PENN

Penn National Gaming, Inc. (PENN)

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Penn National Gaming (PENN)

Q2 2011 Earnings Call

July 21, 2011 10:00 am ET

Executives

Eric Schippers - Senior Vice President of Public Affairs

Steve Ducharme - Chairman of Compliance Committee

William Clifford - Chief Financial Officer and Senior Vice President of Finance

Peter Carlino - Chairman of the Board and Chief Executive Officer

Joseph Jaffoni - Investor Relations, Jaffoni & Collins Incorporated

Timothy Wilmott - President and Chief Operating Officer

Analysts

Shaun Kelley - BofA Merrill Lynch

Larry Haverty - Gamco

Dennis Forst - KeyBanc Capital Markets Inc.

Joel Simkins - Crédit Suisse AG

David Katz - Jefferies & Company, Inc.

Lawrence Klatzkin - Jeffries & Co.

Felicia Hendrix - Barclays Capital

Brian Egger - Harris Nesbitt

Joseph Greff - JP Morgan Chase & Co

Mark Strawn - Morgan Stanley

Steven Ruggiero - CRT Capital Group LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Penn National Gaming Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 21, 2011. I would now like to turn the conference over to Mr. Joe Jaffoni of Investor Relations. Please go ahead, sir.

Joseph Jaffoni

Thanks, Frank. Good morning, and thank you for joining Penn National Gaming's Second Quarter 2011 Conference Call. We'll get to managements presentation and comments momentarily as well as your questions and answers, but first I'll review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results can vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's new 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 obligations to publicly update or revise any forward-looking statements. Today's call and webcast may 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 GAAP will be found in today's news announcement as well as on the company's website.

And with that, I will turn the call over to Peter Carlino, the company's Chairman and CEO. Peter?

Peter Carlino

Thanks, Joe, and good morning, everyone. Happy to be here to talk about our second quarter results. Obviously, it's a whole lot more fun to talk about a good quarter than less than good quarters. So we're pleased to be here today.

This is a quarter when a lot of good things or things that we were working on have sort of came together. And as we get into the Q&A, I suspect we'll cover a lot of the issues, some of the state challenges that we've been facing and have been working with. We'll talk about that. And as usual, my comments are going to be very limited upfront, and we'll get to the things that you folks care about.

But first, I'll tell you parenthetically that as we we're sitting here, killing time, waiting for the start of this call, we're talking a bit about Charles Town. I was there just the other day to look at the latest of the late -- that is the expansion of our table games and the new entertainment area that we have constructed there, landscaping, a whole host of things that we have been doing over the last months. And I got to tell you and you don't hear me say this very often, it was spectacular. I marveled myself that Charles Town is one of the great gaming properties in America. It would be on a very, very short list of among the most, well, certainly among the largest, but also one of the most exciting and dramatic. And it surprises me sometimes that many out there, if not most folks in the world, don't really know about it. So anyway, I'm very pleased with what we've done down there. It is just terrific.

Also I thought it would be helpful, because I know you're going to get there anyway, to ask Tim to give you kind of his sense of the pulse of what's going on in the industry and what are the trends that we're seeing. So Tim, why don't we start off with that?

Timothy Wilmott

Thanks, Peter. Just wanted to cover what we're seeing across the regional markets in the second quarter. If you look at our results and if you look at -- and extract the table games impact in Pennsylvania and West Virginia, you also remove the flood closure that we had in Tunica, generally, we're seeing very stable but very, very slight growth in revenues, coupled with a very, very rational promotional environment out there across all these regional markets that has given us the ability to continue to be more intelligent about our marketing spend and continue to look at our overall cost structure that produce these second quarter results.

When you get into the details of what segments of business are doing what, the only strength we're seeing is in the VIP segment, the cost versus spend in excess of $400 a day with us on our casino floors. That is showing some modest growth. Below that, it's still struggling. It's not getting as we've seen over the past 5 or 6 quarters, not getting any worse. But there's really no strength in the lower level segments of our business, the retail segments. But the better quality customers are showing some modest signs of life as we look to the second quarter results. Hope that helps.

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