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Impairment charges hit Penn National bottom line in Q1


Penn National Gaming (PNG) has posted a loss of $608.6m for the first quarter of 2020, primarily due to impairment charges and the shutdown of its casinos due to the novel coronavirus (Covid-19) outbreak.

Revenue for the three months to March 31, 2020, amounted to $1.12bn, down 13.0% from $1.28bn in the same period last year.

PNG reported year-on-year declines across all geographical segments within the US, though the Northeast segment remained its main source of income. Revenue in the Northeast totalled $520.7m, down 5.4% from $55.06m in 2019.

Its venues in the South saw revenue slip 23.5% to $223.3m, while Midwest revenue fell 15.9% to $228.1m, and the West segment 20.2% to $126.6m.

However, PNG did see revenue from its other operations – including the Penn Interactive venture and standalone operations across the US – almost double from $10.2m to $20.3m.

The main reason for the decline in revenue was the temporary closure of casinos in line with federal and state measures to slow the spread of coronavirus, with all US casinos shut by March 24. PNG operates casinos in 19 states, and it remains unclear when the venues will be allowed to reopen, and what restrictions will be imposed on patrons.

Prior to the closures, PNG said it had seen a particularly strong start to the year, with the first two months of 2020 being among the most successful in its history.

“Penn National saw a phenomenal start to 2020, with record results in January and February,” PNG president and chief executive Jay Snowden said. “Our company was performing well ahead of guidance in every segment, driven in large part by the introduction of retail sports betting at several properties, which has served as a catalyst for both gaming and non-gaming revenue.

“We also saw a strong positive reaction, including our stock price hitting an all-time high, following the announcement of our strategic investment in Barstool Sports, which reflects our strategy to become the best-in-class omni-channel provider of retail and online gaming and sports betting entertainment.

“That momentum was cut short in mid-March by the Covid-19 pandemic, which required the temporary closure of all 41 of our properties.”

Looking at spending in Q1, operating expenses were up 52.7% year-on-year to $1.68bn, primarily due to impairment charges of $616.1m.

However, costs were down elsewhere, with total gaming spend falling 8.5% to $500.9m, while food, beverage, hotel and related costs declined 3.0% to $157.0m. General and administrative costs were up 7.0% to $307.0m, but depreciation and amortisation spend was down 8.1% to $95.7m.

In terms of other spending, interest expenses were down slightly at $129.8m, while other undisclosed expenses amounted to $21.8m

The decline in revenue, coupled with higher expenses primarily caused by the impairment losses, meant PNG posted a loss before tax of $708.1m, compared to a profit $55.8m in Q1 2019.

Though the operator recorded an income tax benefit worth $99.5m in the quarter, its loss after tax amounted to $608.6m.

“While we have faced unprecedented challenges in recent weeks, we are confident that the company’s long-term growth strategy remains intact, supported by our differentiated omni-channel approach,” Snowden said.

“Upon the reopening of our casinos, we believe Penn National is very well-positioned to resume its positive momentum. Our geographic diversification across 19 states – with no more than 15% of our revenues being derived from any single state – should be a significant benefit as states begin to open casinos on a sequential basis.

“We expect our regional gaming markets to rebound sooner than destination markets by virtue of our casinos being located in suburban areas that are more easily accessible by car from key population centres.”

Looking more closely at PNG’s ongoing strategy regarding coronavirus, Snowden said that during the period of closure, its management team has re-evaluated all corporate and property operating structures to improve efficiencies.

Snowden also said PNG is exploring new technologies and innovations to boost its casino experience, and is making improvements to its mychoice loyalty program.

In addition, Snowden said PNG is taking steps to connect its land-based casinos to our sports betting and iCasino products to offer customers an incentive to consolidate play across its platforms. This includes ongoing development for the Barstool Sportsbook app, which is due to launch in Q3 after PNG acquired a stake in the digital sports media company in Q1.

“We are strongly positioned to benefit from the continuing proliferation of sports betting and iCasino legislation – something we expect to accelerate as states seek new tax revenues in the aftermath of the virus,” he said.

“While the last several weeks have been challenging for the company, our team members and the entire industry, we remain firmly convinced of the long-term potential of our highly differentiated omni-channel approach.”