Business context and reporting period
This is Penn National Gaming, Inc.’s Form 10-K for the fiscal year ended December 31, 2019—not a standalone fourth-quarter filing. The company operated or held interests in 41 properties across 19 states, alongside racing, video gaming terminals, retail sports betting and developing online gaming operations. The 2019 results include a full year of Pinnacle operations and the acquisitions of Margaritaville (January) and Greektown (May). The filing’s 2019 Q4 figures are unaudited supplemental quarterly data.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $5,301.4 million | $3,587.9 million |
| Operating income | $571.9 million | $634.1 million |
| Net income | $43.1 million | $93.5 million |
| Diluted EPS | $0.37 | $0.93 |
| Adjusted EBITDA | $1,238.8 million; 23.4% margin | $1,039.4 million; 29.0% margin |
| Adjusted EBITDAR | $1,605.2 million; 30.3% margin | $1,043.2 million; 29.1% margin |
| Cash from operating activities | $703.9 million | $352.8 million |
| Capital expenditures | $190.6 million | $92.6 million |
Revenue rose 47.8%, largely from acquired properties. Operating income and net income declined; FY 2019 included $173.1 million of impairment losses, principally $88.0 million of goodwill, $62.6 million of gaming licenses and $20.0 million of trademarks. Net interest expense was $534.2 million. Year-end cash and cash equivalents were $437.4 million ($455.2 million including restricted cash); current assets were $642.8 million against current liabilities of $905.6 million. The company reported $2,419.0 million of gross debt principal and $530.0 million of available revolving-credit capacity. Balance-sheet debt, net of discounts, issuance costs and current maturities, was $2,322.2 million, plus $62.9 million current maturities. Lease liabilities totaled $4,800.6 million and financing obligations were $4,142.7 million. Triple-net lease payments to landlords were $869.8 million during 2019.
2019 Q4: Revenue was $1,341.2 million, operating income $11.3 million, and net loss $92.9 million; diluted loss per share was $0.80. The quarter included $170.6 million of goodwill and other intangible-asset impairments.
Material changes versus prior period
- Acquisitions drove much of the revenue and Adjusted EBITDA growth; the South segment’s revenue increased to $1,118.9 million from $394.4 million, while the Northeast rose to $2,399.9 million from $1,891.5 million.
- Adjusted EBITDA increased, but its margin fell to 23.4% from 29.0%. Management attributed the margin comparison chiefly to adoption of ASC 842, which reclassified certain lease costs as operating rent expense. Adjusted EBITDAR, which adds back triple-net operating rent, increased in both dollars and margin.
- Operating cash flow nearly doubled, while investing cash outflow was $607.5 million versus $1,423.1 million, reflecting lower acquisition spending than in 2018. Financing activities used $122.4 million, compared with $1,272.1 million provided in 2018.
- ASC 842 adoption added lease assets and liabilities and increased opening retained earnings by $1,085.7 million; prior-year figures were not restated, affecting balance-sheet and expense comparability.
- Competition weighed on Plainridge Park Casino; winter weather and flooding hurt several Midwest properties. Resorts Casino Tunica ceased operations in June 2019 but remained subject to the Penn Master Lease.
Outlook, commentary and risks
Management said cash generated from operations, cash on hand and available credit were expected to cover lease obligations, debt service, capital spending and working-capital needs for the foreseeable future, while cautioning that forecasts, synergies and financing availability were uncertain. No specific consolidated earnings guidance was provided. The company expected Hollywood Casino York and Hollywood Casino Morgantown to open by the end of 2020; planned 2020 capital expenditures were $125.8 million for projects and $198.5 million for maintenance.
After year-end, in February 2020, Penn closed a roughly 36% investment in Barstool Sports for approximately $163 million and secured exclusive use of its brand for gaming products. It expected to launch a Barstool-branded online sports app in August 2020. This was a subsequent event, not part of FY 2019 operating results.
Key risks include intense regional and online gaming competition; substantial fixed rent and debt obligations; gaming regulation, taxes and licensing; execution and regulatory risks in sports betting and iGaming; cybersecurity; variable-rate debt and LIBOR transition; economic and weather exposure; and potential further asset impairments. Legal proceedings were described as ordinary-course matters that management did not expect to have a material adverse effect. The company was in compliance with required financial covenants at year-end. Auditors issued an unqualified opinion; management and the auditor reported effective financial controls, with Greektown excluded from the company’s control assessment.
Important facts for investors to verify
- Separate acquisition-driven growth from comparable-property performance, and review ongoing competitive pressure and weather effects by market.
- Assess cash available after debt service, lease payments and required capital spending; distinguish debt from the much larger lease and financing-obligation commitments.
- Review the assumptions behind 2019 impairment valuations and the sensitivity of remaining goodwill, gaming licenses and trademarks to lower forecasts or higher discount rates.
- Track York and Morgantown construction costs, opening dates and returns, and the costs and results of the Barstool partnership and online sportsbook rollout.
- Confirm post-year-end developments, including the 2020 lease amendment and subsequent events, against later SEC filings.