PENN Entertainment Inc (PENN) 2016 Q1 法說會逐字稿

Welcome to the Penn National Gaming first-quarter results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded today, Thursday, April 28, 2016. I will now turn the conference over to Joe Jaffoni, Investor Relations.

Thank you, Nelson. Good morning, and thank you, everyone, for joining Penn National Gaming's 2016 first-quarter conference call. We'll 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 statements, or facts or statements of current condition, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involves risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as: expects, believes, estimates, projects, intends, plans, seeks, may, will, should, or anticipates, or the negative or other variations of these or similar words, or by discussion of future events, strategies, or risks and uncertainties, including future plans, strategies, performance, development, acquisitions, 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 expectation. The risks or 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 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statement.

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 measure calculated and presented in accordance with GAAP can be found in today's press release, as well as on the Company's website.

Now, to review the Company's first-quarter operating results is Company CEO Tim Wilmott. Tim?

Thank you, Joe, and good morning to everyone who's on this call for our first-quarter 2016 earnings report. With me here in Wyomissing is Saul Reibstein, our CFO; COO Jay Snowden; our Senior Vice President of Public Affairs, Eric Schippers, also on the line. But not here in Wyomissing is our Chief Development Officer, BJ Fair, and our General Counsel, Carl Sottosanti.

I'm going to say some brief introductory remarks, and then Jay is going to talk about what we're seeing in our business in the first quarter, give you an update on Massachusetts and also our progress at Tropicana Las Vegas, and I'm sure some other things. And then Saul is going to follow Jay and talk about our guidance that we just put out in this release, and give you some financial stats and talk about a couple of other things as well.

But, let me start, and I am pleased to report a very solid first-quarter earnings. We actually saw, year over year, a 15.5% increase in EBITDA. Just to remind everyone, this year, based on the opening of Plainridge in the mid-part of 2015, the acquisitions of Prairie State Gaming in Illinois and also Tropicana Las Vegas, those were some of the drivers of the year-over-year growth. But also, strength within our operations, and I have to applaud our operating team driving improved margins in our businesses year over year in all three reporting segments. We also exceeded our guidance that we had put out in early February this year in the first quarter by almost 4.5%. Overall, a very solid first-quarter report from Penn National.

I did also want to provide an update on the expected opening of our Hollywood Casino at Jamul in San Diego County. We, with the tribe, secured a number of important county agreements recently, and we now have a clear path to getting this property open in the summer of this year. As of the end of the first quarter, we have spent about $210 million on this project. I know Saul is going to give you an update on some of the financing opportunities that we are working on with Jamul as well.

But, overall, a very solid first quarter and, with that, I will turn it over to Jay to give you a little bit more detail of what we're seeing in our operations.

Thanks, Tim. Our first-quarter results were aided by a confluence of factors. We, obviously, had milder winter weather in February and March year over year throughout the Midwest. We benefited from the extra day in February, as well as an overall healthier consumer, which is a more broad-based comment. We really had an exceptional quarter in both Ohio and Missouri, where we saw same-store sales growth of over 6%, and we had terrific results in the Las Vegas locals market as well.

All that was offset somewhat by the softness in southern Mississippi, due to new competition in Biloxi, as well as additional hotel supply in that market; in Alton, where we struggled a bit to fully recover from the late December/early January flood; and, of course, the lower oil prices continue to impact our business in New Mexico. But, overall, certainly a good story in the first quarter. We continued to make operational improvements across the portfolio, resulting in year-over-year same-store EBITDA margin improvement across all three operating segments, as Tim mentioned.

A few property-specific highlights in Massachusetts at Plainridge Park Casino: we now have an active database north of 160,000 accounts; March marked our highest net slot wins results since August; and we do anticipate the momentum continuing into the spring and summer -- second quarter and third quarter should be the strongest seasonal quarters in that market.

Moving to Las Vegas. Tropicana -- the casino floor refresh work and Marquee Reward integration project is now complete. I am happy to report that our initial 10 database offers dropped in early April, about three weeks ago, and the response so far has been very encouraging. We have, on the books, over 2,000 unique reservations and over 6,000 room nights for the months of May and June. So we anticipate to learn a lot, obviously, in the coming months. And we will have more to share with all of you during our second-quarter earnings call with regards to those reservations and the behavior of the consumers when they are in Las Vegas staying at the Tropicana.

