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Soft quarter and guidance.  Management probably a little conservative but cannibalization is a wildcard

 

 

PENN 4Q11 CONF CALL NOTES

“Although widespread economic concerns and volatility in the capital markets prevailed throughout the quarter and full year, consumer spending at our facilities remained relatively stable and we continued to make progress across the organization in enhancing operating efficiencies and maintaining a disciplined approach to marketing. Our current outlook and guidance for 2012 contemplates a continuation of the trends experienced in 2011, reasonable expectations for our newest facilities and the rate at which they will ramp to their potential and a realistic view of the impact of new competition on current operations."

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

CONF CALL NOTES

  • October was soft, November was stable and December was great. Started slow and finished strong. Weather helped and is continuing to help in January
  • Guidance: Taking a realistic view given the uncertainty in the economy
  • Saw slight increase in YoY SS sales growth - with strength at the VIP segment ($400+)
  • Promotional environment remains rational which helped them achieve their margin improvement in the quarter

Q&A 

  • They expect some minor EBITDA improvement in markets not impacted by cannabilization but in markets with cannabalizations they will take a margin hit. Expect good margins from new facilities
  • They will complete construction on Toledo on March 15th.  Hope that they can open before May but they know that it won't be mid-March. They will have more clarity on the opening date in the next week hopefully. They hope for a opening sometime in April.
  • Will be opportunistic with their buybacks. However, they are still looking forward to a number of projects down the line so they want to leave dry powder. Middle of 2015 when the Fortress warrants expire they will have a material reduction in share count
  • Cash: $238MM; Bank debt: $1.7BN; 4.2MM capital leases; $325MM of bonds.
  • Capex: Maintenance of $24.8MM in the Q and 64.7MM of project capex. Kansas investments: $23.6MM in the Q
  • Given all the moving pieces in 2012 (opening timing and impact from competitive openings) they prefer to be conservative in their estimates. Given all the variables this year - they can easily come in +/- $30MM of EBITDA vis a vis their projections. That being said they gave a number that they thought was achievable
  • They are clearly concerned about Charlestown with the opening of Anurdel but that will also impact Perryville to some extent.  Very difficult to predict what the impact will be of all the new openings this year.
  • Impact of Scotia Downs opening?
    • They think that the impact of their early opening will be inconsequential
    • Thinks that many other steps will need to be taken and overcome before they will be able to open
    • They are proceeding very carefully on Ohio VLTs. There is a hearing to dismiss the lawsuit in a [month]
    • If they are able to open a few months before PENN they have no concerns that MNTR will have a first mover advantage over them given the superior quality of their facility
  • Ramp in Ohio?  Good proxy would be Penn National from a revenue and margin ramp
  • SS revenues excluding properties impacted by openings are basically flat.  Biloxi is struggling, other markets are better
  • $5.9MM impairment charge in NJ?
    • 50/50 JV with their Freehold partner in Kansas
    • Their partner did a valuation of the goodwill in their JV which needed to be written - no more goodwill left in the JV
  • Tax rate bounces around due to the deductibility of various expenses. They had an accrual issue vs. estimates getting trued up in the last quarter
  • Corporate expense in 4Q - included in other. Nothing extraordinary in that number which is in line with past few quarters
  • Latest on VLTs in IL:
    • Government remains opposed to slots at tracks
    • Online gaming could change some things
    • Slots at bars? no impact from that - West Virginia is a very good comp of why they don;t think anything will happen
  • Senator Kyl and Reed are keeping things very close to the vest. Expect some movement on the Senate side but expect some delays and issues on the House side.  They continue to have reservations about online gaming. They are monitoring the situations and there are a lot of unanswered questions on the topic
  • Sioux City: Have had some advice discussions about relocating their operations to a location that would benefit all parties involved. They have had discussions about changing partners which PENN is opposed to.  They are hopeful that they can come to an agreement by mid-year
  • Looking at land in Massachussetts.  Worried about local politics.  Cautiously optimistic but need community support.  They have a plan.
  • Casino Rama - mgmt contract extended for another 6 months to 12/31/12 under current terms. Can't predict what will happen after that.
  • Kentucky - Slots at tracks potential bill.  Need 3/5ths majority.  Senate will be a challenge.

HIGHLIGHTS FROM RELEASE

  • "Repurchased 2,225,889 shares of our Common Stock in the fourth quarter for approximately $78.2MM, or an average price of $35.12 per share."
  • “The anticipated openings of Hollywood Casino Toledo and Hollywood Casino Columbus in the second and fourth quarter of 2012... Both the $320 million Toledo facility and the $400 million Columbus property remain on budget and despite public reports from the Ohio Casino Control Commission that our anticipated opening date for Toledo might be pushed back, we are continuing to work with the Commission and staff with the hope of minimizing any potential delays." 
  • “The State of Ohio has approved the placement of VLTs at the state’s seven racetracks and while we await the final regulatory framework, we are actively pursuing the relocation of our existing racetracks in Toledo and Grove City to Dayton and Youngstown, respectively, subject to the satisfaction of regulatory and other approvals. 
  • 4Q benefited from "strong property performances in our East/West segment attributable to continued strength at Hollywood Casino at Charles Town Races as well as further operating margin improvements.
  • Outlook/assumptions:
    • "Hollywood Casino at Kansas Speedway (joint venture) opens on February 3, 2012 with an expected impact to the Company’s Argosy Casino Riverside property;
    • Hollywood Casino Toledo opens in May 2012
    • Hollywood Casino Columbus opens in November 2012 with a relatively minor impact on Hollywood Casino Lawrenceburg;
    • Margaritaville Biloxi opens in May 2012 with an anticipated impact to our Boomtown Biloxi property;
    • Maryland Live! opens in July 2012 with an expected impact to our Hollywood Casino at Charles Town Races, Hollywood Casino at Penn National Race Course and Hollywood Casino Perryville properties;
    • L’Auberge Baton Rouge opens in August 2012 with an impact to the Company’s Hollywood Casino Baton Rouge property;
    • Horseshoe Cincinnati does not open during 2012 (and thus, no impact is expected to Hollywood Casino Lawrenceburg);
    • The January 2012 signing of the Casino Rama management contract which extends the agreement through September 2012;"
    • Pre-opening expenses: $17.2MM in 2012, $7.3MM 1Q12
    • No gains from insurance proceeds related to the Hollywood Casino Tunica flood
    • D&A: $225.2MM for 2012, with $51.2MM in 1Q12
    • Stock comp: $28.7MM for 2012, with $7.2MM in 1Q12;
    • Tax rate: 39%;
    • Diluted share count:106.5MM