- Establishes 2016 Third Quarter Guidance
and Updates 2016 Full Year Guidance -
- Hollywood Casino Jamul-San Diego Prepared
for August Grand Opening -
Penn National Gaming, Inc. (PENN: Nasdaq):
Conference Call:
Today, July 28 2016 at 9:00 a.m.
ET
Dial-in number:
212/231-2920
Webcast:
www.pngaming.com
Replay information provided
below
Penn National Gaming, Inc. (PENN: Nasdaq) (“Penn National
Gaming,” “Penn National,” “Penn,” or the “Company”) today reported
operating results for the three months ended June 30, 2016, as
summarized below.
Summary of Second Quarter
Results
(in millions, except per share data)
Three Months Ended June
30,
2016 Actual 2016 Guidance (3)
2015 Actual Net revenues (1) $ 769.4
$ 786.8 $ 701.0
Net income $ 34.0
$ 25.1 $ 3.0
Plus: Impact of stock compensation,
non-operating items forKansas JV, depreciation and amortization,
changes in theestimated fair value of contingent purchase price,
gain/loss ondisposal of assets, interest expense - net, income
taxes, andother expenses
189.8 200.4 192.4
Adjusted EBITDA (2) $ 223.8 $ 225.5 $
195.4
Diluted
earnings per common share $ 0.38 $ 0.27 $
0.03 (1) Net revenues for the three months ended June 30,
2016 included $2.9 million of reimbursed management costs on our
Jamul management contract which have no profit margin but are
required to be reported in revenues. (2) Adjusted EBITDA is income
from operations, excluding the impact of stock compensation,
impairment charges, insurance recoveries and deductible charges,
depreciation and amortization, changes in the estimated fair value
of the contingent purchase price payable to the previous owners of
Plainridge Racecourse and gain or loss on disposal of assets.
Adjusted EBITDA is also inclusive of income or loss from
unconsolidated affiliates, with our share of the non-operating
items added back for our joint venture in Kansas Entertainment, LLC
(“Kansas Entertainment” or “Kansas JV”). Adjusted EBITDA excludes
payments pursuant to the Company’s Master Lease (the “Master
Lease”) with Gaming and Leisure Properties, Inc. (“GLPI”), as the
transaction is accounted for as a financing obligation. Payments to
GLPI totaled $110.8 million and $109.5 million for the three months
ended June 30, 2016 and 2015, respectively. (3) The guidance
figures in the table above present the guidance Penn National
Gaming provided on April 28, 2016 for the three months ended June
30, 2016.
Review of Second Quarter 2016 Results vs. Guidance
Three Months Ended June 30, 2016
Pre-tax After-tax (in thousands)
(unaudited) Income, per guidance (1) $ 44,016 $ 25,089
Adjusted EBITDA variances: Operating segment variance (9,676
) (5,908 ) Tropicana legal settlement gain, net of severance and
impact of gaming floor disruption 3,526 2,247 Cash-settled
stock-based awards variance 4,253 2,710 Insurance accrual
adjustments, net of Dayton property tax savings (2,022 ) (1,235 )
Other variance, primarily corporate overhead costs 2,153
1,372 Total Adjusted EBITDA variances
from guidance (1,766 ) (814 ) Depreciation and amortization
variance 1,128 689 Interest expense variance 1,218 776 Other 243
148 Tax variance - 8,147 Income,
as reported $ 44,839 $ 34,035 (1)
The guidance figure in the table above presents the guidance
Penn National Gaming provided on April 28, 2016 for the three
months ended June 30, 2016.
Timothy J. Wilmott, President and Chief Executive Officer,
commented, “As reported by most jurisdictions, regional gaming
industry trends began softening midway through the second quarter
and remained so through June. Largely reflecting the change in the
operating environment, Penn National’s 9.8%, 21.1% and 14.5%
year-over-year increases in second quarter net revenue, income from
operations and adjusted EBITDA, respectively, were slightly below
guidance after accounting for various property level adjustments
and corporate expense reductions. While the current operating
environment reflects some challenges, our second quarter financial
growth reflects meaningful contributions from our expansion and
diversification initiatives over the last year, including
Plainridge Park Casino, Tropicana Las Vegas and Prairie State
Gaming. During the quarter, we saw stable levels of customer visits
and spend per visit by rated players, offset by softness in the
unrated customer segments in several of our key markets. Despite
this operating environment, we largely preserved our operating
segment and consolidated EBITDA margins by making prudent
adjustments to property level and corporate expenses. Reflecting
our focus on consistently generating significant free cash flow,
the Company reduced bank debt by $35 million since year-end, while
advancing slightly more than $100 million for the construction of
the Jamul Indian Village project which we expect to open next
month.