The last thing I would mention about Tropicana: first quarter, the non-gaming trends continued to be very strong, much like the rest of the strip. We saw RevPAR growth of over 10%, but it was offset -- gaming volumes were really anemic in the first quarter due to all of the aforementioned disruption on the casino floor. Those of you who have visited recently will find that the casino floor now has new products, we have a brand new casino management system in place there, we have pathways throughout the casino. So a lot of disruption in the first quarter, but we are set up to benefit from that for the remainder of the year.

Some additional color on overall database results. We experienced flat-to-modest growth in both spend per visit and visitation, and I would stress the visitation -- we haven't seen that across the lower segments in some time, and we are now seeing growth in spend per visit and visitation across most all of our segments, with particular strength in the first quarter at the high-end level VIP segment, as well as the low [worth] retail and unrated segments.

Nothing new to report in the promotional environment, remains stable and rational across all of our key markets. Biloxi is the only one that continues to be a bit elevated. There's a new entrant in D'Iberville that continues to be very aggressive in their customer reinvestment. I think you heard that from Boyd, and we're seeing that as well impact us at Boomtown.

But, overall, a good story in the first quarter and we're comfortable with our numbers for the rest of the year. So, with that, I will hand it over to Saul to go through guidance.

Thanks, Jay. As we turn our outlook to the remainder of 2016, the recent signs of improvement we have seen over the last several quarters are projected to continue. Our regional US gaming business has been stable the early months of this year.

There are encouraging signs for consumers. While rising slightly, gasoline prices are still at relatively low levels, employment growth has continued and wages are creeping higher, housing demand and prices are healthy, and overall consumer demand remained steady but cautious. For us specifically, our growth opportunities remain sound. Flow-through from revenue gain is consistent and, with our near-term completion of the Jamul project, we will be able to use our free cash flow to delever.

After our normal detailed property-by-property review, we have left 2016 guidance unchanged other than to account for the positive results from the first quarter. For the quarter ending June 30, 2016, we have set guidance for net revenue at $786.8 million and adjusted EBITDA at $225.5 million. As a reminder, adjusted EBITDA excludes payments under our master lease as it is now accounted for as a financing obligation.

Also in 2016 guidance includes a full-year contribution from Plainridge Park, Tropicana Las Vegas, Prairie State Gaming, and our iGaming business. We contemplate commencing our management contract at the Jamul Indian Village mid-summer, and have considered a fourth-quarter opening at MGM National Harbor, and will continue to pursue third-party financing projects for the Jamul project.

Page 5 of our press release provides current estimates for corporate overhead, depreciation and amortization, interest expense, and non-cash compensation -- stock compensation. It also includes the amount of the actual cash payments under the master lease for the quarter.

In addition, some other key data points are: cash on hand at March 31, 2016, of $214 million; all of our debt covenant ratios have been comfortably met; project CapEx -- inclusive of Jamul project -- for 2016 is estimated at $285 million, with $102 million in the second quarter; maintenance CapEx for 2016 continues to be estimated at $83 million, with $35 million of that in quarter two; our cash basis effective tax rate for 2016 is currently estimated at 9.5%; and, finally, free cash flow before project CapEx and principal payments of $246 million -- and principal payments will be $246 million for the year. Our Form 10-Q that we will file next week will present the details of our revised segment alignments that we recently announced.

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

Thank you.

(Operator Instructions)

Our first question comes from the line of Felicia Hendrix of Barclays. Please proceed.

Excuse me. Good morning, thank you. In your prepared remarks you commented on -- I think Jay this is from you -- milder weather and the leap year, also the healthier consumer benefiting the quarter. I'm assuming that was included in your guidance, so when you think about the positive variance to your EBITDA guidance for the quarter, where were you most surprised?

Really Felicia I mentioned in my opening comments we had a great quarter in Ohio, we had a great quarter in Missouri, and we would like to believe that those results will continue through the remainder of the year. It is probably taking a bit of a conservative approach here, we want to see -- we want more time behind us. I think it's difficult when you're aided by weather or hurt by weather to understand exactly what percentage, and so we have looked at it a number of ways and I think that of our beat for the first quarter, probably around 50% or half of our beat was due to the leap year dynamic and the weather, and about half was due to the healthier consumer. So if that healthier consumer dynamic continues through the remainder of the year, then our guidance is likely conservative, but we would like to take that approach at this stage.

