penn national gaming, inc. (penn) ceo vincent gibson on q1 2019 results

Fady Armanious -- Executive Vice President and Chief Financial Officer

Thanks, good afternoon everyone and thank you for joining us today. Joining me on the call is our President and Chief Executive Officer, Vic Gibson. On this call, all references to Penn National Gaming will be to the company as a whole unless we indicate otherwise. Our discussion will include non-GAAP financial measures. You can find the most comparable GAAP measures and a reconciliation of these non-GAAP measures in the company’s earnings press release and on our website. During the call, we may also make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including those related to our outlook for 2019 and our overall business strategies. Our Form 10-K and subsequent SEC filings identify important risk factors that could cause actual results to differ materially from those indicated in such forward-looking statements.

Vincent Gibson -- President and Chief Executive Officer

Thank you, Fady. Good afternoon, everyone. I want to start off by commenting on our first quarter results. We are very pleased with our operating results for the quarter, which included record revenues, adjusted EBITDA and net income attributable to Penn National Gaming. The $46 million in revenues we generated in the first quarter represented an increase of $738,000 or 1.6% compared to the prior year period. The $174 million of adjusted EBITDA we delivered in the first quarter was up almost 19% versus last year’s first quarter result. And our net income attributable to Penn National Gaming of $78 million or $1.38 per fully diluted share was up significantly from the $15 million or $0.27 fully diluted share we reported last year. This strong first quarter performance reflects continued momentum for our business and demonstrates the significant value creation opportunity we see as we complete the transformation of Penn National into a modern and dynamic regional gaming leader.

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Turning first to our retail gaming business. Excluding our recently divested Ohio properties, same-store revenue increased 1.7% in the first quarter driven by robust slot and table games revenue at all of our regions except California which was impacted by weather-related events in March. For the full year, we continue to expect low-single digit percentage same-store revenue growth excluding Ohio. Adjusted EBITDA margin for our remaining similarly sized gaming assetsex Ohio improved nearly 200 basis points in Q1, reflecting leverage of our SG&A infrastructure and continued cost discipline. As a result of these trends, we now anticipate full year adjusted EBITDA margin expansion of approximately 150 basis points for our remaining similarly sized gaming assets, excluding Ohio.

Our newly acquired Missouri and Illinois properties, which we consolidated effective March 1st, 2019, contributed $13 million of revenue and $36 million of adjusted EBITDA in the month of March and are performing in line with pre-acquisition expectations. As a result, we are raising our full year 2019 guidance range for revenue and adjusted EBITDA by $3 million and $8 million respectively. In addition to benefiting from revenue synergies and operational improvements, we continue to see significant real estate recycling opportunities across our portfolio. These initiatives are expected to drive additional substantial increases in our cash flows and further improve our already industry leading adjusted EBITDA margins.

On slide five, you can see the progress we have made over the past few years transforming our property level profitability through focused capital expenditures. Between 2015 and 2018, we invested roughly $225 million across our portfolio enhancing slots and table games offerings, adding or renovating hotel rooms, expanding or enhancing food and beverage offerings and enhancing our realm reward loyalty programs. These investments have led to over 550 basis points of adjusted EBITDA margin expansion for our similarly sized remaining assets excluding Ohio.

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During the first quarter, we continued to drive significant revenue and profitability growth at Hollywood Casino Baton Rouge following the completion of a 142-room hotel tower and connected parking garage in late 2018. First quarter adjusted EBITDA for the property increased nearly 60% compared to the prior year period and we are confident in our original expectation of at least 35% adjusted EBITDA growth for the full year. Shifting to our racing product. Average daily handle at our video gaming terminal racinos in the first quarter decreased less than 1% versus the prior year period. Adjusted EBITDA from our VGT racinos decreased slightly in the first quarter, but we still expect a low-single digit percent decrease in adjusted EBITDA for the full year due to one less racing day in 2019 versus 2018.

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Moving to our interactive segment on Slide Seven. Revenue grew 26% in the first quarter driven primarily by higher revenue from our 29% equity method investment in Penford Entertainment Bermuda Ltd., operator of the Amerisports wagering network, as well as higher revenue from our online casino operations in Maryland and Indiana. This was only partly offset by a year-over-year revenue decline at our HollwoodCasino.com online poker and casino offering in Delaware, which was impacted by the planned Sun Mart exchange, which combined three race tracks onto a single race track, which reduced intertrack wagering volume and competition for online gaming offerings in the state. As a result of Penford's continued strong performance, we are raising our full year revenue guidance range for our Amerisports investment by $3 million to a net revenue contribution of $39 million to $41 million.

As a reminder, our distribution from Amerisports is not tied to its operating profits, but rather a fixed distribution of 90% of net revenues, less certain payments. Turning to our HollywoodCasino.com joint venture on slide eight. First quarter adjusted EBITDA loss of $3 million included $2 million of rebranding costs associated with our upcoming transition to the Barstool Sports brand later this year. We are maintaining our previous outlook for the joint venture, which includes adjusted EBITDA losses of $17 million to $15 million and net revenue of $28 million to $30 million for 2019.

