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Penn National Gaming, Inc. (NASDAQ:PENN)

Q1 2010 Earnings Call

April 22, 2010, 10:00 AM ET

Executives

Joe Jaffoni – IR

Peter Carlino – Chairman of the Board and CEO

Timothy Wilmott – President and COO

William Clifford – CFO

Eric Schippers – VP, Public Affairs

Steven Snyder – Senior Vice President, Corporate Development

Analysts

Felicia Hendrix – Barclays Capital

Larry Klatzkin – Chapdelaine

Carlo Santarelli – JP Morgan

Steve Wieczynski – Stifel Nicolaus

Dennis Forst – Keybanc

Mark Strong – Morgan Stanley

Steven Ruggiero – CRT Capital

Steve Altebrando – Sidoti & Company

Peter Delana – CitiGroup

John Maxwell – Jeffries & Company

Operator

Welcome to the Penn National Gaming first quarter earnings 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)

It is now my pleasure to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead sir.

Joe Jaffoni

Thanks operator, good morning everyone and thank you for joining Penn National Gaming’s 2010 first quarter conference call. We’ll get to management’s 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 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 10-Q. Penn National Gaming assumes no obligations to publicly update or revise any forward-looking statements.

Today’s call and webcast may also 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 can be found in today’s news press release as well as on the company’s website.

Without further delay I’d like to introduce Peter Carlino, the company’s Chairman and CEO. Peter?

Peter Carlino

Thanks very much Joe and good morning everyone and welcome to our first quarter earnings call. Our quarterly results as you can see are okay, not robust but okay. And I think the more important message that we have today concerns the tremendous number of new development opportunities that we currently have underway. We’re doing some pretty exciting things right now, even as we work to manage our business margins more effectively.

It happens that I’m out of the country right now and have a very unreliable phone connection. So I’m going to defer today to Tim and Bill and our entire team in the Penn National conference room and probably just listen through the balance of it and with that I’m going to turn it over to Tim, right now.

Timothy Wilmott

Thanks Peter. Well, clearly the first quarter was one where we really focused on a couple of things as Peter described our development pipeline but we also focused on improving our margins and it was challenging given the amount of weather impact we had certainly in the middle Atlantic states and most notably at our Charles Town facility, but to a lesser extent even at Penn National in Lawrenceburg. And we saw a consumer trends that really were representative of a rollercoaster. We had periods where bad weather occurred and levels were very low and then we had record business volumes when the weather was good.

So right now it’s very difficult to say there is any change in consumer trends in our business from what we saw in the latter part of 2009, consumers are still coming, spend per visit continues to be slightly down. And our reaction to all of this continues to be to focus on a customer-by-customer basis with a high degree of precision improving our margins on our marketing reinvestments, continue to manage labor to business volumes and continue to focus on discretionary spending.

So I think that’s reflective in our results in the first quarter, we’re starting to see some improvements there and we’re working hard to continue those improvements in the second quarter and the balance of the year and stay close to the businesses and stay close to the consumers and really nothing has changed from what we talked about when we were together back in January.

Bill, do you have any further comments?

William Clifford

I think to characterize what we’re doing here is pretty much heads down and working hard, I mean focus on pretty much what Peter and Tim already indicated which is we’re focused on how to do a better job of controlling our margins and we’re working really hard on our construction and new development pipelines pretty much seems at sometimes quite extensive between West Virginia, Pennsylvania, Maryland, Kansas, Ohio, both in Columbus and Toledo, there is more than a full plate to keep everybody fully entertained and fully occupied.

So I think with that we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Felicia Hendrix from Barclays Capital. Please proceed with your question.

Felicia Hendrix – Barclays Capital

Tim, you had just, you mentioned the weather in the quarter and particular Lawrenceburg and West Virginia. I’m wondering in Pennsylvania, the revenues came in lighter than our estimates. I’m wondering if we were just being overly optimistic or if there was anything in particularly going on in Pennsylvania as well that might not have met your budget or expectations?