We have a lot going on obviously. Jamul is going to open mid-summer, we don't have an exact opening date. We have to build that into guidance. Of course Tropicana is the real wild card because we've got great story, customers are booking in the hotel and we just need to understand more about their behavior when they are in Las Vegas before we make any adjustments to our assumptions there for the remainder of the year.

That makes sense. And then that's a good segue into Plainridge, because you highlighted in the prepared remarks, just wondering if you could just dig a little bit deeper and give us an update of what's going on there. Certainly it is not just the better weather that's improved and driving, obviously you've made some changes there. Can you talk about not only how you expect the ramp -- you did say better second and third quarter -- but how should we be thinking about win per unit, per day metrics and things like that.

Sure. We said multiple times, Felicia, that we're not going to be happy unless that win per unit per day starts with a four. We are in the mid-3's now and we seem to be stabilizing at that level. We should be able to grow off of that base. We will see more in the second quarter and third quarter and we continue to right-size the cost structure there, our marketing reinvestment is something that we continue to evolve.

Every market behaves differently. We have, obviously, less slot machines and less offerings than some of our key competitors there in Rhode Island and Connecticut, so we have to be a bit more aggressive on the credit side, but that's been working for us and we will continue to make adjustments as we move forward and hope to continue to drive that win per unit from the mid-300s up to 400. Certainly from an overall margin perspective, the margins in Q1 were better than Q4, and we'd expect to see them better in Q2 than they were in Q1.

Just a final smaller question, at the Tropicana I know you have had plans to replace the OTA customers. It sounds like some of that is starting now as you tie in your Marquee Rewards. Where are you in that plan?

We're in the early innings. We will know a lot more, we will have a lot more to share Felicia, on the next call for the second quarter. Obviously that is the displacement dynamic that we described before. OTA, when we acquired Tropicana represented close to 50% - five zero -- of the room nights.

We've got it down to 40% in the first quarter and we would like to see it down to 20% maybe in the second quarter, or 25%. We are very happy with the level of interest and activity from our database with the initial offers that were sent out, and reservations are rolling through every day and picking up. So we will see once we understand more about their behavior after their first visit.

Great. Thanks so much.

Thank you. Our next question comes from the line of Steve Wieczynski with Stifel Nicolaus.

Good morning guys. So Tim or Jay -- I guess this question would be to you guys -- when you look at your average customer now coming through the door, can you help us understand, what are they doing more of at this point? Are they staying longer? Are they spending more on the gaming floor, are they spending more on non-gaming, or is it a combination of all those things?

Sure Steve, this is Jay. It's a little bit of everything as I mentioned in my remarks at the beginning. For several years, the last several years, it was really more on the spend per visit high-end, the mid-level and high-end customer, and what we are seeing now is we're actually seeing some growth in visitation at the low end. And so we're starting to pick up some extra trips at the low end, our unrated business actually showed real significant growth in the first quarter, which is I think speaking to the general health of the economy. And we're seeing the non-gaming trends move in the same direction, Steve, as we are the gaming.

We are not seeing large single-digit increases, but in markets like Ohio and Missouri, where we are seeing the gaming same-store sales growth of over 6% I alluded to, we're seeing the same thing on the non-gaming side. Cash revenue in our hotel, cash revenue growth in food and beverage, and we are working on some refurb projects in Missouri, we're renovating one of our two hotels in St. Louis right now, and adding a couple of restaurants at Riverside in Missouri so we want to maintain that momentum.

Steve, this is Tim. We have over the last couple of years upgraded our entertainment offerings across a number of our properties, and added or changed out and improved our food and beverage offerings. As Jay stated, we're seeing nice cash growth in the non-gaming areas. With these results we're looking at other properties in Missouri and elsewhere that we want to put modest levels of capital to continue to upgrade the experiences for our core customer who come twice a month. And I think that's important in our business, we need to continue to refresh our offerings since our customers have such high-frequency of visitation.

