PENN 1Q2011 CONF CALL NOTES

First of three strong regional earnings reports. This one was very good.  PNK and ASCA next.

 

 

"With first quarter results exceeding guidance and cautious expectations for continued positive operating momentum throughout 2011, we are raising our full year 2011 revenue and adjusted EBITDA guidance to $2.7 billion and $677.0 million, respectively. We're generally seeing a stabilization of consumer spending across our businesses and markets, though we are hesitant to forecast higher revenues based on February and March trends which benefited from favorable weather versus 2010."

Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming

 

 

HIGHLIGHTS FROM THE RELEASE

  • Development/Acquisition updates:
    • "Beginning in June 2011, operating results are expected to reflect the acquisition of The M Resort. The property generated adjusted EBITDA of $6.2 million in the first quarter and we believe that our operating discipline, rationalized approach to marketing and active player database can gradually improve the property's financial performance.  Since sending offers to stay at M Resort to some of our highest value players earlier this year, the facility has booked approximately 2,500 incremental room nights and we are now developing other plans to drive profitable revenue at the property."
    • "Based on the current pace of construction, Hollywood Casino at Kansas Speedway and Hollywood Casino Toledo are expected to open in the first and second quarter of 2012, respectively, provided the required regulatory framework and approvals are in place."
    • "In Columbus, we have instituted legal proceedings and requested injunctive relief to protect our rights to continue to receive water and to utilize pre-existing sewer services from the district's sole provider, the City of Columbus, at the former Delphi Automotive site in Franklin Township. In the meantime, we recently named Smoot Construction Company of Ohio as our construction manager for the project and are planning a groundbreaking on April 25... We remain hopeful that the project will open as originally contemplated in the fourth quarter of 2012."
    • "On April 8, Penn National closed on its 50/50 joint venture to own and operate the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas and a planned racetrack in Laredo, Texas. Our joint venture ownership also includes significant real estate, including interests in 323 acres at Sam Houston Race Park, 80 acres at Valley Race Park and an option to purchase 135 acres for the planned racetrack in Laredo... we are seeking legislative action to permit the addition of slot machines at existing Texas pari-mutuel facilities in order to maximize the overall value of these businesses. Recent polls indicate that the overwhelming majority of Texans want the right to express their position on slot machines at racetracks through a state-wide referendum"
  • Guidance:
    • Net revenue: Q2: $682.7MM; 2011: $2,707.5MM
    • Adjusted EBITDA: Q2: $179.4MM (Consensus $171MM); 2011: $677MM (Consensus of $662MM)
    • EPS: Q2: $0.47 (Consensus of $0.41); 2011: $1.64 (Consensus of $1.54)
    • Pre-opening expenses:  Q2: $1.1MM ; 2011: $9MM (up from $7MM previously)
    • D&A: Q2: $57.9MM; 2011: $239.5MM
    • Non-cash stock comp: Q2: $6.3MM; 2011: $25.1MM
    • Blended tax rate: 43.2%
    • Diluted Share count: 107MM

 

MGMT COMMENTARY:

  • More optimistic than in the past
  • Columbus going as planned
  • Cost cuts went well
  • Still not seeing robust top line growth except Penn National and Charlestown

Q&A:

  • Gotten off to decent start in April; will watch Easter calendar shift this year.
  • 1Q Corporate expense: high legal expenses (TX, MD)
  • Can't extrapolate margin improvement in 1Q for rest of FY 2011
    • Can't expect 3Q/4Q margins to be as good as 1Q/2Q
    • they might be sandbagging a bit
  • Assuming revenues are basically flat for FY 2011
  • Charles Town: Tables games revs will start to anniversary so YoY growth will come back in-line, in other words, not as strong as 1Q.
  • M Resort - will act as a typical LV Local business
  • Columbus water dispute: considering alternatives
  • Have met with Gov Kasich's staff, but no meaningful dialogue yet; hopes Ohio will follow PA's example
  • Vegas alliance? Do not see any opportunities at this time.
  • 1Q consumer spending: slight strength in VIP and mass non-rated play; generally flat
  • March was generally flat; February higher, driven by weather.
  • Gas price impact: does not see any correlation with spending; most of their consumers reside within 30 miles of the property so high gas prices not significant.
  • Texas: standalone slots at racetrack bill pending, final bill/hearing may come next week. There could be a special session in June/July.
  • Illinois smoking ban bill: pending in Senate
  • Sees JV track losses to be lower going forward
  • Maryland Jockey Club - will be positive in 2Q because of Preakness; also, Maryland state may provide funding to mitigate losses in MJC--waiting on Governor's desk.
  • LV Locals-- not much change in promotional spending in 1Q, it's "moderate";
    • Fairly stagnant; modest growth in group business and Southern Cali business
  • Anne Arundel: nothing in guidance; no smoking facility (Charles Town has smoking)
  • Charles Town: adding 20 more tables games in 2Q; opening $40MM entertainment/sports bar in June/July
  • 1Q total cash: $234 MM; unrestricted sub: $59MM;  $175MM operating cash;
  • Debt: $35MM non-revolver debt; $1.518BN term loan B; $1.53BN total bank debt; $2.135BN total debt
  • 1Q Capex: 54.5MM (14.7MM maintenance, 39.8MM project); FY 2011 Capex: $443MM (85MM maintenance, 287MM project)
  • Promotional spending: very rational at this time across the country
  • Margin trends: cost structure very sustainable; if top-line continues to grow, still room for improvement
  • Online gaming: not interested
  • In 1Q, low-end rated play ($1-$99) declined but non-rated play increased
  • Non-rated retail spending picked up
  • Gulf coast properties: have reduced insurance costs
  • Admission counts flat 
  • Term loan B: L+175bps
  • 10th IL gaming license impact: Elgin takes biggest hit, followed by Aurora and Joliet, and Northwest Indiana
  • Unrated customers in 1Q: low to mid single digit growth benefited by tables games in WV and PA
  • No pre-opening expense in Joliet
  • Joliet: not satisfied with performance; have picked up share from Harrah's Joliet but still need non-gaming business to do better