- Records Higher Full Year Net Income and
Adjusted EBITDA -
- Establishes 2017 First Quarter and Full
Year Guidance -
- Board of Directors Authorizes $ 100
Million Share Repurchase Program -
Penn National Gaming, Inc. (PENN: Nasdaq):
Conference Call: Today, February 2, 2017 at 9:00 a.m. ET
Dial-in number: 212/231-2908 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 and twelve months ended December
31, 2016, as summarized below. The Company also announced that its
Board of Directors authorized a $100 million common stock share
repurchase program for a period of two years.
Summary of Fourth Quarter and Full Year
Results
(in millions, except per share
data)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2016 Actual 2016 Guidance
(2) 2015 Actual (3) 2016 Actual
2016 Guidance (2) 2015 Actual Net
revenues $ 742.9 $ 748.3 $ 734.0
$ 3,034.4 $ 3,039.8 $ 2,838.4
Net
income $ 5.0 $ (13.9) $ (9.1)
$ 109.3 $ 90.4 $ 0.7
Plus: Impact of stock compensation,
non-operating items for Kansas JV, depreciationand amortization,
changes in the estimatedfair value of contingent purchase
priceobligations, gain/loss on disposal of assets,interest expense
- net, income taxes, and otherexpenses
190.9 206.6 215.4
734.5 750.2 795.6
Adjusted EBITDA (1) $ 195.9 $ 192.7
$ 206.3 $ 843.8 $ 840.6 $ 796.3
Diluted earnings per common
share $ 0.05 $ (0.15) $ (0.11)
$ 1.19 $ 0.99 $ 0.01
(1) 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 our contingent purchase
price obligations 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
$110.4 million and $109.6 million for the three months ended
December 31, 2016 and 2015, respectively. (2) The guidance figures
in the table above present the guidance Penn National Gaming
provided on October 27, 2016 for the three and twelve months ended
December 31, 2016. (3) Results for the three months ended December
31, 2015 included property tax refunds and favorable adjustments of
$16.8 million.
Review of Fourth Quarter 2016 Results
vs. Guidance
Three Months Ended December 31, 2016
Pre-tax After-tax (in thousands) (unaudited)
Income, per guidance (1) $ 10,174 $ (13,867) Adjusted
EBITDA variances: Favorable operating segment variance 915 577
Jamul management and license fees (2,414) (1,537) Cash-settled
stock-based awards variance 1,518 967 Other variance, primarily
corporate overhead costs 3,182 2,026 Total Adjusted
EBITDA variances from guidance 3,201 2,033 Depreciation and
amortization expense variance, mainly due to Rocket Speed (4,653)
(2,955) Contingent liability variance, mainly due to Rocket Speed
(1,780) (1,130) Other 332 211 Tax variance - 20,740
Income, as reported $ 7,274 $ 5,032 (1) The guidance figure
in the table above presents the guidance Penn National Gaming
provided on October 27, 2016 for the three months ended December
31, 2016.
Timothy J. Wilmott, President and Chief Executive Officer of
Penn National Gaming, commented, “Our success throughout 2016 in
generating strong free cash flow again highlights our ability to
efficiently manage our existing and new operations and
conservatively manage our capital structure to de-lever while
pursuing new growth opportunities. With our omni-channel platform
of casino operations, retail gaming and social gaming assets, Penn
National Gaming continues to prudently grow its business and
optimize operating efficiencies to generate margin growth. With the
strong operating leverage in our model, we believe Penn National is
well positioned to benefit from anticipated improvements in
consumer spending.”
Delivering Strong Operating Results and Margins
Mr. Wilmott added, “Overall, 2016 marked another year of
operating results growth following the separation of Penn
National’s operating and real estate assets. On a year-over-year
basis, 2016 adjusted EBITDA grew approximately 6% to $843.8
million. Our solid fourth quarter and 2016 results reflect our
focus on driving operating efficiencies and margin expansion at our
established properties combined with the recent additions to our
portfolio, the ongoing ramp of our Ohio operations and our expanded
retail gaming and social gaming operations through Prairie State
Gaming and Penn Interactive Ventures, respectively.
“Across our regional gaming operating segments, fourth quarter
trends were largely consistent with those experienced since the
second quarter of the year. Rated player visits and spend per
visit, which account for approximately 65% of play at our
facilities, were stable though partially offset by continued
softness from the unrated customer segment in several markets.
