PENN Entertainment Inc (PENN) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Penn National Gaming second-quarter results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Joe Jaffoni, Investor Relations.

Please go ahead, sir.

Thanks, Charlene. Good morning, everyone, and thank you for joining Penn National Gaming's 2015 second-quarter conference call. We will get to management's presentation and comments momentarily, as well as your questions and answers. But first, I will review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as expects, believe, estimates, projects, intends, plans, seeks, may, will, should or anticipates or the negative or other variations of these or similar words, or by discussions of future events, strategies or risk and uncertainties, including future plans, strategies, performance, development, acquisition, capital expenditures and operating results. Such forward-looking statements reflect the Company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the Company's filings with the Securities and Exchange Commission, including the Company's Reports on Form 10-K and Form 10-Q.

Penn National Gaming assumes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with non-GAAP can be found in today's press release as well as in the Company's website.

It's now my pleasure to turn the call over to the Company's CEO, Tim Wilmott. Tim?

Thank you, Joe, and good morning to everyone. Welcome to our second-quarter 2015 earnings conference call.

I certainly would characterize our second quarter as eventful for the Company on a number of different fronts. First, as you saw in our announcement this morning, we exceeded our previous guidance from a performance standpoint on all financial metrics with some very solid results. You will hear more about trends in our business from our COO, Jay Snowden, after I'm done with my comments, but that was certainly a very positive quarter for us in terms of delivering the performance that we guided to and then some.

We also announced the purchase of Tropicana Las Vegas for $360 million, and I'm pleased to report that we are making good progress on the regulatory front and we expect to close on that transaction in the late third quarter, early fourth quarter of this year. Late in the quarter, we opened the first casino property in the Commonwealth of Massachusetts, Plainridge Park, which opened on June 24. We also had the Topping Out of Hollywood Casino Jamul-San Diego in the quarter and we continued to expect that property to open in mid-2016.

And finally, we made great progress in advancing our efforts in the digital gaming space. We announced a deal with Sci Games to introduce some social gaming offerings to our customers at four properties. In fact, we are going to be launching in West Virginia next week with our customers at our Charles Town facility.

We also have begun staffing up Chris's area to take advantage of what we see as opportunities in the social, fantasy sports and, down the road, commercial online gaming opportunities. We certainly will have more news about our efforts in this new and exciting distribution channel as we progress in the next couple quarters. We have Chris here as well in the room today to answer any questions you may have on that front.

But certainly an eventful second quarter; we are excited about the prospects of the balance of the year. After Jay says some comments about what we are seeing in our business early and some Plainridge Park perspective, Saul Reibstein, our CFO, will talk a little bit more our thoughts around the balance of the year guidance and give you certain financial statistics as we close the second quarter.

But with my comments over, I would like to turn it over to Jay.

Thanks, Tim, and good morning to all of you joining us this morning. Happy to report that the service profit chain model is certainly alive and well at Penn National Gaming.

In the second quarter, we saw all but two of our properties improve their customer service scores on a year-over-year basis, and 90% of our properties also delivered year-over-year improvements in their employee engagement results. All but one property in the quarter exceeded budget this year versus what we had established at the beginning of the year, so I want to start my comments with a big thank you and congratulations to what is, no doubt, the most talented group of property operators in the casino business.

Some specific highlights in the second quarter: we opened Plainridge Park Casino, as Tim mentioned, in Massachusetts to very strong volumes and positive guest feedback on June 24. We experienced continued positive trends at our newer properties in markets, like Ohio and Kansas, both on the revenue growth front as well as acquiring additional customers into our database. Property level EBITDA margins in the second quarter were up year over year, despite significant increase in preopening expense associated with our opening in Massachusetts. And for the first time in years, we experienced three solid months in the quarter as opposed to one or two solid months.

Our digital marketing efforts continued. We increased our email capture rate by over 23% over the last six months, which is a key initiative as I mentioned previously, to look to further reduce our property level marketing costs while simultaneously improving the overall guest experience.

