Pinnacle Entertainment, Inc. (NASDAQ:PNK) ("Pinnacle" or the
"Company") today reported financial results for the first quarter
ended March 31, 2018. The results reflect the Company’s
adoption of the new revenue recognition standard ("ASC 606"),
effective January 1, 2018. The Company adopted ASC 606 using
the modified retrospective method, therefore, prior period amounts
have not been adjusted.
2018 First Quarter
Highlights:
- Net revenues decreased by $11.6 million or
1.8% year over year to $628.4 million.
- Net income increased by $4.6 million to $21.8
million from $17.2 million in the prior year period, while the
related margin increased to 3.5% from 2.7% in the prior year
period. GAAP diluted net income per share was $0.35 versus
$0.28 in the prior year period.
- Consolidated Adjusted EBITDAR increased by
$2.8 million or 1.6% year over year to $177.7 million from $174.9
million in the prior year period. The prior year period included an
out of period adjustment related to Ameristar Kansas City that
decreased net revenues and Consolidated Adjusted EBITDAR by $3.2
million. Consolidated Adjusted EBITDAR margin increased by 100
basis points year over year to 28.3%.
- Consolidated Adjusted EBITDAR and margin expansion were led by
strong performance of L'Auberge Lake Charles, Ameristar Black Hawk,
and Horseshu and Cactus Petes in Jackpot, Nevada.
- 2018 first quarter financial results were negatively impacted
by adverse winter weather conditions, principally across the
businesses in the Company's Midwest segment, as well as closures
and clean-up costs related to the flooding of the Ohio River at
Belterra Park and Belterra Resort in February. The number of
operating days affected by adverse winter weather conditions in the
2018 first quarter increased by 120% year over year. Management
estimates that these events reduced 2018 first quarter Consolidated
Adjusted EBITDAR by approximately $9.8 million.
- Consolidated Adjusted EBITDA, net of Lease
Payments, was $76.8 million, an increase of $1.3 million
or 1.7% year over year.
Additional Highlights:
- At a special meeting held on March 29, 2018, Pinnacle
stockholders approved the acquisition of the Company by Penn
National Gaming, Inc. ("Penn National") by voting affirmatively to
adopt the merger agreement for the transaction. Additionally, on
that same day, the stockholders of Penn National approved the
acquisition of Pinnacle by voting affirmatively for the issuance of
Penn National’s common stock to Pinnacle stockholders as
consideration in the proposed transaction.
- The proposed transaction has been approved by gaming regulators
in Illinois, Mississippi, Pennsylvania (Gaming Control
Board and Racing Commission) and West Virginia. The
transaction is subject to remaining regulatory approvals and
expected to close in the second half of 2018.
- The Company repaid $17.7 million of Conventional Debt in the
2018 first quarter, reducing the Company's Conventional Debt
balance to $804.1 million as of March 31, 2018.
Summary of First Quarter Results
|
Three months ended March 31, |
(amounts in thousands,
except per share data, unaudited) |
2018 |
|
2017 |
|
|
|
|
Net revenues |
$628,395 |
|
$639,974 |
Net income (1) |
$21,794 |
|
$17,208 |
Net income margin
(1) |
3.5% |
|
2.7% |
Consolidated Adjusted
EBITDAR (2) |
$177,663 |
|
$174,855 |
Consolidated Adjusted
EBITDAR margin (2) |
28.3% |
|
27.3% |
Consolidated Adjusted
EBITDA, net of Lease Payments (2) |
$76,834 |
|
$75,538 |
Operating income
(1) |
$115,337 |
|
$111,011 |
Net income attributable
to Pinnacle Entertainment, Inc. |
$21,943 |
|
$17,217 |
Diluted net income per
share |
$0.35 |
|
$0.28 |
- Net income and operating income for the three months ended
March 31, 2018 include $1.8 million in pre-opening,
development and other costs and $2.4 million of write-downs,
reserves and recoveries, net, versus $0.8 million and $0.5 million,
respectively, in the prior year period.
- For a further description of Consolidated Adjusted EBITDAR,
Consolidated Adjusted EBITDAR margin and Consolidated Adjusted
EBITDA, net of Lease Payments, see the Glossary of Terms and
Non-GAAP Financial Measures and the reconciliations to the GAAP
equivalent financial measures below.
Anthony Sanfilippo, Chief Executive Officer of
Pinnacle Entertainment, commented, "We are pleased with our 2018
first quarter performance. The results delivered by our team
members were noteworthy, particularly in light of the challenges we
faced in the first quarter.
"Our Consolidated Adjusted EBITDAR increased by
$2.8 million or 1.6% year over year to $177.7 million,
despite an $11.6 million or 1.8% decline in net revenues. Harsher
winter weather conditions and flooding across our portfolio of
businesses, particularly in February, were the factors that drove
the decline of our revenues, with the number of operating days
affected by adverse weather events more than doubling in the 2018
first quarter relative to the prior year period. Flooding of the
Ohio River caused the closure of both Belterra Park and Belterra
Resort in February, for 11 days and 7 days, respectively. In
aggregate, we estimate these factors had an unfavorable impact of
$9.8 million on Consolidated Adjusted EBITDAR. We successfully
managed our business to match the revenue environment we
experienced. Our management of variable expenses offset the revenue
decline and we achieved Consolidated Adjusted EBITDAR growth and
margin expansion in the quarter. The rebound in our business we
began to see as winter weather conditions abated in March has
continued into the 2018 second quarter.