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We continue to believe strongly in the long-term opportunities presented by the growing mobile sports betting and iGaming markets in our extensive footprint of 16 midwestern and southern states, many of which do not currently or will not imminently offer these options to consumers. We intend to participate meaningfully in each market in which they operate historical race tracks and/or brick-and-mortar casinos and are well positioned with our Barstool partnership to take advantage of these substantial opportunities. As a reminder, under the terms of our agreement with Barstool, we have an exclusive right to enter into an online gaming joint venture in each of our state of operation to offer online urges, sports betting and other future online gaming opportunities in which Barstool has the right to take a 20% economic interest. We are excited about the initial rollout of our Barstool Sportsbook at our Hollywood Casino at Charlestown Races outside of Pittsburgh, which is scheduled to launch later this month. Our initial Barstool Sportsbook digital experience will enable customers to place wagers on professional and college sports from their mobile devices or computers either at the racetrack or from anywhere in the State of Pennsylvania. We plan to rapidly rollout the Barstool Sportsbooks across our regional footprint and potentially beyond, subject to the ease of implementation both from a technology and regulatory standpoint. To that end, we are very encouraged by the rapid integration of the Barstool Sportsbook with our promotional databases and the early response from our team members who participated in recent employee beta tests.

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In addition to sports betting, we are targeting an initial launch of an online casino or iGaming offering in Pennsylvania in the second half of this year followed by launches in other states thereafter. Regulatory approvals and technology integrations will determine the timing and sequence of each launch. Importantly, we remain disciplined in our evaluation of these opportunities and will not participate in every opportunity, but instead focus on the largest states or groupings of states that provide a clear leadership path and sufficient economics to invest in and support Barstool's significant growth initiatives. Given the large number of states that give us the ability to control brush-pass amendments relating to sports betting and iGaming, we are well positioned to be a leading participant in these developing industries. We estimate that our 26 owned or operated facilities and six managed facilities operate in jurisdictions that have passed or appear likely to pass Brush-Pass Amendments related to some form of iGaming and/or sports wagering, which covers roughly two-thirds of our annual revenue and more than 75% of our EBITDAR. While we continue to evaluate these opportunities, it should be no surprise that we see significant long-term growth potential from these initiatives. Based on conservative assumptions, we estimate that participating in just the online casino or iGaming portion of these opportunities could increase our annual adjusted EBITDA by more than $100 million on a long-term sustained basis, while the sports betting opportunity would additionally contribute meaningful top-line growth, although its impact on our adjusted EBITDA will vary by jurisdiction.

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In light of this significant opportunity, we're taking steps to ensure we have the appropriate resources and capabilities in place to successfully capture this growth. We've welcomed Jeff Victor as our new Senior Vice President of Interactive Gaming. Jeff brings more than 20 years of igaming and sports betting experience to our team and is working closely with our HollywoodCasino.com management team and our Barstool partners to lead our interactive gaming strategy and execution. With Jeff's leadership, we plan to invest in the necessary resources, both people and money to execute against this multi-year opportunity. We are also evaluating the potential benefits and costs of establishing a single unified interactive platform for our entire organization. While we currently expect to invest between $25 million and $30 million in our interactive segment over the next couple of years, we remain committed to maintaining our target adjusted EBITDA margin range for this segment of 25% to 30%.

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Now turning to our real estate initiative. On slide nine, we continue to make significant progress executing on our strategic real estate initiative. As previously announced, we entered into an agreement to sell the real estate underlying our Hollywood Casino Aurora to Dover Downs Gaming & Entertainment for $125 million in early February. We expect to close the transaction during the second quarter of 2019, subject to customary closing conditions and regulative approvals. Net proceeds from the sale after taxes and transaction expenses are expected to be approximately $110 million or $1.83 per share. Upon closure of the sale, we will terminate the triple net lease for the operating business and distribute the after-tax transaction gains to our shareholders as a return of capital. Assuming a second quarter closing, we expect the distribution to be made in the third quarter of this year.

We also announced a definitive agreement to sell the real estate underlying our Argosy Casino Alton bridge Portsmouth for $60 million to Alexandria Real Estate Equities, an urban office REIT. The sale price represents an attractive 12.2 times multiple of the properties adjusted EBITDA. Net proceeds after taxes and transaction expenses are expected to be approximately $47 million or $0.80 per share. Assuming a Q2 close, which is our expectation, we intend to use a majority of these proceeds to pay down debt under our credit facility. Remaining proceeds will be used for general corporate purposes, which may include returns of capital to shareholders. Assuming a second quarter closing, we expect to complete the triplex net leaseback of the operating business and the corresponding distribution to shareholders concurrently with the real estate closing or shortly thereafter. Following these transactions, we would anticipate having completed four of the originally announced seven sales since January 2018. We continue to expect the remaining transactions to close by year-end 2020.

