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- PENN Generated First Quarter Net Income Margin of 7% and Record First Quarter Adjusted EBITDAR Margin of 35%, Benefiting from Strong Demand at Land-Based Casinos and More Efficient Cost Structure -

- Focus Remains on Driving Profitable Online Gaming Revenue with Q1 Launches in Michigan and Illinois -

WYOMISSING, Pa.--(BUSINESS WIRE)--Penn National Gaming, Inc. (NASDAQ: PENN) (“Penn National” or the “Company”) today reported financial results for the three months ended March 31, 2021.


Jay Snowden, President and Chief Executive Officer, commented: “Penn National kicked off the year with record results in Q1 2021 from our land-based business and the launch of our online Barstool Sportsbook in Michigan and Illinois. In addition, we fully integrated our mychoice player loyalty program across all our retail and digital offerings, which bolsters Penn National’s ecosystem and further expands our competitive advantage. Equally exciting was our inclusion in the S&P 500 in March, which underscores the investment community’s confidence in our digital transformation and our position as the nation’s largest regional gaming operator. This milestone is a testament to the hard work, determination and commitment of all our team members at the property and corporate levels as well as our valued partners at Barstool Sports.

“Last month we filed our proxy statement which included an in-depth ESG report on our ongoing efforts to care for our people, our communities and our planet. Highlights include the launch of a new Diversity Scholarship program in March, which reflects our commitment to equity in post-secondary education opportunities for the children of our team members. With an annual commitment of $1 million, we plan to extend up to 65 scholarships this year. In addition, we implemented a supplier diversity initiative with the goal of developing new opportunities for minority-owned businesses. Last month, we hosted companywide ‘Days of Listening’ to gather feedback from team members on all matters of diversity and inclusion. Finally, on May 15, we will launch a new initiative to honor our active-duty military, veterans and first responders. The ‘myheroes’ program is an exclusive, fully integrated extension of Penn National’s industry leading mychoice rewards loyalty program, which will provide our nation’s heroes access to exclusive discounts and offers at Penn National’s 41 properties in 19 states.”

For further information, we have posted a presentation to our website regarding the first quarter highlights and accomplishments, which can be found here.

Core Business Firing on All Cylinders

For the first quarter ended March 31, 2021, Penn National generated revenues of $1,274.9 million and Adjusted EBITDAR of $447.0 million. Revenues declined 6% compared to Q1 2019 pro forma results while Adjusted EBITDAR was up 7% and Adjusted EBITDAR margins increased 434 basis points based on the pro forma comparison. The strong results were driven by contributions from the online Barstool Sportsbook and our iCasino platforms, and land-based gaming properties despite COVID-19 related closures in Pennsylvania and Illinois for parts of January, and Zia Park in New Mexico not reopening until early March. Further, when adjusting for the days our casinos were mandated to close and excluding the contribution from Penn Interactive, revenues declined 9% and Adjusted EBITDAR increased 12%, which equates to margin improvement of more than 700 basis points compared to pro forma Q1 2019.

Mr. Snowden continued: “Despite COVID-related restrictions and closures in January and harsh winter weather in the South segment in February, visitation and length of play continue to improve across all age segments of our player database. Moreover, we saw volumes in the month of March that we have not seen since 2019. Recall, when we reopened our properties in the summer of 2020, we saw very high spend-per-visit, but visitation was well below pre-COVID levels. Today, we’re still seeing spend-per-visit that is much higher than it was pre-COVID, and visitation is at or near 2019 levels in most of our markets, which is a great combination. Importantly, the younger demographic continues to choose gaming as a viable entertainment option while the 55+ age group has been returning to our casinos as vaccines continue to roll out. Unrated play continues to show strength that mirrors what we have seen from our rated guests. This top-line demand coupled with the structural changes we put in place at the start of the pandemic has resulted in remarkable and sustainable margin improvement. Meanwhile, the South segment outperformed with margin improvement of greater than 1,100 basis points compared to the same period in 2019 given the less restrictive COVID protocols in the region, the removal of loss-leading or lower margin amenities, more efficient labor management and a very rational marketing and promotional environment. The Midwest also reported impressive margin gains of nearly 900 basis points despite an uneven playing field related to COVID restrictions in certain key markets.

“At quarter end, our cash balance stood at $2.1 billion, traditional net debt was approximately $353 million and lease-adjusted net leverage was 4.5x based on 2019 Adjusted EBITDAR.”

