PNK 4Q CONF CALL NOTES

Good quarter.  Margin story playing out and numbers need to go higher.

PNK 4Q CONF CALL NOTES

"Throughout 2010, Pinnacle developed and adopted a broad range of strategies, focused on further enhancing the best-in-market experiences that we provide to our guests.  At the same time, we undertook initiatives to leverage our development and management skills and solid balance sheet to pursue new opportunities to generate profitable revenue growth.  Going forward, we will maintain our organization-wide focus on best practices, while further positioning Pinnacle to benefit from any lasting rebound in the economy and consumer sentiment." 

- Anthony Sanfilippo, president and chief executive officer of Pinnacle Entertainment

HIGHLIGHTS FROM THE RELEASE

• "Consolidated Adjusted EBITDA for the 2010 fourth quarter increased 125.9% to $50.4 million, inclusive of $2.8 million in severance and relocation charges."
• "2010 fourth quarter financial results also benefited from more efficient marketing activities relative to the prior-year period, particularly at its L'Auberge du Lac Casino Resort and Boomtown New Orleans properties."
• "Pinnacle has further opportunities in 2011 to improve utilization of our personnel and systems to grow hotel yields, optimize our gaming floor layouts and game mixes, revise our approach to marketing and promotional activities, and effect additional corporate and property expense reductions.  Each of these factors contributed to our strong 2010 fourth quarter and full-year results and these areas remain priorities for improvement in 2011."
• "The implementation of our St. Louis Shared Services structure in late 2010 is resulting in more efficient allocation of operating costs across the two properties and creating opportunities to drive revenue growth through coordinated marketing and player development efforts.  Our goal for St. Louis Shared Services is to drive consistent operating margin improvements and simultaneous market share gains."
• "In Louisiana, we recently revised our operating approach by creating a Louisiana Shared Services structure to accomplish a similar goal as in St. Louis.  Geno Iafrate, Senior Vice President and General Manager of L'Auberge du Lac, now also oversees Boomtown New Orleans and Boomtown Bossier City, our two other operations in Louisiana."
• "Beginning in April, we will relaunch mychoice, our guest loyalty program.  We also recently created a national casino marketing department, which focuses on marketing the unique experiences available at Pinnacle's resort facilities to potential guests outside of our immediate markets."    
• "We plan to have a standardized marketing approach fully deployed later in 2011, and our strategic approach to marketing and branding is expected to enhance our ability to drive profitable revenue across our portfolio."
• Development updates:
  • In January, PNK "completed the acquisition of River Downs Racetrack in southeast Cincinnati, Ohio"  for $45MM.  "If VLTs become operational, we plan to move quickly to revitalize River Downs and create a new gaming and entertainment facility for the Cincinnati market."
  •  Announced that the opening of its $357MM Baton Rouge Casino originally scheduled December 2011 will be pushed back to 1Q2012
    
    • "As a result of low Mississippi River water levels, the Company has been unable to move the three completed casino hulls, which together will form the casino itself, from Bollinger Shipyards in southern Louisiana to the project site in order to continue construction on the casino facilities"
    • "As of December 31, 2010, approximately $319 million of the $357 million construction budget (excluding land and capitalized interest) remains to be invested in the planned Baton Rouge facility." 

CONF CALL NOTES

• Believe that the Baton Rouge area is under served.   
• They are committed to thoughtfully growing the company and continue to look at growth opportunities
• Changed the mix of games at L'Auberge and their marketing strategy changed dramatically, which is why margins were so much better
• Experienced about 100bps of margin compression in St. Louis due to seasonality. Properties don't perform as well when the weather is cold.
• Believe that corporate costs will continue to trend down in 2011
• Cash capex was $33.6MM for the quarter. Baton Rouge was $20MM;
• January St. Louis market share reached an all time high of 32.6%. In 4Q - shared guests were 16% of rated customers but 39% of all rated play in St. Louis.
• Belterra - impact from new competitor is easing
• Seeing good results in their new hotel yield management system. Testing and launch new reward and marketing campaigns

Q&A

• Any impact from tornado warnings at the St. Louis properties?
  
  • On Dec 31st, there was a tornado warning and they needed to move their guests to a safe location. It's good and bad because the weather was warm but gaming was disrupted. Overall, the disruption was not material.
• Hope to see a lot of the annualization of the cost reductions in 2011. 4Q corporate is the best proxy going forward but they aren't done yet. Hope for some marginal expansion.
• They are going to use their manager from Belterra to oversee operations at River Downs and are making some improvements to that facility.  Will have the shared services concept at those 2 properties too. 
• The $2.8MM corporate and severance charge - $1.3MM was in corporate and the balance was at the property level
• Topline seemed to stabilize across their portfolio. They are optimistic about revenue growth for 2011.
• Partnership opportunities with a Vegas operator?
  • Think that that idea has merit and are looking at it.
• 15th license in Louisiana
  • License was issued to a company with very limited resources behind it and no operating experience. Think that in the best case it will take someone 30 months to open their doors
  • By that time, they hope to be a more diversified company with better operating focus
• Continue to think that they can do a better job in running their company from a marketing and efficiency standpoint. They are very early in the process of developing their marketing engine.
• Optimism of slots at tracks in Ohio - why?
  • Don't know when, but they do believe that they will become legal at some point in the future
• Texas?
  
  • Doesn't think that the recent poll out of TX is particularly telling.
• Marketing goal is to reallocate their marketing spend towards their best customers so that hey can capture a larger share of their wallet
• Higher corporate expense is often driven by legal spending
• They are continuing to work on the dry-side construction while they wait for the MS River to rise between now and mid-April/May.  They need the MS River to rise - otherwise they will not be able to move those hulls. No indication that that won't occur.
• Doing what they can at Reno - they have a large track of land for sale there... and would entertain appropriate offers for that property but aren't actively shopping it.
• Atlantic City is the largest portion of discontinued operations - double digit millions for the 2011. Mostly property taxes for AC.
• There will be a shared loyalty and cost sharing service when Baton Rouge opens
• Discovered that they weren't using the fully allowable square footage of gaming space at L'Auberge. Found another 5,500 SQFT and are putting in a poker room.