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Lesson of the day:  always be wary when a company decides to provide less disclosure.


"While concerns about the U.S. and global economies, as well as weakness in the capital markets, persisted throughout the quarter, Penn National did not experience any significant changes in consumer spending patterns at our facilities." 

- Peter M. Carlino, Chairman and Chief Executive Officer

HIGHLIGHTS FROM THE RELEASE

  • "We took advantage of the dislocation in the capital markets during the third quarter and repurchased 755,517 shares of our Common Stock for approximately $27.1 million."
  • "Our third quarter revenue and EBITDA growth of 11% and 27%, respectively, exceeded guidance again illustrating the value of our operating disciplines, continued success with company-wide initiatives to improve margins and returns on capital deployed over the last year for expanded, acquired and newly-opened facilities...Impressively, fourteen of our fifteen gaming properties generated year-over-year improvements in adjusted EBITDA margins, and twelve of the fifteen increased their adjusted EBITDA."
  • "Hollywood Casino at Kansas Speedway and Hollywood Casino Toledo are expected to open on time in the first quarter of 2012 and second quarter of 2012, respectively, with Hollywood Casino Columbus on track to open in the fourth quarter of 2012."
  • "Reflecting the financial outperformance in the third quarter relative to guidance and assuming a continuation of the consumer trends we have experienced thus far in 2011, we are raising our full year 2011 revenue and adjusted EBITDA guidance to $2.7 billion and $733.8 million, respectively." 
    • 4Q: Net revenues of $671MM and $160MM of Adjusted EBITDA
    • EPS: $2.31 and 4Q of $0.46
    • Preopening: $13.5MM million in 2011, with $7.5MM in 4Q
    • No gains from insurance proceeds related to the Hollywood Casino Tunica flood
    • Operating results of Rosecroft Raceway with a live meet in the second half of 2011
    • D&A: FY $210.4MM and $50.8MM in 4Q
    • Non-cash stock compensation: $24.8MM for 2011, with $6.3MM in 4Q
    • The blended 2011 income tax rate: 37.2%
    • A diluted share count: 107.3MM

Q&A

  • MA may be a semi-auction process.  PENN will likely be a major contender in that market.
  • In Ohio, it's more of a legislative issue. It's not clear on what the state wishes to do with the racetracks - but they are working hard at coming to an answer and expect an answer from the government soon.
  • Reasons behind going to the regional reporting approach is because they have regional managers overseeing these regions.  Reporting details for 22 properties is becoming cumbersome. Giving that much information from a competitive standpoint is also not in the best interest of shareholders.  
  • They will be opportunistic regarding share buybacks.
  • Corporate overhead was $18.8MM in the 3Q
  • Will not breakout Ohio results when the facilities open - not exactly showing a lot of optimism here
  • Toledo costs are just fine tuning as they get close to opening
  • 3Q cash: $207.8MM, Bank debt: $1.6376BN--$200MM on revolver; 691.2MM on term A debt; 748.1MM on term B debt; Capital leases of 3.3MM; contracted work of 1.9MM; total debt: 1967.8MM
  • $73.6MM of project capex and total capex $96.2MM.  Kansas Speedway Capex - their portion was $20.2MM
  • Opportunities in Asia are limited but they are a constant presence there now. They are looking for modest size projects - not Singapore size. Won't be leaping off of any cliffs.
  • What was $2.7MM of other income?
    • Currency translation gain ($2.9MM of currency)
  • Pre-opening is included in the various regions
  • Saw a slight increase in their non-rated activity and a slight decline in rated activity. 
  • Broadly, they haven't seen any change in early October trends from what they saw in the 3rd quarter
  • In Baton Rouge, they expect PNK to open their project in 3Q12.  Expect a loss of business in their Baton Rouge operation. Are prepared to reduce expenses and protect their profitable business.
  • Spring of 2013 is when they expect Horseshoe Cincinnati on Lawrenceburg. There will be an impact but have the benefit of no smoking ban vs. the competition. Also, there is the difference of suburban location vs. an urban competitor. They will react swiftly to adjust their cost structure.  This is part of the reason that they are taking a regional approach.
  • Street guidance for 2012 - clearly some of the numbers are too optimistic since they do not take into account for cannabalization and ramp.  In 2013, they feel very confident that they will be higher than the highest number.  Expect 2012 to be flattish to 2011.
    • Low and behold, the real reason for less disclosure
    • Believes that many analysts either believe that Ohio will open at full margins and or are not modeling any cannibalization
  • They are not seeing anything unusual in promotional spend out there. Las Vegas locals market is still the most competitive market out there. They are trying to stay out of the fray in Las Vegas though.  Beyond that, regionally, there has been a lot of experience with being over promotional and what that does to your business.
  • Benefit of buyback vs. dividend is that they can't claw back dividends but can also reissue new shares. Dividends are also not tax effective.  Don't count on a dividend anytime soon.
  • They don't believe that their investments are going to yield lower returns. Kent believes that new builds will cannabalize existing properties.  If shareholders don't like their investment opportunities, then they can always sell their shares. Ohio will have a great return on cash - even if you take Lawrenceburg cannibalization into account.
  • Expect that the Baltimore property will get built 
  • Competition from Rivers?
    • Through the 3rd quarter they are not seeing a large impact from Des Plaines.  The Elgin and Hammond license are most impacted as they expected. Not as much impact on Joilet and Aurora feeder markets
  • IL came out strongly against racinos.  The rub is that the measure passed in the House and Senate with minimal majority votes and that without the tracks it may be hard to get the bill passed during the veto session. The government has been unequivocal that it's too expansive to include the tracks. 
  • Ohio tracks - there have been some conversions about the approval and relocation of the tracks, but they expect an answer soon. Cost of relocation? Expects that there will be a premium on the cost of relocation. 
    • Could be well in excess of the $50MM license fee
    • Don't expect to be subject to local referendum but will be subject to local approvals but expect that part to be smooth sailing
  • Normalized tax rate will be roughly 37.5%- 38% 
  • Have $240MM remaining on their stock buyback reauthorization
  • There were no large lobbying expenses in the quarter. They did do a reorganization of their entities to be more tax efficient and will save them $4MM a year of taxes. They did have an obligation to spend some money lobbying in TX - but they weren't successful in getting to a statewide referendum - so there is nothing worth mentioning
  • $50MM in Ohio per license is paid in the quarter before they open
  • They are shifting some players that were rated to non-rated at lower segments of rated play.  Thinks that their share gains may be more that competitors are being more rational on promotion. Losing low end rated play because it's less appealing from a reward standpoint. Seeing less trips at the low end of rated play. 
  • Tick up in promotional allowances: this year includes M and Perryville in the numbers