Reconciliation of Comparable GAAP
Financial Measures To
Adjusted EBITDA By Segment
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended March 31,
2018
Northeast South/West
Midwest Other
Total Income (loss) from operations $ 115,691 $ 35,886 $
65,517 $ (44,960 )
$ 172,134 Charge for stock
compensation - - - 2,929
2,929 Impairment losses - - - 618
618 Depreciation and amortization 15,172 9,157 8,486 27,575
60,390 Loss (gain) on disposal of assets 42 6 13 (6 )
55 Contingent purchase price 1,102 - 32 -
1,134
Cash-settled stock award variance - - - (7,462 )
(7,462
) Pre-opening and significant transaction costs - - - 6,093
6,093 Income (loss) from unconsolidated affiliates - - 5,813
(452 )
5,361 Non-operating items for Kansas JV -
- 1,294
-
1,294
Adjusted EBITDA $ 132,007
$ 45,049 $ 81,155
$ (15,665 ) $
242,546
Three Months Ended March 31,
2017
Northeast South/West
Midwest Other
Total Income (loss) from operations $ 102,633 $ 27,118 $
61,529 $ (50,993 )
$ 140,287 Charge for stock
compensation - - - 2,173
2,173 Depreciation and amortization
23,023 9,218 9,671 28,324
70,236 Loss (gain) on disposal of
assets 14 5 (58 ) (6 )
(45 ) Contingent purchase
price 904 - 9 1,647
2,560 Cash-settled stock award variance
- - - 5,164
5,164 Pre-opening and significant transaction
costs - - - 571
571 Income from unconsolidated affiliates -
- 5,004 (456 )
4,548 Non-operating items for Kansas JV
- - 1,951
-
1,951
Adjusted EBITDA $ 126,574
$ 36,341 $ 78,106
$ (13,576 )
$ 227,445
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended March 31, 2018 2017
Revenues Gaming (1) $ 654,494 $ 661,256 Food,
beverage, hotel and other (1) 130,969 147,741 Management service
and licensing fees 2,438 2,327 Reimbursable management costs (1)
28,184 6,758 Revenues 816,085 818,082
Less promotional allowances (1) - (41,858 )
Net revenues 816,085 776,224
Operating expenses Gaming (1) 340,516 332,053 Food,
beverage, hotel and other (1) 92,980 101,075 General and
administrative 121,263 125,815 Depreciation and amortization 60,390
70,236 Reimbursable management costs (1) 28,184 6,758 Impairment
charges 618 - Total operating expenses
643,951 635,937 Income from operations
172,134 140,287
Other income
(expenses) Interest expense (115,740 ) (114,996 ) Interest
income 249 2,646 Income from unconsolidated affiliates 5,361 4,548
Loss on early extinguishment of debt (882 ) (23,390 ) Other
4 (1,793 ) Total other expenses (111,008 )
(132,985 )
Income from operations before income
taxes 61,126 7,302 Income tax provision 15,689
2,198
Net income $ 45,437 $ 5,104
Earnings per common share: Basic earnings per
common share $ 0.50 $ 0.06 Diluted earnings per common share $ 0.48
$ 0.06
Weighted-average common shares outstanding:
Basic 91,191 90,751 Diluted 94,650 91,917 1) Penn
adopted Accounting Standards Codification (ASC) No. 606 “Revenue
from Contracts with Customers” on January 1, 2018 using the
modified retrospective method which impacts the comparability of
these line items. See the following page of this release for
further details.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Supplemental information
(in thousands) (unaudited)
First Quarter 2018 Impact of Adopting
New Revenue Standard
Three MonthPeriod
EndedMarch 31, 2018As Reported
Balances WithoutAdoption of
ASC606
Effect of ChangeHigher /
(Lower)
Revenues Gaming (1), (2) $ 654,494 $ 686,714 $
(32,220 ) Food, beverage, hotel and other (2), (4) 130,969 146,484
(15,515 ) Management service and license fees 2,438 2,438 -
Reimbursable management costs (3) 28,184 6,340
21,844 Revenues 816,085 841,976 (25,891 ) Less:
promotional allowances (2) - (40,263 ) 40,263
Net revenues 816,085 801,713 14,372
Operating
expenses Gaming (1) 340,516 339,489 1,027 Food, beverage, hotel
and other (4) 92,980 101,940 (8,960 ) General and administrative
121,263 121,263 - Reimbursable management costs (3) 28,184 6,340
21,844 Depreciation and amortization 60,390 60,390 - Impairment
losses 618 618 - Insurance recoveries - -
- Total operating expenses 643,951
630,040 13,911
Income from operations
172,134 171,673 461 1) The new revenue standard
changed the accounting for loyalty rewards earned by our customers.
The Company is now required to defer revenue at the estimated
standalone selling price of the loyalty rewards as they are earned
by our customers and recognize revenue when the rewards are
redeemed. Prior to the adoption of the new revenue standard, the
estimated liability for unredeemed rewards was accrued based on the
estimated costs of the service or merchandise to be provided.