Continued Expansion of our Sportsbook Footprint and Media Strategy

Mr. Snowden continued, “We remain focused on garnering top-three gaming revenue market share for the Barstool Sportsbook and driving best in class profitability. Since launching our product just over seven months ago, we have registered more than 400,000 customers and generated over $660 million and $61 million in handle and gaming revenue, respectively. We plan for the online Barstool Sportsbook to be live in eight states by football season and in at least 10 states before the end of the year.

“As previously disclosed, on March 11, we successfully launched the Barstool Sportsbook in Illinois, ahead of the 2021 NCAA Basketball Tournament. The initial results for the first 30 days of operations exceeded our expectations, with better first-time deposit conversions relative to what we had generated in Pennsylvania or Michigan. During this period, we registered over 54,700 new customers and generated total handle and gaming revenue of $67.7 million and $6.5 million, respectively. We also experienced high engagement, with 54% of our Illinois customers wagering on Barstool-exclusive bets.

“Our ability to deliver unique and engaging content through Barstool Sports sets us apart from our peers. Barstool’s social media reach, creative promotions, custom parlays, and exclusive bets have been key drivers of customer acquisition for the online sportsbook and have led to enhanced engagement and retention, particularly among more casual bettors. In addition, Barstool’s promotion of Penn National’s retail sportsbooks has driven significant awareness and visitation to our land-based properties, highlighting the unique benefits of our fully integrated media and omnichannel strategy. Overall, we have seen very strong results at our properties that have opened Barstool-branded retail sportsbooks, and we plan to open/rebrand six more retail sportsbooks by the end of 2021.

“The power of our mychoice customer base combined with the fierce loyalty of Barstool’s audience allows us to successfully cross-sell our online offerings. In Michigan, for instance, despite limited game selection, over 50% of our online sports betting MUPs placed a wager on our iCasino product during the month of March, which was above our initial expectations. We are excited to translate this success to our Barstool iCasino in Pennsylvania, which launched yesterday and will provide another great option combined with our HollywoodCasino.com offering in the state, which has resonated well with our mychoice players. We expect to add significantly more third-party content to our Barstool-branded iCasino product later this year. Further, our recently announced acquisition of HitPoint Studios will be the centerpiece of our newly formed Penn Game Studios allowing us to create customized Barstool-themed and casino branded content that we believe will lead to even greater cross-sell opportunities.

“Barstool Sports, the media company, has maintained its incredible momentum from 2020 into the new year, with strong financial performance and audience growth. Today, Barstool’s sports, entertainment and lifestyle content drives a loyal base of 21 to 40-year old customers to our sportsbook. As Barstool continues to broaden its reach with relevant influencers and other media and sports personalities, we have seen this audience expand. Further, the continued growth and diversification of the brand’s advertising, licensing and merchandise revenue streams has enhanced the value of the media asset, which we believe is currently underappreciated.

Executing on Our Growth Initiatives

“We are continuing to execute on our exciting growth opportunities, which will drive prospective revenue and EBITDAR growth. We view investments in technology as imperative to enhancing the customer experience, delivering unique content, and gaining mindshare. Our mychoice mobile app, which we launched last quarter, has had over 333,000 downloads with approximately 115,000 monthly active users. Our app allows us to engage with our guests more effectively, provide targeted promotions, and drive revenue growth. Similarly, we believe the implementation of our cashless, cardless, and contactless (“3Cs”) technology will resonate well with our guests, especially the younger demographic. We have seen continued momentum in mychoice app downloads in all our markets across all age groups. Ultimately, these technology investments will further increase our communication effectiveness with our guests. In addition, this will improve our efficiencies and benefit revenue flow-through as expenses are further reduced.

“We will be launching the 3Cs experience throughout the remainder of 2021 at our four casinos in Pennsylvania with the first launch near the end of Q2 2021, pending regulatory approval. Included in the list of our four Pennsylvania casinos is Hollywood Casino York, set to open in August and Hollywood Casino Morgantown, which we expect to open later this year. In Maryland, we remain on track to close the Hollywood Casino Perryville acquisition in early Q3 2021, which will provide us market access to our 20th state. Each of these properties will feature a Barstool Sportsbook, which combined with our mychoice player affinity program, highlights our expanding omni-channel presence.

Serving as a Disruptor to the Gaming Industry in 2021 and Beyond

“With a very strong start to 2021, our goal is to continue to disrupt the gaming industry and position Penn National for ongoing growth through unconventional and fresh approaches. The broader acceptance of sports betting and the greater consumer adoption of technology, which was accelerated by the ongoing pandemic, have been some of the key drivers behind our strategic initiatives. Looking ahead, I am confident that Penn National will look significantly different in the next three to five years than it does today as we remain committed to breaking from the conventional wisdom in terms of how we operate and engage our customers. However, what will not change is our long-term focus on profitable growth and our dedication to creating shareholder value by maintaining a long-term view. I remain excited for the future at Penn National Gaming.”