Our database trends showed sequential growth from Q1 to Q2 on a year-over-year basis. Spend per visit and visitation at the majority of our properties was a very good story. We continued our hard push in concerted effort to drive incremental rated play in order to further cultivate relationships and drive loyalty with what are, today, unrated customers. This is critical as we prepare to launch our social gaming activities that Tim mentioned at the beginning, and also as we look to deploy a hub-and-spoke model in Las Vegas upon the closing of Tropicana, both of which are happening here in the coming months.

As we get into July, some additional highlights specific to Plainridge Park Casino. We've enrolled over 60,000 new members to the Marquis Rewards database in just the first 3 1/2 weeks of operation. We captured 3/4 of those folks with valid email addresses, which helps in our digital efforts. We've been very happy with the response rate -- response, excuse me, across all geographic and worth segments, certainly those that we targeted at the onset. The weekday performance has been very strong out of the gate and weekends, we believe, will continue to ramp as the property builds on the marketing efforts that will take hold in August, September and beyond.

More broadly, across the Company, our year-over-year trends in July have been consistent to date with what we experienced in Q2, which is encouraging, no doubt benefiting from an improving economy, gas prices that are still down some $0.90 to $1.00 or 30% year-over-year and less cannibalization of our key markets versus prior years. We continue to work through the integration planning with Tropicana Las Vegas and are very excited to take ownership very soon.

And I would just summarize by saying we are encouraged by the property results in the second quarter and we are very excited about our prospects for growth, both bricks and mortar as well as our online capabilities, in Q3 and beyond.

So with that, I will turn it over to Saul to talk to guidance.

Thanks, Jay. Good morning, everyone.

Driven by a strong second-quarter performance, we once again considered guidance for the remainder of the year. Unlike recent quarters, overall trends are encouraging and continue to move in the right direction. Inflation remains contained. Employment trends are positive. Consumer confidence continues to move upward and the Fed recently again allowed interest rates to remain unchanged. The US economy remains steady.

Our (technical difficulty) willingness to visit our properties and spend, as evidenced by the firming of our revenues in each of our operating segments. Accordingly, we have once again performed a thorough, property-by-property operating review and have revised net revenue, EBITDAR, and EBITDA guidance for the year to $2.786 billion, $754.5 million and $319.1 million, respectively, all of which considers actual results through June 30, 2015.

Page 6 of our press release provides current estimates for corporate overhead, rent, interest, non-cash stock compensation, depreciation and amortization. In addition, some of our other key data points are cash on hand at June 30, 2015, of $233.1 million, all of our debt covenant ratios have been comfortably met. Project CapEx inclusive of our Jamul Indian Village project for 2015 is estimated at $361 million with $151 million in the third quarter. Maintenance CapEx for 2015 is estimated at $75 million, with $25 million to be expended in the third quarter.

Preopening costs for the year of $12.3 million include higher-than-expected regulatory costs and more [expensive] marketing costs. Our GAAP effective tax rate for the balance of 2015 is currently estimated at 42%. And finally, free cash flow before project CapEx and principal payments of $192 million for the year.

As you've heard in the updates from Tim and Jay, our pending acquisition of the Tropicana Las Vegas, the previously announced expansion of our banking relationship and arrangement, is in place to add between $270 million and $300 million of additional availability for that closing. In addition, we continue to explore other financing options for Phase 2 work at the Tropicana and direct financing alternatives for the Jamul development in San Diego as well.

And with that overview, we can open for your questions.

Thank you, Saul.

(Operator Instructions) Carlo Santarelli, Deutsche Bank.

Good morning, everyone, and thank you for taking my questions. My first question is more, Jay, maybe if you could address a little bit, with the strength that you have seen obviously in the 2Q through your customer, if you could talk a little bit about maybe the mix between visitation and/or spend per visitor, and maybe some of the cross segments where you are seeing it within your database.

And then also, if I just look at the guidance raise from the 2Q -- sorry from the 1Q guidance to what you have now provided in the 2Q, it appears as though the flowthrough assumption being made on the incremental EBITDA is somewhere in the 20% range. Does that seem a bit conservative or is there something there that we are missing, maybe as the Massachusetts property ramps and you are just kind of buffering for that?