“While the execution on our cost structure in
the 2018 first quarter was widespread throughout our portfolio,
there were some exceptional individual business performances at
L'Auberge Lake Charles, Ameristar Black Hawk, and Cactus Petes.
L'Auberge Lake Charles grew its net revenues by 7.5%, Adjusted
EBITDAR by 31.1% and expanded its margins by 610 basis points.
While a portion of this growth is attributable to low table games
hold percentage in the prior year period, we continue to profitably
grow revenues. Ameristar Black Hawk produced another terrific
quarter with net revenue growth of 5.7%, Adjusted EBITDAR growth of
9.3%, and Adjusted EBITDAR margin expansion of 140 basis points.
Ameristar Black Hawk continues to benefit from our multi-year
effort to reposition it as the premier gaming entertainment
destination resort in the broader Denver market. In December 2017,
we extended this strategy with the opening of an immersive central
entertainment venue called Bar 8042, which has been very well
received by our guests. Our properties in Jackpot, Nevada, which
includes Horseshu and Cactus Petes, generated net revenue growth of
9.5%, Adjusted EBITDAR growth of 31.8% and margin expansion of 540
basis points as this business grows its profitable revenue streams
while maintaining discipline on its cost structure.
“In the 2018 first quarter, we made significant
progress on the approximate $20 million renovation of the Ameristar
East Chicago casino floors and expansion of this business, which
includes a land based high limit gaming experience. The land based
high limit space will contain 95 slot machines and 14 table games,
as well as dedicated amenities for the VIP guests that utilize this
space. Construction of the high limit gaming space is currently
underway, and is expected to be completed by the end of May. The
renovation of the existing casino floors will improve the overall
quality of the gaming entertainment experience at Ameristar East
Chicago, while allowing us to optimize its capacity, layout and
game mix. We anticipate the casino renovation will be completed in
phases through the fall.
“Significant progress has been made toward
completing our transaction with Penn National, including the
approval of the transaction by the shareholders of both companies
in March, and the receipt of regulatory approvals in Illinois,
Mississippi, Pennsylvania and West Virginia. We continue to work
closely with the Penn National team to obtain the remaining
regulatory approvals and in coordinating a smooth transition and
seamless integration upon the closing of the transaction. We remain
on track to complete the transaction in the second half of 2018,”
concluded Mr. Sanfilippo.
Adoption of ASC 606
The Company's 2018 first quarter financial
results reflect the adoption of the new revenue recognition
standard ("ASC 606"), effective January 1, 2018. The Company
adopted ASC 606 using the modified retrospective method, therefore,
year over year comparability is reduced since prior period amounts
have not been adjusted. The adoption of ASC 606 resulted in an
approximate $2.8 million or 0.4% reduction in net revenues in the
2018 first quarter, with no material impact on operating income,
net income or Consolidated Adjusted EBITDAR.
- ASC 606 changed the accounting for our
mychoice program reward credits earned by our
customers. The Company is now required to defer revenue at the
estimated standalone selling price of mychoice
credits as they are earned by our customers and recognize revenue
when the credits are redeemed. Prior to the adoption of ASC
606, the estimated liability for unredeemed credits was accrued
based on the estimated cost of the goods or services to be
provided.
- ASC 606 changed the classification of charges associated with
our mychoice tier accrual for third-party annual
gifts. These charges were previously recorded to gaming expenses
and now are recognized as a reduction to gaming revenue.
- ASC 606 changed the accounting for complimentaries. The
Company previously did not present revenue for goods and services
provided to customers for free as an inducement to gamble
(discretionary and non-discretionary
complimentaries). Complimentaries related to an inducement to
gamble (i.e., gaming contracts) are now recognized at standalone
selling prices with an offsetting reduction to gaming
revenues.
The amount by which each line item in our
unaudited Condensed Consolidated Statement of Operations for the
three months ended March 31, 2018 was affected by ASC 606 as
compared with the accounting guidance that was in effect before the
change was as follows:
|
For the three months ended March 31,
2018 |
|
As Reported - With Adoption of ASC
606 |
|
As Adjusted - Without Adoption of ASC
606 |
|
Effect of Accounting Change
Increase/(Decrease) |
|
(amounts in thousands) |
Revenues
(1): |
|
|
|
|
|
Gaming |
$ |
499,263 |
|
$ |
568,509 |
|
$ |
(69,246) |
Food and
beverage |
69,667 |
|
31,625 |
|
38,042 |
Lodging |
37,819 |
|
11,433 |
|
26,386 |
Retail,
entertainment and other |
21,646 |
|
19,627 |
|
2,019 |
Total
revenues |
628,395 |
|
631,194 |
|
(2,799) |
Expenses and
other costs (2): |
|
|
|
|
|
Gaming |
258,763 |
|
306,308 |
|
(47,545) |
Food and
beverage |
62,724 |
|
29,572 |
|
33,152 |
Lodging |
14,346 |
|
5,840 |
|
8,506 |
Retail,
entertainment and other |
10,431 |
|
7,337 |
|
3,094 |
Other
expenses and other costs |
166,794 |
|
166,794 |
|
— |
Total
expenses and other costs |
513,058 |
|
515,851 |
|
(2,793) |
Operating
income |
$ |
115,337 |
|
$ |
115,343 |
|
$ |
(6) |
|
|
|
|
|
|
Net
income |
$ |
21,794 |
|
$ |
21,800 |
|
$ |
(6) |
Net income
attributable to Pinnacle Entertainment, Inc. |
$ |
21,943 |
|
$ |
21,949 |
|
$ |
(6) |
- Of the decrease in gaming revenues, $66.9 million is
attributable to the allocation of a portion of the price in gaming
transactions to complimentary hospitality and other revenues, which
increased food and beverage; lodging; and retail, entertainment and
other revenues. In addition, gaming revenues is reduced by $2.4
million, which represents the allocated portion of the price in
gaming transactions to certain tier benefits, such as the annual
gift, which was previously included in gaming expenses.
