With the $1.7 billion acquisition of Isle of Capri Casinos in the rearview mirror, Eldorado Resorts set to work integrating the new properties into its portfolio during the second quarter, growing both EBITDA and EBITDA margin despite an overall decline in revenues.
“I’m very pleased to welcome the Isle of Capri team members to the Eldorado Resorts family and we’re all encouraged by the very strong start we are off to as a combined company,” said Gary Carano, Eldorado’s chief executive officer, noting that the company has been successful in its attempts generate new efficiencies and cost savings across the new properties.
“It accomplished a lot in a short amount of time and we’re happy with our properties progress to date,” he said.
The merger was first announced in fall 2016 and closed on May 1 of this year. The new entity is a regional gaming empire that features 19 casino properties across 10 states, 20,000 slot machines and video lottery terminals, 550 table games and 6,500 hotel rooms.
For the second quarter, net revenues for the enterprise were down 2.5 percent to $426.8 million year-over-year when adjusted for the new properties, but adjusted EBITDA grew nearly 8 percent to $100 million. Adjusted EBITDA margin at the property level also grew by 150 basis points to 25.2 percent.
“Our second quarter growth was broad-based as Adjusted EBITDA improved at 13 of our 19 properties and we delivered year over year property margin increases at our West, Midwest and East regions and flat margin results for our South region,” said Carano.
He highlighted the diversity of Eldorado’s new portfolio by noting that no single market accounted for more than 15 percent of total adjusted EBITDA.
“With the closing of the ISLE deal, the Eldorado story changes from concentrated exposure in the high-growth Columbus and Reno markets to an execution story with $35 million of synergies for the taking,” wrote Patrick Scholes, an analyst with SunTrust, in a note.
Noting that management has a strong track record of finding cost savings when incorporating new properties into its portfolio, Scholes added that “The new Eldorado also has a diversified footprint and more than $400 million of pro forma EBITDA, putting it in the ‘big leagues’ of regional gaming.”
“As highlighted in the performance, we expect for the name ($1.5 billion market cap) to gain more attention from Wall Street (5 sell-side analysts) given the overall size of the new company,” wrote Chad Beynon of Macquarie Research.
The positive quarter came on the heels of a rough first quarter that was disrupted by snowstorms on 11 of 14 weekends in the Reno area.
“As of August 1, we’ve executed on nearly $30 million of our year-one $35 million of expected synergies and remain on track to achieve the full amount and more,” said Anthony Carano, Eldorado’s chief operating officer.
“Our second quarter results clearly benefited from a larger scale and diversified property portfolio, as well as our focus on margins which is helping us drive better flow-through of revenue,” he added, pointing to the improvements in EBITDA margin at the property level.
As of June 30, Eldorado had $103.6 million in cash on its balance sheet against total debt of $2.3 billion. With the Isle acquisition complete, the company maintained that its current focus is to pay down debt in anticipation of future opportunities.
“Our expanded scale is delivering the expected benefit in free cash flow as we paid down $39.5 million of debt in the second quarter,” said Tom Reeg, chief financial officer. “Our priority continues to be to deploy free cash flow to reduce leverage which should position us to pursue future growth opportunities.”
For the company’s West region, net revenues were down nearly 6 percent to $109.4 million while operating income and adjusted EBITDA remained flat – even though EBITDA margin improved by nearly 100 basis points. The company attributed this drop to a challenging year-over-year comparison in the Reno market.
Revenues were up slightly by 1.5 percent to $103.8 million in the Midwest segment while adjusted EBITDA surged to 9.7 percent on the heels of a 230 basis point improvement in EBITDA margin.
The South region was adversely impacted by flooding which led to quarterly declines in both revenues and EBITDA, while adjusted EBITDA jumped 11 percent in the East region to $26.6 million despite a modest revenue decline.
With the merger complete and the synergizing process well underway, the company now is eyeing a moment to take a deep breath and assess what the next steps forward should be.
“We have an opportunity now to spend time reviewing the portfolio and seeing were some return focused projects can help grow EBITDA or otherwise unlocking value that is not currently being delivered,” explained Anthony Carano.