Good morning, Carlo. This is Jay. I will tackle the first and comment on the second. And Saul or Tim can certainly chime in.

As I mentioned in the comments at the beginning, spend per visit really is a good story virtually across the board. And you have certainly seen that in the revenue figures that have been reported across most states over the last quarter. Visitation is a little bit more of a mixed bag, though I would say the majority of our properties are actually enjoying improved results from a visitation perspective year over year. And as you look at the work segments of the database, it's consistent with what we've seen over the previous years were the strength is really starts at the top -- our highest worth customers were seeing growth and spend per visit and visitation across the board. You get to the midtier segments and we are seeing growth from a spend per visit across the board in virtually all of the properties, visitation as well. And the lower worth segments, though the trends continue to improve, are not as strong as they are at the higher worth segments. Spend per visit is good, visitation, a little bit of a mixed bag.

So, overall, we are pleased with the momentum we have in the business across all of the geographies and the worth segments. Still softest at the low end but certainly improved from where it has been.

And then your question on flow through for the third quarter, it's exactly right. We are continuing (multiple speakers)

Sorry, Jay; I was referring more to the full year, but third quarter I think the story pretty similar. I was referring more to the full year from your prior guidance to your current guidance in looking at kind of the incremental EBITDA you have lifted versus the $50 million revenue improvement.

It's largely a factor of Massachusetts as we continue to ramp that business. And we are going to remain very aggressive in our driving trial and advertising, both in Boston and Providence markets. So that has an impact on the margin, but we think it's the right thing for the long-term health of that business.

Carlo, this is Tim. We have been watching very closely what's going on in Massachusetts and now believe we are going to have a three-year head start on any new competition there. And we want to make sure for the first couple of quarters we are very aggressive with our acquisition and trial activities, and enjoy a good three plus year run without any competition.

So that is the reason, more than anything else, for the metrics about the guidance and the flow through.

Great. Thanks, Jay. Thanks, Tim.

Joseph Greff, JPMorgan.

Congratulations on nice results here. Two questions. One is similarly on the guidance here, when you are looking at the back half of this year, can you talk about what generally your same-store assumptions are? And maybe you can sort of look at it in relation to the same-store trends that you saw more recently in the 2Q?

And then my second question relates to Jamul, that $30 million increase in the budget. Can you talk about what that relates to, what's driving that and do you think the property can get incremental EBITDA on that incremental level of investment? Thanks.

This is Jay. Really, with regards to our anticipation of same-store sales for the second half of the year, we are somewhere between what we experienced in Q1 and what we experienced in Q2, if the trends that we experienced in Q2 seem so far in July continue through the remainder of the year, then, I think our guidance is conservative. But we also want to go in to the remainder of the year, there are still unknowns out there. And three months, I don't think, completely makes a new trend, but we are certainly feeling better today than we have the last few years with what we are seeing out across most all of our properties. But that is the thought process in our guidance.

Joe, I would just point out a couple of other factors in that estimate. Seasonality comes into play in the fourth quarter. Seasonality impacts the margins. They anticipate out to be as good as the first half. We do have a little bit of rent escalation in the fourth quarter and the continued stock comp cash settled stock awards impact as well. So there are little pieces that if you add them all, they do have an impact.

One of the things, Joe, just to remind everyone we had a very mild December of .

Right.

We are assuming a more normal December winter wise, so that all goes into our thought process.

With respect, Joe, to your second question on the incremental $30 million out of Jamul, I'd like our Chief Development Officer, BJ Fair, to give you some further perspective of what drove the number up.

We've increased the project costs to really reflect the current trends we are seeing in the project right now. It's a combination of the increased facility costs as a result of the buyout that we've been seeing from the very complicated subterranean structure and the facility construction that we've got as we continue to move forward.