- Of the decrease in gaming expenses, $39.8 million is
attributable to the cessation of the Company’s prior accounting
practice of including the estimated costs of providing
complimentaries in gaming expenses rather than in food and
beverage; lodging; and retail, entertainment and other; expenses,
which increased food and beverage; lodging; and retail,
entertainment and other; expenses. In addition, gaming expenses is
reduced by $2.4 million, which represents the allocated portion of
the transaction price in gaming contracts to certain tier benefits,
such as the annual gift, which was previously included in gaming
expenses.
2018 First Quarter Operational
Review
Midwest Segment
In the Midwest segment, net revenues decreased
by $12.8 million or 3.3% year over year to $377.5 million in the
2018 first quarter. Adjusted EBITDAR decreased by $3.0 million or
2.7% year over year to $109.9 million and Adjusted EBITDAR margin
was 29.1%, an increase of 20 basis points year over year.
2018 first quarter financial results for the
Midwest segment were negatively impacted by adverse winter weather
conditions, as well as closures and clean-up costs related to the
flooding of the Ohio River at Belterra Park and Belterra Resort in
February. Results for the prior year period included a $3.2 million
out of period adjustment that reduced the net revenues and Adjusted
EBITDAR of Ameristar Kansas City.
The Meadows generated mid-single digit Adjusted
EBITDAR growth despite a mid-single digit decline in net revenues.
Adjusted EBITDAR margin expanded approximately 180 basis points.
These results were achieved by continuing to drive profitable table
gaming revenues and through strategic marketing efficiencies. In
the 2018 first quarter, the Company's mychoice
guest loyalty program was implemented at The Meadows, replacing the
property's legacy rewards program. The transition of the guest
loyalty program required a conversion of the casino software
systems of the property, which added expense and caused casino
floor disruption in the 2018 first quarter.
Belterra Resort and Belterra Park both
experienced low double-digit net revenue declines and Adjusted
EBITDAR declines in excess of 25% and 50%, respectively, as a
direct result of the closures and clean-up costs related to the
flooding of the Ohio River and severe winter weather during the
quarter. Consequently, Adjusted EBITDAR margin decreased in excess
of 500 basis points year over year at each of these businesses.
South Segment
In the South segment, net revenues decreased by
$2.4 million or 1.2% year over year to $190.1 million in the 2018
first quarter. Adjusted EBITDAR increased by $1.9 million or 3.1%
to $63.6 million. Adjusted EBITDAR margin was 33.5%, an increase of
140 basis points year over year.
L'Auberge Lake Charles generated high single
digit growth in net revenues and Adjusted EBITDAR growth in excess
of 30% as the table games hold percentage of the business
normalized from the lower levels of the prior year period. Strong
gaming revenue growth and additional marketing efficiencies
contributed to L'Auberge Lake Charles expanding Adjusted EBITDAR
margin by approximately 600 basis points year over year in the 2018
first quarter.
L'Auberge Baton Rouge experienced low double
digit net revenue and Adjusted EBITDAR declines on a year over year
basis. Adjusted EBITDAR margin contracted approximately 300 basis
points year over year. Implemented efficiencies in the cost
structure of the business and streamlined marketing were not enough
to offset lower gaming and non-gaming revenues in comparison to the
prior year period, but this business continues to gain market share
given its quality operations.
West Segment
West segment net revenues were $59.7 million in
the 2018 first quarter, an increase of $3.7 million or 6.6% year
over year. Adjusted EBITDAR was $23.2 million, an increase of $2.7
million or 13.2% year over year. Adjusted EBITDAR margin was
38.9%, an increase of 230 basis points year over year.
Ameristar Black Hawk produced mid-single digit
growth in net revenues coupled with high single digit Adjusted
EBITDAR growth. Adjusted EBITDAR margin expanded approximately 140
basis points year over year. The operating results at Ameristar
Black Hawk were driven by a high single digit increase in gaming
revenues and continued marketing and advertising efficiencies.
Corporate Expenses and
Other
Corporate expenses and other, which is
principally comprised of corporate overhead expenses, as well as
the Retama Park Racetrack management operations, decreased by $1.2
million in the 2018 first quarter to $19.0 million.
Lease Payments
|
For the three months ended March
31, |
|
2018 |
|
2017 |
|
(amounts in thousands, unaudited) |
Reduction of Financing
Obligation |
$ |
13,087 |
|
$ |
11,797 |
Interest expense
attributable to Financing Obligation (1) |
81,296 |
|
81,162 |
Total payments to GLPI related to Master Lease
(1) |
$ |
94,383 |
|
$ |
92,959 |
|
|
|
|
Long-term prepaid
rent |
$ |
2,275 |
|
$ |
2,275 |
Rent expense
attributable to Meadows Lease (2) |
4,171 |
|
4,083 |
Total payments to GLPI related to Meadows Lease
(2) |
$ |
6,446 |
|
$ |
6,358 |
- In May 2017, the rent due under the Master Lease was increased
by the building base rent escalator, which was for an annual amount
of $5.8 million. The building base rent escalator is recorded as
interest expense as incurred.
