PENN National Gaming, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. The filing was signed February 26, 2021. At year-end, Penn owned, managed, or held interests in 41 gaming and racing properties across 19 states.
Financial performance
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $3,578.7 million | $5,301.4 million | -32.5% |
| Gaming revenue | $3,051.1 million | $4,268.7 million | -28.5% |
| Net income (loss) | $(669.1) million | $43.1 million | Turned to a loss |
| Diluted earnings (loss) per share | $(5.00) | $0.37 | Turned to a loss |
| Adjusted EBITDA (non-GAAP) | $675.0 million | $1,238.8 million | -45.5% |
| Adjusted EBITDAR (non-GAAP) | $1,094.8 million | $1,605.2 million | -31.8% |
| Adjusted EBITDAR margin (non-GAAP) | 30.6% | 30.3% | +0.3 percentage points |
COVID-19 closures and operating limits drove lower gaming and non-gaming revenue. GAAP operating expenses included $623.4 million of impairment losses, mainly a first-quarter impairment of goodwill and intangible assets. The company also recorded a $165.1 million income-tax benefit; it reported a 19.8% effective tax rate and a valuation allowance against certain deferred tax assets. Other income included $106.7 million of unrealized gains on equity securities. Adjusted EBITDA and Adjusted EBITDAR are non-GAAP measures; EBITDAR excludes triple-net lease rent and should not be read as cash available after rent.
Cash flow, debt and liquidity
- Cash provided by operating activities was $338.8 million, down from $703.9 million. Capital expenditures were $137.0 million, versus $190.6 million.
- Cash and cash equivalents at year-end were $1,853.8 million, compared with $437.4 million; this excludes restricted cash. The company reported $671.8 million of available revolver capacity and no revolver borrowings at year-end.
- Aggregate principal indebtedness was $2,431.6 million, including $1,628.1 million under secured credit facilities, $330.5 million of 2.75% convertible notes due 2026, and $400.0 million of 5.625% notes due 2027. The filing states no debt matures before 2023. The convertible notes’ reported fair value was substantially above principal, and conversion could dilute shareholders.
- Annual minimum rent under triple-net leases was $814.6 million for 2021. Total 2020 payments to REIT landlords, including rent credits, were $891.1 million. The company used $337.5 million of rent credits from real-estate transactions during 2020.
- Net cash from financing activities was $1,310.1 million, principally reflecting two common-stock offerings with $1,288.8 million net proceeds and $322.2 million net proceeds from convertible notes, partly offset by debt repayments.
Material changes and unusual items
- All properties temporarily closed in March 2020. Reopenings began in May with reduced capacity and limited amenities; Pennsylvania, Michigan and Illinois properties had additional fourth-quarter closures. As of February 26, 2021, all properties were open except Zia Park and Valley Race Park.
- The company raised equity in May and September 2020, drawing down its revolver early in the pandemic, then repaid $670.0 million of revolver borrowings and prepaid $115.0 million of Term Loan B-1 borrowings. A credit-agreement amendment provided temporary financial-covenant relief through the period tied to the March 31, 2021 compliance certificate; Penn reported compliance with required covenants at year-end.
- Penn acquired a 36% interest in Barstool Sports for $161.2 million and launched its Barstool-branded online sportsbook in Pennsylvania in September 2020. Michigan launched in January 2021. Penn had an option and planned additional investment of approximately $62 million to raise its interest to about 50%, subject to the agreement.
- Penn sold Tropicana Las Vegas real estate and Morgantown development land to GLPI for $337.5 million in rent credits. It agreed to buy Hollywood Casino Perryville operations for $31.1 million, subject to regulatory approval, with closing expected in the second or third quarter of 2021 and initial annual rent of $7.8 million.
- Hurricane Laura damaged L’Auberge Lake Charles, which closed for about two weeks. Penn recorded a $23.0 million insurance receivable and received $47.5 million in insurer advances; final claim settlement remained unresolved at year-end.
Outlook, commentary and risks
Management said cash from operations, cash on hand and available credit were expected to cover anticipated lease payments, debt service, capital spending and working capital for the foreseeable future, while emphasizing substantial uncertainty from the pandemic and other factors. The filing does not provide clear numerical revenue or earnings guidance. Penn expected 2021 capital expenditures of $296.8 million, including $98.9 million for its Pennsylvania Category 4 projects and $197.9 million for maintenance; York and Morgantown were expected to open by year-end 2021, subject to regulatory approval.
Management described reopening trends as reduced visitation but higher spending per trip, and cautioned that these trends might not continue. Principal risks include renewed closures or capacity limits, uncertain customer recovery and discretionary spending, competition in land-based and online gaming, execution and returns from Barstool and Penn Interactive, substantial lease and debt obligations, covenant compliance, regulatory approvals and changes, and cyber and technology risks. Further impairment charges remain possible if operating forecasts weaken. The independent auditor issued an unqualified opinion on the financial statements and internal controls; management also reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Whether reopened-property visitation and spending per trip remain sustainable, and whether any closures or restrictions recur.
- Cash generation after lease payments: distinguish Adjusted EBITDAR from GAAP cash flow and account for the substantial fixed lease burden.
- Post-relief-period covenant headroom, debt repayment capacity and the effect of variable-rate debt and LIBOR transition.
- Barstool sportsbook adoption, customer-acquisition costs, state launches and the economics and dilution implications of further Barstool ownership and convertible-note conversion.
- Completion, regulatory approval, timing and total costs of York, Morgantown and Perryville; final Hurricane Laura insurance recovery; and any further asset impairments.