Great thanks for the color. And then second question probably is going to be for Eric. Maybe just an update in terms of what's going on in Kansas at this point, I know there is some debate out there about opening additional racetrack and I think you guys at this point have objected, so maybe your longer-term view of what happens there.

Yes, this is the proposal to put slots at the Woodlands racetrack. We survived the legislative process without a tax rollback for that proposal to move forward, which Ruffin is saying is the gating item for him to want to open it as a casino, he wants to roll the tax back.

There was a special use permit that was preliminarily approved by the planning commission and now it goes before the full commission. So we're going to continue to oppose it as part of a broad-based coalition fighting to keep them from trying to change the rules in the middle of the game, and expect this to be an issue that we have to address again when the legislative session comes back together.

Thanks guys I appreciate the color.

Take care, Steve.

Thank you. Our next question comes from David Katz with Telsey Group, please proceed.

Hi, good morning. I wanted to talk about San Diego a little bit. I know you touched on it a bit, but I want to make sure or I would like to have you help us make sure that we do not get too far ahead of ourselves in terms of the ramp-up of that property. Clearly we see where it is and what its prospects for and the like, but help us think about -- and maybe this is best for Jay -- what the trajectory of that ramp-up is going to be as we roll it in. And I suppose I would ask -- and I don't know if you mentioned it -- but I assume there is no update on refinancing that property at the property level and taking it off your balance sheet at this point, correct?

I'll tackle the first part of your question and then ask Saul to tackle the question on the refinancing status.

I would anticipate, David, that from a ramp perspective, to your specific question, it would be similar to what we have seen in other markets, other competitive markets, where you're going to have a very strong first couple of months, it is going to flatten out and you will hit your trough somewhere between month three and six and then you'll start to grow that business going forward. I think the impact over all to Penn National Gaming in terms of EBITDA contribution will be much less noticeable, just because it's a management agreement it is not a wholly-owned property. So you're going to have a management fee collection, you are going to be collecting a licensing fee, but in total that ramp will be less noticeable overall.

Remember too that, that market like most Native American markets, we don't have exact information with regards to gross gaming revenue. We have insights and we believe that the East County market, which today is made up of Barona, Sycuan and Viejas, and will be made up obviously with Jamul added as well, we have good information that it is somewhere between a $700 million and $800 million annual gross gaming revenue market. So we anticipate being able to grow the market given our location and approximate location to downtown San Diego and some pretty significant population centers El Cajon, Chula Vista, National City and the like. We can grow that market we think probably 10% plus, and then there's going to be obviously a stealing of share from some of the competition in that market as well.

And David just to follow on and not to be cryptic at all but we are continuing to work with third-party financing alternatives, and hope to have an announcement before opening of the property.

Before --

And if we don't, David, just as we have always assumed, if we can't reach an agreement then we will just refinance this loan a couple of quarters after we do open and demonstrate performance.

Got it. One more if you don't mind. Just with respect to the West, and again the ramp and Tropicana it seems like you are making some nice progress there, but if you can just talk more about a forward-looking view as to what we can reasonably expect out of that property, the remainder of this year and into next year that would really help.

Sure, David. The West as you know today is just made up of three operating properties until Jamul opens. There is actually quite a bit going on at those three properties, we've got a very healthy business at the M resort, Las Vegas locals could not be happier with our trends and the results for Q1 and our forecast for the year at that property.

We've got a lot of headwinds in New Mexico. Our primary feeder markets at that property are out of West Texas and Midland, Odessa and Lubbock -- those are oil markets and have just been hammered so, unemployment has tripled in the local area and our feeder markets. So you have that news that works against you and then of course Tropicana, we had mostly good news in the first quarter like I said in my opening comments, the non-gaming results were terrific. Group business results were great. But the gaming revenue wasn't there. We just didn't have any gaming business because we had the floor ripped up, because of all the reasons I described earlier, implementation of Marquee Rewards and changing out slot products.

So it's really going to boil down to for the rest of the year, if we stabilize New Mexico -- which there are signs that we have -- if the M Resort locals business continues to be robust, and then of course Tropicana we anticipate being able to see some revenue ramp. We are not as focused on the margin of that revenue ramp, the EBITDA for the next couple of quarters, of course we are as we head into 2017, but as I've said on previous calls, I would not anticipate a whole lot of EBITDA out of Tropicana in the first year because we've got a lot going on there. We will really start to see that revenue and EBITDA ramp as we head into 2017.