“Adjusted EBITDA margin growth in the Northeast segment reflects
ongoing improvements at all four of our Ohio properties and in
Massachusetts, which continued to ramp and more than offset
softness at other Northeast segment properties. The adjusted EBITDA
margin decline in the South/West segment reflects our operations in
areas of the country sensitive to adverse energy industry trends
and new competition, such as New Mexico and the Gulf Coast, which
offset strength in our Las Vegas market operations. In addition,
while Tropicana Las Vegas continues to grow and is demonstrating
encouraging trends in its first year of our ownership and
operation, the property is not yet achieving margins comparable to
other properties in the South/West segment. Our Midwest segment
adjusted EBITDA margin fell slightly from year ago levels as a
result of the low single digit decline in same facility segment
revenue and the inclusion of the lower margin Prairie State Gaming
video gaming terminal operations which were not part of the mix in
the year ago period. In spite of the challenging second quarter
regional gaming environment and the impact of a different business
mix related to Tropicana Las Vegas and Prairie State Gaming, our
consolidated property operating adjusted EBITDA margins declined
only 27 basis points compared to year ago levels. Additionally, we
remain diligent in reducing corporate overhead costs which declined
by $2.2 million on a year over year basis excluding the variation
in cash settled stock based compensation expense.
“Looking forward, Penn National’s $390 million Hollywood Casino
Jamul-San Diego for which we are acting as developer, manager and
lender is prepared to open in a few weeks pending final regulatory
approvals. We are excited about the opening of this beautiful
three-story gaming and entertainment facility for the Jamul Indian
Village as the property achieves new levels of design and luxury
for our Hollywood brand. We expect strong patronage based on the
amenities and the site’s advantageous access to downtown San Diego
relative to other gaming offerings. The property is opening with
more than 1,700 slot machines, 43 live table games, an upscale
lounge featuring national and regional entertainment, a beer
garden, a broad range of dining amenities including a four-venue
food court and Tony Gwynn’s Sports Pub, and an eight-story
partially subterranean parking garage with over 1,800 parking
spaces. As of June 30, Penn National funded approximately $260.3
million toward the project’s construction and completion, and as we
approach the opening we remain confident in the near-term prospects
for securing permanent financing for the Jamul Indian Village
which, when complete, will be applied to reduce debt and enhance
our liquidity position.
“At Tropicana Las Vegas, we have refreshed the gaming floor with
new slots, altered game placements and made refinements to the
table game mix. While making some of these improvements temporarily
disrupted the property’s early second quarter operating results,
we’ve been successful in generating quarterly sequential growth in
adjusted EBITDA in each period since assuming ownership. Since our
acquisition, we’ve also completed a wide range of facility and
operational improvements intended to leverage the property’s
recently renovated room base. As planned, during the second
quarter, we launched our Marquee Rewards player loyalty program and
booked over 10,000 room nights at Tropicana Las Vegas from our
regional gaming customers in the months of May and June. The next
step in our ongoing plan to drive incremental revenue and EBITDA
includes enhancing the property’s food and beverage offerings and
other amenities. In May, we announced that celebrity chef Robert
Irvine, host of Food Network’s Restaurant Impossible, will open his
first signature restaurant on the Las Vegas Strip at Tropicana Las
Vegas in 2017. As expected, the property is beginning to benefit
from new attractions and activity on the south end of the Las Vegas
Strip, including the new 20,000-seat capacity arena that opened
during the second quarter, which beginning in the fall of 2017 will
serve as the home arena for a National Hockey League expansion
team. Finally, we continue to analyze additional non-gaming
amenities and other enhancements on our 35 acres of Strip property,
with the scope, budget and timing of any such improvements to be
based upon our ongoing development of the customer base and our
criteria for returns on invested capital.
“We also continue to evaluate other businesses and emerging
growth platforms that are ancillary and complementary to our core
regional gaming operations. Our nascent Hollywoodcasino.com social
casino offering is a profitable standalone business, now averaging
over 50,000 daily active users, while also serving as an effective
land-based customer acquisition tool. Based on our research, a
significant segment of our database customers actively participate
in social and online gaming and we continue to evaluate a host of
opportunities to expand our presence in this area on an accretive
basis.
“Our guidance for the third quarter and revised full year 2016
guidance reflect the current regional gaming operating environment
balanced with our focus on achieving operating efficiencies. Our
plans for San Diego and Las Vegas are thoughtfully structured both
from a facility development and return on invested capital
perspective, our free cash flow generation is solid and we expect
leverage and balance sheet liquidity improvements shortly after we
secure permanent financing for the Jamul Indian Village. At the
same time we remain active on many fronts as we seek to evaluate
compelling and accretive growth opportunities and prudent
deployment of our capital base to enhance shareholder value.”