We've also had extraordinary off-site costs that we have been seeing in the project as well, which is the environmental and administrative support for the Caltrans environmental work for State Route 94. We've had some increased off-site infrastructure costs to be able to provide some basic infrastructure to the site as well, as well as ongoing legal administrative costs. So it's been kind of across the board.

We've recently also been updating our overall market assumptions were out there as we take a look at new financing. I think we are very comfortable with what we are seeing there as well.

But to net your question out, Joe, the stuff that we just described really, from a programmatic standpoint, hasn't really changed what the customer is going to see when we open the facility. So we are not expecting any of the spend to have any incremental effect on EBITDA.

Thank you.

Joel Simkins, Credit Suisse.

Good morning, just a couple of follow-ups here on Jamul. I recall obviously both of you guys had some familiarity with the Southern California market during your time at Harrah's. I know there were some pretty successful casinos back in the heyday of kind of the mid-2000s.

So with that in mind, can you give us a little bit of the lay of the land from a competitive perspective? And I guess a lot of those travel -- all those travel casinos are private. But where do you think kind of GGR is in this Southern California market today versus the peak? And do you feel like there's a pretty good economic backdrop currently in the market?

Joel, this is Jay. I will take a stab at that and others may chime in. The San Diego market, I think, has continued to show some nice growth, at least from our information from intel at other properties in that market. It's really divided up into two markets. You have North County San Diego which would be the Pechanga, Paula, Harrah's, Rincon, Southern California, Valleyview, and you have the Southeast County market which is where we are going to be competing against the likes of Verona, to a lesser extent, given the distance between the two properties, [Yeha]. So we think our primary competitor will be the Sycuan casino, which is just a few miles away but further to the east.

So we believe that our access and proximity to some pretty significant population centers and downtown San Diego, certainly National City, Chula Vista, Lemon Grove, pretty significant. We will be the closest casino to those populations.

And sizing the market, I think you're looking at those three facilities we will be competing against are mostly in the range of $180 million to low $300 million each. So we think that we will be somewhere toward the low end of that, early on and continue to ramp that business after we open and start to stabilize.

That is very helpful. (multiple speakers)

I would just add what has gotten us excited since the inception of our interest with this project is the fact that it is one road out from downtown San Diego and it is 10 to 15 minutes closer to that population in a much more customer-friendly travel time. So that continues to be something that keeps us very enthusiastic about this project and we can't wait for the summer of 2016 to get that project open to the customers there.

I'm equally as enthusiastic. One quick question for you. On kind of the Texas market. But obviously some of the casinos are reliant upon Lake Charles have held up a bit better than expected. You are relying on the western side of Texas for [Zia Park]. Can you just give us a little bit of color on how that property has shaped up in this kind of lower energy price environment?

Sure. I would summarize by saying we are still seeing nice growth at the properties since we opened the hotel. But it's not to the same extent that we had built into our internal forecasts, because the first two, three months that hotel opened, if you will recall, was late August 2014. And before the gas prices started to drop, we had very strong performance in the third quarter from Zia Park and it has fallen off starting really in that November/December timeframe. It has continued to get better as we ramp the hotel and drive second and third trips with our customers there.

But there is no doubt there has been some impact. So again, it's versus our internal expectations with a new hotel, maybe not driving the revenues that we anticipated due to the local economy. But if you are looking just on a year-over-year basis, we are seeing nice revenue growth and flowthrough.

Thanks, that's helpful.

Felicia Hendrix, Barclays.

If I could go back to Plainridge for a moment, you guys talked about your customer acquisition efforts. That was helpful. Just looking at it from a different angle, just wondering -- and I realize it's still early days -- but as your management team has been going up the learning curve there, just wondering what their takeaways have been in terms of cost-efficiencies. Anything that they think might help drive margin there, as they're understanding the customer demand?

Sure, Felicia. I think, listen, it is early. I would certainly preface any comments with we've been open for a few weeks, so it's very difficult to extrapolate anything from those first two weeks. We typically wait four or five months to see where the business really settles in.

On the cost side, there really haven't been any surprises. It is a high tax rate environment, which we are accustomed to in many of our markets at 49%. But labor costs are low because you don't have table game operation. We have a few restaurants and slot offerings and a horse racing offering, as well.

