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Penn Q2 revenue collapses amid Covid-19 closures


Penn National Gaming’s revenue for the second quarter of 2020 fell 76.9% as venue closures across the country led to a $213.9m loss for the period, and an $822.5m loss for the first half of the year.

The vast majority of the operator’s $305.5m in revenue was made through gaming, bringing in $259.2m. However, this was down 75.6% year-on-year.

Food, beverage and hotel revenue, meanwhile, fell 82.3% to $46.3m.

Breaking down revenue by region, $121.5m came from casinos in the South region, down 56.5%. Revenue from the Northeast segment, previously Penn’s largest driver of revenue, fell 82.9% to $102.7m.

In the Midwest segment, revenue fell 86.6% to $36.0m, while in the West, revenue collapsed by 89.3% to $17.0m.

However other revenue, including revenue from Penn’s online products, soared to $27.6m. The operator noted that its Hollywood Casino branded real-money igaming product in Pennsylvaniacontinues to grow rapidly.

Penn National Gaming president and chief executive Jay Snowden said he was pleased with how his staff responded to the Covid-19 crisis and worked to reopen properties. Currently only Zia Park Hotel and Casino in New Mexico, and the Tropicana Las Vegas remain closed.

“While the last several months have presented unprecedented challenges for our company, I am extremely proud of the way our corporate and property leaders and valued team members have risen to the occasion and, working tirelessly alongside our regulators and public health officials, have successfully reopened all but two of our casino properties as of today,” Snowden said.

“The tremendous resilience of our team, along with the steps we’ve taken to strengthen our financial position and achieve ongoing operational efficiencies, have helped ensure that Penn National remains well-positioned for near- and long-term success.”

Penn National Gaming’s total operating expenses also declined, but at $470.9m, down 58.1%, they were well above revenue.

The largest expense was general and administrative costs, which declined by 28.9% to $204.1m.

Gaming costs, meanwhile, fell by 74.8% to $142.0m, while food, beverage hotel and other costs of sales came to $32.9m, down 80.3%.

Depreciation and amortisation expenses declined by 13.3% to $91.9m.

These expenses resulted in an operating loss of $165.4m, compared to a $198.4m profit in 2019.

Penn paid a further $135.0m in interest expenses, up 0.3% and made a $1.7m loss from unconsolidated affiliates, while it made $29.3m in other income.

After taking these costs into account, Penn’s pre-tax loss came to $272.8m, compared to a $69.9m profit in 2019.

The operator received a $58.4m income tax benefit for a net loss of $214.4m, after making a $51.4m profit in Q2 of 2019.

After accounting for a $500,000 loss attributable to noncontrolling interests, the loss attributable to Penn National Gaming came to $213.9m, compared to a $51.6m profit the year before.

Snowden said that despite the losses, the quarter was a relative success given the adverse conditions in which it started.

“Despite starting the second quarter with our entire property portfolio closed due to the Covid-19 pandemic, we ended the quarter in a significantly improved financial position as a result of continued mitigation efforts that contributed to significant margin improvement, a successful capital raise, and very strong financial performance at our properties since reopening,” Snowden explained.

“The outstanding results to date at our reopened properties highlight our unique strategic position as a best in class operator of market leading regional properties, which have rebounded more quickly than casinos in destination markets.”

For the half-year, Penn’s revenue came to $1.42bn, down 45.4%. 

Of this total, $1.16bn came from gaming, down 44.6%, while $295.5m came from food and beverages, down 49.0%.

The Northeast segment generated $623.4m in revenue, down 46.8%. Revenue in the South was the most stable, declining by 40.0% to $344.8m, while revenue in the West fell 55.3% to $144.8m and revenue in the Midwest dropped 51.1% to $264.1m.

“Our geographic diversification across 19 states — with no more than 15% of our revenues being derived from any single state – has proven to be a significant benefit as states have reopened casinos on a staggered basis. Although visitation has yet to return to pre-Covid-19 levels, in large part due to state mandated capacity restrictions and limited amenities, spend per visit has been notably strong, resulting in better than expected revenues,” Snowden noted.

Other revenue jumped by 145.6% to $47.9m, while $2.9m of revenue was eliminated through intersegment sales.

Operating expenses, meanwhile, declined by only 3.5% to $2.15bn, due to large impairment costs.

Costs of sales in gaming came to $642.9m, down 42.2%, while food, beverage, hotel and other costs of sales came to $189.9m, down 42.3%.

General and administrative costs declined by 10.9% to $511.1m and depreciation and amortisation costs declined by 10.7% to $187.6m. However, the operator also incurred a $616.1m impairment expense in the first quarter of the year.

This meant that Penn National Gaming’s operating losses for the first half of the year came to $726.0m, compared to a $380.8m profit in 2019.

The operator paid an additional $264.8m in interest expenses, down less than 0.1% year-on-year but made $2.4m from unconsolidated affiliates and $7.5m from other sources for a pre-tax loss of $980.9m, after making a profit of $125.7m a year prior. 

After a $157.9m income tax benefit, Penn’s losses came to $823.0m, compared to a $92.3m profit in the first half of 2019.

After accounting for losses of $500,000 attributable to noncontrolling interests, Penn’s final loss attributed to the operator was $822.5m, after making a $92.5m profit in 2019.

Snowden also announced that Penn will extend medical and pharmacy benefits to all furloughed team members until 31 August.

Following a capital raise in the second quarter, Penn had cash assets of $1.20bn as of 30 June.

Snowden said that spending has been high in July and August, suggesting the third quarter of 2020 could be a strong one for the operator.

“While May and June results may have benefited in part from pent-up demand, we continue to be highly encouraged by revenue and EBITDAR (earnings before interest, tax, depreciation, amortisation and rent) trends in July and early August, despite the continuation of safety protocols, including capacity restrictions and social distancing mandates,” Snowden said.

“We anticipate that a meaningful portion of the margin improvements realized since our properties reopened will be recurring as we continue to make fundamental changes to improve our offerings and efficiencies across our organization.”

He noted that the operator was working closely with regulators in a number of jurisdictions to introduce cashless, cordless and contactless technology to its casinos, in order to deliver additional efficiencies and help prevent transmission fo the virus.

This would have the added benefit of catering to a younger demographic than its core audience, Snowden added.

The operator said it will resume construction on two Category 4 facilities in Pennsylvania – which may include between 300 and 750 slot machines, plus up to 40 table games after one year if the operator pays an additional license fee – in the second half of 2021.

Penn said it plans to launch its Barstool sportsbook app in Pennsylvania in September, with other states to follow in late 2020 and early 2021. In January, Penn entered into an exclusive sports wagering and online casino partnership with the sports media brand, in a deal that will also see the operator acquire a 36% stake in the business.

“Over the last few months we have made significant progress on the development of the Barstool Sportsbook mobile app and remain on schedule to launch what we believe will be a best-in-class sports betting product in September,” Snowden added.

“We have already seen very high levels of interest in the Barstool Sportsbook app from the Barstool audience as well as on a wide range of social media platforms, and we are extremely excited about Barstool’s plans to introduce the app to their growing and loyal audience.”

The operator added that it would launch its Choice-branded social casino product in the third quarter as well.

Last month, Penn National Gaming informed the Nevada Department of Employment, Training and Rehabilitation that it planned to make 620 layoffs at Tropicana Las Vegas between now and October.