- In October 2017, the annual rent due under the Meadows Lease
was increased by the base rent escalator. The base rent escalator
is recorded as rent expense as incurred.
Interest Expense
|
For the three months ended March
31, |
|
2018 |
|
2017 |
|
(amounts in thousands, unaudited) |
Interest expense from
Financing Obligation |
$ |
81,296 |
|
$ |
81,162 |
Interest expense from
Conventional Debt |
11,235 |
|
13,105 |
Interest income |
(173) |
|
(154) |
Capitalized
interest |
(5) |
|
(5) |
Interest expense, net |
$ |
92,353 |
|
$ |
94,108 |
|
|
|
|
|
|
Liquidity and Capital Expenditures
Liquidity
As of March 31, 2018, the Company had
$152.4 million in cash and cash equivalents. As of March 31,
2018, $194.0 million was drawn on the Company's $400.0 million
revolving credit facility and $9.2 million of letters of credit
were outstanding.
As of March 31, 2018, the Company had a
total principal balance of Conventional Debt of $804.1 million, a
decrease of $17.7 million compared to the balance as of December
31, 2017.
Capital Expenditures
Capital expenditures were approximately $18.2
million in the 2018 first quarter and related to the Company's
existing assets, businesses and corporate initiatives.
Pending Merger
As previously announced, on December 17, 2017,
Pinnacle entered into an agreement and plan of merger with Penn
National, pursuant to which Penn National will acquire all of the
outstanding common shares of Pinnacle in a cash and stock
transaction. Under the terms of the agreement and plan of merger,
Pinnacle stockholders will receive $20.00 in cash and 0.42 shares
of Penn National common stock for each Pinnacle share.
At a special meeting held on March 29, 2018,
Pinnacle stockholders approved the acquisition of the Company by
Penn National by voting affirmatively to adopt the merger agreement
for the transaction. Additionally, on that same day, the
stockholders of Penn National approved the acquisition of Pinnacle
by voting affirmatively for the issuance of Penn National’s common
stock to Pinnacle stockholders as consideration in the proposed
transaction. The transaction has also been approved by gaming
regulatory agencies in Illinois, Mississippi, Pennsylvania, and
West Virginia. The proposed merger is subject to customary closing
conditions and additional required regulatory approvals. The
proposed merger is expected to close in the second half of
2018. No assurance can be given that the proposed merger will
be completed.
Investor Call
Pinnacle will not host an investor conference call or webcast
related to the announcement of its 2018 first quarter financial
results due to its pending acquisition by Penn National. Investors
may find a detailed report of the Company’s 2018 first quarter
results in the tables below, as well as in financial statements and
related footnotes on Form 10-Q to be filed with the U.S. Securities
and Exchange Commission (“SEC”) on May 10, 2018.
Additional Information
This communication does not constitute an offer to buy or
solicitation of an offer to sell any securities. In connection with
the proposed merger, Penn National has filed with the SEC a
registration statement on Form S-4 (File No. 333-222936) that
includes a preliminary joint proxy statement of Penn National and
Pinnacle that also constitutes a prospectus of Penn National. Penn
National and Pinnacle also plan to file other relevant documents
with the SEC regarding the proposed merger. INVESTORS AND SECURITY
HOLDERS ARE URGED TO READ THE FORM S-4, INCLUDING THE PRELIMINARY
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED
WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
You may obtain a free copy of the preliminary joint proxy
statement/prospectus and other relevant documents filed by Penn
National and Pinnacle with the SEC at the SEC’s website at
www.sec.gov. Copies of the documents filed with the SEC by Penn
National can be obtained, without charge, by directing a request to
Justin Sebastiano, Penn National Gaming, Inc., 825 Berkshire
Boulevard, Suite 200, Wyomissing, Pennsylvania 19610, Tel. No.
(610) 401-2029. Copies of the documents filed with the SEC by
Pinnacle can be obtained, without charge, by directing a request to
Vincent Zahn, Pinnacle Entertainment, Inc., 3980 Howard Hughes
Parkway, Las Vegas, Nevada 89169, Tel. No. (702) 541-7777.
Glossary of Terms
Adjusted EBITDAR: is
defined for each segment as earnings before interest income and
expense; income taxes; depreciation; amortization; rent expense
associated with the Meadows Lease; pre-opening, development and
other costs; non-cash share-based compensation; asset impairment
costs; write-downs, reserves, recoveries; inter-company management
fees, gain (loss) on sale of certain assets; gain (loss) on early
extinguishment of debt; gain (loss) on sale of discontinued
operations; and discontinued operations. The Company uses
Adjusted EBITDAR to compare operating results among its properties
and between accounting periods.
Adjusted EBITDAR margin: is
defined as each segment’s Adjusted EBITDAR divided by net revenues
for such segment. The Company uses Adjusted EBITDAR margin to
compare operating results among its properties and between
accounting periods.
Cash Income Taxes: is defined
as the cash payments made for income taxes to Federal and State
governmental agencies during the period.
Cash Interest Expense: is
defined as the cash paid for interest on Conventional Debt (which
is defined below) in the period.
