Penn adds Rocket revenues to earnings mix

Penn adds Rocket revenues to earnings mix

Monday, October 31, 2016 Posted by Andy McCarron
Social gaming unit makes debut contribution

A debut contribution from the newly-acquired social gaming unit Rocket Games helped Penn National Gaming to hit its own earnings guidance in the third quarter despite disappointments at some of the company’s regional casinos.

Rocket Games was bought by Penn National in August for an initial $60m. Should Rocket Games achieve its earnout targets, Penn will pay a total of $110m. Rocket Games was founded in 2013 in San Francisco by a handful of ex-Zynga executives.

The company said last week that the social casino operation was an “attractive addition” to Penn’s interactive ventures division and was “profitable, growing and providing synergies to our casino business.” Analysts at Union Gaming said they expected that Rocket Games will contribute $64m in revenue and $22.4m in adjusted EBITDA in 2017.

Adjusted EBITDA for the whole business for the third quarter this year came in at $211.3m, just below the expected figure of $212m with a combination of macroeconomic factors and an uncertain political landscape accounting for a tough underlying regional casino background.

“During the quarter, rated player visits and spend per visit, which accounts for approximately 65% of play at our facilities, were stable though partially offset by unrated customer segment softness in several of our key markets,” the company said.

Union Gaming said the Zia Park Casino property in New Mexico had suffered from a softness in the oil price and rising unemployment in west Texas, its neighbouring market. In Mississippi, meanwhile, the Biloxi property continued to see elevated promotional spend as it continued to counter new competition.

The analysts pointed out that they expected to see continued improvements for the rest of this year and next at the Tropicana property in Las Vegas that Penn National bought in April this year for $360m. It is expected the Tropicana will contribute circa $30m in property EBITDA net year once the property is fully in sync with Penn National’s customer reward scheme.

The company said in its results that phase one of a series of investments had been completed designed to make the property more profitable including a refreshed gaming floor featuring new slots and refinements to the table game mix. Additional non-gaming amenities will be added as part of the second phase of improvements. Union Gaming said the Tropicana will see the benefit next year from a strong convention schedule in Las Vegas, highlighting the progress the company has made with the property.

In the third quarter the company also benefitted from the launch of the Hollywood Casino Jamul in San Diego, its latest tribal gaming joint venture. Union Gaming said it expected Penn National to achieve an acceleration of free cash flow in 2017, from circa $268m this year to $310m in 2017.

Totally Gaming says: Penn National is set to enjoy a decent 2017 with the Tropicana in Las Vegas hitting its stride under new management, Rocket Games starting to fire up and better regional trends in prospects, including the ramp up of revenues from the Jamul property in California.

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