Development and Expansion
Projects
The table below summarizes Penn
National Gaming’s ongoing development project:
Project/Scope New
Gaming
Positions
Planned
Total
Budget
Amount Expended through June
30, 2016
Expected
Opening
Date
(in millions) (unaudited)
Jamul Indian Village project (CA) -
Construction continues at the site for thisnew Hollywood Casino
branded gaming operation which Penn will manage.The facility is
anticipated to feature over 1,700 slot machines, 43 live tablegames
including poker, multiple restaurants, bars and lounges.
1,958 $390 (1) $260.3 August 2016
(1)
As disclosed previously, funds advanced
for this project are accounted for as a loan. The budget and
expended amounts exclude the purchase of a $60 million subordinated
promissory note from the previous developer of the project during
the fourth quarter of 2015 for $24 million.
Financial Guidance
Reflecting the current operating and competitive environment,
the table below sets forth 2016 third quarter and full year
guidance targets for financial results based on the following
assumptions:
- An August opening of Hollywood Casino
Jamul-San Diego (updated from the prior expectation of a July
opening) and no third party financing obtained for the facility
during 2016;
- MGM National Harbor opens in the fourth
quarter of 2016 impacting Hollywood Casino at Charles Town
Races;
- A full year contribution from the
Company’s management contract for Casino Rama;
- The Company completes its sale of
Rosecroft Raceway and records a gain of $1.7 million during the
third quarter of 2016 which is reflected in disposal of
assets;
- Full year corporate overhead expenses
of $75.8 million, with $20.7 million to be incurred in the third
quarter of 2016;
- Depreciation and amortization charges
in 2016 of $266.6 million, with $67.4 million in the third quarter
of 2016, which includes depreciation expense related to real
property leased from GLPI;
- Payments to GLPI of $443.7 million in
2016, with $110.4 million in the third quarter of 2016, which will
reduce our June 30, 2016 financing obligation by $12.3 million at
September 30, 2016 and by $24.9 million at December 31, 2016,
respectively, with the remaining payments recorded as interest
expense.
- Our rent coverage ratio for year three
of the Master Lease at June 30, 2016 is 1.83 and we expect to incur
the maximum rent escalation of $5.1 million at October 31, 2016,
which is the conclusion of year three of the Master Lease, of which
$0.9 million will be incurred in 2016 and is reflected in interest
expense;
- Interest expense in 2016 of $463.1
million, with $115.0 million in the third quarter of 2016, which
includes the interest expense related to the Master Lease financing
obligation with GLPI;
- Non-cash accrued interest income on the
loan to the Jamul Tribe of $15.1 million, with $3.7 million accrued
in the third quarter of 2016;
- Our share of non-operating items (such
as depreciation and amortization expense) associated with our
Kansas JV will total $10.3 million for 2016, with $2.6 million to
be incurred in the third quarter of 2016;
- Estimated non-cash stock compensation
expenses of $7.1 million for 2016, with $2.1 million to be incurred
in the third quarter of 2016;
- LIBOR is based on the forward yield
curve;
- A diluted share count of approximately
91.6 million shares for the full year 2016; and
- There will be no material changes in
applicable legislation, regulatory environment, world events,
weather, recent consumer trends, economic conditions, oil prices,
competitive landscape (other than listed above) or other
circumstances beyond our control that may adversely affect the
Company’s results of operations.