Despite the impact of December’s weather, Penn National’s fourth
quarter results reflect a favorable operating segment variance and
exceeded guidance and our operations continue to generate
significant free cash flow. Our fourth quarter adjusted EBITDA rose
approximately 3.4% year over year after excluding $16.8 million of
favorable property tax benefits that were recorded in the prior
year.
“Penn National’s ability to consistently improve operating
efficiencies drove consolidated fourth quarter 2016 adjusted EBITDA
margin growth of approximately 55 basis points on a year-over-year
basis to 26.4%, when excluding the favorable property tax
settlements during the year-ago period. Similarly, when excluding
favorable property tax settlements in the 2016 and 2015 full year
periods, our consolidated 2016 adjusted EBITDA margin improved by
approximately 35 basis points to 27.75%.”
Expansion of Omni-Channel Strategy
Mr. Wilmott further noted, “During the quarter and throughout
2016, we continued to strategically expand and diversify our
revenue and adjusted EBITDA mix, while strengthening our
omni-channel relationship with the more than three million
customers in our database, through the prudent deployment of
capital at our regional gaming properties, our Las Vegas Strip
property, and through our expanding retail and social gaming
platforms. Rocket Speed (formerly known as Rocket Games), for
example, has been an accretive addition to the Company’s profitable
Penn Interactive Ventures operations, which complement our
land-based casino businesses. Similarly, Prairie State Gaming, our
Illinois-based retail gaming operations, delivered strong revenue
and adjusted EBITDA growth throughout 2016. We recently expanded
this operation with two small accretive tuck in acquisitions that
closed in the fourth quarter of 2016 and believe there are
additional opportunities for both organic growth and accretive tuck
in acquisitions in this business.
“Furthermore, since 2013 we’ve made significant progress in
growing and diversifying our adjusted EBITDA mix with assets that
are not subject to the Master Lease (including Tropicana Las Vegas,
Plainridge Park Casino, Hollywood Casino at Kansas Speedway, the
Casino Rama and Hollywood Casino Jamul-San Diego management
contracts, Prairie State Gaming and Rocket Speed). In 2016,
approximately 13.2% of our total adjusted EBITDA was derived from
assets and operations not subject to the Master Lease, up from
approximately 4% in 2014.
“Hollywood Casino Jamul-San Diego opened on October 10th after
several years of development and construction efforts on behalf of
the Jamul Indian Village. While we remain optimistic about the
overall prospects of this tribal facility and are encouraged by
certain recent business trends, results to date from the property
have been below our expectations due in large part to aggressive
marketing and promotional activity from nearby competition. In
light of these circumstances, our guidance assumes no fees from our
Jamul relationship in 2017 as we take further steps to adjust the
marketing strategy while expanding the player database. In
addition, based on current business levels, we expect a portion or
all of our Term Loan C to be subordinated.
“Since acquiring Tropicana Las Vegas in 2015, our goal has been
to leverage the property’s high quality room base and our three
million player database while enhancing the overall guest
experience. Based on extensive customer research, our capital spend
to date has been focused on improving the casino floor experience
and expanding and upgrading our food and beverage offerings,
including the partnership announced last year with celebrity chef
Robert Irvine, who will open his first signature restaurant in Las
Vegas at Tropicana in the summer of 2017. Consistent with our
original investment strategy, we are also in the process of
upgrading several of the property’s existing restaurants and
lounges, which will bring our expected incremental investment in
the facility since acquisition to approximately $40 million. While
we continue to design our master plan and evaluate the results of
our current investments, any further investment will be determined
in late 2017. This further supports our capital allocation
priorities of de-levering and returning capital to
shareholders.”
