PENN National Gaming, Inc. (now PENN Entertainment, Inc.) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. The filing was submitted under the name Penn National Gaming, Inc. The company operated or held interests in 41 properties across 19 states, alongside sports betting and interactive gaming businesses.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1,116.1 million | $1,282.6 million |
| Operating income (loss) | $(560.6) million | $182.4 million |
| Net income (loss) | $(608.6) million | $41.0 million |
| Diluted EPS | $(5.26) | $0.35 |
| Adjusted EBITDA (non-GAAP) | $154.8 million | $306.7 million |
| Adjusted EBITDA margin (non-GAAP) | 13.9% | 23.9% |
| Adjusted EBITDAR (non-GAAP) | $252.3 million | $391.4 million |
| Operating cash flow | $(33.2) million | $125.7 million |
- Revenue fell 13.0%; gaming revenue declined 12.7% to $902.9 million. All regional segments reported lower revenue, principally because properties began closing from March 13–19 due to COVID-19.
- The $616.1 million impairment charge included $113.0 million of goodwill, $437.0 million of gaming-license and $61.5 million of trademark impairments. The impairment assessment reflected pandemic-related uncertainty and revised cash-flow projections.
- Other expense included a $21.8 million unrealized holding loss on equity securities. Income tax benefit was $99.5 million; the company also increased its valuation allowance by $74.4 million.
- Investing cash outflow was $183.4 million, including $135.0 million paid for the Barstool Sports investment and $42.8 million of capital expenditures. Financing cash inflow was $508.8 million, primarily reflecting increased revolver borrowings.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $730.7 million; cash, cash equivalents and restricted cash totaled $747.4 million. Current assets were $1,270.0 million and current liabilities $813.9 million.
- Long-term debt, net of current maturities and issuance costs, was $2,829.3 million; current maturities were $67.7 million. The company had drawn $670.0 million on its revolving facility, leaving $0.5 million available. Debt figures exclude substantial lease and financing obligations: long-term financing obligations were $4,093.5 million and long-term lease liabilities were $4,646.0 million.
- On March 13, the company drew the remaining available $430.0 million under its revolver to preserve financial flexibility. It reported compliance with debt covenants at quarter-end.
- As of April 14, a credit-agreement amendment suspended maximum leverage and minimum interest-coverage tests during a covenant-relief period, potentially through the quarter ending March 31, 2021. It introduced minimum liquidity requirements that step down from $400 million through April 2020 to $225 million from July 2020 through March 2021, and revised post-relief covenants.
Material changes, outlook and risks
- All 41 gaming properties were temporarily closed by March 31 and remained closed as of the filing date. Management planned to reopen properties in Q2 2020 subject to regulatory and public-health approvals; reopening timing, operating restrictions, customer demand and recovery remained uncertain. Management expected a material adverse impact in Q2 and could not reliably predict full-year effects.
- Management estimated monthly cash burn of approximately $83 million assuming continued complete closure through year-end, after cost-reduction actions. Approximately 26,000 employees were furloughed, mission-critical staffing was below 850, leadership compensation was reduced, and planned York and Morgantown casino construction was suspended. The board also forwent cash compensation.
- On April 16, GLPI completed the Tropicana Las Vegas real-estate sale in exchange for $307.5 million of rent credits, which began being used in May. Penn continued operating the property under a nominal-rent lease while GLPI conducted a sale process. A separate proposed Morgantown land transaction was expected to provide $30.0 million in rent credits, with closing expected by August 31, subject to conditions.
- The company estimated a $40–$50 million income-tax refund, primarily from CARES Act net-operating-loss carrybacks; receipt and timing were not assured. The company also planned to launch a Barstool-branded mobile sports betting app in Q3 2020. These were expectations, not guarantees.
- Key risks include prolonged closures or restricted reopenings, weak post-reopening demand, liquidity and covenant compliance, ability to meet rent and debt obligations, access to further financing, additional impairments, and the possibility that cost reductions or furloughs affect staffing and customer loyalty. The filing warned that prolonged disruption could lead to defaults and, in a severe scenario, a Chapter 11 filing.
Important facts for investors to verify
- Actual property reopening dates, operating restrictions, staffing availability and customer visitation after reopening.
- Cash burn and liquidity against the amendment’s minimum-liquidity thresholds, particularly given the nearly fully drawn revolver.
- Progress on the Morgantown transaction and any additional asset sales, rent concessions or financing actions.
- Whether the estimated tax refund is realized and whether further valuation allowances or asset impairments are recorded.
- Post-reopening cash generation relative to debt service, lease payments and the company’s substantial lease and financing obligations.
- Whether the Barstool investment and planned sports-betting launch produce the expected returns; the filing provides no clear quantified earnings guidance.