Got it. And then one last one if you don't mind. Just in terms of your appetite for additional M&A looking forward -- and you do clearly have a lot of your plate -- but we have seen some other transactions occur this week in Las Vegas locals, et cetera, and we presume that there is a fair amount for sale out there. How would you gauge your buying appetite, or under what circumstances would you buy something else at this point, of some size?

You know David, this is Tim, as we always say were always looking for opportunities. Saul did mention that we do have a focus over the next couple quarters to continue our deleveraging activity and I think that will still be a guiding principle for us.

If we see an opportunity out there that we think is accretive to our shareholders where we can realize an M&A transaction at an attractive multiple, it is certainly not out of the question. But as you said we have a lot on our plate and I would characterize 2016 as really taking advantage in executing on the things we did in 2015 with the opening of Plainridge, the integration and lift we are working toward at Tropicana, the opening of Jamul and Prairie State Gaming, we certainly would like to get that platform bigger in the state of Illinois and elsewhere.

I think our primary focus is executing things we have in the pipeline today and continuing to delever. But we never say no to anybody that comes to us with an opportunity, we take a hard look at it and you never know. There's nothing imminent right now.

Appreciate it. Thanks very much and nice quarter.

Thanks, David.

Thank you. Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed.

Good morning. Jay, just to clarify the comment you made earlier in response to a question. I believe the question was the upside relative to your guidance and within that I think you mentioned half of it came from weather in the leap year. Did you mean year over year, because I would have assumed the leap year to exit day was contemplated in the guidance.

Yes that was correct, speaking year-over-year growth and where it was coming from in the first quarter, Carlo. Weather certainly impacted as a tailwind in the first quarter relative to guidance, and then the healthier consumer as well.

Got it great thanks. And then just in terms of two questions both around margins and flow-through. Obviously there is a lot of new things coming into the mix and clearly some of those things, including Tropicana and Prairie State, would've had a negative impact on your margins. I think you guys called out the 58 basis points of the core balance of the portfolio. Could you talk a little bit about what kind of flow-through you experienced in the first quarter on the rest of the portfolio; i.e., that piece that was up about 60 basis points from a margin perspective.

You can probably extrapolate from what we've shared already, Carlo, what that is. Really, on a same-store sales basis it's a pretty healthy flow-through. The only thing that's hurting the margins overall is those three businesses that we talked about previously.

Plainridge isn't hurting too much, the margins are continuing to move in the right direction getting closer to company average. Prairie State Gaming -- just the sheer nature of the cost structure and the past structure and that market is always going to be low 20% business, and Tropicana is very low right now but we anticipate that ramping over time. Not a lot of EBITDA coming out of Tropicana early this year. But the overall flow-through we're happy with, from a dollar of revenue that we are growing outside of the gaming tax and then you've got some incremental, maybe a little bit of marginal increase in your overall labor in marketing, but we are seeing very healthy overall flow-through.

Great that is helpful and lastly on Tropicana, I know you guys mentioned not a lot of EBITDA coming out of it right now. Could you give some clarity around where -- not necessarily the absolute numbers, I would assume it would be remiss to do that -- but what the margin opportunity is i.e., you are at 50% of where you think margins can ultimately go, something along those lines?

We are at low single-digit percent of where I think we can get to. Nowhere near 50%. The margins are very low, remember this is a business that was doing about $10 million a month in revenue, we have seen some movement both to the good and bad, positive directionally on the non-gaming revenues, negatively on the gaming revenues. But that should really start to change here in the second quarter and margins should only get better, as long as the behavior of these database customers, Marquee Reward customers when they stay. If we are capturing even 50% of their overall gaming wallet when they're in Las Vegas, this is going to be a great story for us and that is certainly our goal.

And just from that and then I will stop, the Tropicana, I am just assuming that the puts and takes giving gaming is a little bit bigger, and you're calling that as down, that net revenue would've been down year over year then, just given gaming better in some of the non-gaming stuff -- sorry, gaming weaker -- and non-gaming a little bit better.