Cash Flow Generation and Return of Capital
“During the fourth quarter we applied approximately $274 million
of the proceeds from the Jamul Tribe’s October refinancing
transaction to reduce borrowings under our revolving credit
facility,” said Wilmott. “As a result of this transaction and the
cash flows generated from our operations, we lowered our GAAP debt
to total adjusted EBITDA ratio at December 31, 2016 to
approximately 5.84x compared to 6.62x at December 31, 2015. Last
month we entered into new senior secured credit facilities
amounting to $1.5 billion and issued $400 million of new 5.625%
senior unsecured notes due 2027. These new obligations efficiently
refinanced our prior credit facilities and existing senior
unsecured notes and lowered our weighted average cost of capital
while extending and staggering maturities, all of which highlight
our ongoing focus on managing the capital structure to provide the
financial flexibility to support our near- and long-term growth
initiatives. With our 2017 guidance implying significant cash flow
generation, we are extremely well positioned to reduce leverage and
evaluate additional accretive strategic growth investments while
taking other initiatives that can enhance long-term shareholder
value.
“Our new $100 million share repurchase program underscores our
commitment to returning capital to our shareholders. The
authorization reflects our Board’s continued confidence in Penn’s
ability to execute on our growth initiatives and deliver long-term
value to our stakeholders. Penn’s strong cash flow generation and
conservative approach to managing our balance sheet provides us the
flexibility to continue growing our business and reduce leverage
while also lowering the outstanding share count.”
The share repurchases may be made from time to time in open
market or privately negotiated transactions in accordance with
applicable securities laws and regulations and other legal
requirements, including compliance with the Company’s finance
agreements. Repurchases by the Company will be subject to available
liquidity, general market and economic conditions, alternate uses
for the capital and other factors. The Company anticipates funding
any share repurchases under its new authorization from its cash
flow from operations.
Financial Guidance
Reflecting the current operating and competitive environment,
the table below sets forth first quarter and full year 2017
guidance targets for financial results based on the following
assumptions:
- MGM National Harbor opened on December
8, 2016 impacting Hollywood Casino at Charles Town Races;
- A full year contribution from the
Company’s management contract for Casino Rama;
- Does not anticipate any adjusted EBITDA
contribution from the Company’s agreements with Jamul Indian
Village;
- Full year corporate overhead expenses
of $73.3 million, with $19.3 million to be incurred in the first
quarter;
- Depreciation and amortization charges
of $271.2 million, with $70.7 million in the first quarter, which
includes depreciation expense related to real property leased from
GLPI;
- Payments to GLPI of $446.9 million,
with $111.9 million in the first quarter, which will reduce our
financing obligation by $14.8 million at March 31, 2017 from
December 31, 2016 levels, with the remaining payments recorded as
interest expense;
- Maintenance capital expenditures of
$78.1 million with $26.4 million in the first quarter;
- Cash interest on traditional debt of
$62.4 million with $9.6 million in the first quarter;
- Income tax refunds of $40.6 million
with $8.2 million in the first quarter, both of which assume no
changes in corporate tax rates;
- Interest expense of $464.1 million,
with $116.0 million in the first quarter, which includes additional
interest expense related to the Master Lease financing obligation
with GLPI;
- Interest expense includes the impact of
the $4.5 million rent escalation that was incurred in year three of
the Master Lease but excludes any additional rent escalation at the
conclusion of year four of the Master Lease;
- Our share of non-operating items (such
as depreciation and amortization expense) associated with our
Kansas JV will total $5.9 million, with $1.9 million to be incurred
in the first quarter;
- Estimated non-cash stock compensation
expenses of $7.3 million, with $1.9 million to be incurred in the
first quarter;
- Other expenses of $25.5 million in the
first quarter primarily due to debt extinguishment charges in
connection with our January 2017 refinancing transactions;
- LIBOR is based on the forward yield
