PNK 3Q11 CONF CALL NOTES

PNK breaks the string of blow out quarters with just an in-line performance. Concerns remain surrounding capex program.

 

 

"On an operating basis, Pinnacle had another very strong quarter led by record performances at our L'Auberge Lake Charles and St. Louis properties.  While several charges and other items affected year over year comparability, our third quarter results again highlight the effectiveness of our revenue growth and operational improvement initiatives"

 

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

 

 

CONF CALL NOTES

  • They continue to be focused on removing non-value added expenses from their cost structure
  • Seeing strong increases in the number of new guests - especially at the top tiers which have grown double digits since the launch of myChoice
  • 3 of 4 hotels have had record RevPARs, 3 were up more than 11% and total RevPAR growth was 9.5%
  • Anticipate finishing the redesign of all of their property websites by 1Q12
  • Growth from customers under 40 has been strong
  • Saw growth in 3 of their 5 primary markets
  • In St Louis, 19% of guests contributed 49% of results
  • Not seeing any evidence of a pull back in spending from their guests
  • Bossier continues to be a difficult market; they believe it will remain under some pressure
  • Belterra - dynamics in the market will remain challenged for sometime.  Competition should intensify.  Will work at rationalizing expenses.
  • Reno- looking to sell the property as well as the land adjacent to it in 2 separate discussions.  Are far along in their negotiations.
  • Normal reward expenses under mychoice were being expensed as incurred but now need to be expensed upfront and expenses should be accrued as earned before they are used. 
  • Expect to get a refund of their $25MM deposit at Baton Rouge once the property opens
  • 3Q Capex: $40MM; expect 4Q to be $65MM - $45MM of which should be Baton Rouge

Q&A

 

Accounting change should be smooth going forward barring changes

  • Q3 would’ve been $0.5 million better with no accounting change

Why didn’t you get the flow through on St. Louis and L’Auberge from the revenue growth?

  • A little bit of noise because of accounting change.  Thinks that there are meaningful improvements at those properties to come.

River Downs – any sense of budget or timing?

  • Waiting to see what Ohio is going to do

How much of $10.2 million Q2 accounting adjustment relates to 2011 and 2012?

  • $2.5m was for 2011, the rest for future years

Progression of capital spend for St. Louis expansion

  • 2/3 won’t get spent until 2013
  • Project should be done by end of 2013

What inning are you in for margin expansion?

  • Still in middle innings – haven’t gotten to “7th inning stretch yet”

Vietnam project financing?

  • Financing in place already even before PNK got involved
  • Still need working capital financing

Target margin

  • They don’t target margins
  • They target profitable growth

Sustainability of favorable promotional environment

  • Didn’t really provide an answer

Can River Downs be profitable before slots?

  • Highly unlikely

Why is there so much left to spend on BR when it is opening in 3Q?

  • Flooding slowed it down – were not released until mid-July to work on the site
  • Focused on the budget – will stay within budget and timeline
  • A lot of the spend doesn’t come due until after they open

Bonds bought back are not retired but for all practical purposes they are

 

 

HIGHLIGHTS FROM THE RELEASE

  • "This performance continues to demonstrate that our strategies to elevate the guest experience at our properties, leverage the industry-unique benefits of our mychoiceguest loyalty program, and a team-wide commitment to implementing operational best practices are driving profitable revenue growth.  At the same time, Pinnacle's strong operating results provide a solid foundation and financial flexibility for the Company to build shareholder value from our diversified, return-focused growth pipeline."
  • "Our St. Louis segment and L'Auberge Lake Charles are consistently achieving record or near their highest-ever levels of monthly market share as guests increasingly choose these properties as their preferred gaming entertainment destinations"
  • "As a result of our comprehensive approach to growing revenues and implementing operational best practices, we are generating steady increases in spend per visit, particularly in our most profitable customer tiers, as well as operating margin improvements which together result in profitable revenue growth."
  • "Construction of the facility is moving at a faster pace since waters on the Mississippi river subsided earlier in the third quarter to allow construction to resume on the hotel and casino.  Reflecting the combination of nearly seven months in construction disruption and previously unanticipated site preparation work recently mandated by theArmy Corps of Engineers following historically high river levels earlier in the year, management expects the construction budget for L'Auberge Casino & Hotel Baton Rougeto increase by up to 3.0% from the prior budget of $357 million.  As of September 30, 2011, approximately $110 million of the budget had been invested."
  •  "Plans to redevelop River Downs Racetrack in southeast Cincinnati, into a premier racing and gaming entertainment destination that is planned to include up to 2,500 VLTs and new amenities, continue to progress. Timing will be dependent upon, among other things, the finalization of authorization of VLTs in Ohio."
  • "Completed its previously announced transaction with Asian Coast Development (Canada)... The first phase of the development, which will be the first fully integrated resort project in the country and will be managed by MGM International, is expected to open by the end of the first quarter of 2013."  
  • "In August, the Company entered into an amended and restated revolving credit agreement.  Among other changes, the size of the credit facility was increased from $375 million to $410 million and the maturity date was extended from March 2014 to August 2016.  Additionally, the effective interest rate was reduced throughout the pricing grid, with a current interest rate of 250 basis points over LIBOR compared to the previous effective interest rate of 375 basis points over LIBOR."
  • "During the quarter, the Company made open market purchases, at par and from cash on hand, of $10.0 million of its outstanding 7.5% Senior Subordinated Notes due 2015. The Company recorded a $0.2 million loss on early extinguishment of debt as a result of these transactions, related to the partial write off of unamortized deferred financing fees."
  • Balance sheet: $83.3 in cash & equivalents, "an estimated $65 million of which is used in day-to-day operations". Debt: $32MM drawn on $410MM R/C and approximately $9.8MM LOC's O/S
  • Capitalized interest: $2.9MM
  • Unusual charges in the Q:
    • "Net revenue and Adjusted EBITDA for Boomtown New Orleans was impacted by the property's closure for several days over Labor Day weekend due to Tropical Storm Lee and subsequent flooding disruption in the region... Management estimates Boomtown New Orleans Adjusted EBITDA was negatively impacted by approximately $0.9 million due to this closure and disruption."
    • "Adjusted EBITDA for Belterra Casino Resort and River Downs were impacted by unusually high medical claim expenses of $0.5 million and $0.3 million, respectively.  Belterra's Adjusted EBITDA in the 2010 third quarter included a one-time benefit of $0.8 million from the resolution of a tax matter, affecting comparability with the 2011 third quarter."
    • "River Downs recognized a $0.3 million charge during the 2011 third quarter related to abnormally high medical claim expenses."
    • "During the quarter, Boomtown Reno was classified as a discontinued operation.  The Company recorded a non-cash charge of approximately $11.9 million or$0.19 per share to write-down the assets."

 


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