The regional gaming giant Pinnacle Entertainment announced strong operating results for the fourth quarter of 2016, beating the Wall Street consensus on key metrics like net revenues and adjusted EBITDAR.
Net revenues checked in at $637 million, up 14 percent from the prior year quarter, while adjusted EBITDAR (EBITDA plus rent payments) rose 18 percent to $170 million and EBITDAR margin increased by 90 basis points to 26.6 percent.
“We finished 2016 with solid fourth quarter financial results. Eight of our same-store businesses produced year over year gross gaming revenue growth, while ten produced year over year increases in market share,” said Anthony Sanfilippo, Pinnacle’s chief executive officer.
Sanfilippo also touted strong performances at the company’s properties in Colorado, Lousiana and Illinois as the growth driver for the quarter. All three of Pinnacle’s key regions – West, Midwest and South – posted revenue and EBITDA figures ahead of consensus estimates.
The quarter also marked the first full period of contributions from its new property at The Meadows outside of Pittsburgh, which generated $68 million in revenue.
“Our same-store portfolio of businesses produced net revenue growth of $10.7 million or 1.9% and consolidated adjusted EBITDAR growth of $14.9 million or 10.4% in the 2016 fourth quarter,” he said. “The consolidated adjusted EBITDAR margins within our same-store portfolio of businesses expanded 214 basis points year over year.”
The company also paid off $11 million in debt during the quarter, reducing its total debt load to $953 million and its conventional debt to EBITDAR margin to 3.3x. It also continued to make headway on its share repurchase program by buying back 700,000 shares for $8.8 million during the quarter, bringing the yearly total to 6.2 million shares for $70 million – or $11.32 per share.
“In the 2016 fourth quarter, we repaid $11 million of Conventional Debt, bringing our total debt repayment to $42 million since the completion of our transaction with [Gaming and Leisure Properties, Inc.], adjusted for the debt we incurred to finance the purchase of The Meadows,” said Carlos Ruisanchez, chief financial officer.
“At the same time, we spent $98 million on capital expenditures in 2016 to maintain the competitiveness of the businesses in our portfolio or to better position the Company to harvest a profitable revenue stream in both the gaming and non-gaming guest amenity areas,” he continued.
Analysts were largely impressed by Pinnacle’s results as it continues to find its bearings as a gaming operator following the sale of its real estate assets to GLPI last spring.
“Collectively, the improved operations and thoughtful capital deployment has supported significant shareholder value creation in the wake of the April 2016 spin off of the company’s real estate assets,” wrote Steven M. Wieczynski, a gaming analyst with Stifel.
Others were impressed by Pinnacle’s performance vis-à-vis its competitors in the regional gaming space.
“Despite a tepid top line environment, which is consistent across the industry, the company was able to drive bottom line increases and improved debt levels,” wrote David Katz of the Telsey Group.
“Solid top line growth combined with cost savings implementation led to an EBITDA beat during quarter in which industry peers struggled to attain organic top line growth,” said Chad Beynon of Macquarie.
For the full year 2016, Pinnacle’s revenues grew by $87 million – 3.8 percent – from 2015, though just 0.1 percent on a same-store basis that discounts an $84 million contribution from The Meadows – which was acquired in September for $134 million. Adjusted EBITDAR grew 6.1 percent for year and 4.0 percent on a same-store basis.
Sanfilippo highlighted new improvements and efficiencies in marketing and advertising spend as key drivers of the year’s financial results.
“The mychoice guest loyalty program, with its unique and compelling benefits such as an annual lease of a Mercedes automobile, continues to drive profitable market share gains and strong VIP growth across our portfolio,” he said. “On a same-store basis, in 2016, we reduced our marketing reinvestment rate 40 basis points, while growing our market share 30 basis points. Gaming volume from our VIP guests increased at a low-single digit rate in 2016.”
“Universal card functionality in the mychoice guest loyalty program has been a key operational priority of our Company, particularly to stimulate visitation between the businesses in our portfolio,” he continued. “To that end, we drove an 18% increase in cross-business visitation in 2016, with sequentially stronger performance each quarter of the year.