Just a bit. Believe it or not that West statement was impacted negatively more by New Mexico than it was Tropicana. We're really soft at the property right now, and key signs of stabilization which will help us overall for that segment, because the M Resort had a fantastic quarter.

Great, thanks a lot, Jay.

Thank you. Our next question comes from the line of Steven Kent with Goldman Sachs, please proceed.

Hi, good morning. Could you just give us, you started to give a little bit of an update on Prairie State Gaming, how that business is doing, but maybe give us a little bit more color. And then you did say that you were hoping for some opportunities there. What is the opportunity set, what are the timing factors there besides price and that you don't want to lever up your company? Is it just the logistics of looking at these disparate slot routes?

That is my number one question, then the second question is Zia Park, just to dig a little deep into your companies, still a little challenged. Is that still oil-related, do you see a bottom there? How should we think about that property?

I will take the first question, Steven, this is Tim on Prairie State, then I will let Jay cover Zia Park question. We purchased Prairie State Gaming and it has been an excellent transaction for us. Immediately accretive, and we bought about 5% of the Illinois market, which I think is about $1 billion market at its current run rate.

We certainly want to get a bigger platform there and then look at other jurisdictions, because we now understand the business better. We now understand the potential synergies of integrating a second and third business into what we have already today, with about 270 establishments in place in northern Illinois and central Illinois.

The issue is really finding a willing seller at an appropriate price, and we are aggressively talking to all the major operators there and we're going to get something done this year, I just can't tell you when. It is just finding a willing seller at the right price, it's all about economics, and were going to get there because we like this business and we know it better now. It is very complementary to what we already do in the state of Illinois with our riverboat licenses, and we think there is a lot of synergies and a lot of things we can do to improve on the current operators there that do not have the scale that we have operating in that state.

Jay, can you cover the second question?

With regards to Zia Park, as I had mentioned earlier, we see signs of stabilization in that business now. It was really -- the most significant drop-off occurred last year in June. So we are approaching lapping that impact from an annual basis here in the late second quarter, and I would anticipate that we should start to see some flat to maybe even growth. Really depends on what happens with oil prices. Price per barrel down below $30 just a few weeks ago and now you're at $45, that only helps our business there. So we will see what happens. I think June is more that turning or stabilization point for us, and there is less impact even in the month of April and May on a year-over-year basis.

Okay. Thank you.

Thank you. Our next question comes from the line of Joe Greff with JPMorgan, please proceed.

Good morning, guys. Tim you mentioned EBITDA grew 15% -- almost 15% year-over-year in the 1Q. If you were to look at that on a same-store, same-facility basis, what is that same-facility EBITDA growth?

Jay, why don't you answer that question?

If you extract the new businesses and just look on a pure same-store sales basis, Joe, we saw same-store sales grow within the business north of 1% for the quarter, and it really was, like I said earlier, a mixed bag of great story in Ohio and Missouri offset by weakness in New Mexico, Mississippi and properties like Alton, Illinois. We had some properties that were in that zero, 1%, 2%, some well north, and a couple that showed slight declines for one reason or another, but overall it was north of 1% and less than 2%.

That's revenue. I think Joe's question was EBITDA. We said 15% growth. I think it is about 50-50.

Okay that's where I end up with, if I estimate Trop, Plainridge, PSG, I get mid-high single digits. Okay.

Sorry about that Joe, I was touching revenue.

Okay and then Saul, you gave us some statistics on full-year project CapEx, maintenance CapEx cash tax rate. Can you give us those items in the 1Q? Maintenance, project, cash tax rate, or cash taxes paid, in the 1Q? Thank you.

Maintenance in 1Q was $15 million, project in 1Q was right around $52 million, and our tax rate in the first quarter was actually a little bit lower. There was a refund from prior year carryback that we had an opportunity to get. So our tax rate in the first quarter was lower than the expected full-year rate. And is also what is driving the lowness of the full-year rate itself.

Okay. I guess I can do this if I have you here. Of the $52 million how much of that was Jamul? Virtually all of it?

All - yes.

Great. Thanks guys.

Take care, Joe.

Thank you. Our next question comes from the line of Thomas Allen with Morgan Stanley, please proceed.

