Penn National Gaming Inc. (NASDAQ:PENN) Q1 2018 Earnings Conference Call - Final Transcript
Apr 26, 2018 • 09:00 am ET
[Operator Instructions] And our first question comes from Carlo Santarelli with Deutsche Bank. You may proceed with your question.
Hey, guys. Good morning, and thanks for taking my question. Jay, if I look at your segment level margins in the first quarter, and I believe you have to make an adjustment to the Northeast region net revenue for this year and bring it down. And by doing so, assuming that doesn't have any impact on EBITDA, which I don't believe the reimbursed cost do, it looks like you guys had margin growth in each of the three operating regions in excess of 100 basis points in the quarter. If that's wrong, feel free to amend, but that's my calculation.
And if that is the case, could you talk a little bit about the drivers in each around some of the cost discipline, some of the things that you guys did over last year working on some of the margin initiatives?
Sure, Carlo. Your math is spot on. The adjustment for the Casino Rama reimbursement of fees takes the margins in the Northeast to 33.6% versus 32.2% last year. And, look, here's how I would answer that question. We highlighted in October what the drivers of these margin improvement initiatives were going to be. And there are three large buckets: marketing, reinvestment, labor. And, of course, procurement as well. And we're in the early innings. That's the good news, but we are starting to see the implementation of all the hard work and effort. We had 130 people across the company working on these initiatives throughout 2017, and we started to implement them late in the fourth quarter. And you're seeing the results here in the first quarter. We anticipate, as you can see in our guidance, very healthy flow-through for the remainder of the year as well. And if the same-store sales growth comes in, where we anticipate, then this could ultimately prove to be conservative. But we feel really good about where our business is, how our consumer is behaving at this moment and spend behavior. And, yeah, that's where we're at.
That's super-helpful. Thanks. And if I could ask one bigger picture question. As you guys, obviously, when you announced the Pinnacle transaction back in December, I believe, you obviously called out the $100 million of synergies. Tim, you provided a little bit more color on how that would spread earlier in your prepared remarks. When you think about the way the landscape has changed, then acknowledging it's only been about five months, but when you think about some of the acquisitions that we're seeing with some of your peers and some of the strategies that others, some of the larger regional operators have also employed as it pertains to promotional disciplines and marketing disciplines and whatnot, do you guys think or -- maybe asked a different way, in that $100 million, were you contemplating an operating environment, where maybe on the cost side things could be a little