Three Months Ending September 30, Full Year
Ending December 31, 2016
Guidance
2015
Actual
2016 Revised
Guidance
2016 Prior
Guidance (1)
2015 Actual (in millions, except per
share data) Net revenues $ 767.3
$ 739.3 $ 3,030.5 $
3,053.5 $ 2,838.4 Net
income $ 26.3 $ 4.9 $
98.9 $ 80.0 $ 0.7 Income tax
provision 5.0 35.4 26.3 50.2 55.9 Other - (2.7 ) 2.4 2.4 (5.9 )
Income from unconsolidated affiliates (3.8 ) (3.8 ) (14.9 ) (15.3 )
(14.5 ) Interest income (4.6 ) (3.1 ) (27.2 ) (32.7 ) (11.5 )
Interest expense 115.0 111.4
463.1 466.9
443.1
Income from operations $ 137.9
$ 142.1 $ 548.6 $ 551.5
$ 467.8 Loss (gain) on disposal of assets (1.7 ) 0.3
(2.3 ) (0.7 ) 1.3 Impairment losses - - - - 40.0 Charge for stock
compensation 2.1 2.0 7.1 7.6 8.2 Contingent purchase price 0.2 (6.6
) (0.6 ) (0.5 ) (5.4 ) Depreciation and amortization 67.4 66.1
266.6 267.5 259.5 Income from unconsolidated affiliates 3.8 3.8
14.9 15.3 14.5 Non-operating items for Kansas JV 2.6
2.5 10.3
10.3 10.4
Adjusted EBITDA
$ 212.3 $ 210.3
$ 844.6 $ 851.0
$ 796.3 Diluted
earnings per common share $ 0.29 $ 0.05 $ 1.08 $ 0.87 $ 0.01
(1) The guidance figures in the table above present the
guidance Penn National Gaming provided on April 28, 2016 for the
full year ended December 31, 2016.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Segment Information – Operations
(in thousands) (unaudited)
NET REVENUES INCOME FROM
OPERATIONS ADJUSTED EBITDA Three Months Ended
June 30, Three Months Ended June 30, Three Months
Ended June 30, 2016 2015 2016
2015 2016 2015 Northeast (1) $
401,516 $ 372,926 $ 103,695 $ 90,075 $ 127,009 $ 112,981 South/West
(2) 140,108 113,345 27,622 29,091 36,472 34,229 Midwest (3) 220,256
208,838 57,446 54,620 73,169 71,412 Other (4) 7,542
5,847 (39,426 ) (50,425 ) (12,870 )
(23,240 )
Total $ 769,422 $
700,956 $ 149,337 $
123,361 $ 223,780 $
195,382 NET REVENUES INCOME
FROM OPERATIONS ADJUSTED EBITDA Six Months Ended June
30, Six Months Ended June 30, Six Months Ended June
30, 2016 2015 2016 2015 2016
2015 Northeast (1) $ 794,722 $ 713,720 $ 204,616 $ 167,846 $
249,744 $ 214,227 South/West (2) 276,076 227,253 53,607 59,604
71,197 70,124 Midwest (3) 441,334 413,535 115,670 108,110 148,256
141,432 Other (4) 13,741 10,586 (84,025 )
(100,510 ) (32,533 ) (46,022 )
Total
$ 1,525,873 $ 1,365,094 $
289,868 $ 235,050 $
436,664 $ 379,761 (1) The
Northeast segment consists of the following properties: Hollywood
Casino at Charles Town Races, Hollywood Casino Bangor, Hollywood
Casino at Penn National Race Course, Hollywood Casino Toledo,
Hollywood Casino Columbus, Hollywood Gaming at Dayton Raceway,
Hollywood Gaming at Mahoning Valley Race Course, and Plainridge
Park Casino, which opened on June 24, 2015. It also includes the
Company’s Casino Rama management service contract. Our Northeast
segment results for the three and six months ended June 30, 2015
included preopening costs of $6.4 million and $8.9 million,
respectively. (2) The South/West segment consists of the
following properties: Zia Park Casino, Hollywood Casino Tunica,
Hollywood Casino Gulf Coast, Boomtown Biloxi, the M Resort and
Tropicana Las Vegas, which was acquired on August 25, 2015, as well
as the Jamul Indian Village project, which the Company anticipates
completing in August 2016. Our South/West segment results for the
three and six months ended June 30, 2016 include a $3.5 million
litigation settlement gain at the Tropicana Las Vegas which is
partially offset by severance charges and gaming floor disruption.
The South/West segment second quarter 2016 results also include
additional expenses of $1.6 million which is primarily due to
insurance accrual adjustments. (3) The Midwest segment
consists of the following properties: Hollywood Casino Aurora,
Hollywood Casino Joliet, Argosy Casino Alton, Argosy Casino
Riverside, Hollywood Casino Lawrenceburg, and Hollywood Casino St.
Louis and Prairie State Gaming, which was acquired on September 1,
2015, and includes the Company’s 50% investment in Kansas
Entertainment, which owns the Hollywood Casino at Kansas Speedway.
Results for the six months ended June 30, 2015 included a property
tax refund of approximately $2.0 million. (4) The Other
category consists of the Company’s standalone racing operations,
namely Rosecroft Raceway, Sanford-Orlando Kennel Club, and the
Company’s joint venture interests in Sam Houston Race Park, Valley
Race Park, and Freehold Raceway. If the Company is successful in
obtaining gaming operations at these locations, they would be
assigned to one of the Company’s regional executives and reported
in their respective reportable segment. The Other category also
includes Penn Interactive Ventures, the Company’s interactive
division which represents Penn’s social gaming initiatives.
