PENN National Gaming, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request identifies 2021 Q4, the supplied filing reports full-year results; it does not provide a clear standalone fourth-quarter financial summary. The company operated 44 gaming and racing properties in 20 states and was expanding its online sports betting, iGaming, and digital sports media businesses.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $5.905 billion | $3.579 billion | Up 65.0% |
| Operating income (loss) | $1.060 billion | $(410.2) million | Improved |
| Net income (loss) | $420.5 million | $(669.1) million | Improved |
| Diluted earnings (loss) per share | $2.48 | $(5.00) | Improved |
| Net cash from operating activities | $896.1 million | $338.8 million | Up $557.3 million |
| Net cash used in investing activities | $(1.222) billion | $(233.7) million | Higher outflow, largely acquisitions |
| Adjusted EBITDA (non-GAAP) | $1.540 billion | $675.0 million | Up |
| Adjusted EBITDA margin (non-GAAP) | 26.1% | 18.9% | Up 7.2 percentage points |
| Adjusted EBITDAR margin (non-GAAP) | 33.8% | 30.6% | Up 3.2 percentage points |
Gaming revenue was $4.945 billion and food, beverage, hotel and other revenue was $959.7 million. Interest expense, net, was $561.7 million. The company reported cash and cash equivalents of $1.864 billion at year-end. Gross debt principal was approximately $2.840 billion; $674.0 million was available under the revolving credit facility, with no revolver borrowings outstanding. The company said it was in compliance with its financial covenants.
Annual minimum rent payments were $824.4 million, including $806.2 million under triple-net leases. Payments to its REIT landlords, inclusive of rent credits, totaled $912.4 million in 2021. These lease and financing commitments are substantial alongside reported debt.
Material changes and business developments
- Results rebounded from 2020, when pandemic-related closures and capacity limits weighed on operations. The company attributed 2021 growth to eased restrictions, stronger visitation and longer play, as well as three new properties: Perryville, York and Morgantown.
- Revenue also exceeded 2019’s $5.301 billion. Management cautioned that strong visitation and longer play at reopened properties may not continue.
- PENN acquired theScore on October 19, 2021, for approximately $2.1 billion, including cash and equity consideration. The acquisition added digital sports media, technology and sports betting operations; theScore contributed $7.5 million of revenue and an $11.9 million net loss after closing. The purchase allocation included $1.690 billion of goodwill.
- The Interactive segment generated $432.9 million of revenue but reported a $35.4 million Adjusted EBITDAR loss, versus $37.2 million of positive Adjusted EBITDAR in 2020. Increased launch and expansion costs, a $12.5 million California sports betting initiative contribution, and theScore’s results contributed to the loss.
- The company issued $400 million of 4.125% senior unsecured notes due 2029. Capital expenditures were $244.1 million in 2021.
Outlook, risks and unusual items
- Management expected 2022 capital expenditures of $312.4 million and said operating cash flow, cash on hand and available credit should cover anticipated lease payments, debt service, capital expenditures and working capital for the foreseeable future. No revenue or earnings guidance was provided in the supplied text.
- Key uncertainties include renewed COVID-19 disruptions, competition and consumer spending, labor availability and costs, inflation and supply-chain disruption, gaming legislation and taxation, regulatory approvals, cybersecurity, sports betting risk management, and integration and returns from theScore and other digital investments.
- The business has significant fixed lease obligations, and management noted that these may constrain funding for operations, growth and acquisitions. Debt agreements include financial covenants and restrictions on certain activities.
- There were no 2021 impairment losses; 2020 included $623.4 million of impairment charges, primarily following the pandemic-related first-quarter assessment. The 2021 effective tax rate was 22.0%, and the company maintained a valuation allowance against certain deferred tax assets amid cumulative pretax losses over the three-year period.
- After year-end, PENN entered an agreement to sell its Tropicana Las Vegas operating interest to Bally’s, with closing expected in the second half of 2022 subject to agreements and regulatory approval. In February 2022, the board authorized a $750 million share repurchase program; the company repurchased $107.1 million of shares that month.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management excluded certain recently acquired businesses from its internal-control assessment; those businesses represented approximately 14% of consolidated assets and 1% of 2021 revenue.
Important facts for investors to verify
- Whether 2021’s recovery in visitation, play and margins persists, particularly as pandemic conditions and operating restrictions change.
- The Interactive segment’s customer acquisition costs, cash burn, profitability trajectory and ability to generate returns on theScore and Barstool-related investments.
- Cash generation after debt service, capital expenditures and the substantial lease burden; also review upcoming debt maturities and covenant headroom.
- Progress and final terms of the Tropicana sale, and the effect of the 2022 master-lease amendments, which the filing says may produce material accounting changes.
- The sensitivity of reported earnings to goodwill and intangible-asset valuations, including theScore’s significant goodwill, and to taxes and potential deferred-tax-asset valuation changes.