PNK 3Q 2013 CONFERENCE CALL NOTES

Muddy quarter but a big underlying miss. October was better in regional gaming land, however.

 

 

"Overall, operating trends were generally soft during the 2013 third quarter. The revenue environment was challenging across all of the Company's key markets due primarily to macroeconomic weakness, and in some isolated instances, an increase in the number of competing gaming facilities. In response to this, we began making adjustments to operating and marketing expense levels of our properties in the third quarter, and will address any persistent revenue softness with continued expense reductions over time. Beyond these normal course operating and marketing expense refinements, the Company expects synergies and cost efficiencies from the acquisition and integration of the operations of Ameristar to provide additional support and to offset the impact of revenue softness on the cash flow produced by our properties."

 

-Carlos Ruisanchez, President and Chief Financial Officer of Pinnacle Entertainment

 

 

CONF CALL

  • Operating environment challenging
  • Since close of transaction, paid $71MM of term loans
  • $20MM synergies:  public company costs, labor (moving to select leadership teams for combined company) and scale efficiencies
    • Marketing/healthcare efficiencies to come
    • Still believe they will exceed synergy target of $40MM
  • Trends:  October was better than September (it could be as good as July)
  • Will roll out of combined Discovery loyalty program in Q2 2014 
  • L'Auberge Lake Charles table drop, table rev and retail rev hit records; hotel did well 
  • St. Louis:  River City significantly outperformed the market; new hotel opened in August 28.  37% increase in guest satisfication.
  • Indiana/Southern markets:  increased competition.  Adjusting marketing spend to reflect current business conditions.
  • L'Auberge Baton Rouge:  growing the market, 53.4% market share (highest since opening); hotel demand remains high (property producing the 2nd highest REVPAR at combined company)

Q & A

  • Corporate expenses:  apples-to-apples basis down $4MM YoY
  • 16th straight quarterly REVPAR improvement in PNK
  • Business fairly in great shape
  • Saw softness in August and September; spend (including marketing) will adjust to current business conditions
  • Focused on profitability, not market share 
  • 4Q:  synergies - consolidating marketing program 
  • Remaining $20MM of synergies:  will be achieved without any revenue; more positive on the synergies than a quarter ago
  • Baton Rouge margins:  20%
  • Bossier City been impacted by Margaritaville and Oklahoma; Margaritaville has not grown the market
  • Feel very good about New Orleans; continuing to build a hotel there
  • Baton Rouge:  guest satisfication high; market remains underpenetrated
  • Very bullish on Lake Charles market
  • Revenue synergy opportunities:  1) putting PNK's hotel yield automated system in ASCA portfolio 2) combining myChoice program next Spring 3) legacy PNK has established marketing infrastructure and will leverage it.
  • Ohio internet cafes have stopped operating
  • River Downs: will open with 1,600 VLTs 
  • Belterra: has held up very well.  Has mitigated competition from Cincinnati.
  • Leverage goal: 3.5x-4.0x
  • Cash flow of combined firm should continue to grow
  • Colorado floods in September impact on ASCA Black Hawk:  not meaningful
  • Expect Landry to get Lake Charles license by end of year 
  • Would like $100-110MM in cage cash
  • Depreciation run rate: +/- $50MM off of the $200MM number in a previous quarter
  • Capitalized interest guidance:  couple of $MMs - Lake Charles, Belterra Park (minimal cap interest), and stopped capitalizing interest in River Downs

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