Summary of First Quarter Results

 

For the three months ended March 31,

(in millions, except per share data, unaudited)

2021

 

2020

 

2019

Revenues

$

1,274.9

 

 

$

1,116.1

 

 

$

1,282.6

 

Net income (loss)

90.9

 

 

(608.6)

 

 

41.0

 

 

 

 

 

 

 

Adjusted EBITDA (1)

$

336.6

 

 

$

154.8

 

 

$

306.7

 

Rent expense associated with triple net operating leases (2)

110.4

 

 

97.5

 

 

84.7

 

Adjusted EBITDAR (1)

$

447.0

 

 

$

252.3

 

 

$

391.4

 

Payments to our REIT Landlords under Triple Net Leases (3)

$

226.0

 

 

$

223.8

 

 

$

207.9

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

$

0.55

 

 

$

(5.26)

 

 

$

0.35

 

  1. See the “Non-GAAP Financial Measures” section below for more information as well as the definitions of Adjusted EBITDA and Adjusted EBITDAR. Additionally, see below for reconciliations of these Non-GAAP financial measures to their GAAP equivalent financial measure.
  2. Consists of the operating lease components contained within the Penn Master Lease and the Pinnacle Master Lease (referred to collectively as our “Master Leases”) (primarily land), the Meadows Lease, the Margaritaville Lease, the Greektown Lease beginning on May 23, 2019, and the Tropicana Lease beginning on April 16, 2020 (referred to collectively as our “triple net operating leases”). During the three months ended March 31, 2021, we recorded noncash rent expense associated with the Tropicana Lease of $7.7 million. The finance lease components contained within our Master Leases (primarily buildings) are recorded to interest expense (as opposed to rent expense) in accordance with Accounting Standards Codification Topic 842, “Leases.”
  3. Consists of payments made to Gaming and Leisure Properties, Inc. (NASDAQ: GLPI) and VICI Properties Inc. (NYSE: VICI) (referred to collectively as our “REIT Landlords”) under the Master Leases, the Meadows Lease, the Margaritaville Lease, the Greektown Lease and the Morgantown Lease. Although we collectively refer to the Master Leases, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, the Morgantown Lease and the Tropicana Lease as our “Triple Net Leases,” the rent under the Tropicana Lease is nominal.

     

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Segment Information

The Company aggregates its properties into four reportable segments: Northeast, South, West and Midwest.

 

For the three months ended March 31,

(in millions, unaudited)

2021

 

2020

 

2019

Revenues:

 

 

 

 

 

Northeast segment (1)

$

570.9

 

 

$

520.7

 

 

$

550.6

 

South segment (2)

295.9

 

 

223.3

 

 

292.0

 

West segment (3)

96.6

 

 

126.6

 

 

158.6

 

Midwest segment (4)

234.7

 

 

228.1

 

 

271.2

 

Other (5)

87.9

 

 

20.3

 

 

10.2

 

Intersegment eliminations (6)

(11.1)

 

 

(2.9)

 

 

 

Total revenues

$

1,274.9

 

 

$

1,116.1

 

 

$

1,282.6

 

 

 

 

 

 

 

Adjusted EBITDAR:

 

 

 

 

 

Northeast segment (1)

$

193.2

 

 

$

124.5

 

 

$

164.8

 

South segment (2)

133.9

 

 

52.6

 

 

97.8

 

West segment (3)

35.2

 

 

24.6

 

 

49.9

 

Midwest segment (4)

106.0

 

 

69.5

 

 

99.2

 

Other (5)

(21.3)

 

 

(18.9)

 

 

(20.3)

 

Total Adjusted EBITDAR (7)

$

447.0

 

 

$

252.3

 

 

$

391.4

 

