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Solid execution and quarter. July slowness moderates the enthusiasm. 

"We are pleased to report solid 2012 second quarter operating results. As a whole, the Company delivered its tenth consecutive quarter of simultaneous revenue, Consolidated Adjusted EBITDA and Consolidated Adjusted EBITDA margin growth."

Anthony Sanfilippo, president and chief executive officer of Pinnacle Entertainment

CONF CALL NOTES

  • Believe that at PNK's current share price, buybacks are a good use of capital
  • MyChoice:
    • Events were held in April to kick off the year’s program; attracted over 70% of their top 3 tiers
    • 9% increase in rated days and 8% increase in rated play
    • Universal card deployment should be completed by 1Q13
    • Marketing spend as a % of gaming revenue was actually down 60bps YoY
  • Slight softness in rated guests in April and May, offset by strength in June
  • Seeing overall customer spend unchanged on a per trip basis with just a slight reduction in the number of trips when compared to 2Q11
  • L’Auberge and Boomtown Bossier City had YoY gains in trip frequency, while River City experienced growth in both trips and spend.
  • St. Louis: properties gained 70bps of market share YoY.  Achieved an all-time record market share of 34.2% in May.
    • Marketing spend as a percentage of GGR declined 1.1% vs 2Q11
    • Had a very good hotel yield with cash revenue up 24% driven by continued optimization of demand between local guests and visitors to St. Louis
  • L’Auberge: Record setting quarter with all-time highs in gaming revenue, non-gaming revenue, net revenue and EBITDA. 

  • Belterra: they continue to outpace the market. Had strong hotel performance with cash revenue up 16%
  • Boomtown Bossier: Strong play from local customers drove growth of 1.2% vs. total market decline of 6%
  • New Orleans: Admissions were flat, while revenue per admission declined 3.3%.  Marketing reinvestment was flat YoY, they remain focused on appropriate levels of spend and visitation.
  • Vietnam: 30% tax rate on mass market play; VIP tax will be materially lower as commissions to junkets will be tax deductible
  • MGM Grand Ho Tram Phase 1A is expected to cost $487MM plus $50 million of cash on hand at June 30th at ACDL.  ACDL’s financial resources include: $175MM facility ($57MM); $30MM of loan commitments from Harbinger entities and expected $60 million funding. In order for Phase 1A of MGM Grand Ho Tram to open in the first quarter of next year, ACDL needs a working capital facility of $35MM, which should be in place by year end.
  • Ph1 of River Downs is expected to open in 2013
  • Think that the hotel at New Orleans will cause very limited disruptions and when completed, all of their properties will have hotel rooms.  Expect north of a 15% ROI.
  • Hotel renovations over next 18 months at L'Auberge: $17MM

Q&A

  • The ACDL additional investment is contingent on the raise of the full $60MM
    • They expect Harbinger Capital to continue to invest their pro-rata share
    • Expect the capital raise to close over the next few weeks
  • Heartland is expected to be accretive. Asset is EBITDA positive. Will see the impact in 3Q. Should be accretive on all metrics since they paid for it in cash.
  • What have they seen in July: started off soft. There were some calendar issues with a weekend falling into June. 
  • They are near capacity at Lake Charles and the improvements at the property are really as a result of better yielding the property and bringing in a higher quality guest. 
  • Can maintain the corporate expense run rate this quarter. 
  • River Downs: have a great site with great access. They are looking to do a multi-phase development. Look to update the existing racetrack
  • They need to see about a 20% ROI before deciding to make additional investments in any of their properties
  • Excess land at Reno will continue to have property tax charges but a lot less than what they've been showing
  • L'Auberge: very high level of table game business. There were expenses related to relaunch of MyChoice for the year but that were recognized in 2Q.
  • Baton Rouge will focus to appealing to local and regional visitation. Have over 800k local customers. 
  • Ownership stake in ACDL will stay constant with the additional investment
  • No specific rules for Vietnam to comment on yet. The point of the hotels is to foster tourism. So expect that money will be allowed to be moved freely. Gaming is for foreigners and foreign nationals.