Timothy Wilmott

Not really, I mean we had some weather in February, that was the month that impacted the most places. So we did have an impact of probably a few million dollars of revenue loss, you never know how much of that you get back when the weather turns good and how much pent-up demand there is that you recover. I’ve always been never fully recover but other than the month of February weather, really it was a pretty clean revenue quarter for Penn National.

Felicia Hendrix – Barclays Capital

Can you give us an update on the polling for November in terms of the BLT referendum in Ohio and also just how you think May is going to turn out there?

Timothy Wilmott

May and Eric Schippers is here with me. We feel very confident on May 4th that we’re going to get the approval of the address change in Columbus to move from the Arena district out to the west side, the Delphi plant location. I have not, Eric, maybe you can comment, I have not seen any recent polling about what potentially could happen with the BLT referendum at the race tracks in Ohio.

Eric Schippers

Yes Felicia, our focus has really just been on the May 4th election. We have not had an opportunity to get together with any of the other racing industry members to talk about. November and the ballet question really hasn’t even been formally written. So not much research has been done in terms of November.

Just to echo Tim’s comments in May, what we’re seeing has been very positive even across the state and areas that aren’t affected directly by the address change in Columbus. People understand that this will lead to what we hope would be an expedited timetable to get the revenues flowing through all 88 counties in Ohio.

So we’re hopeful not getting ahead of ourselves doing the blocking and tackling as you would do in any campaign but very helpful will be successful in May.

Felicia Hendrix – Barclays Capital

Great, and then finally, again – well, maybe this to be Bill or Tim. I was just wondering if you could give us some thoughts perhaps quantifying for us the incremental EBITDA you hope will be generated by tables in Pennsylvania and West Virginia.

Timothy Wilmott

Well, we’re not going to really give you specific details in terms of our expectations by property. What I’ll tell you is in the guidance what we’ve generally done is we’ve pretty much obviously incorporated the first quarter improvement obviously less than in and then incrementally added the impact of what we think will happen from the opening of Perryville for two months.

We actually lost a month in West Virginia relative to our original guidance on table games. So we’ve added four months to Penn National and that’s basically what’s reflected in the guidance.

So it’s basically steady as it goes relative to our original expectations for the core operations. We’ve basically left that unchanged.

William Clifford

And, Felicia, if we get these new operations up and running, there will be a period of time where we’re going to shake out the operations and get the labor stabilized, commensurate with the business volumes. So it’s going to take a couple of months for us to get those table games operations stabilize to have some certainly on what the impact is going to be on both those businesses.

Felicia Hendrix – Barclays Capital

Finally, any color on April, the weather has been pretty lovely as well?

Timothy Wilmott

April, very similar to what we saw in the first quarter, really not much change. It’s funny, I always laughed in the winter time, we want to have a good weather on the weekends and now when the weather gets nicely, I’d like to see rain on weekends. So maybe it’s been a little bit too nice so far here in the north east.

William Clifford

You’re never happy.

Felicia Hendrix – Barclays Capital

Well, I think it might rain in West Virginia this weekend. So maybe that will be good for you.

Timothy Wilmott

That would be a good thing.

Operator

Our next question comes from the line of Larry Klatzkin from Chapdelaine. Please proceed with your question.

Larry Klatzkin – Chapdelaine

Hey guys I hope Peter, I hope you’re in a nice fun location. As far as the south goes you guys in the second – how is that working, is there any kind of a pickup in Mississippi at this point of time?

Timothy Wilmott

Larry, this is Tim. It’s the one area of the country that we’re seeing the most softness both in Southern Mississippi and Southern Louisiana. And it was a year ago in the first quarter in ’09 it was one of the stronger markets we had. So I think the – it’s got a bit of lag effect and we have not seen any material signs of recovery from what’s been reported by the states so far. And in addition, the level of promotional activity especially Southern Mississippi remains. So it’s probably the one market in the United States or markets in the United States that continues to show the most softness.

Larry Klatzkin – Chapdelaine

The loss from unconsolidated affiliate, what was that?

Timothy Wilmott

That’s just basically the proportion of expenses related to our Ohio efforts and our Kansas efforts which are born in a JV arrangement. So basically we’re reflecting the total results and then pulling out.