The Other category also includes the Company’s corporate overhead
costs, which were $14.0 million and $34.6 million for the three and
six months ended June 30, 2016, as compared to $23.6 million and
$46.7 million for the three and six months ended June 30, 2015.
Corporate overhead costs included cash-settled stock-based
compensation charges of $0.1 million and $5.0 million for the three
and six months ended June 30, 2016 compared to $7.5 million and
$16.5 million for the corresponding periods in the prior year.
Reconciliation of Comparable GAAP
Financial Measures To
Adjusted EBITDA
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended Six Months
Ended June 30, June 30, 2016
2015 2016 2015 Net income
$ 34,035 $ 2,983 $ 57,743
$ 4,852 Income tax provision 10,804 16,221 18,538
26,636 Other (44 ) 956 2,382 (2,133 ) Income from unconsolidated
affiliates (3,548 ) (4,154 ) (8,157 ) (8,136 ) Interest income
(6,597 ) (2,443 ) (11,837 ) (4,313 ) Interest expense
114,687 109,798 231,199
218,144
Income from operations $
149,337 $ 123,361 $ 289,868
$ 235,050 Loss (gain) on disposal of assets 441 371
(660 ) 525 Charge for stock compensation 1,582 2,337 3,037 4,421
Contingent purchase price 119 356 (1,081 ) 707 Depreciation and
amortization 66,182 62,275 132,202 125,644 Income from
unconsolidated affiliates 3,548 4,154 8,157 8,136 Non-operating
items for Kansas JV 2,571 2,528
5,141 5,278
Adjusted EBITDA $
223,780 $ 195,382 $
436,664 $ 379,761
Reconciliation of Comparable GAAP
Financial Measure To
Adjusted EBITDA By Segment
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended June 30,
2016
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 103,695 $ 27,622 $ 57,446 $ (39,426 )
$ 149,337 Charge for stock compensation - - - 1,582
1,582 Depreciation and amortization 23,209 8,839 9,460
24,674
66,182 Contingent purchase price 119 - - -
119
Loss (gain) on disposal of assets (14 ) 11 (52 ) 496
441
Income from unconsolidated affiliates - - 3,744 (196 )
3,548
Non-operating items for Kansas JV (1) - -
2,571 -
2,571 Adjusted
EBITDA $ 127,009 $ 36,472
$ 73,169 $ (12,870 )
$ 223,780
Three Months Ended June 30,
2015
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 90,075 $ 29,091 $ 54,620 $ (50,425 )
$ 123,361 Charge for stock compensation - - - 2,337
2,337 Depreciation and amortization 22,413 5,000 9,897
24,965
62,275
Contingent purchase price
356 - - -
356 (Gain) loss on disposal of assets 137 138 (34
) 130
371 Income from unconsolidated affiliates - - 4,401
(247 )
4,154 Non-operating items for Kansas JV (1) -
- 2,528 -
2,528
Adjusted EBITDA $ 112,981 $
34,229 $ 71,412 $ (23,240
) $ 195,382
Six Months Ended June 30, 2016
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 204,616 $ 53,607 $ 115,670 $ (84,025 )
$ 289,868 Charge for stock compensation - - - 3,037
3,037 Depreciation and amortization 46,202 17,604 19,028
49,368
132,202 Contingent purchase price (1,081 ) - - -
(1,081 ) (Gain) loss on disposal of assets 7 (14 )
(45 ) (608 )
(660 ) Income from unconsolidated
affiliates - - 8,462 (305 )
8,157 Non-operating items for
Kansas JV - - 5,141
-
5,141 Adjusted EBITDA
$ 249,744 $ 71,197
$ 148,256 $ (32,533 )
$ 436,664
Six Months Ended June 30, 2015
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 167,846 $ 59,604 $ 108,110 $ (100,510 )
$ 235,050 Charge for stock compensation - - - 4,421
4,421 Impairment Losses - - - -
- Depreciation and
amortization 45,667 10,120 19,862 49,995
125,644
Contingent purchase price
707 - - -
707 (Gain) loss on disposal of assets 7 400 (7 )
125
525 Income from unconsolidated affiliates - - 8,189 (53
)
8,136 Non-operating items for Kansas JV - -
5,278 -
5,278 Adjusted
EBITDA $ 214,227 $ 70,124 $
141,432 $ (46,022 ) $
379,761 (1) Adjusted EBITDA excludes our share of the
impact of non-operating items (such as depreciation and
amortization) from our joint venture in Kansas Entertainment.
