Penn National Gaming Inc. (NASDAQ:PENN) Q1 2018 Earnings Conference Call - Final Transcript
Apr 26, 2018 • 09:00 am ET
William J. Fair
is estimated at $60 million, $8 million will be in the second quarter. We increased our estimated free cash flow generation for the year to $279 million and net free cash flow after mandatory payments is expected to be $241 million. Any capital expenditures on the Pennsylvania Category 4 projects are not included in these numbers. Cash on hand as of 03/31/2018 was $218 million. Again, guidance does not assume any adjusted EBITDA contribution from our agreements with Jamul Indian Village, and it assumes a half-year contribution from our Casino Rama contract. And as always, all of our debt covenants will be comfortably met. Next, I wanted to highlight a few changes to our financial reporting methodologies that we implemented this quarter. First, we have modified our definition of adjusted EBITDA to exclude three items. The first two are preopening and significant transaction costs. Excluding these costs, more closely aligns our adjusted EBITDA reporting with that of our competitors. These costs are non- recurring in nature, they are not budgeted in our guidance and they are not reflective of ongoing operations. We have also excluded the variance between our budgeted and actual expense incurred for the cash-settled stock-based awards. This charge is non-operational. These awards are required to be mark-to-market each reporting period. The expense or benefit is simply the difference between our ending stock price during the period and the assumptions made during the preparation of our annual budget. To underscore, if we reported with the old methodology, our adjusted EBITDA would be $7.5 million higher this period, simply as a result of where our stock price was trading. We have adjusted all prior periods to be consistent with this reporting methodology, and we continue to report all of these costs in the reconciliation table of our press release. Second, commencing in Q1, the company adopted the new revenue recognition accounting rules, otherwise known as ASC 606 on a prospective basis. We have provided supplemental disclosures beginning on page 10 of our press release, which explains the impact of this change to our first quarter results. Among other impacts, we are required to report expense reimbursements of our management costs at Casino Rama, which is primarily payroll, as revenue. This equated to approximately $22 million of revenue at a 0% margin since it was a pass-through of the expense. As Tim alluded to earlier, the net effect of these changes reduced our margin improvement on a year-over-year basis or approximately 48 basis points. To be clear, we contemplated the accounting treatment for the new revenue recognition rules in our guidance. We mentioned it only to provide clarity on year-over-year comparisons. So, with that, I'll turn it back to Tim.
Timothy J. Wilmott
Thanks, BJ. Thank you, Jay. Operator, I think now we're ready to take any questions from the audience.