Penn National sees 57 percent record growth in Q1 revenue

Penn National Gaming released Thursday its financial results for the three months ended March 31, 2019, initiated 2019 second quarter guidance, updated full year 2019 guidance, and increased its expectations for cost synergies associated with its October 2018 acquisition of Pinnacle Entertainment.

During the first quarter of 2019, revenues amounted to $1.28 billion, an increase of $466.5 million year over year and operating income was $182.4 million, an increase of $10.3 million year over year, with net income of $41.0 million.

Other financial highlights included:

• Adjusted EBITDAR of $391.4 million, an increase of $148.9 million year over year;
• Adjusted EBITDAR margins of 30.5% marking an 80-basis points year over year increase;
• Adjusted EBITDA, after Lease Payments of $183.5 million, an increase of $56.8 million year over year; and
• Traditional debt decreased by $38.3 million during the quarter. As of March 31, 2019, our GAAP traditional net debt ratio was 2.60x and gross and net leverage on a lease-adjusted basis were 6.09x and 5.79x, respectively.

"Despite weather-related impacts to several properties during the first quarter, we’re pleased to have met our Adjusted EBITDAR guidance after a one-time adjustment of $3.1 million for expenses related to a customer loyalty point liability true-up related to prior periods," Timothy J. Wilmott, Chief Executive Officer, commented. "This accomplishment highlights our property-level management team’s consistent ability to maintain or increase margins, even in a challenging revenue environment. In addition, we closed our accretive acquisition of Margaritaville in Bossier City, Louisiana in early January, and we now expect to close our accretive acquisition of Greektown Casino-Hotel (“Greektown”) in Detroit, Michigan, by the end of May,” said Mr. Wilmott.

Pinnacle Synergies Update

"We continue to make great strides with the integration of the Pinnacle properties, having achieved $40 million of run rate cost synergies as of March 31, 2019, which contributed to our ability to meet Adjusted EBITDAR guidance," continued Mr. Wilmott. "As we continue to apply best practices across the enterprise we now anticipate at least $115 million of cost synergies, with a run rate of $55 million in 2019 and an additional $60 million expected by the end of 2020," said Mr. Wilmott. "In addition, we remain highly focused on driving revenue synergies, which will start with our combined player loyalty program, mychoice. We expect to have all of our properties on the single platform by the end of July and are well-positioned to achieve incremental Adjusted EBITDAR associated with revenue synergies related to Pinnacle in the range of $15-$20 million. The majority of these revenue synergies should be realized in 2020 and 2021," said Mr. Wilmott.

M&A and Development Update

"Our $300 million acquisition of the operations of Greektown provides us entree into an industry-leading 19th jurisdiction and adds another stable regional gaming market to Penn National’s already diverse property portfolio," continued Mr. Wilmott. "Notably, Greektown will have the largest single property database in our loyalty program. The transaction will be funded with a combination of cash on hand and debt and we expect to close the transaction before the end of this month."

"Our development projects in Pennsylvania, including the $120 million Hollywood Casino York and the $111 million Hollywood Casino Morgantown, remain on track. The construction timetable for both facilities is anticipated to be 12-18 months following all requisite approvals, including final licensing by the Pennsylvania Gaming Control Board," said Mr. Wilmott.

Free Cash Flow Allocation

“Despite the weather challenges we faced this quarter, our strong operating performance allowed us to reduce debt by approximately $40 million in the first quarter," continued Mr. Wilmott. "We remain focused on de-levering and following the closing of the Greektown transaction we continue to expect a lease-adjusted net leverage level of 5.0x to 5.5x by the end of 2020."