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended June 30, Six
Months Ended June 30, 2016 2015
2016 2015 Revenues Gaming $
663,326 $ 618,919 $ 1,320,027 $ 1,210,255 Food, beverage, hotel and
other 144,390 117,421 282,238 226,184 Management service fee 2,964
2,816 5,437 4,743 Reimbursed management costs 2,855
- 2,855 - Revenues
813,535 739,156 1,610,557 1,441,182 Less promotional allowances
(44,113 ) (38,200 ) (84,684 ) (76,088 )
Net revenues 769,422 700,956
1,525,873 1,365,094
Operating
expenses Gaming 339,201 313,616 674,518 608,511 Food, beverage,
hotel and other 101,873 82,803 199,952 160,732 General and
administrative 109,974 118,901 226,478 235,157 Depreciation and
amortization 66,182 62,275 132,202 125,644 Reimbursable management
costs 2,855 - 2,855
- Total operating expenses 620,085
577,595 1,236,005 1,130,044
Income from operations 149,337 123,361
289,868 235,050
Other
income (expenses) Interest expense (114,687 ) (109,798 )
(231,199 ) (218,144 ) Interest income 6,597 2,443 11,837 4,313
Income from unconsolidated affiliates 3,548 4,154 8,157 8,136 Other
44 (956 ) (2,382 ) 2,133
Total other expenses (104,498 ) (104,157 )
(213,587 ) (203,562 )
Income from operations
before income taxes 44,839 19,204 76,281 31,488 Income tax
provision 10,804 16,221 18,538
26,636
Net income $ 34,035 $
2,983 $ 57,743 $ 4,852
Earnings per
common share: Basic earnings per common share $ 0.38 $ 0.03 $
0.64 $ 0.06 Diluted earnings per common share $ 0.37 $ 0.03 $ 0.63
$ 0.05
Weighted-average common shares outstanding:
Basic 81,647 79,758 81,308 79,580 Diluted 91,486 90,729 91,287
90,565
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Supplemental information
(in thousands) (unaudited)
June 30, 2016 December 31, 2015
Cash and cash equivalents $ 221,360 $ 237,009 Bank
Debt $ 1,203,740 $ 1,239,049 Notes 296,573 296,252 Other long term
obligations (1) 167,504 175,658 Total Debt (2) $
1,667,817 $ 1,710,959 Financing obligation with GLPI (3) $
3,539,030 $ 3,564,629 1) Other long term obligations
at June 30, 2016 include $125.3 million for the present value of
the relocation fees due for both Hollywood Gaming at Dayton Raceway
and Hollywood Gaming at Mahoning Valley Race Course, $14.4 million
related to our repayment obligation on a hotel and event center
located near Hollywood Casino Lawrenceburg and $27.7 million
related to capital lease obligations primarily attributable to a
corporate airplane lease. 2) Although our joint venture in Kansas
Entertainment is accounted for as an equity method investment and
is not consolidated, this joint venture had no debt outstanding at
June 30, 2016 or December 31, 2015. 3) The financing obligation is
calculated based on the present value of the future minimum lease
payments over the remaining lease term, which includes all renewal
options since they were reasonably assured of being exercised at
lease inception.
The Company’s Master Lease with GLPI is accounted for as a
financing obligation. As such, payments to GLPI are recorded as
interest expense and a reduction to our financing obligation. The
table below reflects the total payments to GLPI for the three and
six months ended June 30, 2016 and 2015 and the treatment of these
payments on Penn’s financial statements.
Three Months Ended June 30, Six Months
Ended June 30, 2016 2015 2016
2015 Reduction in GLPI financing obligation $
12,951 $ 11,823 $ 25,599 $ 24,299 Amount attributable to interest
expense 97,810 97,695 196,558 194,065
Total payments to GLPI $ 110,761 $ 109,518 $ 222,157 $ 218,364
The Company’s definition of adjusted EBITDA adds back our share
of the impact of non-operating items (such as depreciation and
amortization) at our joint ventures that have gaming operations. At
this time, Kansas Entertainment, the operator of Hollywood Casino
at Kansas Speedway, is Penn’s only joint venture that meets this
definition. Kansas Entertainment does not currently have, nor has
it ever had, any indebtedness. The table below presents cash flow
distributions we have received from this investment for the three
months ended June 30, 2016 and 2015.
Three Months Ended June 30, Six Months
Ended June 30, 2016 2015 2016
2015 Cash flow distributions $ 5,950 $ 6,000 $
13,350 $ 14,000
Diluted Share Count Methodology
In connection with the 2013 spin-off of Penn National Gaming’s
real estate assets and the formation of Gaming and Leisure
Properties, Inc., Penn National Gaming completed an exchange and
repurchase transaction with an affiliate of Fortress Investment
Group, LLC (“Fortress”) on October 11, 2013, which resulted in the
repurchase of $627 million of its Series B Preferred Stock and the
issuance of 8,624 shares of Series C Preferred Stock, which is
equivalent to 8,624,000 common shares upon sale by Fortress to a
third party. During the three months ended June 30, 2016, Fortress
sold 1,177 shares of Series C Preferred Stock, which converted upon
sale into 1,177,000 shares of common stock. As a result, Fortress
held 7,447 shares of Series C Preferred Stock as of June 30, 2016,
which is equivalent to 7,447,000 shares of common stock upon sale
by Fortress to a third party.