curve;
- A diluted share count of approximately
92.8 million shares for the full year; 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 March 31, Full Year Ending
December 31, 2017
Guidance
2016
Actual
2017 Guidance
2016 Actual
(in millions, except per share data) Net revenues
$ 761.0 $ 756.5 $ 3,046.9
$ 3,034.4 Net income $
(4.8) $ 23.7 $ 28.5 $
109.3 Income tax provision (4.2) 7.7 24.8 11.3 Other 25.5
2.4 24.1 1.7 Income from unconsolidated affiliates (4.8) (4.6)
(19.7) (14.3) Interest income (2.5) (5.2) (5.5) (24.2) Interest
expense 116.0 116.5 464.1
459.2
Income from operations $ 125.2
$ 140.5 $ 516.3 $ 543.0
Loss (gain) on disposal of assets 0.2 (1.1) 0.6 (2.5) Insurance
recoveries, net of deductible charges - - - (0.7) Charge for stock
compensation 1.9 1.5 7.3 6.9 Contingent purchase price 4.6 (1.2)
19.0 1.3 Depreciation and amortization 70.7 66.0 271.2 271.2 Income
from unconsolidated affiliates 4.8 4.6 19.7 14.3 Non-operating
items for Kansas JV 1.9 2.6 5.9
10.3
Adjusted EBITDA $ 209.3
$ 212.9 $ 840.0 $ 843.8
Diluted earnings per common share $ (0.05) $ 0.26 $
0.31 $ 1.19
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Segment Information – Operations
(in thousands) (unaudited)
NET REVENUES INCOME FROM OPERATIONS
ADJUSTED EBITDA Three Months Ended December 31,
Three Months Ended December 31, Three Months Ended
December 31, 2016 2015
2016 2015 2016
2015 Northeast (1) $ 378,046 $ 385,567 $
91,156 $ 53,572 $ 114,905 $ 117,492 South/West (2) 135,362 132,609
19,685 20,470 28,866 29,264 Midwest (3) 215,060 210,805 51,167
64,895 67,375 80,975 Other (4) 14,442 4,986
(48,160) (48,313) (15,242) (21,405)
Total $ 742,910 $ 733,967
$ 113,848 $ 90,624 $
195,904 $ 206,326 NET
REVENUES INCOME FROM OPERATIONS ADJUSTED EBITDA
Twelve Months Ended December 31, Twelve Months Ended
December 31, Twelve Months Ended December 31,
2016 2015 2016
2015 2016 2015 Northeast (1) $
1,568,514 $ 1,505,838 $ 397,524 $ 328,567 $ 489,070 $ 456,599
South/West (2) 546,608 478,128 92,629 102,380 128,569 128,850
Midwest (3) 877,567 833,455 223,180 225,526 287,275 291,317 Other
(4) 41,691 20,937 (170,317) (188,627)
(61,085) (80,417)
Total $
3,034,380 $ 2,838,358 $ 543,016
$ 467,846 $ 843,829 $
796,349
(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. It also includes the Company’s Casino Rama
management service contract. Our Northeast segment results for the
twelve months ended December 31, 2015 included preopening costs of
$9.2 million for Plainridge Park Casino. Results for the three and
twelve months ended December 31, 2015 also included favorable
property tax accrual adjustments of approximately $1.4 million.
Income from operations for the three and twelve months ended
December 31, 2015 include $40.0 million of impairment charges
related to the write-off of our Plainridge Park Casino gaming
license and a partial write-down of the gaming license at Hollywood
Gaming at Dayton Raceway due to a reduction in the long term
earnings forecast at both of these locations compared to the prior
year’s analysis.
(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, as
well as the Hollywood Casino Jamul-San Diego project with the Jamul
Indian Village, which opened on October 10, 2016.
(3) The Midwest segment consists of the following properties:
Hollywood Casino Aurora, Hollywood Casino Joliet, Argosy Casino
Alton, Argosy Casino Riverside, Hollywood Casino Lawrenceburg,
Hollywood Casino St. Louis, Prairie State Gaming, and includes
the Company’s 50% investment in Kansas Entertainment, which owns
the Hollywood Casino at Kansas Speedway. Results for the three and
twelve months ended December 31, 2015 included favorable property
tax settlements of approximately $15.4 million and $17.4 million,
respectively.
(4) The Other category consists of the Company’s standalone
racing operations, namely 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 $18.6 million and $69.8 million for the
three and twelve months ended December 31, 2016, as compared to
$21.0 million and $81.5 million for the three and twelve months
ended December 31, 2015. Corporate overhead costs decreased $2.4
million and $11.7 million for the three and twelve months ended
December 31, 2016, respectively, as compared to the corresponding
period in the prior year, primarily due to lower bonus expenses of
$1.2 million and $2.7 million for the three and twelve months ended
December 31, 2016, and lower cash-settled stock-based compensation
of $7.8 million for the twelve months ended December 31, 2016 due
to stock price decreases for Penn and GLPI.
