Penn National Gaming (NASDAQ: PENN) reported Q1 EPS of $0.35, $0.03 worse than the analyst estimate of $0.38. Revenue for the quarter came in at $1.28 billion versus the consensus estimate of $1.3 billion.

2019 First Quarter Financial Highlights:

• Revenues of $1.28 billion, an increase of $466.5 million year over year;
• Operating income of $182.4 million, an increase of $10.3 million year over year, with net income of $41.0 million;
• 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.

Timothy J. Wilmott, Chief Executive Officer, commented: “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. 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 revenuesynergies 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.

Financial Guidance for the 2019 Second Quarter and Full Year 2019

The Company’s second quarter and full year guidance targets reflect the anticipated impacts of several items, including ongoing bridge work in Lake Charles, Louisiana and the hotel and casino expansion at Monarch Casino in Black Hawk, Colorado. Also, full year 2019 guidance assumes Resorts Casino Tunica closes on June 30, 2019. However, the table below does not yet include the Greektown operations which are expected to contribute to the Company’s results beginning later this month. In addition to these factors, the guidance is based on the following assumptions:

• Corporate overhead expenses, which is net of allocations to our properties, of $97.9 million, with $24.7 million to be incurred in the second quarter;
• Depreciation and amortization charges of $403.4 million, with $101.8 million in the second quarter;
• Lease payments (which continue to be fully tax deductible) to our REIT landlords under our triple net leases of $835.9 million, with $209.1 million in the second quarter. This includes projected escalator payments of $0.9 million under the Penn triple net master lease with GLPI, no escalator under the Pinnacle triple net master lease with GLPI, and no escalator under the Meadows lease;
• Maintenance capital expenditures of $188.4 million, with $70.1 million in the second quarter;
• Project capital expenditures for Hollywood York of $15.0 million, with $2.4 million in the second quarter;
• Project capital expenditures for Hollywood Morgantown of $21.5 million, with $9.8 million in the second quarter;
• Cash interest on traditional debt of $123.2 million, with $23.3 million in the second quarter;
• Interest expense of $534.3 million, with $133.7 million in the second quarter, inclusive of interest expense related to the finance lease components associated with our Master Leases;
• Rent expense associated with our triple net operating leases with our REIT landlords of $337.9 million, with $84.5 million in the second quarter (1);
• Cash taxes of $16.8 million, with $10.1 million in the second quarter;
• Our share of non-operating items (such as depreciation and amortization expense) associated with our Kansas JV of $3.7 million, with $0.8 million to be incurred in the second quarter;
• Estimated non-cash stock compensation expense of $13.9 million, with $3.5 million in the second quarter;
• LIBOR is based on the forward yield curve;
• A diluted share count of approximately 119.0 million; 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.

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