Reconciliation of GAAP to Non-GAAP Measures
In addition to GAAP financial measures, adjusted EBITDA is used
by management as an important measure of the Company’s operating
performance. We define adjusted EBITDA as earnings before interest,
taxes, stock compensation, debt extinguishment charges, impairment
charges, insurance recoveries and deductible charges, depreciation
and amortization, changes in the estimated fair value of contingent
purchase price to the previous owners of Plainridge Racecourse,
gain or loss on disposal of assets, and other income or expenses.
Adjusted EBITDA is also inclusive of income or loss from
unconsolidated affiliates, with our share of non-operating items
(such as depreciation and amortization) added back for our joint
venture in Kansas Entertainment. Adjusted EBITDA excludes payments
associated with our Master Lease agreement with GLPI as the
transaction was accounted for as a financing obligation. Adjusted
EBITDA has economic substance because it is used by management as a
performance measure to analyze the performance of our business, and
is especially relevant in evaluating large, long lived casino
projects because they provide a perspective on the current effects
of operating decisions separated from the substantial non
operational depreciation charges and financing costs of such
projects. We also present adjusted EBITDA because it is used by
some investors and creditors as an indicator of the strength and
performance of ongoing business operations, including our ability
to service debt, fund capital expenditures, acquisitions and
operations. These calculations are commonly used as a basis for
investors, analysts and credit rating agencies to evaluate and
compare operating performance and value companies within our
industry. In addition, gaming companies have historically reported
adjusted EBITDA as a supplement to financial measures in accordance
with GAAP. In order to view the operations of their casinos on a
more stand-alone basis, gaming companies, including us, have
historically excluded from their adjusted EBITDA calculations
certain corporate expenses that do not relate to the management of
specific casino properties. However, adjusted EBITDA is not a
measure of performance or liquidity calculated in accordance with
GAAP. Adjusted EBITDA information is presented as a supplemental
disclosure, as management believes that it is a widely used measure
of performance in the gaming industry, is used in the valuation of
gaming companies, and that it is considered by many to be a key
indicator of the Company’s operating results. Management uses
adjusted EBITDA as an important measure of the operating
performance of its segments, including the evaluation of operating
personnel. Adjusted EBITDA should not be construed as alternatives
to operating income, as indicators of the Company’s operating
performance, as alternatives to cash flows from operating
activities, as measures of liquidity, or as any other measures of
performance determined in accordance with GAAP. The Company has
significant uses of cash flows, including capital expenditures,
interest payments, taxes and debt principal repayments, which are
not reflected in adjusted EBITDA. It should also be noted that
other gaming companies that report adjusted EBITDA information may
calculate adjusted EBITDA in a different manner than the Company
and therefore, comparability may be limited.
A reconciliation of the Company’s net income (loss) per GAAP to
adjusted EBITDA, as well as the Company’s income (loss) from
operations per GAAP to adjusted EBITDA, is included above.
Additionally, a reconciliation of each segment’s income (loss) from
operations to adjusted EBITDA is also included above. On a segment
level, income (loss) from operations per GAAP, rather than net
income (loss) per GAAP is reconciled to adjusted EBITDA due to,
among other things, the impracticability of allocating interest
expense, interest income, income taxes and certain other items to
the Company’s segments on a segment by segment basis. Management
believes that this presentation is meaningful to investors in
evaluating the performance of the Company’s segments and is
consistent with the reporting of other gaming companies.
Conference Call, Webcast and Replay Details
Penn National Gaming is hosting a conference call and
simultaneous webcast at 9:00 am ET today, both of which are open to
the general public. The conference call number is 212/231-2920.
Please call five minutes in advance to ensure that you are
connected prior to the presentation. Questions will be reserved for
call-in analysts and investors. Interested parties may also access
the live call on the Internet at www.pngaming.com. Please allow 15
minutes to register and download and install any necessary
software. A replay of the call can be accessed for thirty days on
the Internet at www.pngaming.com.
This press release, which includes financial information to be
discussed by management during the conference call and disclosure
and reconciliation of non-GAAP financial measures, is available on
the Company’s web site, www.pngaming.com, in the “Investors”
section (select link for “Press Releases”).