  1. The Northeast segment consists of the following properties: Ameristar East Chicago, Greektown Casino-Hotel (acquired May 23, 2019), Hollywood Casino Bangor, Hollywood Casino at Charles Town Races, Hollywood Casino Columbus, Hollywood Casino Lawrenceburg, Hollywood Casino at Penn National Race Course, Hollywood Casino Toledo, Hollywood Gaming at Dayton Raceway, Hollywood Gaming at Mahoning Valley Race Course, Marquee by Penn, Meadows Racetrack and Casino, and Plainridge Park Casino.
  2. The South segment consists of the following properties: 1st Jackpot Casino, Ameristar Vicksburg, Boomtown Biloxi, Boomtown Bossier City, Boomtown New Orleans, Hollywood Casino Gulf Coast, Hollywood Casino Tunica, L’Auberge Baton Rouge, L’Auberge Lake Charles, and Margaritaville Resort Casino. Prior to its closure on June 30, 2019, Resorts Casino Tunica was also included in the South segment.
  3. The West segment consists of the following properties: Ameristar Black Hawk, Cactus Petes and Horseshu, M Resort, Tropicana Las Vegas, and Zia Park Casino.
  4. The Midwest segment consists of the following properties: Ameristar Council Bluffs; Argosy Casino Alton; Argosy Casino Riverside; Hollywood Casino Aurora; Hollywood Casino Joliet; our 50% investment in Kansas Entertainment, which owns Hollywood Casino at Kansas Speedway; Hollywood Casino St. Louis; Prairie State Gaming; and River City Casino.
  5. The Other category consists of the Company’s stand-alone 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; our management contract for Retama Park Racetrack and our live and televised poker tournament series that operates under the trade name, Heartland Poker Tour ("HPT"). The Other category also includes Penn Interactive, which operates our social gaming, internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app. Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property. The Other category also includes corporate overhead costs, which consist of certain expenses, such as: payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property.For the three ended March 31, 2021, 2020 and 2019 corporate overhead costs were $24.0 million, $24.2 million and $23.1 million, respectively. In addition, Adjusted EBITDAR of the Other category includes our proportionate share of the net income or loss of Barstool Sports after adding back our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense).
  6. Primarily represents the elimination of intersegment revenues associated with our internally-branded retail sportsbooks, which are operated by Penn Interactive.
  7. As noted within the “Non-GAAP Financial Measures” section below, Adjusted EBITDAR is presented on a consolidated basis outside the financial statements solely as a valuation metric or for reconciliation purposes.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
Supplemental Information

Given the COVID-19 pandemic and the resulting temporary closure of all of the Company’s gaming and racing properties in the first quarter ended March 31, 2020, the Company believes presenting information regarding the Company’s financial results for the quarterly period ended March 31, 2019 is useful to investors to evaluate the Company’s performance for the quarterly period ended March 31, 2021.

Although the Company did not own Greektown for the quarterly period ended March 31, 2019, the Company believes the following supplemental information is useful to investors to assess the value this transaction brings to the Company and its shareholders. Revenues and Adjusted EBITDAR earned by Greektown for the three months ended March 31, 2019 were $83.7 million and $26.7 million, respectively. The operating results of Greektown were derived from historical financial information. Greektown operating results were adjusted to conform to the Company’s methodology of allocating certain corporate expenses to properties. Revenues and Adjusted EBITDAR earned by Greektown do not reflect any cost savings or revenue synergies from potential operating efficiencies or associated costs to achieve such savings or synergies that are expected to result from the transaction.

The Company ceased operations of Resorts Casino Tunica on June 30, 2019. Revenues and Adjusted EBITDAR earned by Resorts Casino Tunica for the three months ended March 31, 2019 were $5.8 million and $0.2 million, respectively.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Reconciliation of Comparable GAAP Financial Measure to Adjusted EBITDA,

Adjusted EBITDAR, and Adjusted EBITDAR Margin

 

For the three months ended March 31,

(in millions, unaudited)

2021

 

2020

 

2019

Net income (loss)

$

90.9

 

 

$

(608.6)

 

 

$

41.0

 

Income tax expense (benefit)

20.6

 

 

(99.5)

 

 

14.8

 

Income from unconsolidated affiliates

(9.6)

 

 

(4.1)

 

 

(5.7)

 

Interest expense, net

135.7

 

 

129.8

 

 

132.3

 

Other (income) expense

(21.1)

 

 

21.8

 

 

 

Operating income (loss)

216.5

 

 

(560.6)

 

 

182.4

 

Stock-based compensation

4.2

 

 

6.0

 

 

3.4

 

Cash-settled stock-based awards variance

21.5

 

 

(8.9)

 

 

0.4

 

(Gain) loss on disposal of assets

(0.1)

 

 

0.6

 

 

0.5

 

Contingent purchase price

0.1

 

 

(2.2)

 

 

4.7

 

Pre-opening and acquisition costs

1.6

 

 

3.2

 

 

4.4

 