Marketing is where we are spending the lion's share of the dollars and that was always in our plan. We want to be aggressive. We want to drive awareness and trial and we are going to continue to do that, certainly through the remainder of the year. And we will continue to assess whether or not that is the right strategy or if we want to be more aggressive, less aggressive between now and then. But that is how I would summarize it.

One thing I would add to that, Felicia, this is Tim, early on we have seen stronger-than-expected demand for video poker product. So we are adding some more video poker to the floor. And we have also seen very good acceptance from our high limit area and we are taking a look at opportunities to enlarge that and put more product in our high limit, which is obviously a good problem to have.

But those are some of the early feedback we're getting from the team up there in Massachusetts about what we need to do to improve the product offering and start to stabilize our costs.

Okay, great. Then I believe that in the RFP documents your analysis called for a [550] win per-unit per day. Again acknowledging that it is early, how does that initial forecast look as you extrapolate out to a normalized run rate?

Yes, it's still early, Felicia. Obviously, we exceeded that in the first week of results that were released for the one week we were open in June. And July, fourth of July weekend we exceeded that. Business is settling in now. But our marketing efforts have not kicked in. So it's very difficult to say. I think in that range is probably a decent expectation. But it's early; we will see what it looks like in month five, month six and do it from there.

Okay, great. Thanks. And if I could just quickly move on to Tropicana, you discussed in your release your two-phase plan for the property. I was just wondering, can you just help us think through your projected EBITDA ramp at that property? How long do you think it might take to get to that sub 10 times enterprise value to EBITDA multiple that you talk about? And then, I'm also just wondering as your current marquee customers get word of this acquisition, what has been their reaction?

In terms of the ramp-up, we've told people that we think it's going to take three or four years to fully take advantage of all the efficiencies of taking cost out of the operation and managing that property in conjunction with [them] resort.

And then also, realizing the full potential of our 3 million active customers in our database so three to four years is the horizon we expect to realize the appreciation of EBITDA to the level you described -- Jay, why don't you -- if we do have any early feedback from our customers about Tropicana, I have not asked you that question myself.

[Only Excitements] is a name that people are familiar with and we've been asked from our -- particularly our high end customers for years if we were ever going to have a direct connection with a Las Vegas Strip business. So we are already receiving a lot of inquiries with regard to visitation to that facility, post-close.

But we are going to -- we've got a lot of work to do, certainly in the first six to nine months to integrate all of our systems. And we are not going to be wholesale, inviting our customers to that property until everything is seamless in linking up the regional property marquee rewards to the Tropicana Las Vegas. So, we will take our time and make sure when the guests show up they have a great experience.

Great, thank you so much.

Thomas Allen, Morgan Stanley.

It's Mark Savino on for Thomas. My first question on the Southern Plains segment, the margins there were better than we had anticipated, really for the second quarter in a row. So really wanted to see if there is anything specific you are doing in that segment to manage costs.

And then just more broadly, in the context of what appears to be better topline results, how we should be thinking about your ability to continue to grow margins from here. And then I have a follow-up. Thanks.

Sure, so yes, Southern Plains, a lot of our more mature properties and competitive markets are in that region. So we've been very pleased with the results. Amit Patel and our general managers in the region there have done a really good job operating, driving margins. And Mississippi has been particularly a good story for us this year. I think you've seen the statewide results in the Gulf Coast, I think up until June, was on a track of about 10 months of growth year over year. Tunica, since the Harrah's property closed down, we have seen improved results at our Tunica facility.

And Kansas Speedway has been a fantastic story for us. And we've got some nice momentum in Missouri as well, both at Riverside and we are happy with the trends that we are seeing in our St. Louis facility, so really across the board.

And the last one I would mention in that region is Joliet. And one thing we have noticed in our competitive shopping is that the Harrah's property there, and we are also seeing this in Kansas City, seems to be pulling back a bit on reinvestment at that lower worth segment of the database, which I think everyone benefits from, because when you reinvest in that customer, unprofitable for all the operators in the market. They pull back a bit and I think everyone is benefiting from that.