Larry Klatzkin – Chapdelaine

You guys – I know there is an auction coming up for a station and local casinos. I assume that doesn’t really fit in with your guys plans, you’re working if you were going to Vegas more of a strip mainstream?

Timothy Wilmott

I’m not sure I would go that far. I mean we’re looking in what’s happening at stations with some interest I mean it’s to the extent that there is a real opportunity, we really do view the Las Vegas locals market as another regional opportunity, we wouldn’t consider it strategic but if there is an opportunity that makes sense for us we’ll be interested. I will say that I think the void offers a pretty full offer. I’m not quite sure what -- we’re not a 100% up to speed as exactly why they weren’t selected as the stocking or sitter.

But we’re basically engaged at least monitoring situations to see if it might be you might be interested in.

Larry Klatzkin – Chapdelaine

Do you guys hold any high yield bonds of any other gaming companies that to be addressed?

Timothy Wilmott

We do, very small nominal amounts that's basically unchanged from where we have been in the past.

Larry Klatzkin – Chapdelaine

Okay, you haven’t increased that or anything else. And then last thing, main full casino possibilities, is that something that’s going to debt at this point?

Timothy Wilmott

Eric, why don’t you take that?

Eric Schippers

Table games is unfortunately dead for this session. We will continue to try next legislative session. But our efforts to convince them to add it were unsuccessful. We even tried to combine it into another piece of legislation that was moving on an issue that’s going to be on the ballet in November and we’re unsuccessful. So we’ll keep checking away. Hopefully –

Operator

Our next question comes from the line of Carlo Santarelli from JP Morgan. Please proceed with your question.

Carlo Santarelli – JP Morgan

I think you somewhat addressed this earlier but I was hoping to go back to the guidance and whether or not you guys have assumed any margin improvements in the last three quarters of this year and your upping of your guidance, or is that more a reflection of the upside in the 1Q as well as the stub inclusions from mainly Charles Town and Pennsylvania?

Timothy Wilmott

What we’ve done is we’ve certainly reevaluated where we think revenues for the year are and where our EBITDA expectations are. There is clearly a little bit -- little better margins reflected in the rest of the year, but also reflecting that as we get a little more cost conscience on our marketing program. Some of those -- we’re going to have some negative impacts on our revenues. We pull out from possible customers.

So as we go through that process where we find customers who may have been lower cost as 100 cents on the dollar, you get the revenue and if we discontinue some of the marketing programs, it’s not that we get a lot of those and we don’t want to overstate that but as we discontinue those, we will some declines in revenue.

So I think what you’re seeing is slightly improved margins for the rest of the year but I wouldn’t say that we meaningfully moved our EBITDA guidance at the end of the day.

Carlo Santarelli – JP Morgan

Right now, would you guys be able to characterize if you’re any closer to anything in Vegas and you were say three months ago and have you seen asking prices over that same period change at all?

Timothy Wilmott

I don’t think much has changed, Carlo, over the last three months. We continue to look at various opportunities, nothing is eminent. But I don’t think there has been any change in what we’re seeing in the environment out there over the last three months. Bill, do you have anything else?

William Clifford

No, and quite candidly I think our prospects are probably dimmer than it’s been and the reality is for whatever reason the entire world thinks that Las Vegas is healthy and driving up multiples and driving up valuations on strip properties.

I guess in anticipation of the future that's supposedly rosy and so I think the likelihood of us getting an asset under those circumstances is quite candidly probably going down rather than up. Although we’ll see what happens, let's see what happens obviously as the quarters unfold and some of the -- I’m not 100% sure I concur with Wall Street’s views but it doesn’t really matter at this point because Wall Street has got the money and they’re the ones driving up those asset valuations.

Operator

Our next question comes from the line of Steve Wieczynski from Stifel Nicolaus. Please proceed with your question.

Steve Wieczynski – Stifel Nicolaus

Hi good morning guys. In terms of Ohio, we tried to go through and model that out, I mean and you guys are basically talking the about second half opening of 2012 for both assets and just trying to gage what’s the potential to get pushed out, in say six months or so into 2013?