Depreciation and amortization

81.3

 

 

95.7

 

 

104.1

 

Impairment losses

 

 

616.1

 

 

 

Insurance recoveries, net of deductible charges

 

 

(0.1)

 

 

 

Income from unconsolidated affiliates

9.6

 

 

4.1

 

 

5.7

 

Non-operating items of equity method investments (1)

1.6

 

 

0.9

 

 

1.1

 

Other expenses (2)

0.3

 

 

 

 

 

Adjusted EBITDA

336.6

 

 

154.8

 

 

306.7

 

Rent expense associated with triple net operating leases

110.4

 

 

97.5

 

 

84.7

 

Adjusted EBITDAR

$

447.0

 

 

$

252.3

 

 

$

391.4

 

Net income (loss) margin

7.1

%

 

(54.5)

%

 

3.2

%

Adjusted EBITDAR margin

35.1

%

 

22.6

%

 

30.5

%

(1) Consists principally of interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture. We record our portion of Barstool Sports’ net income or loss, including adjustments to arrive at Adjusted EBITDAR, one quarter in arrears.

(2) Consists of non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio; and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.

PENN NATIONAL GAMING, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

 

For the three months ended March 31,

(in millions, except per share data, unaudited)

2021

 

2020

 

2019

Revenues

 

 

 

 

 

Gaming

$

1,082.0

 

 

$

902.9

 

 

$

1,034.5

 

Food, beverage, hotel and other

192.9

 

 

213.2

 

 

248.1

 

Total revenues

1,274.9

 

 

1,116.1

 

 

1,282.6

 

Operating expenses

 

 

 

 

 

Gaming

527.8

 

 

500.9

 

 

547.4

 

Food, beverage, hotel and other

123.1

 

 

157.0

 

 

161.8

 

General and administrative

326.2

 

 

307.0

 

 

286.9

 

Depreciation and amortization

81.3

 

 

95.7

 

 

104.1

 

Impairment losses

 

 

616.1

 

 

 

Total operating expenses

1,058.4

 

 

1,676.7

 

 

1,100.2

 

Operating income (loss)

216.5

 

 

(560.6)

 

 

182.4

 

Other income (expenses)

 

 

 

 

 

Interest expense, net

(135.7)

 

 

(129.8)

 

 

(132.3)

 

Income from unconsolidated affiliates

9.6

 

 

4.1

 

 

5.7

 

Other

21.1

 

 

(21.8)

 

 

 

Total other expenses

(105.0)

 

 

(147.5)

 

 

(126.6)

 

Income (loss) before income taxes

111.5

 

 

(708.1)

 

 

55.8

 

Income tax benefit (expense)

(20.6)

 

 

99.5

 

 

(14.8)

 

Net income (loss)

90.9

 

 

(608.6)

 

 

41.0

 

Less: Net (income) loss attributable to non-controlling interest

0.1

 

 

 

 

 

Net income (loss) attributable to Penn National

$

91.0

 

 

$

(608.6)

 

 

$

41.0

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

Basic earnings (loss) per share

$

0.58

 

 

$

(5.26)

 

 

$

0.35

 

Diluted earnings (loss) per share

$

0.55

 

 

$

(5.26)

 

 

$

0.35

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

155.7

 

 

115.7

 

 

116.3

 

Weighted-average common shares outstanding - diluted

172.8

 

 

115.7

 

 

118.6

 

Selected Financial Information

Balance Sheet Data

(in millions, unaudited)

March 31,
2021

 

December 31,
2020

Cash and cash equivalents

$

2,062.2

 

 

$

1,853.8

 

 

 

 

 

Bank debt

$

1,612.0

 

 

$

1,628.1

 

Notes (1)

730.5

 

 

730.5

 

Other long-term obligations (2)

72.3

 

 

73.0

 

Total traditional debt

2,414.8

 

 

2,431.6

 

Financing obligation (3)

74.0

 

 

 

Less: Debt discounts and debt issuance costs

(113.5)

 

 

(119.0)

 

 

$

2,375.3

 

 

$

2,312.6

 

 

 

 

 

Traditional net debt (4)

$

352.6

 

 

$

577.8

 

  1. Inclusive of our 5.625% Notes due 2027 and our 2.75% Convertible Notes due 2026.
  2. Other long-term obligations as of March 31, 2021 primarily includes $60.

Contacts

Justin Sebastiano
Senior VP, Finance & Treasurer
610-373-2400
Joseph N. Jaffoni, Richard Land
JCIR
212-835-8500 or penn@jcir.com


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