HIGHLIGHTS FROM THE RELEASE

  • Authorized a $100 million share repurchase program
  • Development & growth project updates:
    • PNK filed a license application with the Ohio Lottery Commission to operate VLTs at River Downs
    • PNK intends to invest an additional $15.6MM in ACDL as part of a proposed $60MM capital raise. 
      • "The $60 million capital raise, if consummated, along with previously secured financing commitments and a yet-to-be secured working capital facility, is expected to provide sufficient capital for the opening of Phase 1A of MGM Grand Ho Tram. In addition, the $60 million capital raise is also intended to fund a signature Greg Norman golf course, which is expected to open in 2013, and other parts of ACDL's Ho Tram Strip master plan. Phase 1A of MGM Grand Ho Tram remains on track to open in the first quarter 2013."
    • PNK plans to build a 150-room hotel tower at Boomtown New Orleans for $20MM; expected to open in late-2013
    • In July, PNK acquired "the assets of Federated Sports and Gaming, Inc. and Federated Heartland Inc. Through the Heartland Poker Tour purchase, we acquired an impressive portfolio of brands and intellectual property that will help us advance a new line of business and our online gaming strategy...Plan to expand the Heartland Poker Tour and more extensively integrate its events into our property portfolio...Expect the Heartland acquisition to be accretive."
    • L'Auberge Baton Rouge: targeted opening on August 29, 2012, pending the receipt of applicable regulatory approvals. The development remains on the targeted budget of $368 million
    • River City,St. Louis: "The 1,600 space parking structure is expected to open by Thanksgiving Day 2012. Construction of the second phase of this expansion, a 200-room hotel and multi-purpose event center, is expected to commence this fall. We expect the hotel and event center to be completed in 2H13"
  • MyChoice: 
    • "Our mychoice guest loyalty program continues to drive play consolidation at our properties, and we have experienced significant increases in member retention since re-launching the program in April of last year. Our existing members are exhibiting greater loyalty, and we are attracting and engaging new guests."
    • During 2Q "mychoice continued with the implementation of a universal card system at several properties and the addition of new rewards for our most loyal guests in the form of Atlantis Bahamas vacations, luxury timepieces and new Mercedes-Benz lease options."
  • Property specific color: 
    • St Louis: 2Q "performance was driven by gaming revenue growth, more efficient marketing and general operating expense discipline."
    • Belterra's 2Q "performance was driven by gaming revenue growth and general operating expense discipline."
    • In 1H12, the use of medical pooling had a $0.9 million favorable impact on Adjusted EBITDA for Belterra and a $1.9 million negative impact on Adjusted EBITDA for St. Louis.
    • L'Auberge Lake Charles: 2Q "performance was driven by growth of gaming and cash non-gaming revenues, as well as more efficient marketing"
    • "New Orleans continues to experience difficult comparisons due to last year's elevated local economic activity created by the Deep Horizon oil spill cleanup and recovery efforts, which the property partially offset with operating expense discipline."
    • "Boomtown Bossier City continues to face a very competitive operating environment, but cost discipline has permitted the property to drive Adjusted EBITDA growth despite revenue challenges."
  • "The reduction in 2Q12 corporate overhead expense was driven principally by efforts to eliminate nonvalue added expenses at the Company's Las Vegas headquarters, as well as a ramp up of cost savings and property allocations related to the Company's shared service centers supporting our properties in the Midwest and Louisiana."
  • On June 26, PNK closed on the disposition of its Boomtown Reno casino-resort operations for $12.9MM
  • Cash: $203MM and R/C was undrawn
  • 2Q12 Capex: $90.9MM ($76.6MM of construction related to Baton Rouge). Through June 30, 2012, the Company has incurred approximately $299.5 million of the $368 million budget for L'Auberge Baton Rouge, excluding land costs and capitalized interest, and $13 million of the $82 million budget for the River City expansion project
  • Capitalized interest in the 2012 second quarter was $6.4 million