Pinnacle Entertainment ran into some bad luck during the first quarter, losing roughly $9 million in EBITDAR due to unfavorable table games hold at select properties.
Nevertheless, the regional gaming operator put forth an impressive quarter – growing revenues year-over-year by 10 percent to $640 million and posting adjusted EBITDAR of $175 million – up 1.5 percent.
These figures included a $69 million revenue contribution from the Meadows, which was acquired in September 2016.
Anthony Sanfilippo, chief executive officer, said that Pinnacle played “a bit unlucky” in the quarter but made it clear that he wasn’t interested in making excuses.
“We don’t talk a lot about table games hold…we only talk about it when it’s significant enough to bring to your attention,” he said Wednesday morning on a conference call with investors.
“The good news is we have a lot of table games volume, and that has continued to be a strategic focus of our company,” Sanfilippo continued. “But there are times that it may fall unlucky for a quarter and, that’s generally what happened at a couple of our properties.”
When controlling for the table game variance at L’Auberge Lake Charles and Ameristar East Chicago and an accounting adjustment that caused a singular drop in revenues and EBITDAR at Ameristar Kansas City, results for the quarter were sound.
“Adjusting for these factors reveals a growing company and encouraging momentum, with our portfolio of businesses producing its third consecutive quarter of same-store year over year net revenue growth,” Sanfilippo said.
Analysts on Wall Street tended to agree with his assessment, particularly as the second quarter has kicked off to a fast start. The company generated 3 percent same-store revenue growth and 6 percent EBITDAR growth in April.
“Excluding these items, EBITDAR would have been 3 percent above consensus. We estimate controllable expenses were down 3 percent quarter-over-quarter,” said Cameron McKnight of Wells Fargo Securities. “All in, it was a solid quarter on a hold adjusted basis and April is off to a good start.”
“The company cited low table hold at key properties that impacted EBITDA by a total of $9.2 million. Adjusting for this, underlying trends were actually better than expected,” said John DeCree of Union Gaming.
Other analysts, such as Steven M. Wieczynski of Stifel, looked past the bad luck yet still reckoned that more needs to be demonstrated to sufficiently move the needle.
“Given the heightened expectations for the stock, coupled with our generally bearish view on regional gaming operators who do not own their underlying real estate, lack exposure to one of the industry’s higher growth markets, and are not positioned to benefit from unique on balance sheet growth opportunities, we remain comfortable with our Hold rating on Pinnacle shares at this point,” he wrote in a note.
Pinnacle has successfully carved a niche in attracting higher-end gamers, with a particular emphasis on Asians. Six of the company’s 16 properties now have targeted Asian offerings, and rated Asian play was up by double digits at five of these locations and by 13 percent overall.
“Pinnacle’s recent success and upside potential in the fundamentals is coming from what we view as a slightly differentiated playbook,” wrote DeCree. “A strong focus on marketing to the higher-end customer is resulting in mid-single-digit growth in both spend and visitation across this segment.”
The company intends to continue growing its Asian gaming volumes at existing locations and will look to further develop the niche at its other properties.
Refinements to Pinnacle’s mychoice loyalty program have also proven effective at enhancing play. Cross-business visitation across the company’s properties was up 18 percent in 2016, and cross-market gaming volume grew 25 percent in the 2017 first quarter.
Ginny Shanks, chief administrative officer, said that customers who visited other Pinnacle properties increased play at their home property by 9 percent for the quarter.
The company paid down $28 million of debt during the quarter, leaving a total outstanding balance of $925 million as of March 31.
Pinnacle shares opened at $21.35 Wednesday morning and were up 2 percent to $22.00 by 4pm EST.