So it really is a confluence of a number of factors for why we are seeing slight revenue growth, but, more importantly, improved margins in that region.

,

That is helpful. Thank you. And then just as sort of a longer term strategic question for you guys, with Plainridge now open and once the Tropicana acquisition closes, you will obviously have added some real estate back to your portfolio.

So, over time, is it your intention to continue to rebuild some real estate holdings? Or is it more likely that you would look to monetize that real estate over time?

Those are all options, Mark, that we have in front of us. Our initial focus, as you can imagine is to grow our Massachusetts business and realize the potential we see there, ramp up Tropicana Las Vegas and continue to grow EBITDA there. So I think that question more is going to be three to four years out to see where we are at that time, what other opportunities are out there, what our capital structure looks like.

What I like about it, it gives us optionality to do a number of different things based on the opportunities we see that far down the road. So they are all things for consideration and we just have to deliver on the results over the next three or four years to ramp up these properties that are not tied to the master lease agreement with GLPI.

Great, thank you.

Steven Kent, Goldman Sachs.

Good morning. Could you just talk a little bit about the Tropicana in that you discussed that you might add another tower? What would go into that decision? And over the next couple of months, you said the renovations or the first phase would be some renovations and maybe some initial investment in getting that technology up to speed for marquee rewards.

Can you just talk about those two items, so new tower and also the new technology and how that decision -- how those decisions are being made?

Steven, let me start and then I will turn it over to BJ and maybe Jay about the long-term process. We have mentioned that we are looking at the possibilities of additional food and beverage offerings, entertainment offerings and the possibility of a hotel addition. That is something that is going to be determined three or four years down the road, after we have time to get our customers in the facility from around our regional markets.

We don't have any preconceived notions of how that's going to play out. We are going to evaluate all of our different options, look at the impact of any capital expansion and what will it have on existing operations to make sure we can continue to take care of customers in an acceptable environment. So all of those decisions are to be determined and nothing at this time is set in stone. BJ, I will let you add any other comments you have on that.

No, I think right now, we are really looking to get a better understanding exactly what the needs of the facility are. As Jay mentioned earlier, the integration of the IT systems to be able to get our marketing limits are probably one of the highest priorities. We are looking at the -- how to prioritize the capital investment to make sure that we get some of the infrastructure needs we know that are necessary for the facility. But, also, want to make sure that we are trying to do it in a phase plan to (technical difficulty) minimize the

interruption to the guest in the operations. I think that we will -- once we take control of the facility, we will be able to get in there a little bit more. But our first priority is we take a look at the capital needs is really the integration of our systems right now.

Okay, and just as a follow-up, could we just talk a little bit about your social gaming initiative and what you are trying to do with that program? Is it to target younger customers? Is it to keep existing customers entertained and involved with your casino? Is it -- and most importantly, is it a moneymaker or a direct moneymaker for you?

I will let our Head of Digital Gaming, Chris Sheffield, answer that question.

Good morning. The [structure] for the social gains at this point in time is really to improve retention and acquisition of customers for land-based business, as sort of an integrated approach. We are launching at Charles Town next week with the Scientific Games product and we are going to go into a mode of test and trial. So that will give us a much better feel for engagement of customers with the products and starting to look at things like average revenue per daily active user. And then towards the end of August, we are going to launch a mobile product, and at that point we will have a much better feel for how it's going to perform.

But pretty much, very much focused on the retention engagement piece of the product and how it can help to build the land-based business.

The first launch with Sci Games is really about retention of our customers and improved connection and loyalty with our existing casinos. We also see opportunities with other products that we are exploring to go after a new set of customers from an acquisition standpoint. We see opportunities in the fantasy sports arena to take advantage of that growing market.

As I said in my introductory comments, we also see down the road eventually -- and we think it is going to happen state-by-state, there are going to be additional states that we have presence in that will commercialize the gaming and we want to be prepared for that as well. We are clearly going into this with the expectation over the next couple of years that this is going to be a growing and profitable segment of business that is going to add a new platform for us and be complementary to what we are doing with our existing 21 properties today.