Capital expenditures: is
defined as cash payments made in connection with capital
improvements at the Company's existing operating businesses, for
corporate initiatives or on growth and expansion projects, both
stand alone and to improve the Company's existing operating
businesses. These reflect cash payments made during the period as
opposed to accrued capital expenditures reflected in the financial
statements.
Consolidated Adjusted
EBITDAR: is defined as earnings before interest
income and expense, income taxes, depreciation, amortization, rent
expense associated with the Meadows Lease, pre-opening, development
and other costs, non-cash share-based compensation, asset
impairment costs, write-downs, reserves, recoveries, gain (loss) on
sale of certain assets, gain (loss) on early extinguishment of
debt, gain (loss) on sale of equity security investments, income
(loss) from equity method investments, non-controlling interest and
discontinued operations. Management eliminates the results from
discontinued operations at the time they are deemed
discontinued.
Consolidated Adjusted EBITDA, net of
Lease Payments: is defined as Consolidated Adjusted
EBITDAR (which is defined above) minus Lease Payments (which is
defined below).
Consolidated Adjusted EBITDAR
Margin: The Company defines Consolidated Adjusted
EBITDAR margin as Consolidated Adjusted EBITDAR divided by revenues
on a consolidated basis.
Conventional Debt: is
defined as debt from borrowed money, which substantially consists
of the outstanding principal amount from the Company's senior
secured credit facilities, which consists of a $400 million
revolving credit facility, a term loan A facility, and the
Company's 5.625% Senior Notes due 2024.
Financing Obligation: is
defined as the liability recorded on the Company's balance sheet in
connection with the Master Lease. As a result of the transaction
with GLPI, the Company's Master Lease with GLPI is accounted for as
a financing obligation in accordance with GAAP. The financing
obligation is calculated based upon the present value of the future
minimum lease payments made to GLPI under the Master Lease over the
remaining lease term, which includes all renewal options. The
derivation of the present value of the future minimum lease
payments is made using an imputed borrowing rate of 10.5%.
Lease Payments: is defined as
cash rent payments made to GLPI for the Master Lease and the
Meadows Lease. The Company’s annual rent payment is currently
$382.8 million under the Master Lease. The Company began making
rent payments to GLPI under the Master Lease on April 28, 2016. The
Company’s annual rent payment is currently $25.8 million under the
Meadows Lease. The Company began making rent payments to GLPI under
the Meadows Lease on September 9, 2016.
Master Lease or GLPI Master
Lease: is defined as the lease the Company entered
into on April 28, 2016 through which it leases real property for
the operation of 14 gaming entertainment businesses from GLPI. The
lease has a 35-year term, with an initial term of 10-years and
five, five year renewal periods (at the Company's option). The
Master Lease is subject to annual escalation, contingent upon
meeting a minimum rent coverage ratio of 1.8x, and periodic
percentage rent resets equal to 4% of the increase/decrease of
average trailing revenue above/below benchmark year revenues in
each reset year (resets occur every two years, beginning in lease
year three).
Meadows Lease: is defined
as the lease the Company entered into on September 9, 2016 through
which it leases real property for the operation of The Meadows
Racetrack and Casino (The Meadows) gaming entertainment business.
The lease has a 10-year initial term with renewal terms up to a
total of 29 years (at the Company's option). The Master Lease is
subject to annual escalation, contingent upon meeting a minimum
rent coverage ratio of 1.8x in lease year one, 1.9x in lease year
two, and 2.0x thereafter. Additionally, the lease is subject to
periodic percentage rent resets equal to 4% of the
increase/decrease of average trailing revenue above/below benchmark
year revenues in each reset year (resets occur every two years,
beginning in lease year three).
Non-GAAP Financial Measures
The Non-GAAP Financial Measures used in this
press release include Consolidated Adjusted EBITDAR, Consolidated
Adjusted EBITDAR margin and Consolidated Adjusted EBITDA, net of
Lease Payments.
The Company uses Consolidated Adjusted EBITDAR
and Consolidated Adjusted EBITDAR margin as relevant and useful
measures to compare operating results between accounting periods.
The presentation of Consolidated Adjusted EBITDAR has economic
substance because it is used by management as a performance measure
to analyze the performance of its business and is especially
relevant in evaluating large, long-lived casino-hotel projects
because it provides a perspective on the current effects of
operating decisions separated from the substantial, non-operational
depreciation charges and financing costs of such projects.
Management also reviews pre-opening, development and other costs
separately, as such expenses are also included in total project
costs when assessing budgets and project returns, and because such
costs relate to anticipated future revenues and income. Management
believes that Consolidated Adjusted EBITDAR and Consolidated
Adjusted EBITDAR margin are useful measures for investors because
they are indicators of the strength and performance of ongoing
business operations. These calculations are commonly used as a
basis for investors, analysts and credit rating agencies to
evaluate and compare operating performance and value of companies
within our industry. Consolidated Adjusted EBITDAR also
approximates the measures used in the debt covenants within the
Company’s debt agreements. Consolidated Adjusted EBITDAR does not
include depreciation or interest expense and therefore does not
reflect current or future capital expenditures or the cost of
capital. The Company compensates for these limitations by using
other comparative measures to assist in the evaluation of operating
performance.
In addition, the Company uses Consolidated
Adjusted EBITDA, net of Lease Payments as a relevant and useful
measure to compare operating results between accounting periods.