Good morning. Just in terms of the social initiative, you gave some brief comments there, can we just get more color on how that's picking up?

Thomas we launched HollywoodCasino.com back in the fall of 2015 with our partnership with Scientific Games providing us content. I am pleased to report at the end of the first quarter we have now marketed that content to our entire Marquee Rewards database that we have the ability to communicate with online, and that business continues to grow very nicely. We just launched our second content line with a company called Open Wager, it's HollywoodSlots.com, that just rolled out a couple of weeks ago.

The good news is we are actually making money in the first quarter with our online a little bit, but more importantly we are growing this and trying to get this thing scaled up to continue to grow this with our customers from a retention standpoint, and just as importantly growing new customers to try to continue to establish relationships with people who haven't visited us at our bricks-and-mortar facilities. And what we're now working on is integrating Marquee Rewards into that online platform so that we can connect that customer up with our rewards program to give them incentives to play with us online even at greater levels, and also visit us at our bricks-and-mortar facilities if they so choose, with various recognition and rewards through the loyalty program we have.

So the good news is we're continuing to grow at a very, very nice pace and it is now slightly profitable, but we have more long-term prospectives for this business that we are continuing to work on as we look at opportunities to add new content and reach new customers.

Helpful. Thanks. And then two quick numbers questions. One, you did a very good job on margin in the quarter, your EBITDA beat guidance by $10 million. Is there a way to quantify the buckets that drove that outperformance? I think the implication is there with some benefit from tax mix, but maybe also could you talk about -- could you quantify labor versus expectations and maybe promo?

And then the second question is just around Tropicana. I think Jay said not to expect too much EBITDA out of the property, but can you help us think about seasonality of margins. Should cash flow or EBITDA go negative in the third quarter during this slower Vegas summer? Thanks.

Sure. With regards to overall margins, I will answer that one first. Taxes really not weighing on the results much at all, Thomas, it is really a result of us improving the operation mostly in the areas of labor and overall marketing. Those are the two largest buckets, and our property operators continue to do a great job making adjustments their cost structure, and generating very healthy flow-through on any dollars incrementally on the revenue side.

With regards to the margins at Tropicana, it is really difficult to see. Seasonally I can tell you what the Las Vegas strip market does. Q1 is a strong quarter, Q2 is a pretty good quarter, Q3 is very soft because of the hot weather, Q4 is usually a softer quarter. But I can't tell you exactly how that is going to play out for Tropicana this year just because we have the database, as I think a pretty important factor for the remainder of the year.

So we anticipate margins only getting better from here. Hard to say exactly how it's going to play out this year. I think once that business get stabilized it will probably follow the course of what you'd see typically for other operators in Las Vegas.

Thomas just to add, if you check the little chart in the press release you will see that $8.7 million of the beat came strictly from operations. The unusual items were minimal this quarter and so Jay's coverage for the reasons for that beat are pretty clear.

Okay thanks. My confusion was the commentary earlier was half the outperformance came from Ohio and Missouri. It seemed like revenue was more or less in line with your numbers and so there are obviously offsets for the weaker performance you said in New Mexico et cetera. So I wanted to make sure it wasn't taxes -- like a mix of tax rates. You did a very good job driving efficiencies on labor and marketing. Cool. Thank you.

Thank you. Our next question comes from the line of Brian Egger with Bloomberg Intelligence.

I know you identified National Harbor as a potential second-half competitor for Charlestown and the East/Midwest segment. Given that factor, that property's potential both to tap the affluent suburban communities that are feeder markets for Charlestown, but also go after the global tourism based in DC. Can you share any thoughts about how that's likely to play out, in other words the extent to which your customer database for Charlestown is primary or secondary target for what National Harbor is likely to be about?

I will take a stab at this one. I think there are going to be parts of our database that are going to be primary and parts of will be secondary focus for MGM National Harbor when they open. The good news is that northern Virginia, western Maryland market is deep, and I think that's been proven out since Maryland Live opened a few years ago and Horseshoe Baltimore. Our Charlestown property is still our number one producer of revenues and EBITDA in the company. We anticipate that still being the case after National Harbor opens.