Timothy Wilmott

Well, where we are, Steve right now is we’re working the development fronts with our designing construction teams in both Toledo and Columbus and concurrently working with this state to put forth enabling legislation to get the regulatory structure established which they have used their guideline on and Eric and I were in Ohio this week talking to the state about that process and it all seems to be going well but they have to get the legislation path, set up a regulatory body, license the applicants, license the venues and as you know that takes time.

We concurrently are looking at potential ground breaking later this year and we still believe and our estimates are second half of 2012 will be up and running in Columbus and Toledo. We right now have no other information that would say that it’s going to be any better or any worse.

Steve Wieczynski – Stifel Nicolaus

In terms of – I don’t think anything has changed here but in terms of slot spend, has anything changed there, I mean with your balance sheet and your capital position, has anything changed in terms of your philosophy of “Boy, I am trying to take share from competitors by according your slot force?

Timothy Wilmott

No our maintenance capital for slot replacements really hasn’t changed over the last year couple of years, it’s been very consistent. We’re turning over about one-sixth, one-seventh of our floor. And we have the opening coming up in Maryland which the state is providing with slot machines on that, they own them. But in terms of what we’re seeing out there, it really is more to say.

Operator

Our next question comes from the line of Dennis Forst from Keybanc. Please proceed with your question.

Dennis Forst – Keybanc

Yes, good morning. I wanted to kind of focus in on this strengthening of margins and the effective marketing that allowed for you to beat your guidance on little lower revenues and I noticed in the second quarter guidance, or I’m sorry for the full-year guidance you’ve lowered your full-year guidance for revenue but raised the EBITDA. So what are you doing right on the margin side, Tim?

Timothy Wilmott

Dennis, it’s a big thing we’re doing and we mentioned this three months ago, we’re seeing as I said customers coming but their spend per visit has been down and that’s been a trend now for about three or four quarters.

So we’ve gone back in our businesses and looked at on a customer-by-customer basis, that’s the profitability we have against these customers given our past marketing practices and in certain segments of our business, certain groups of customers who are spending less, we’re redefining the terms of what they’re going to get in terms of their rewards and incentives and pulling back to make them more profitable for us to continue the relationship going forward. And it’s really just as simple as that, going in program by program, down to the customer level and determining what margins we want to operate these programs against and then making tough decisions on customers that where they got an offer before they’re going to get either a lower offer, or no offer going forward. And that’s what you saw in the first quarter and that’s what we’re working on as we continue into second quarter and the balance of the year.

Dennis Forst – Keybanc

So there will be more of the same going forward, is that coming from corporate or is that at the property level marketing?

Timothy Wilmott

That is down at each of our property level marketing folks doing that but obviously getting assistance and guidance and resource help from the corporate office as well. But it’s really being driven at the local level.

Dennis Forst – Keybanc

Okay, and then for Bill. Bill, what was the debt at the end of the quarter?

William Clifford

Total debt at the end of quarter was $2.3 billion made up of tranche A revolver which is LIBOR plus one and a quarter, we had $73.6 billion. The tranche D which is LIBOR plus 275, the revolver was $132 million. The term loan B was $1.518 billion, the capital leases are 4.1 and then on top of that we have the two bond offerings at six and three quarters for 250 and eight and three quarters for three and quarter comes to a total of $2.3 billion.

Dennis Forst – Keybanc

Okay, and the capitalized interest, was there any in the quarter?

William Clifford

$1.1 million.

Dennis Forst – Keybanc

There was, okay and that’ll probably go up until you get some of the properties open or maybe it goes up for the next couple of years. Corporate expense?

William Clifford

I’ll just give you the numbers to make probably your guys lives a little bit easier. Second quarter we’re projecting about $1.8 million in cap interest and then $7.1 million for the year.

Dennis Forst – Keybanc

How – sorry for the year?

William Clifford

7.1.

Dennis Forst – Keybanc

7.1, so it does ratch it up for the year. And then corporate overhead that’s ran 16 or so in the quarter. Is that a decent run rate?