About Penn National Gaming
Penn National Gaming owns, operates or has ownership interests
in gaming and racing facilities and video gaming terminal
operations with a focus on slot machine entertainment. At June 30,
2016, the Company operated twenty-seven facilities in seventeen
jurisdictions, including Florida, Illinois, Indiana, Kansas, Maine,
Massachusetts, Maryland, Mississippi, Missouri, Nevada, New Jersey,
New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario.
At June 30, 2016, in aggregate, Penn National Gaming operated
approximately 33,400 gaming machines, 800 table games and 4,600
hotel rooms.
Forward-looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements can be identified by the use of forward
looking terminology such as “expects,” “believes,” “estimates,”
“projects,” “intends,” “plans,” “seeks,” “may,” “will,” “should” or
“anticipates” or the negative or other variations of these or
similar words, or by discussions of future events, strategies or
risks and uncertainties, including future plans, strategies,
performance, developments, acquisitions, capital expenditures, and
operating results. Actual results may vary materially from
expectations. Although the Company believes that its expectations
are based on reasonable assumptions within the bounds of its
knowledge of its business, there can be no assurance that actual
results will not differ materially from our expectations.
Meaningful factors that could cause actual results to differ from
expectations include, but are not limited to, risks related to the
following: the assumptions included in our financial guidance; the
ability of our operating teams to drive revenue and improved
adjusted EBITDA margins; our ability to obtain timely regulatory
approvals required to own, develop and/or operate our facilities,
or other delays or impediments to completing our planned
acquisitions or projects, our ability to secure federal, state and
local permits and approvals necessary for our construction
projects; construction factors, including delays, unexpected
remediation costs, local opposition, organized labor, and increased
cost of labor and materials; the passage of state, federal or local
legislation (including referenda) that would expand, restrict,
further tax, prevent or negatively impact operations in or adjacent
to the jurisdictions in which we do or seek to do business (such as
a smoking ban at any of our facilities); the effects of local and
national economic, credit, capital market, housing, and energy
conditions on the economy in general and on the gaming and lodging
industries in particular; the activities of our competitors and the
rapid emergence of new competitors (traditional, internet,
sweepstakes based and VGTs in bars and truck stops); increases in
the effective rate of taxation at any of our properties or at the
corporate level; our ability to identify attractive acquisition and
development opportunities (especially in new business lines) and to
agree to terms with, and maintain good relationships with
partners/municipalities for such transactions; the costs and risks
involved in the pursuit of such opportunities and our ability to
complete the acquisition or development of, and achieve the
expected returns from, such opportunities; our ability to maintain
market share in established markets and ramp up operations at our
recently opened facilities; our expectations for the continued
availability and cost of capital; the outcome of pending legal
proceedings, for example, the ongoing litigation by the Ohio
Roundtable addressing the legality of gaming in Ohio; changes in
accounting standards; the impact of weather; with regard to our
recently completed restatement, risks relating the remediation of
any material weaknesses and the costs to strengthen our internal
control structure, potential investigations, litigation or other
proceedings by governmental authorities, stockholders or other
parties, and the risks related to the impact of the recent
restatement of the Company’s financial statements on the Company’s
reputation, development projects, joint ventures and other
commercial contracts; the ability of the Company to generate
sufficient future taxable income to realize its deferred tax
assets; with respect to the proposed Hollywood Casino-Jamul near
San Diego, California, particular risks associated with
financing/refinancing a project of this type, sovereign immunity,
local opposition (including several pending lawsuits), building a
complex project on a relatively small parcel and the receipt of all
necessary approvals and permits; with respect to our Plainridge
Park Casino in Massachusetts, the ultimate location and timing of
the other gaming facilities in the state and region; with respect
to our social and other interactive gaming endeavors, risks related
to ultimate profitability, cyber-security, data privacy,
intellectual property and legal and regulatory challenges; with
respect to Prairie State Gaming, risks relating to our ability to
successfully compete in the VGT market, our ability to retain
existing customers and secure new customers, risks relating to
municipal authorization of VGT operations and the implementation
and the ultimate success of the products and services being
offered; and other factors as discussed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2015,
subsequent Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, each as filed with the United States Securities and
Exchange Commission. The Company does not intend to update publicly
any forward-looking statements except as required by law. In light
of these risks, uncertainties and assumptions, the forward-looking
events discussed in this press release may not occur.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160728005595/en/
Penn National Gaming, Inc.Saul V. Reibstein, 610-401-2049Chief
Financial OfficerorJCIRJoseph N. Jaffoni / Richard Land,
212-835-8500penn@jcir.com
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