We think that in the Frederick, Maryland area, Loudoun County, we think what we've got a great chance to keep the vast majority of those customers certainly at the mid-level and high-end segments, where we've got pretty deep relationships. And of course we anticipate having to fight hard to keep business the closer you get to Washington, DC. But the competition of our database at Charlestown is much more heavily skewed toward northern Virginia and western Maryland today

Thanks. That color is very helpful. Thank you.

Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Please proceed.

Thanks for taking my questions. The first one a high level on the operations. Very disciplined around promos in the quarter from a percentage of revenue standpoint, and I think we have seen this trend with you guys in your competitors for several quarters if not years.

My question is, is there something that you are expecting in the medium-term from a stability standpoint, has the industry become permanently -- has the business model permanently changed for the positive? We just haven't seen promotions get out of whack for some time. If you could opine on your medium-term outlook on that would be helpful.

Sure. I guess the best way to answer it is just looking at what's happened with our primary competitors. You look at the flow-through for Boyd Gaming and Pinnacle, what you can even get from Caesars in the regional market, but since everyone has been behaving more rationally I think everyone has benefited from that. That has always been our approach, very disciplined, and so we don't typically get involved in marketing wars fighting for low profitability or unprofitable customers. It looks like most are subscribing to that approach these days, and I think most are benefiting from that as well.

It is hard to say. You would have to ask others that question as well. That has been our approach, it will be our approach, and that is consistent with what we've always done here at Penn.

I agree with you, Chad. I think the last two years we have seen a real stabilization across our property portfolio, with the exception of some privately held operators in southern Mississippi, we do not see a lot of our competitors trying to chase customers and move share at unreasonable reinvestment levels. That is a very healthy situation to operate in and I think it is the reason why you see our margins continue to improve.

Okay. Thanks. My follow-up since no one has touched on Lawrenceburg. Nice to see that the last two months from a year-over-year GGR perspective were positive. I think last quarter you talked about some of the disruption, and we are obviously facing some pretty easy lapping of comps. Could you give us an update on where that property stands? Ohio was extremely positive and it looks like Lawrenceburg benefited as well. Just your outlook if we've hit the bottom there.

Sure. I think we have. I think we hit the bottom in the second half of last year, and a lot of that was due to the bridge work that I touched upon on previous earnings calls, maybe we should have highlighted that more as we were going through it in the third quarter and fourth quarter of last year. But the bridge work is behind us, our customers seem to be responding well to our offers, even those that sort of fell off during that bridge construction period, and our team at Lawrenceburg did a really nice job in getting that business stabilized. So we will continue to work on margin improvement there like we do everywhere else, and see where we go. But feeling much better about that business and its trends than we were six months ago.

Okay. Great. Thanks a lot.

Thank you

(Operator Instructions)

Sean Kelly, Bank of America. Please proceed.

Hi this is Barry Jonas. Just had a question on Massachusetts. Can you give us an update on competition from new supply, specifically there have been reports of a temporary casino opening in Taunton sometime next year. Thanks.

Eric, do you want to take that?

Sure. So actually today there's going to be a vote of the Mass Gaming Commission on a potential license in the southeast, which would be at Brockton, it's a $667 million proposed casino by Rush Street Gaming. The Mashpee Wampanoag, meanwhile, backed by Genting as their operator, are already underway, they have broken ground for a proposed $1 billion facility in Taunton.

There is some litigation swirling around both, and we will have to see what happens at the gaming commission today. I really don't want to speculate on how that vote may go, but we're watching those very closely.

And I know the tribe has said that they are going to get something open in 2017. I think that remains to be seen, and obviously we will know more as the next months progress and we get a handle on what happens in the courts with the challenges.

Got it. Okay. Thanks very much.

Thank you. I'm showing no further questions at this time.

Thank you, operator. And thanks again to everyone who listened in on this call. We look forward to getting back in touch with all of you towards the end of July to talk about our second quarter results and as Jay said, we will have a lot more information at Tropicana as we see the progress and the activity of our database taking effect with all of the room nights that Jay has talked about that are on the books today. So, more to come there, again very solid first quarter and we look forward to talking to you in about three months. Take care.

Thank you ladies and gentlemen, that is the conference call for today, we thank you for your participation and ask that you please disconnect your line.