Timothy Wilmott

It’s pretty good. I mean we’re projecting a little higher than that. We are – on a normalized run rate looking at probably about $58 million for the year, some increases we got…

Dennis Forst – Keybanc

And then this loss per month consolidated, that’s going to be an ongoing thing until you own it, until you get the properties open?

Timothy Wilmott

Up and running right.

Dennis Forst – Keybanc

Yes, let's see what else that I want to ask about. The tax rate was 35 in the first quarter but it’s going to be 45 for the rest of the year, why is that?

William Clifford

Well, we had a favorable settlements, not settlements, a resolution of a FIN 48 position that we were required to take as part of the FIN 48. So we took a reserve related to state tax position on the Pocono sale that was resolved in our favor. So we were basically GAAP allows us to take out the reserve for that and so we had a one- time adjustment in the quarter.

Normally what you do is from a federal tax perspective, you take the blended rates for the year and try to, to the best of your knowledge, stay with that as long as you got reason to believe that it’s a appropriate rate. However if you get a one -time resolution, then that gets reflected in the existing quarter rather than reflect throughout the year.

We also had a little bit of a benefit of candidly there was fewer than expected non-deductible items like referendum, so that tended to lower our tax rate which is a good thing. Because when – you don’t get a tax reduction for your portable asset. So this quarter was a little lower than that what we’ve run historically.

Dennis Forst – Keybanc

But you’ll not be spending the whole lot of money this year on lobby, like you have in the last few?

Timothy Wilmott

No, we’re not going to be, well, I look –

Dennis Forst – Keybanc

Lobby and then in referendums.

Timothy Wilmott

I’m knocking on the wood right now, Dennis. I would be shocked if we were to spend anything anywhere in close to what we’ve been spending in the last couple of years.

Dennis Forst – Keybanc

Okay, and then the pre-opening in the description all the assumptions, you had pre-opening of $11.8 million for the year. Where is that, is that just in G&A, is it in corporate expense, where is pre-opening?

Timothy Wilmott

Well, for some of the properties that will be reflected in the actual properties result. So for instance for Penn National and for Joliet and for Charles Town you’ll see that reflected within the operating results at the property levels.

I mean in the first quarter Penn National had about $124,000 and Charles Town had a $127,000 worth of preopening. Then for the other items like Columbus and Toledo and Maryland, those will get reflected on a separate line item.

Dennis Forst – Keybanc

They will -- were there none in the first quarter for those?

Timothy Wilmott

There was a $100,000 at Maryland, that didn’t get reflected.

Dennis Forst – Keybanc

That did not get reflected on a separate –

Timothy Wilmott

(Inaudible) reflected and that's exactly -- I’ll get back to you as to exactly which line item showed up and it might have been in the (inaudible).

Dennis Forst – Keybanc

Okay, yes. I mean it’s a nominal amount.

Timothy Wilmott

That’s right.

Operator

Our next question comes from the line of Mark Strong from Morgan Stanley. Please proceed with your question.

Mark Strong – Morgan Stanley

Hi guys, quick question on West Virginia and Pennsylvania tables. Those come online in the second half for this year. Should we expect a meaningful uptick in marketing expenses and if so when would you expect those to kind of burn off and return to more normalized levels?

Timothy Wilmott

Well, we’re going to certainly have some increased marketing spends in advertising and creating awareness of these two properties that table games is now being offered and that’ll -- for West Virginia, we are expecting some time in July to get up and running.

So probably in June, July and maybe partially in August and then it’ll start to burn off after that. And at Penn National it’s probably going to be later in the third quarter, we’re anticipating. So it would probably be a third quarter kind of effort to create the awareness that table games is there as well. And then once the awareness is created and we start driving the trial and then you’ll see the pullback of those advertising efforts.

Eric Schippers

But also I think we’re going to focus a lot of our existing media campaign items to shift, to focus on the table games. So I think you’ll see a lot of products over there but we’re not – it’s not going to all be incremental.

Timothy Wilmott

It’s not all going to be additive. It’s going to be – it will be an increase but it won't be doubling up on our existing advertising efforts.