Management believes that Consolidated Adjusted EBITDA, net of Lease
Payments is useful to investors because it is an indicator of the
performance of ongoing business operations after incorporating the
cash flow impact of Lease Payments.
Not all of the aforementioned benefits and costs
occur in each reporting period, but have been included in the
definitions based on historical activity.
Each of these measures is not calculated in the
same manner by all companies and, accordingly, may not be an
appropriate measure of comparing performance among different
companies. See the attached “supplemental information” tables for
reconciliations of these measures to the GAAP equivalent financial
measures.
About Pinnacle Entertainment
Pinnacle Entertainment, Inc. owns and operates
16 gaming entertainment businesses, located in Colorado, Indiana,
Iowa, Louisiana, Mississippi, Missouri, Nevada, Ohio and
Pennsylvania. Pinnacle holds a majority interest in the racing
license owner, as well as a management contract, for Retama Park
Racetrack outside of San Antonio, Texas.
Forward Looking Statements
This communication may contain certain
forward-looking statements, including certain plans, expectations,
goals, projections, and statements regarding Pinnacle’s business
generally, expected results of operations and future operating
performance and future growth, about the benefits of the proposed
merger, adequacy of resources to fund development and expansion
projects, liquidity, financing options, Pinnacle’s plans,
objectives, expectations and intentions, the expected timing of the
completion of the proposed merger, and other statements that are
not historical facts. Such statements are subject to numerous
assumptions, risks, and uncertainties. Statements that do not
describe historical or current facts, including statements about
beliefs and expectations, are forward-looking statements.
Forward-looking statements may be identified by words such as
“expect,” “anticipate,” “believe,” “intend,” “estimate,” “plan,”
“target,” “goal,” or similar expressions, or future or conditional
verbs such as “will,” “may,” “might,” “should,” “would,” “could,”
or similar variations. The forward-looking statements are intended
to be subject to the safe harbor provided by Section 27A of
the Securities Act of 1933, Section 21E of the Securities
Exchange Act of 1934, and the Private Securities Litigation Reform
Act of 1995. While there is no assurance that any list of risks and
uncertainties or risk factors is complete, below are certain
factors which could cause actual results to differ materially from
those contained or implied in the forward-looking statements
including: Pinnacle’s sensitivity to reductions in consumers’
discretionary spending as a result of downturns in the economy;
significant competition in the gaming industry in all of Pinnacle’s
markets, which could adversely affect revenues and
profitability; Pinnacle is required to pay a significant portion of
its cash flows pursuant to and subject to the terms and conditions
of the Master Lease and Meadows Lease, which could adversely affect
our ability to fund Pinnacle’s operations and growth and limit
Pinnacle’s ability to react to competitive and economic changes;
fluctuations in the trading volume and market price of shares of
Pinnacle’s common stock, general business and market conditions;
risks related to the acquisition of Pinnacle by Penn National and
the integration of the businesses and assets to be acquired; the
possibility that the proposed merger does not close when expected
or at all because required regulatory, or other, approvals are not
received or other conditions to the closing are not satisfied on a
timely basis or at all; the risk that the financing required to
fund the proposed merger is not obtained on the terms anticipated
or at all; the possibility that the Boyd Gaming Corporation and/or
Gaming and Leisure Properties, Inc. deals do not close in a timely
fashion or at all; potential adverse reactions or changes to
business or employee relationships, including those resulting from
the announcement or completion of the proposed merger; potential
litigation challenging the transaction; the possibility that the
anticipated benefits of the proposed merger are not realized when
expected or at all, including as a result of the impact of, or
issues arising from, the integration of the two companies; the
possibility that the anticipated divestitures are not completed in
the anticipated time frame or at all; the possibility that
additional divestitures may be required; the possibility that the
transaction may be more expensive to complete than anticipated,
including as a result of unexpected factors or events; diversion of
management’s attention from ongoing business operations and
opportunities; litigation relating to the proposed merger; risks
associated with increased leverage from the transaction; and
additional factors discussed in the sections entitled “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Penn National’s and
Pinnacle’s respective most recent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as
filed with the Securities and Exchange Commission (the “SEC”).
Other unknown or unpredictable factors may also cause actual
results to differ materially from those projected by the
forward-looking statements. Most of these factors are difficult to
anticipate and are generally beyond the control of Penn National
and Pinnacle. Pinnacle does not undertake any obligation to release
publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events unless
required to do so by law.
References in this press release to "Pinnacle
Entertainment, Inc.," "Pinnacle," "Company," "we," "our" or "us"
refer to Pinnacle Entertainment, Inc. and its subsidiaries, except
where stated or the context otherwise indicates.
Ameristar, Belterra, Boomtown, Casino Magic,
L’Auberge, River City, Meadows, mychoice, and Belterra Park are
registered trademarks of Pinnacle Entertainment, Inc. All
rights reserved.