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During the first quarter, we refinanced our term loan A under our credit facility extending the maturity date to May 2024 from April 2022, while lowering our fixed rate coupon from LIBOR plus 275 basis points to LIBOR plus 250 basis points. We also extended the maturity date of our revolver from May 2023 to May 2024 and expanded the size of the facility from $250 million to $350 million. These amendments provided us with added financial flexibility to fund our strategic initiatives while also reducing our near-term financing costs. During Q1, we utilized approximately $35 million of our revised credit facility to repay outstanding borrowings under our old term loan A. We continue to expect to generate negative free cash flow for 2019 of between $50 million and $55 million, which assumes we complete two real estate transactions this year and one next year, consistent with our original disclosure. Thereafter, we expect to generate positive free cash flow in 2020 excluding any additional investments in our interactive segment.

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Before turning the call over to Fady for a more detailed review of our financial results, I wanted to touch briefly on our view of the macro environment. While we're seeing some signs of near-term deceleration in the US economy, including manufacturing activity, we continue to see strong consumer balance sheets and confidence, low unemployment and wage growth across most of our major markets. We believe these factors should continue to benefit our core gaming operations, even as capital markets remain volatile in response to global economic and geopolitical uncertainty and interest rates normalize. Customers in our casino properties continue to respond positively to our enhanced venues and engaging experiences, driving solid visitation and spend trends, despite the challenging comparables created by the leap year in 2016. In fact, adjusted EBITDA margins for our gaming and restaurants businesses excluding Ohio and our VGT racinos improved nearly 200 basis points in the first quarter versus the prior year period, driven primarily by leverage of SG&A infrastructure and continued discipline in promoting and pricing.

With that, I'll turn the call over to Fady to review our results in more detail.

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Fady Armanious -- Executive Vice President and Chief Financial Officer

Thank you, Vic. Good afternoon, everyone. I'd like to review our operating results for the first quarter of 2019 on slide 11. Consolidated revenues for the quarter were a record $46 million, an increase of $738,000 or 1.6% compared to the prior year period. Excluding the Ohio properties we sold in 2018, same-store revenues increased 1.7%. First quarter consolidated adjusted EBITDA set a new record at $174 million, an increase of almost 19% compared to the $147 million of adjusted EBITDA we generated in the first quarter of Year ago. Adjusted EBITDA margin for the same stores excluding Ohio improved nearly 200 basis points to 47.4% compared to 45.5% in the first quarter of 2018. Net income attributable to Penn National Gaming was $78 million or $1.38 fully diluted share compared to $15 million or $0.27 fully diluted share last year.

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Turning to slide 12, our gaming revenues for the first quarter increased 2% on a constant currency basis excluding Ohio, driven by Pennsylvania, Maine and Missouri more than offsetting declines in California and Iowa. Total machine handling for our gaming properties excluding Ohio was relatively unchanged at $2.4 billion. California was negatively impacted by weather-related issues in March, which we estimate reduced first quarter machine handling by approximately $15 million or roughly 2%. Adjusted EBITDA margin for our gaming operations excluding Ohio increased 190 basis points in the first quarter to 47.4% and we now expect full year adjusted EBITDA margin expansion of approximately 150 basis points for our similarly sized gaming assets, excluding Ohio.

Revenue per unit per day for our Las Vegas style gaming properties excluding California and Ohio increased 3.6% in the first quarter despite a 2.7% decrease in average hold percentage resulting from a difficult comparison to the very strong second half gaming environments in 2017. Revenue per unit per day at our balanced ports excluding California and Ohio increased 1.7%, while average hold percentage declined 1.1%. And at our regional portfolios, excluding California and Ohio, revenue per unit per day rose 0.2% and average hold percentage declined 4.9%. For the full year, we're expecting low single-digit percentage same-store gaming revenue growth, assuming flat average hold percentages.

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Slide 13 focuses on our regional gaming properties excluding California and Ohio. On a constant currency basis, revenue at our Las Vegas style ports increased 3.3% in the first quarter driven by a 4% increase in revenue per day per machine partially offset by a 1.3% decrease in average machines. Balanced port revenue grew 1.7% as a 2.5% increase in revenue per day per machine was partially offset by a 1% decrease in average machines. We generated record first quarter adjusted EBITDA at our regionals, increasing nearly 20% compared to the prior year period, reflecting the strong revenue growth and over 200 basis points of leverage in adjusted EBITDA margin.

Moving to our VGT racinos on slide 14. First quarter adjusted EBITDA for our VGT racinos decreased $1.4 million or 1.7% compared to the prior year period, as a 2.3% decrease in racing days more than offset the 1.2% increase in average daily handle. We continue to expect a low single-digit percentage decrease in adjusted EBITDA for the full year.

Shifting to our interactive segment on Slide 15. First quarter revenue of $27 million reflected a 26% increase driven primarily by a 77% increase in our 29% equity method investment in Penfold as well as higher revenue from our online casino operations in Maryland and Indiana, partially offset by a year-over-year revenue decline at our HollywoodCasino.com offering in Delaware. Hold percentage for the segment was 23.7% compared to 26.8% in the first quarter of 2018. First quarter adjusted EBITDA loss of $3 million included $2 million of rebranding costs associated with the planned transition to the Barstool Sportsbook later this year.

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