Okay, thank you.

Shaun Kelley, Bank of America.

I think you've covered a lot of ground here, so I'll -- I'm going to try not to entirely just beat the dead horse. But I did want to go back to guidance. I saw -- I think you walked us through a little bit of the methodology on how you calculated the raise and you talked about -- I think the question was asked about flowthrough.

But I guess just to ask it more directly, is anything contemplated in your improve back half outlook related to Plainridge? Or is it really just core same-store sales?

Core same-store sales, you said it nicely, Sean. I think we've addressed second-half impact of Plainridge. We have talked about the seasonality trends. I don't think there is more to it than that.

Perfect. And then, the second one also hopefully equally brief would be on Jamul. With the budget increase, is that basically going to be reimbursed by the tribe? Or is this sort of on Penn, given the way the contractor construction costs are agreed upon?

All of the construction costs go into the loan, which is part of the loan to the tribe.

Okay, so it is part of the loan and it would be reimbursed or repaid as part of that.

That is correct.

Correct.

Got it. And then I guess my last question is, there has been some press out there about the state of Pennsylvania looking to possibly ban social casino from kind of land-based operations. I'm not entirely up on all the headlines that seem to change every day, but given that you guys are sort of making some strategic investments there, is that something you can kind of comment on in terms of how you see that evolving and impacting as you guys are looking to maybe embrace some sort of either crossover relationship with social gaming or little bit more of an Internet-based strategy? Can you just talk about that a little bit?

Sure, I will let Eric Schippers, our Head of Public Affairs, answer that question.

Yes, we think that bill has a very low probability of success. And the focus of that bill was some misperception or concern over access to use of these products. And I will let Chris speak to this a little bit, but we have been spending, Chris and I, a lot of our time in Harrisburg talking about the realities of real money gaming and social gaming and who the customers are and the protections against youth being able to access these. Chris?

Yes, so very much educating the politicians in Harrisburg and leaning on the experience initially from the UK [in Europe], but now from New Jersey as well, where there is very strict controls in place proven that prevents minors from engaging in this activity and also prevents problem gambling. I think they are having some success in proving in this area can be regulated very tightly and hopefully will generate profitable business in future.

So it's an ongoing education process and just to take that a little bit further, there is a budget standoff right now in Pennsylvania between the governor and the Republicans. And we are hoping -- our focus is on social gaming right now. But maybe, at some point, we are hanging around the hoop for the opportunity that may be real money Internet gaming or another gaming opportunity might come out of the ongoing budget impasse there.

So, a lot to be seen what happens in Pennsylvania, but we are closely monitoring that.

And I would say, Sean, I think there is more long lawmakers here in Harrisburg that are interested in the revenue potential of all of these different options. And I think it's very difficult to predict. We don't expect anything happening in 2015 but we have been encouraged by the hearings that we participated in, in and around the state of Pennsylvania, that there is more than appetite to consider these options than there ever has been.

Great, thanks guys. Nice quarter.

Chad Beynon, Macquarie.

First one, Chris and Eric, maybe back to you around fantasy sports, kind of same question. Do you believe you can compete in this market, given the significant marketing costs that are needed to become a big player and also the guaranteed tournaments? We recently saw Yahoo! get into the market and apparently they fell short on hitting the minimums for one of their guaranteed tournaments. If you could just kind of talk about your expectations and timeline getting into fantasy sports, thanks.

Again, I see fantasy sports as being a kind of tool for helping to improve retention and acquisition of customers. We know from some of the surveys that we've done that around 42% of the people that play daily fantasy sports games are also casino customers as well. So there's a lot of synergy between the two products; we have sports bars at all of our casinos as well.

So really, again, looking at a very similar strategy to a social casino, using these as a way of having more engagement with our customers and being out there hopefully accessing different customer groups as well. And really all about retention and building loyalty of that customer base.