Reconciliation of Comparable GAAP
Financial Measures To
Adjusted EBITDA
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31, 2016
2015 2016 2015
Net income $ 5,032 $ (9,066)
$ 109,310 $ 686 Income tax provision
2,242 (6,092) 11,307 55,924 Other (299) (1,067) 1,679 (5,872)
Income from unconsolidated affiliates (2,675) (2,593) (14,337)
(14,488) Interest income (4,147) (4,135) (24,186) (11,531) Interest
expense 113,695 113,577 459,243 443,127
Income from operations $ 113,848 $
90,624 $ 543,016 $ 467,846 Loss
(gain) on disposal of assets 969 486 (2,471) 1,286 Charge for stock
compensation 2,317 1,777 6,871 8,223 Contingent purchase price
2,388 570 1,277 (5,374) Impairment charges - 40,042 - 40,042
Depreciation and amortization 71,109 67,676 271,214 259,461
Insurance recoveries - - (726) - Income from unconsolidated
affiliates 2,675 2,593 14,337 14,488 Non-operating items for Kansas
JV 2,598 2,558 10,311 10,377
Adjusted EBITDA $ 195,904 $
206,326 $ 843,829 $ 796,349
Reconciliation of Comparable GAAP
Financial Measure To
Adjusted EBITDA By Segment
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
(in thousands) (unaudited)
Three Months Ended December 31,
2016
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 91,156 $ 19,685 $ 51,167 $ (48,160)
$ 113,848 Charge for stock compensation - - - 2,317
2,317 Depreciation and amortization 23,195 9,130 9,589
29,195
71,109 Contingent purchase price 98 - 6 2,284
2,388 Loss (gain) on disposal of assets 456 51 316 146
969 Income from unconsolidated affiliates - - 3,699 (1,024)
2,675 Non-operating items for Kansas JV (1) -
- 2,598 -
2,598 Adjusted EBITDA $ 114,905
$ 28,866 $ 67,375
$ (15,242) $ 195,904
Three Months Ended December 31,
2015
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 53,572 $ 20,470 $ 64,895 $ (48,313)
$ 90,624 Charge for stock compensation - - - 1,777
1,777 Impairment losses 40,042 - - -
40,042
Depreciation and amortization 23,283 8,701 10,071 25,621
67,676
Contingent purchase price
570 - - -
570 (Gain) loss on disposal of assets 25 93 182
186
486 Income from unconsolidated affiliates - - 3,269
(676)
2,593 Non-operating items for Kansas JV (1) -
- 2,558 -
2,558 Adjusted EBITDA $ 117,492
$ 29,264 $ 80,975
$ (21,405) $ 206,326
Twelve Months Ended December 31,
2016
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 397,524 $ 92,629 $ 223,180 $ (170,317)
$ 543,016 Charge for stock compensation - - - 6,871
6,871 Depreciation and amortization 92,373 35,831 38,210
104,800
271,214 Contingent purchase price (1,277) - 6 2,548
1,277 (Gain) loss on disposal of assets 450 109 334 (3,364)
(2,471) Insurance recoveries - - (726) -
(726) Income
from unconsolidated affiliates - - 15,960 (1,623)
14,337
Non-operating items for Kansas JV - -
10,311 -
10,311
Adjusted EBITDA $ 489,070 $
128,569 $ 287,275 $
(61,085) $ 843,829
Twelve Months Ended December 31,
2015
Northeast South/West
Midwest Other Total Income
(loss) from operations $ 328,567 $ 102,380 $ 225,526 $ (188,627)
$ 467,846 Charge for stock compensation - - - 8,223
8,223 Impairment Losses 40,042 - - -
40,042
Depreciation and amortization 93,299 25,793 39,917 100,452
259,461
Contingent purchase price
(5,374) - - -
(5,374) (Gain) loss on disposal of assets 65
677 208 336
1,286 Income from unconsolidated affiliates - -
15,289 (801)
14,488 Non-operating items for Kansas JV
- - 10,377 -
10,377 Adjusted EBITDA $ 456,599
$ 128,850 $ 291,317
$ (80,417) $ 796,349
(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 December 31, Twelve Months
Ended December 31, 2016 2015
2016 2015 Revenues
Gaming $ 631,644 $ 635,958 $ 2,606,262 $ 2,497,497 Food, beverage,
hotel and other 145,642 134,629 575,434 485,534 Management service
and licensing fees 2,781 2,700 11,348 10,314 Reimbursable
