Pinnacle Entertainment reported a strong performance in its first quarter as a brand new, strictly operational entity after officially shedding its real estate holdings earlier this year in a $4.75 billion deal with GLPI.
Though the newly recast Pinnacle’s net revenues fell slightly by 2.7 percent to $566.2 million from $582 million for the second quarter of 2016 from the prior year, it posted year-over-year EBITDA growth of 1.7 percent to $157 million largely due to cost savings implementations, and the company asserted that the revenue drop was primarily due to fluke events like flooding, rain and road construction
“We are very pleased with the progress made across our portfolio of businesses and at our Las Vegas service center with the execution on our operational improvement initiatives so far in 2016 and are very optimistic about the future of Pinnacle Entertainment,” chief executive Anthony Sanfilippo said.
Pinnacle finalized the sale of its real estate assets to Gaming and Leisure Properties in April and subsequently spun itself off as a new operating company in May after coming under pressure from activist investors to divest from its property holdings. The transaction with GLPI was first announced in July 2015.
On a conference call with investors and analysts, Sanfilippo asserted that the new-and-improved Pinnacle Entertainment was well-positioned for growth and value creation through its strategy of acquiring new properties with existing revenue streams, buying back shares and reducing debt.
To illustrate this, Sanfilippo touted the acquisition of the Meadows Casino and Racetrack in Pittsburgh – which is slated to earn regulatory approval in September and will give the company a foothold in the Pennsylvania market. He also noted that the company had paid down $21 million in debt since the GLPI transaction and highlighted a $50 million stock buyback program that repurchased 4.53 million shares at $11.05 over the summer while reducing the amount of outstanding common stock by 7.4 percent.
Pinnacle is based in Las Vegas but operates primarily in regional U.S. markets such as Louisiana, Mississippi, Indiana and elsewhere.
The Meadows acquisition will give the company 16 properties across the country, and company executives noted that they were hungry to grow further via acquisition, though they would not identify any specific targets.
Of particular interest was the company’s strong performance in the southern U.S. – a region in which competitors have struggled to date in 2016. Excluding the L’Auberge casino in Lake Charles, which was hurt by heavy rains and flooding in southeast Texas, the company’s properties in Louisiana and Mississippi realized a 9.0 year-over-year increase in adjusted EBITDA.
“Broader core consumer demand trends moderated in the 2016 second quarter, however, we saw improvements in several key areas of focus. Table game drop and spend per trip both increased at a mid-single digit pace in the 2016 second quarter. Additionally, we experienced our sixth consecutive quarter of growth in unrated play, with volume increasing at a low single digit pace in this segment in the 2016 second quarter,” Sanfilippo said.
Carlos Ruisanchez, chief financial officer, noted that the economic conditions were on the rebound in the regions in which Pinnacle is vested. “If you look at the markets we’re in, you’ve seen unemployment numbers come down in those markets meaningfully from a year ago.”
One area that the rebranded Pinnacle will be abstaining from for the time being is the social gaming space – not necessarily because it doesn’t have promise, but rather because it isn’t the best use of company resources at the moment.
“There hasn’t been something on the social side that’s been compelling enough for us to enter the space,” Sanfilippo said, noting that they continued to monitor it internally. “We just haven’t seen something we think is the best use of our capital as opposed to other things we’re doing.”
