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PENN 3Q12 CONF CALL NOTES


“Despite the still challenging economic environment, regional market revenue trends and customer visitation levels remain largely stable and Penn National’s third quarter revenue and adjusted EBITDA exceeded guidance when excluding lobbying expenses. Our results again highlight the benefits of expanding and diversifying our gaming operations as well as the dedication and focus of our corporate and property management teams who continue to enhance operating efficiencies and maintain a disciplined approach to marketing and promotional activities."


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

Q&A

  • Decline in win per unit per day at Toledo?  Opened 5 months ago in the summer season.  Just seeing normal evolution in months 4 and 5. From a database standpoint, they continue to sign up from customers. Have 200,000 customers signed up. With a 33% tax rate, they are very pleased with the flow-through and expect similar results in Columbus
  • Early results in Columbus are very good.  They had 25,000 visitors on Saturday.  Have lines to get into the poker rooms and tables are very busy.
  • 4Q guidance? Is it better or worse excluding St. Louis? The bulk of the difference in the increase of the guidance is due to St. Louis.
  • Promotional environment is very stable in the WV market.  Their Asian play continues to be very strong there.  Very rational and similar to pre-Maryland Live!.
  • If Question 7 in MD fails? They expect the State to recraft the bill on the issue of table games.
  • They are always trying to increase FCF/share
  • They are aggressively looking for opportunities everywhere.  The M&A environment is fine.  It does appear that sellers are recognizing the new normal and therefore there are more willing, reasonable sellers.  That's why you are seeing more transactions.
  • In MA: will the winner be the loser, given the risk of overspending?  They think that they have the best site and will spend up to a number that makes sense.  When they do their analysis, they are factoring in Hartford for about 5 years until another competitor crops up.  They also have a lower cost of capital than some of their competitors.
  • Generally their business that haven't been impacted by new supply are flat. Not seeing any uplift or major headwinds either.  Many of their markets have been impacted on new supply though.  So flat consumer trends. 
  • They are in the middle of their 2013 budgeting process.  Most property managers are projecting a stable environment.  Their biggest challenge is figuring out the impact of competition on their business. 
  • In 3Q, they saw a very rational promotional environment, which allowed them to cut back and still expand their margins.  Expect the same type of environment in 2013.
  • Too early to assess the behavior of their Columbus competitor.  They are feeling an impact in Lawrenceburg.  They are doing a lot to reduce expenses at Lawrenceburg.
  • Should the lobbying expenses be included as part of the project expense? They do not want to forecast how much they are planning to spend and it's not in the guidance. However, what's been spent is in the numbers. There are only 3 more weeks to keep spending anyway.
  • In MA, they don't have any lobbying expenses
  • Toledo is doing a little better than they thought, Charles Town is doing better than they thought.  Gulf Coast area is challenging though.
  • They have seen impact from Scioto on Lawrenceburg driven by Columbus originated customers. They are also working on moving down their cost structure.
  • When Horseshoe Cincinnati opens, they will see another influx of competition to which they will need to adjust their business and operating expenses
  • Capex:  3Q: $14MM maintenance, $147MM project capex (Columbus and Toledo mostly). 4Q: $155.5MM (24MM maintenance)
  • Cash:  $217.4MM
  • Debt:  $1.839BN Debt, $12MM capital leases. $2.176BN total
  • Impact of L'Auberge Baton Rouge?  This is the honeymoon period.  Usually it takes 4-5 months to feel the true impact of a competitor. So far the impact has been slightly less than they expected. 
  • Ontario gaming expansion:  Looking at a number of different markets in the province and are in discussions with the government there. Need to resolve the Toronto decisions first. Most of the markets they are looking at would not be impacted by Toronto and they are not interested in Toronto given the level of required capital investment
  • Texas:  Have a significant number of lobbyists pushing to allow Texans to vote on gaming expansion.  Their position is to allow gaming where it already exists (i.e. tracks)
  • Ohio:  Waiting for approvals from the Lottery and Racing Commission to relocate their tracks and hope to get those by year end. Design continues to evolve and continue to get better pricing. 
  • Vegas:  They continue to show improved margins at M despite flat revenues at the property.  Construction continues to move very slowly there.  2013 economic conditions should look similar to 2011 & 2012. 
  • Competitive pressures will soon be over since there aren't many more markets in the intermediate term that will add gaming
  • M resorts: they are very happy with the $230MM investment they made. They continue to see improved margins and expect that to continue in 2013. Once the locals market rebounds, there will be a lot of upside.  Their existing 390 rooms are showing good occupancy. 

HIGHLIGHTS FROM THE RELEASE

  • 3Q12 "results benefited from the opening Hollywood Casino Toledo in the second quarter of 2012 and last summer’s acquisition of M Resort. We are focused on expanding the EBITDA contributions from these facilities as we rationalize operating costs, and fine tune the slot floor mix and player marketing efforts, as well as the food and beverage and entertainment offerings."
  • "We are making continued progress towards the construction of the new $150 million integrated racing and VLT facilities in Austintown and Dayton. We anticipate both facilities will open sometime in 2014... Each facility expected to create approximately 1,000 permanent direct and indirect jobs"
  • "We intend to continue to aggressively inform Maryland voters on what we believe to be a flawed process that handicaps competition for a potential sixth casino license in Prince George’s County for National Harbor. We’ve sought a fair and balanced approach to this issue, but to date, the local process in Maryland continues to jeopardize the long-term viability of Rosecroft Raceway."
  • “In early November we expect to close on the acquisition of Harrah’s St. Louis in an accretive transaction. Harrah’s St. Louis will further expand Penn National’s regional operating platform with a facility that is well-positioned in another large, stable metropolitan market. Upon closing, we will re-brand Harrah’s St. Louis with the Company’s Hollywood brand, which is now deployed at thirteen of our properties across the country. We estimate the budget for re-branding the facility, refreshing areas of the gaming floor and aligning our IT and reporting functions to be $61 million. By prudently managing our capital structure, we were able to act on the St. Louis opportunity and further expand our property portfolio, and we intend to remain opportunistic with respect to other potential transactions.”

PENN 3Q12 CONF CALL NOTES - penng