management costs 7,177 - 15,997 -
Revenues 787,244 773,287 3,209,041 2,993,345 Less promotional
allowances (44,334) (39,320) (174,661)
(154,987) Net revenues 742,910 733,967
3,034,380 2,838,358
Operating expenses Gaming
323,793 328,949 1,334,980 1,271,679 Food, beverage, hotel and other
104,809 100,014 406,871 349,897 General and administrative 122,174
106,662 463,028 449,433 Depreciation and amortization 71,109 67,676
271,214 259,461 Reimbursable management costs 7,177 - 15,997 -
Impairment charges - 40,042 - 40,042 Insurance recoveries -
- (726) - Total operating expenses
629,062 643,343 2,491,364 2,370,512 Income
from operations 113,848 90,624 543,016
467,846
Other income (expenses) Interest expense
(113,695) (113,577) (459,243) (443,127) Interest income 4,147 4,135
24,186 11,531 Income from unconsolidated affiliates 2,675 2,593
14,337 14,488 Other 299 1,067 (1,679)
5,872 Total other expenses (106,574) (105,782)
(422,399) (411,236)
Income from operations before
income taxes 7,274 (15,158) 120,617 56,610 Income tax (benefit)
/ provision 2,242 (6,092) 11,307 55,924
Net income $ 5,032 $ (9,066) $ 109,310 $ 686
Earnings per common share: Basic earnings per common share $
0.06 $ (0.11) $ 1.21 $ 0.01 Diluted earnings per common share $
0.05 $ (0.11) $ 1.19 $ 0.01
Weighted-average common
shares outstanding: Basic 85,943 80,595 82,929 80,003 Diluted
91,802 91,261 91,407 90,904
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Supplemental information
(in thousands) (unaudited)
December 31, 2016 September 30, 2016 June
30, 2016 March 31, 2016 December 31, 2015
Cash and cash equivalents $ 229,510 $ 201,768 $ 221,360 $ 214,238 $
237,009 Bank Debt $ 962,703 $ 1,217,420 $ 1,203,740 $
1,230,031 $ 1,239,049 Notes 296,895 296,734 296,573 296,413 296,252
Other long term obligations (1) 155,936 156,803
167,504 167,968 175,658 Total Traditional Debt
$ 1,415,534 $ 1,670,957 $ 1,667,817 $ 1,694,412 $ 1,710,959
Financing obligation with GLPI (2) $ 3,514,080 $ 3,526,709 $
3,539,030 $ 3,551,981 $ 3,564,629
Total Debt $ 4,929,614 $ 5,197,666 $ 5,206,847 $ 5,246,393 $
5,275,588
1) Other long term obligations at December 31, 2016 include
$118.9 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, $20.8 million related to a corporate airplane
loan and $1.9 million related to capital lease obligations.
2) 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 Master Lease,
which became effective November 1, 2013, has an initial term of 15
years, with four renewal options of 5 years. The payment structure
includes a fixed component, a portion of which is subject to an
annual escalator of up to 2% if certain rent coverage ratio
thresholds are met, and a component that is based on the
performance of the facilities, which is prospectively adjusted
every five years by an amount equal to 4% of the average change to
net revenues of all facilities under the Master Lease (other than
Hollywood Casino Columbus and Hollywood Casino Toledo) during the
preceding five years, and monthly by an amount equal to 20% of the
change in net revenues of Hollywood Casino Columbus and Hollywood
Casino Toledo during the preceding month.
Master Lease 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 twelve months
ended December 31, 2016 and 2015 and the treatment of these
payments on Penn’s financial statements.
Three Months Ended December 31,
Twelve Months Ended December 31, 2016
2015 2016 2015
Reduction in GLPI financing obligation $ 12,628 $ 11,432 $
50,549 $ 46,884 Amount attributable to interest expense
97,792 98,210 391,738 390,079 Total payments
to GLPI $ 110,420 $ 109,642 $ 442,287 $ 436,963
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
and twelve months ended December 31, 2016 and 2015.