2) The new revenue standard changed the accounting for
promotional allowances. The Company is no longer permitted to
report revenue for goods and services provided to customers for
free as an inducement to gamble as gross revenue with a
corresponding reduction in promotional allowances to arrive at net
revenues (discretionary comps). The new revenue standard requires
complimentaries related to an inducement to gamble to be recorded
as a reduction to gaming revenues, and as such promotional
allowances are no longer netted on our condensed consolidated
statements of income. In addition, the new revenue standard changed
the accounting for promotional allowances with respect to
non-discretionary complimentaries (i.e. a customer’s redemption of
loyalty points). Under the new revenue standard, the Company is no
longer permitted to report revenue for goods and services provided
to a customer resulting from loyalty reward redemptions with a
corresponding reduction in promotional allowances to arrive at net
revenue. As such, promotional allowances related to a customer’s
redemption of loyalty rewards is no longer netted on our condensed
consolidated statements of income. 3) The new revenue
standard changed the accounting for reimbursable costs associated
with our management service contract for Casino Rama. Under the new
revenue standard, reimbursable costs, which primarily consist of
payroll costs, must be recognized as revenue on a gross basis, with
an offsetting amount charged to reimbursable management costs
within operating expenses. Prior to the adoption of the new revenue
standard, we recorded these reimbursable amounts on a net basis,
and as such they were not recorded in revenues or operating
expenses. 4) The new revenue standard changed the accounting
for racing revenues. Under the new revenue standard, we are not the
controlling entity to the arrangement(s), but rather function as an
agent to the pari-mutuel pool. As such, fees and obligations
related to the Company’s share of purse funding requirements,
simulcasting fees, tote fees, certain pari-mutuel taxes and other
fees directly related to our racing operations must be reported on
a net basis and included as a deduction to food, beverage, hotel
and other revenue. Prior to the adoption of the new revenue
standard, we recorded these fees and obligations in food, beverage,
hotel and other expense.
March 31, 2018
December 31, 2017 September 30, 2017 June 30,
2017 March 31, 2017 Cash and cash equivalents $
217,997 $ 277,953 $ 264,907 $ 224,399 $ 259,488 Bank debt $
688,251 $ 730,788 $ 798,608 $ 812,002 $ 896,439 Notes 399,270
399,249 399,229 399,208 399,227 Other long term obligations (1)
112,124 120,200 120,855 127,488
127,437 Total Traditional debt $ 1,199,645 $ 1,250,237 $ 1,318,692
$ 1,338,698 $ 1,423,103 Traditional net debt $ 981,648 $
972,284 $ 1,053,785 $ 1,114,299 $ 1,163,615 1) Other
long-term obligations at March 31, 2018 include $98.4 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 $13.2 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 months ended March 31, 2018 and 2017.
Three Months Ended March
31, 2018 2017 Cash flow distributions $
6,500 $ 5,750
The table below summarizes certain cash expenditures incurred by
the Company during the periods presented in this earnings
release.
Three Months Ended March
31, 2018 2017 Master Lease rental payments
$ 115,874 $ 112,450 Cash income tax (refunds)/payments 2,233 (9,303
) Cash interest expense on traditional debt 22,193 16,580
Maintenance capital expenditures 10,602 10,978
Share Repurchase Program
Reflecting the repurchase of 1,264,149 common shares for
$24,770,470 in the twelve month period ended December 31, 2017,
Penn National has the authority to repurchase up to an additional
$75.2 million of its common shares by February 2019.
Non-GAAP Measures
In addition to GAAP financial measures, adjusted EBITDA and
adjusted EBITDA after Master Lease payments are used by management
as important measures 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, the difference between budget and actual
expense for cash-settled stock-based awards, preopening and
significant transaction costs 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.
During the first quarter of 2018, we changed the definition of
Adjusted EBITDA to exclude preopening costs, significant
transaction costs and the variance between our budgeted and actual
costs incurred on cash-settled stock based awards which are
required to be marked to market each reporting period. We
determined to exclude preopening costs and significant transaction
costs to more closely align the Company’s calculation of Adjusted
EBITDA with our competitors. Preopening costs and significant
transaction costs are also excluded from adjusted EBITDA for bonus
calculation purposes. We have excluded the favorable or unfavorable
difference between the budgeted expense and actual expense for our
cash-settled stock-based awards as it is non-operational in nature.
Additionally, this variance is excluded from adjusted EBITDA for
bonus calculation purposes. In connection with the change to the
definition of Adjusted EBITDA, we reclassified our prior period
results to conform to the current period presentation.
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. In addition, 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 303/223-4398.
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 March 31,
2018, 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 March 31, 2018, in aggregate, Penn National
Gaming operated approximately 36,100 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 transaction, on February 8,
2018, Penn filed with the Securities and Exchange Commission (the
“SEC”) a registration statement on Form S-4 that contains a joint
proxy statement of Penn and Pinnacle and also constitutes a
prospectus of Penn (the “joint proxy statement/prospectus”). The
registration statement was declared effective by the SEC on
February 28, 2018 and Penn and Pinnacle commenced mailing the
definitive joint proxy statement/prospectus to their respective
shareholders and stockholders on February 28, 2018. This
communication 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 and stockholders of
Pinnacle are urged to read the definitive joint proxy
statement/prospectus regarding the proposed transaction and any
other relevant documents filed or that will be filed with the SEC,
as well as any amendments or supplements to those documents,
because they contain or will contain important information.
Investors may obtain a free copy of the registration statement and
the joint proxy statement/prospectus, as well as other filings
containing information about Penn and Pinnacle, without charge, at
the SEC’s website at www.sec.gov. Copies of the documents filed
with the SEC by Penn 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 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.
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; as well as the risks associated with the
pending transition and termination of our management, license and
development agreements; 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 Pennsylvania casinos in York
and Berks or Lancaster Counties, 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 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 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; with respect to our management
contract at Casino Rama, risks relating to the near term transition
of management of this facility to a newly selected operator; and
other factors as discussed in the Company’s Annual Report on Form
10-K for the year ended December 31, 2017, 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: https://www.businesswire.com/news/home/20180426005405/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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