Investor Relations
& Financial Media Inquiries |
Vincent J. Zahn,
CFA |
Vice President &
Treasurer |
investors@pnkmail.com |
(702) 541-7777 |
- financial tables follow -
|
Pinnacle Entertainment, Inc. |
Condensed Consolidated Statements of
Operations |
(amounts in thousands, except per share data) |
|
|
|
For the three months ended March
31, |
|
2018 |
|
2017 |
|
|
|
|
|
(unaudited) |
Revenues: |
|
|
|
Gaming |
$ |
499,263 |
|
$ |
574,169 |
Food and
beverage |
69,667 |
|
33,255 |
Lodging |
37,819 |
|
11,987 |
Retail,
entertainment and other |
21,646 |
|
20,563 |
Total
revenues |
628,395 |
|
639,974 |
Expenses and
other costs: |
|
|
|
Gaming |
258,763 |
|
313,239 |
Food and
beverage |
62,724 |
|
31,414 |
Lodging |
14,346 |
|
6,062 |
Retail,
entertainment and other |
10,431 |
|
8,292 |
General
and administrative |
112,534 |
|
112,615 |
Depreciation and amortization |
50,039 |
|
56,018 |
Pre-opening, development and other costs |
1,820 |
|
799 |
Write-downs, reserves and recoveries, net |
2,401 |
|
524 |
Total
expenses and other costs |
513,058 |
|
528,963 |
Operating
income |
115,337 |
|
111,011 |
Interest expense,
net |
(92,353) |
|
(94,108) |
Income before
income taxes |
22,984 |
|
16,903 |
Income tax benefit
(expense) |
(1,190) |
|
305 |
Net
income |
21,794 |
|
17,208 |
Less: net loss
attributable to non-controlling interest |
149 |
|
9 |
Net income
attributable to Pinnacle Entertainment, Inc. |
$ |
21,943 |
|
$ |
17,217 |
Net income per
common share: |
|
|
|
Basic |
$ |
0.39 |
|
$ |
0.31 |
Diluted |
$ |
0.35 |
|
$ |
0.28 |
Weighted
average common shares outstanding: |
|
|
|
Basic |
56,901 |
|
55,977 |
Diluted |
62,245 |
|
60,884 |
|
|
|
|
|
Pinnacle Entertainment, Inc. |
Supplemental Information |
Revenues, Adjusted EBITDAR, Consolidated
Adjusted EBITDAR and |
Consolidated Adjusted EBITDA, net of Lease
Payments |
(amounts in thousands, unaudited) |
|
|
|
For the three months ended March
31, |
|
2018 |
|
2017 |
Revenues: |
|
|
|
Midwest (1) |
$ |
377,545 |
|
$ |
390,301 |
South (2) |
190,094 |
|
192,471 |
West (3) |
59,646 |
|
55,977 |
Total
Segment Revenues |
627,285 |
|
638,749 |
Corporate and Other
(4) |
1,110 |
|
1,225 |
Total
Revenues |
$ |
628,395 |
|
$ |
639,974 |
|
|
|
|
Adjusted
EBITDAR: |
|
|
|
Midwest (1) |
$ |
109,855 |
|
$ |
112,885 |
South (2) |
63,602 |
|
61,746 |
West (3) |
23,160 |
|
20,489 |
Segment
Adjusted EBITDAR |
196,617 |
|
195,120 |
Corporate Expenses and
Other (4) |
(18,954) |
|
(20,265) |
Consolidated Adjusted EBITDAR (5,7) |
177,663 |
|
174,855 |
Lease Payments (6) |
(100,829) |
|
(99,317) |
Consolidated Adjusted EBITDA, net of Lease Payments
(5,7) |
$ |
76,834 |
|
$ |
75,538 |
Consolidated Adjusted
EBITDAR margin % (5,7) |
28.3% |
|
27.3% |
- Consists of Council Bluffs, East Chicago, Kansas City, St.
Charles, Belterra Resort, Belterra Park, Meadows and River
City.
- Consists of Vicksburg, Bossier City, New Orleans, Baton Rouge,
and Lake Charles.
- Consists of Black Hawk, Cactus Petes, and Horseshu.
- Includes corporate expenses, as well as results from the
management of Retama Park Racetrack.
- The Master Lease is accounted for as a financing
obligation. Payments made to GLPI for the Master Lease are
recorded as a reduction of the financing obligation on the balance
sheet and as interest expense attributable to the financing
obligation. As a result, rent payments made to GLPI for the Master
Lease are not recorded as an operating expense and are not
reflected in Consolidated Adjusted EBITDAR. The Meadows Lease
is accounted for as an operating lease. The Company records
rent expense related to this lease as an operating expense in its
unaudited Condensed Consolidated Statements of Operations.
Consolidated Adjusted EBITDAR is presented before the impact of
rent expense associated with the Meadows Lease.
- See the Glossary of Terms for a detailed description of Lease
Payments. The Company made cash payments to GLPI for the
Master Lease and Meadows Lease of $94.4 million and $6.4 million,
respectively, in the three months ended March 31, 2018.
- See the Glossary of Terms and discussion of Non-GAAP Financial
Measures above for a detailed description of Consolidated Adjusted
EBITDAR, Consolidated Adjusted EBITDAR margin and Consolidated
Adjusted EBITDA, net of Lease Payments.
|
Pinnacle Entertainment, Inc. |
Condensed Consolidated Balance
Sheets |
(amounts in thousands) |
|
|
|
|
|
March 31, 2018 |
|
December 31, 2017 |
|
(unaudited) |
|
|
ASSETS |
|
|
|
Cash and cash
equivalents |
$ |
152,416 |
|
$ |
184,218 |
Land, buildings,
vessels and equipment, net |
2,596,302 |
|
2,629,013 |
Other assets, net |
1,136,040 |
|
1,136,997 |
Total
assets |
$ |
3,884,758 |
|
$ |
3,950,228 |
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
|
|
Liabilities, other than
long-term debt and long-term financing obligation |
$ |
290,563 |
|
$ |
345,346 |
Long-term debt,
including current portion (1) |
795,207 |
|
812,324 |
Long-term financing
obligation, including current portion (2) |
3,100,442 |
|
3,113,529 |
Total
liabilities |
4,186,212 |
|
4,271,199 |
Total stockholders'
deficit |
(301,454) |
|
(320,971) |
Total
liabilities and stockholders' deficit |
$ |
3,884,758 |
|
$ |
3,950,228 |
- Represents Conventional Debt related to the Company's senior
secured credit facilities and 5.625% Senior Notes due 2024, net of
unamortized discount and debt issuance costs. Total unamortized
discount and debt issuance costs were $8.9 million and $9.4 million
as of March 31, 2018 and December 31, 2017, respectively.