We don't see ourselves as a competitor for Fan Duel or Draft Kings by no means. But we certainly think we can take advantage of the millions of relationships we have with our customers today, and expand upon those relationships through new offerings in this space, but not at the scale of those two companies and what they have done and how they are spending to try to continue to grow share.

Okay, thanks. And then a medium-term question, now that you have -- or that you will have a strip property. And you mentioned the hub-and-spoke term. Does this change how you think about acquiring more regional gaming properties now that you have a destination anchor? And would you have the financial flexibility, given your coverage ratios when you take up the leverage with the Trop acquisition?

Listen, if you look out in our -- the next couple of years, you will see that before any additional acquisition activity, our leverage ratios began to reduce significantly over the next 24 to 36 months, which will provide us with more than ample capital to take advantage of opportunities. You are right. We will continue to look for acquisition opportunities throughout the regions in order to provide additional access to the Strip property. That is exactly a strategy we will pursue.

I don't think this restricts us at all. And we will continue to look at other regional gaming opportunities. It certainly gives us topspin when we look at you that we have the play to move that customer to Tropicana Las Vegas. But we will still be very disciplined in our evaluation of how we look at regional gaming opportunities and look at it primarily as its performance at that local level. And as I said, anything on top of that is just topspin for us in Las Vegas.

The only thing I would add is that we raised approximately 64% of our total business today, and we think there's an opportunity to get that up to 75% to 80%, which obviously the more -- we can build a database with our existing properties and send the right customers the right offers to visit Tropicana Las Vegas. That is certainly a priority for us.

Okay, thank you all and congrats on a nice quarter.

(Operator Instructions) Kevin Coyne, Goldman Sachs.

Congrats on a nice quarter. I was just wondering, with Mahoning Valley, can you give us a sense as to where the visitation is coming from, let's say, what percentage is from Ohio versus Pennsylvania?

Sure, Kevin, this is Jay. The lion's share is coming from the state of Ohio within a 30-minute drive of the facility there, greater Youngstown, to a lesser extent, Canton and Akron, we are pulling business and actually getting a little bit more aggressive in those markets. We think we can penetrate more successfully than we have. You get a little bit from the -- as you get toward Erie, Pennsylvania in the northwest part of the state, but again, the lion's share is certainly coming from the state of Ohio.

Great, that is helpful. Thank you. And to stick on the visitation question, I know it's early days at Plainridge, but has anything surprised you with your visitation demographics in terms of are you drawing from areas further away from areas you didn't think you would draw from?

I would characterize the first week as great from everywhere. You are pulling from not just the Massachusetts and Rhode Island, but you are getting curious people from Connecticut and New Hampshire, Vermont and the like throughout New England. The last few weeks, as the business has started to settle in, the majority of the business is coming from Massachusetts. But we also believe we've got an opportunity to penetrate Providence successfully. And we are seeing double-digit percentage of our business comes from the Providence area. We think it can grow from where it is today.

So, no real surprises; we've been presently surprised as Tim alluded to earlier, the high limit play has been very impressive and we are looking to expand our high limit offerings, which is always a good indication.

Great, and just one final one on Plainridge. I think you said you are seeing demand for video poker and may add some machines there. I know in the past you have done a great job in terms of redeploying machines from one market to another to balance demand. Would you expect to buy new machines to meet that demand? Or would you repurpose?

We can pursue either option and we can certainly convert machines that are there today, which is what we are doing with our initial efforts to add some video poker products is converting some underperforming video reels to video poker. But we have many options if we want to continue to expand the video poker offerings at Plainridge.

Great, thank you.

Mr. Wilmott, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you, operator. Again, thanks everyone for listening to our second-quarter 2015 earnings conference call. As Jay said, I am certainly very pleased with the performance of our operations and want to also acknowledge the work of our management teams out there for delivering these results, and hope and fully expect that we are going to have much more news about Tropicana Las Vegas, Plainridge, and also our efforts in the digital gaming space as we meet again about three months from now and talk about our third-quarter results. So thanks and more to come.

Ladies and gentlemen, that does concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.