Operator

Our next question comes from the line of Steven Ruggiero from CRT Capital. Please proceed with your question.

Steven Ruggiero – CRT Capital

Good morning. Thank you. Bill, when you were looking at the Fountain Blue you folks were considering potentially joint venture partner and I wanted to see if you would pursue or think about pursuing a joint venture partnership with another gaming company specifically in another jurisdiction?

William Clifford

Listen, I mean we’re not opposed to joint ventures obviously to the extent it makes sense, obviously as it facilitates (creating) the deal done and we’ll be more than, we’re certainly open to it, and I think we make generally pretty good partner. But I don’t know that I can comment anything specific in terms of really from a strategic level of the current process, I’m not – we’re not really looking at anything at this point.

Timothy Wilmott

Obviously can, this is a recent example of that with our 50-50 partnership with the International Speedway Corporation on that opportunity in Kansas City, Kansas.

Steven Ruggiero – CRT Capital

Okay, and also in past comments you’ve basically indicated that Atlantic City is not a priority, perhaps not even on the table any more. Does that remain the case?

Eric Schippers

It really does. We continue to look at the market, continue to expect the impact of the Philadelphia casinos, the table games that come to Pennsylvania. Eventually slot products and (aqueducts). It continues to be a market that I think is over supplied and going to have a much more difficult times ahead of us, before things stabilize there. So it’s not a market that we have any interest in right now.

Steven Ruggiero – CRT Capital

Okay, and that’s helpful. Last question on your CapEx budget for 2010 second quarter, you just provided us with some helpful guidance for capitalized interest. Could you do the same for CapEx for second quarter and full year?

Timothy Wilmott

Yes, in the second quarter, what’s in – well, our second quarter and full year, I don’t really have -- second quarter we’re projecting project CapEx of roughly $85.7 million and maintenance CapEx $23.6 million. For the year and these numbers are highly dependent or expect the inclusion of paying $100 million of license fees for Columbus and Toledo. We’re looking at project CapEx for the year of roughly $439.8 million, maintenance CapEx now looking closer to $94 million for total $533.8 million.

Operator

(Operator Instructions) Our next question comes from the line of Peter Altebrando from Sidoti & Company. Please proceed with your question.

Steve Altebrando – Sidoti & Company

Hi guys, Steve Altebrando. Just interested in the repurchase of the preferred. Is that kind of a one off or something you guys are interested in doing more off and if you could give any commentary about what you paid for it?

Peter Carlino

Sure, we’ve paid effectively per share price of roughly, little over $22 a share. We made an offer to everyone who owns our existing preferred understanding before we made the offer that (inaudible) as the lion’s share wasn’t interested but we made offers to obviously there are four parties that own our preferred. Only one of them took us up on the offer, the others basically candidly politely declined indicating that they were very comfortable with their ownership position and the instruments and would look to maybe do something at some point in time when they felt the company was more fairly valued.

So we are absolutely committed to seeking out the best ways to improve shareholder value and if there’s opportunities to what we think the share prices undervalued and we think that there is an opportunity to get a transaction done, we’re more than happy to go down that far.

But it’s somewhat limited at this point. I wouldn’t say that we’re going to launch into an enormous buyback, sort of obviously something catastrophic happens to our share price, something catastrophic. But obviously if the market undervalues the company, we’ll step up and we’ll take a look at that in lieu of measuring that against other opportunities that are presented to us.

Operator

Our next question comes from the line of Peter Delana from CitiGroup. Please proceed with your question.

Peter Delana – CitiGroup

Yes, hi. In respect to your revenue guidance being tight, is that more reflection of when the timing of new capacity coming on or is that a more bearish like for like top line performance.

Peter Carlino

Peter, unfortunately it’s very tough to hear. Operator, can you help us here?

Operator

Excuse me?

Peter Carlino

We could not hear the question on our end.

Peter Delana – CitiGroup

Can you hear me now?

Operator

The line is open. Please go ahead.

Peter Delana – CitiGroup

Can you hear me now?

Peter Carlino

Yes.

Timothy Wilmott

We can.

