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Penn National reports 13% decline in first-quarter revenue

Updated May 7, 2020 - 4:53 pm

Like many casino companies, regional gaming giant Penn National Gaming Inc. was on a roll in January and February.

Then, the bottom fell out.

The Wyomissing, Pennsylvania-based operator of 41 casinos in 19 states reported a 13 percent decline in first-quarter revenue on Thursday.

“Penn National saw a phenomenal start to 2020, with record results in January and February,” said CEO Jay Snowden, who took the company’s reins less than a year ago.

“That momentum was cut short in mid-March by the COVID-19 pandemic, which required the temporary closure of all 41 of our properties,” he said. “As a result, our first-quarter revenues decreased $166.5 million year-over-year, to $1.12 billion, and we incurred a net loss of $608.6 million due to $616.1 million of impairment losses.”

That translated to a $5.26 loss per share for the quarter that ended March 31, compared with 36 cents-per-share earnings a year earlier.

The operator of the Tropicana on the Strip, M Resort in Henderson and Cactus Pete’s in Jackpot paid the company’s 26,000 employees nationwide — 3,200 in Nevada — through the end of March, but furloughed them April 1.

Executive pay was reduced and the board of directors opted to forgo its compensation. A COVID-19 relief fund for employees was established. Since the closure, Penn has donated 45 tons of perishable food items to food banks and relief organizations in the cities in which they operate.

Penn in late March also formed and negotiated with an affiliated real estate investment trust, Gaming & Leisure Properties, to sell the Tropicana’s real estate assets and develop a new ground lease for its Morgantown, Pennsylvania, casino in exchange for $337.5 million in rent credits.

Better days envisioned

Still, Snowden and his new chief financial officer, David Williams, who joined the company from Apple in January, expect brighter days once casinos begin reopening.

The company finished March with $730.7 million of cash on its balance sheet, and its average cash burn, assuming complete closure of all properties, has been reduced to $83 million a month from April through the end of the year.

Carlo Santarelli, a gaming analyst with the New York office of Deutsche Bank, said Penn, which failed to meet analysts’ earnings expectations, had no surprises in Thursday’s conference call.

“As expected, the key focal points from the call today were around liquidity, the operational ramps post the casino reopenings, net revenue break-even levels for (cash flow) and the Barstool sports app launch and impact,” Santarelli said. “Given the operating and financial leverage inherent in the business, equity value is likely to be volatile.”

Snowden told investors that the regional nature of the business — 40 of the 41 properties draw customers from within a 30-40-minute drive of the casino — should enable Penn to bounce back faster than companies that rely on fly-in traffic.

Mobile gaming app coming

Snowden also is enthused about the company’s 36 percent acquisition of Barstool Sports Inc. for $163 million in February.

Boston-based Barstool and Penn are developing a mobile gaming app expected to debut in the third quarter that they would roll out in states where legal sports wagering has been approved. Barstool has not been licensed in Nevada and the Tropicana and M Resorts sportsbooks are operated by CG Technologies.

Snowden said in Thursday’s earnings conference call that governors in states where Penn operates have indicated that their casinos could reopen in late May or early June.

In Nevada, there’s no specific date for casino reopenings and properties are required to file a reopening plan with the state Gaming Control Board at least seven days in advance of opening.

Penn stock, traded on the Nasdaq exchange, soared Thursday, closing up $2.43, 15.4 percent, to $18.18 on volume nearly twice the daily average. In after-hours trading, investors moved shares downward 15 cents, 0.8 percent, to end at $18.03 a share.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.

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