Three Months Ended December 31,
Twelve Months Ended December 31, 2016
2015 2016 2015
Cash flow distributions $ 4,300 $ 5,100 $ 25,800 $ 27,150
PENN NATIONAL GAMING, INC. AND
SUBSIDIARIES
Supplemental information
(in thousands) (unaudited)
Three Months Ended December 31, Twelve Months
Ended December 31, 2016 2015 2016
2015 Master Lease rental payments 110,420
109,642 442,287 436,963 Cash income taxes, net of refunds 741 4,238
(10,978) 5,116 Cash interest expense on traditional debt 16,432
15,259 60,889 44,517 Maintenance capital expenditures 27,074 20,477
78,505 62,342
The table above summarizes certain cash expenditures incurred by
the Company during the periods presented in this earnings
release.
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. On December 1, 2016, Fortress sold the remaining 6,931
shares of Series C Preferred Stock, which converted upon sale into
6,931,000 shares of common stock. As a result, no shares of Series
C Preferred Stock are outstanding as of December 31, 2016.
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 our
contingent purchase price obligations, 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 a measure 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 212/231-2908.
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. We have also
recently expanded into social online gaming offerings via our Penn
Interactive Ventures, LLC division and our recent acquisition of
Rocket Speed Inc. At December 31, 2016, the Company operated
twenty-seven facilities in seventeen jurisdictions, including
California, Florida, Illinois, Indiana, Kansas, Maine,
Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New
Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario,
Canada. At December 31, 2016, in aggregate, Penn National Gaming
operated approximately 35,000 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. Specifically, forward-looking statements
may include, among others, statements concerning: our expectations
of future results of operations and financial condition;
expectations for our properties or our development projects; the
timing, cost and expected impact of planned capital expenditures on
our results of operations; the impact of our geographic
diversification; our expectations with regard to the impact of
competition; our expectations with regard to further acquisitions
and development opportunities, as well as the integration of any
companies we have acquired or may acquire; the outcome and
financial impact of the litigation in which we are or will be
periodically involved; the actions of regulatory, legislative,
executive or judicial decisions at the federal, state or local
level with regard to our business and the impact of any such
actions; our ability to maintain regulatory approvals for our
existing businesses and to receive regulatory approvals for our new
businesses; our expectations regarding economic and consumer
conditions; our expectations for the continued availability and
cost of capital; and our expectations regarding the remediation of
the material weaknesses in our internal control over financial
reporting. 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 adjusted EBITDA margins; the impact of
significant competition from other gaming and entertainment
operations; our ability to obtain timely regulatory approvals
required to own, develop and/or operate our facilities, or other
delays, approvals or impediments to completing our planned
acquisitions or 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, social, sweepstakes based and
VGTs in bars and truck stops); increases in the effective rate of
taxation for any of our operations 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 impact of weather; the
outcome of pending legal proceedings, changes in accounting
standards; the risk of failing to maintain the integrity of our
information technology infrastructure and safeguard our business,
employee and customer data; risks relating to the remediation of
our material weaknesses and the costs to strengthen our internal
control structure; factors which may cause the Company to curtail
or suspend the share repurchase program; our ability to generate
sufficient future taxable income to realize our deferred tax
assets; with respect to the recently opened Hollywood Casino
Jamul-San Diego, particular risks associated with the repayment or
subordination of our loans to the Jamul Indian Village Development
Corporation (“JIV”), the subordination of our management and
intellectual property license fees (including the prohibition on
payment of those fees if there is a default under JIV’s credit
facilities), sovereign immunity, local opposition (including
several pending lawsuits), access, the impact of well-established
regional competition on property performance; with respect to our
Plainridge Park Casino in Massachusetts, the ultimate location and
timing of the other gaming facilities in the state and the region;
with respect to our social and other interactive gaming endeavors,
including our recent acquisition of Rocket Speed, Inc. (formerly
known as Rocket Games, Inc. (“Rocket Speed”)), risks related to the
social gaming industry, employee retention, cyber-security, data
privacy, intellectual property and legal and regulatory challenges,
as well as our ability to successfully develop innovative new games
that attract and retain a significant number of players in order to
grow our revenues and earnings; with respect to Illinois Gaming
Investors, LLC, d/b/a Prairie State Gaming (“Prairie State
Gaming”), risks relating to recent acquisitions of additional
assets and the integration of such acquisitions, 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/20170202005436/en/
Penn National Gaming, Inc.William J. Fair, 610-373-2400Chief
Financial OfficerorJoseph N. Jaffoni, Richard Land,
212-835-8500JCIRpenn@jcir.com
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