- The Master Lease is accounted for as a financing obligation.
The financing obligation is calculated based upon the present value
of the future minimum lease payments made to GLPI for the Master
Lease over the remaining lease term, which includes all renewal
options since they were reasonably assured of being exercised at
the inception of the Master Lease. The derivation of the
present value of the future minimum lease payments is calculated
using an imputed borrowing rate of 10.5%.
|
Pinnacle Entertainment, Inc. |
Supplemental Information |
Principal Balances of Conventional
Debt |
(amounts in thousands) |
|
|
|
|
|
March 31, 2018 |
|
December 31, 2017 |
|
(unaudited) |
|
|
Revolving Credit
Facility (1) |
$ |
194,000 |
|
$ |
169,250 |
Term Loan A Facility
(1) |
110,000 |
|
152,437 |
Senior
Secured Credit Facilities |
304,000 |
|
321,687 |
5.625% Senior Notes
(2) |
500,000 |
|
500,000 |
Other |
67 |
|
69 |
Total
Conventional Debt |
$ |
804,067 |
|
$ |
821,756 |
- Represents the outstanding principal amount of Conventional
Debt from the Company's senior secured credit facilities, which
consists of a revolving credit facility, and a term loan A
facility.
- Represents the outstanding principal amount of Conventional
Debt from the Company's 5.625% Senior Notes due 2024.
|
Pinnacle Entertainment, Inc. |
Supplemental Information |
Selected Cash Flow Data |
(amounts in thousands) |
|
|
|
For the three months ended March
31, |
|
2018 |
|
2017 |
|
|
|
|
|
(unaudited) |
Cash paid for interest
related to Conventional Debt (1) |
$ |
3,133 |
|
$ |
4,331 |
Cash paid for state and
federal income taxes |
$ |
593 |
|
$ |
1,971 |
Capital
expenditures |
$ |
18,230 |
|
$ |
16,857 |
- Represent cash paid for interest and fees attributable to the
Company's Conventional Debt, which was issued at the closing of the
transactions with GLPI on April 28, 2016. The 5.625% Senior Notes
due 2024 pay interest semi-annually on May 1st and November 1st of
each year.
|
Pinnacle Entertainment, Inc. |
Supplemental Information |
Reconciliations of Net Income to Consolidated
Adjusted EBITDAR |
and Consolidated Adjusted EBITDA, net of Lease
Payments |
and Net Income Margin to Consolidated Adjusted
EBITDAR Margin |
(amounts in thousands, unaudited) |
|
|
|
For the three months ended March
31, |
|
2018 |
|
2017 |
Net
income |
$ |
21,794 |
|
$ |
17,208 |
Rent expense under the
Meadows Lease |
4,171 |
|
4,083 |
Depreciation and
amortization |
50,039 |
|
56,018 |
Pre-opening,
development and other costs |
1,820 |
|
799 |
Non-cash share-based
compensation expense |
3,895 |
|
2,420 |
Write-downs, reserves
and recoveries, net |
2,401 |
|
524 |
Interest expense,
net |
92,353 |
|
94,108 |
Income tax expense
(benefit) |
1,190 |
|
(305) |
Consolidated
Adjusted EBITDAR (1,2) |
177,663 |
|
174,855 |
Lease Payments (3) |
(100,829) |
|
(99,317) |
Consolidated
Adjusted EBITDA, net of Lease Payments (1,2) |
$ |
76,834 |
|
$ |
75,538 |
Net income margin
% |
3.5% |
|
2.7% |
Consolidated Adjusted
EBITDAR margin % (2) |
28.3% |
|
27.3% |
- The Master Lease is accounted for as a financing
obligation. Payments made to GLPI for the Master Lease are
recorded as a reduction of the financing obligation on the balance
sheet and as interest expense attributable to the financing
obligation. As a result, rent payments made to GLPI for the Master
Lease are not recorded as an operating expense and are not
reflected in Consolidated Adjusted EBITDAR. The Meadows Lease
is accounted for as an operating lease. The Company records
rent expense related to this lease as an operating expense in its
unaudited Condensed Consolidated Statements of Operations.
Consolidated Adjusted EBITDAR is presented before the impact of
rent expense associated with the Meadows Lease.
- See the Glossary of Terms and discussion of Non-GAAP Financial
Measures above for a detailed description of Consolidated Adjusted
EBITDAR, Consolidated Adjusted EBITDAR margin and Consolidated
Adjusted EBITDA, net of Lease Payments.
- See the Glossary of Terms for a detailed description of Lease
Payments. The Company made payments to GLPI for the Master Lease
and Meadows Lease of $94.4 million and $6.4 million, respectively,
during the three months ended March 31, 2018.
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