Penn National says it has adequate liquidity, is focusing on reopening casinos and Barstool deal

May 7, 2020 8:01 PM
  • Howard Stutz, CDC Gaming Reports
May 7, 2020 8:01 PM
  • Howard Stutz, CDC Gaming Reports

Penn National Gaming CEO Jay Snowden said Thursday up to three to five states could allow casinos to reopen on a limited basis by the end of May with many other states permitting gaming to return in June.

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“It’s fluid and we’re in conversations with regulators daily,” Snowden said during a question and answer session with analysts on Penn’s first-quarter earnings conference call.

Penn is currently the nation’s largest regional casino operator with 41 properties in 19 states. The company’s entire gaming portfolio has been closed since mid-March due to the COVID-19 coronavirus pandemic, but Snowden and CFO David Williams said the company has enough liquidity – $730.7 million in cash at end of March – to survive without any revenues until the end of the year.

But Snowden, who took over as CEO on Jan. 1, sounded an optimistic tone on bringing back some of the company’s 26,000 furloughed employees while slowly reopening its regional portfolio. Snowden said the company doesn’t derive more than 15% of its quarterly revenues from any single state. The company is also producing reopening plans under various health and safety guidelines and social distancing, such as fewer slot machines and seats at table games, and reduced restaurant operations.

Snowden said regional gaming markets rebounded quicker than destination casino markets following the recession in 2008 and 2009, adding that 40 of our 41 properties are 20-to-30 minutes driving distance from their customers.”

The nationwide casino shut down in an effort to slow the virus spread had a profound impact on the company’s results for the quarter that ended March 31. Snowden said the company had “record results” at its properties in January and February and had announced its $163 million sports betting deal with sports media platform Barstool Sports.

But the COVID-19 casino shutdowns sent Penn to 13% decline in overall revenues – $1.12 million in the quarter – and a 35.5% decline in cash flow. Penn took a net loss of $608.6 million in the quarter due to $616.1 million of impairment losses.

Investors shrugged off the quarter as Penn’s shares were up 15.395, or $2.43, in trading on the Nasdaq Thursday to close at $18.18.

Snowden cited the deal with Barstool, which includes the development of a mobile sports betting application that would launch in the fall and rebranding the company’s retail sportsbooks under the Barstool brand.

“Barstool’s highly diverse and engaging content is proving to be more relevant than ever in the key demographics we will be targeting,” Snowden said. “We continue to believe Barstool’s growing, loyal audience will lead to meaningful reductions in customer acquisition and promotional costs for our sports betting product.”

To help reduce its monthly cash burn to $83 million while the company’s casinos remained closed, Penn took reduced payroll through the furloughs and executive management team pay cuts, sold the real estate of Tropicana Las Vegas and an under-development casino in Pennsylvania for $337.5 million in rent credits to Gaming and Leisure Properties, suspended construction on two mini-casinos in Pennsylvania and capital expenditures.

“The results from the quarter are a less important event than the liquidity, positioning, and strategies for enduring the crisis, in the absence of visibility, rather than resources for recovery,” Jefferies gaming analyst David Katz told investors.

On the conference call, Snowden said Penn National has “modeled about 27 different scenarios” on returning the company to its pre-pandemic cash flow levels, even if it takes more than a year to bring back revenues to its previous projections.

“While we have faced unprecedented challenges in recent weeks, we are confident that the company’s long-term growth strategy remains intact, supported by our differentiated omnichannel approach,” Snowden said in a statement.

Penn said it has other ways to extend its liquidity position, such as selling its ownership of Illinois slot machine route operate Prairie State Gaming, monetizing its 50% ownership in the Kansas Speedway – where it operates a Hollywood-branded casino – and the land underneath its racetracks in Texas and Florida.

“Management’s commentary hopefully helps address investor concerns around potential equity raises down the road should the recovery prove more drawn out,” said SunTrust Robinson gaming analyst Barry Jonas.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.