Penn National Gaming Management Discusses Q2 2012 Results - Earnings Call Transcript

Penn National Gaming (PENN)

Q2 2012 Earnings Call

July 24, 2012 10:00 am ET

Executives

Joseph Jaffoni

Peter M. Carlino - Chairman of the Board and Chief Executive Officer

William J. Clifford - Chief Financial Officer and Senior Vice President of Finance

Timothy J. Wilmott - President and Chief Operating Officer

Eric Schippers - Senior Vice President, Public Affairs & Government Relations

Jordan B. Savitch - Senior Vice President and General Counsel

Analysts

Felicia R. Hendrix - Barclays Capital, Research Division

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Joel H. Simkins - Crédit Suisse AG, Research Division

Mark Strawn - Morgan Stanley, Research Division

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Brian D. Egger - Topeka Capital Markets Inc., Research Division

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming Second Quarter Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Joe Jaffoni. Please go ahead.

Joseph Jaffoni

Thank you, Kayla, and good morning, everyone, and thank you for joining Penn National Gaming's 2012 Second Quarter Conference Call. We'll get to management's presentations and comments momentarily as well as your questions and answers. But as is our practice, we'll first review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from expectations.

The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast may include non-GAAP financial measures within the meaning of SEC Regulation G. And when required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release, as well as on the company's website.

With that, I'm happy turn the call over to Peter Carlino, the company's Chairman and CEO. Peter?

Peter M. Carlino

Thank you, Joe, and good morning, everyone. We're happy to report what we believe to be a good quarter. And you'll recall that 2012 is a year that we characterize as a transitional year for the company for all the reasons that most of you well know, and it's proved to be much the case. We realize and appreciate the difficulty you all have in trying to estimate just what our performance is going to be throughout this year. And I think Bill made pretty clear that he wasn't having all that much fun with it either, as he looked ahead in 2012, trying to guess where we're going to be, as we move into a whole new reality in '13 and beyond. So we're especially pleased that we seem to have this quarter pretty well nailed, and it was a good quarter.

Before we get to our Q&A, which we move to very quickly, I think Bill would make a couple of comments, and Tim has a few items that he would like to call your attention to. So with that, Bill?

William J. Clifford

Sure. Thanks, Peter. The -- I'm just going to highlight a few items that are in our press release and in our guidance, as well as kind of real quick comments on the quarter. I think relative to the cannibalization in the second quarter, I'd like to believe that it was all brilliant, but we really did do a really good job of estimating what the impact of cannibalization would have been on the quarter for a -- in total. Did we get it perfect by property? No. But in offsetting assumptions between different properties, came in line pretty darn close to what we thought it was going to be.

Relative to some guidance issues, I think in the -- there's been some little bit of confusion about what we're -- how much we had for Columbus in the fourth quarter. All I can tell you is in our guidance last quarter, Columbus was already factored in, in an early fourth quarter opening. Essentially, our guidance for Columbus relative to the EBITDA contribution in the fourth quarter is unchanged from our last guidance. We did increase within our guidance. We've increased one of the new items. It's obviously the Caesars' acquisition in St. Louis, which is factoring in roughly $2.5 million for pre-opening expenses. We do not have either the EBITDA contribution or the expected interest cost associated with the acquisition, because we don't have a firm date yet on when that transaction will close.

Relative to guidance on EPS line items, there is an increase in depreciation relative to our guidance last time, which is accounting for the bulk of the increase in the other below EBITDA line adjustments, and that reflects approximately $4 million for an accelerated depreciation on the Ohio racetrack, the Beulah and Toledo. And then we've got some other adjustments in depreciation, totaling roughly $3.2 million to get us to roughly $7.2 million of adjustments quarter-over-quarter.

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