Peter Delana – CitiGroup

Okay. In respect to the revenue guidance part, is that more reflection of the timing of when new capacity will be coming on or is that a more bearish view on the like for like top line performance of your other properties?

Peter Carlino

I wouldn’t say it’s a bearish view, I think it’s a more reflective of a consistent view. Candidly looking back to last quarter’s guidance, I would say that we were a little overly optimistic with where our expectations on the revenue lines were. I think candidly, we were probably a little over optimistic on the revenue and little pessimistic on the margin. I think what we’ve done has gone back and revisited where we think normalized results.

I will tell you that it’s more of a – I don’t think it’s a reflection of the overall business trends. I think it’s more a reflection of a refinement of a forecasting methodology.

Operator

Our next question comes from the line of John Maxwell from Jeffries & Company. Please proceed with your question.

John Maxwell – Jeffries & Company

Hi good morning. Tim, I was just wondering in Baton Rouge as Pinnacle goes ahead as they seem to be with their projects in Baton Rouge, is there anything that you plan to do with that asset in the future?

Timothy Wilmott

Well, it’s a market, John, that we think continues to contract that is not a great place for us to think about putting more capital in even under the existing conditions. It makes it difficult for me to understand how Pinnacle thinks they are going to get a good return in the market given what we’re seeing about the characteristics there we believe it’s a (three bold) market.

We wouldn’t want to throw good capital in a market that we don’t think it will be over supplied at that time to react to somebody else’s decision. We have better opportunities for capital elsewhere to show accretive growth.

John Maxwell – Jeffries & Company

Okay, it (inaudible) expense.

Peter Carlino

Yes and I’m going on, I just can't help myself. So I just don’t understand the thought process. The reality is this is $225 million market that’s shrinking. I think it had its bubble really as a consequence of Hurricane Katrina and all of the efforts in New Orleans, and Baton Rouge is the headquarters.

So the $225 million is probably going down to a more normal $200 million with three of those, I mean even if Pinnacle gets 50% of the market, that’s certainly they are going to get $100 million in revenue. With the (three bold) market it will be incredibly competitive as soon as they’re going to generate more than 20% margins, I think it’s optimistic, which leads in $20 million of EBITDA, less maintenance CapEx, on a $250 million projects with interest cost in the high digits. Their interest expense is going to exceed the value of their EBITDA and maintenance CapEx. I’m not quite sure why anybody will go forward. But at the end of the day, I suppose they’ve got internal forecast that are – having different assumptions.

John Maxwell – Jeffries & Company

Okay, certainly appreciate those comments. And then Eric, just wondering in Maryland is there any discussion or anything down the road with potential for table games and also can you help us – Maryland continues to be – seems to be fairly fluid. Any comments you can share on that?

Eric Schippers

Well, the legislature has talked about table games but it hasn’t come to any serious proposal. The governor seems to be able to believe that ought of get the existing operations up and running and see how they do.

So I think they are looking at competition in neighboring jurisdictions and recognizing the arms rate that’s going on out there in terms of ongoing expansion in the mid Atlantic region. But again I think you’ve got a governor who’s not willing to pull the trigger there until he sees how we fair in People County and how they do in Ocean Downs. Steve, you want to?

Steve Snyder

And also getting in around the Baltimore resort.

Eric Schippers

And getting that up and running results in (inaudible).

Timothy Wilmott

We sent a bill on table games, didn’t even get any hearing on the house side and of course the legislature has adjourned. So that is not a short or even intermediate term possibility.

Eric Schippers

In terms of the ongoing fluidity, I mean we really can't speak to what’s happening in the other zones other than to say that we’re full steam ahead in People County and have had a very warm reception there from our host community and from those in the legislature who appreciate the efforts that we’ve been undertaking to get that project up and running.

Operator

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

Timothy Wilmott

Thank you, operator. Again thanks everybody that were out listening to our conference call today and certainly we appreciate the questions and we’re going to continue to stay focused on the things we talked about and continue to get this development pipeline further along, so we can realize the opportunities that each represents. Thanks again.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day everyone.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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