Q4 2019 Earnings Call
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Greetings and welcome to the Penn National Gaming fourth quarter conference call. During the presentation, all participants will be in the listen only mode. Afterwards, we will conduct a question and answer session.
That time, if you have a question. Please press the one fall by the four on your telephone if at any time during the conference you need to reach an operator.
Please press Star zero.
I'd now like to turn the conference over to Mr., Georgia Phony Investor Relations. Please go ahead.
Thank you Frank Good morning, everyone and thank you for joining Penn National Gaming is 2019 fourth quarter conference call.
Good to management's presentation in comments momentarily as well as your questions and answers, but first I'll review the safe Harbor disclosure.
Sure.
In addition to historical facts or statements are current conditions. Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. These these statements can be identified by the use of but we're looking terminologies such as expects believes estimates projects intends plans seeks.
May will should or anticipate 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 developments acquisitions capital expenditures and operating results.
Such forward looking statements reflect the company's current expectations and beliefs, but are not.
<unk> 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 the company's filings with Securities Exchange Commission, including the company's reports on form 10-K and form 10-Q.
The national assumes no obligation to publicly update or.
He buys any forward looking statements.
Today's call and webcast will include non-GAAP financial measures within the meaning of FCC regulation G.
When required a reconciliation of all non-GAAP financial measures for the most directly comparable financial measures calculated and presented in accordance with gap can be found in today's press release as was on the company's website.
It's now my.
Pleasure to turn the call over to company CEO Jay Snowden Jay. Please go ahead.
Thanks, Joe Good morning, everyone. Thanks for joining us for pen 2019 fourth quarter earnings and importantly, our 2020 outlook.
Our solid fourth quarter results that exceeded guidance punctuated an exciting.
Into a truly transformational year end 2019 here at Penn National.
You are they delivered a number of notable accomplishments for Penn first we established a goal at the close of the Pinnacle acquisition in October 2018 to complete most of the heavy integration and synergy left in by the end of 2000.
18, so that we would be one company with one mission at one culture and eliminate the use of the term legacy from our vocabulary by January 2020, and I'm happy to say, we have accomplish that goal.
Second despite this acceleration of combining companies and the significant change management and at times disruption associated with that.
We were extremely pleased and honored to be named the gaming industries employer, a first choice by Barstow Associates in spectrum Gaming group and their 2019 anonymous Executive survey. So my hats off to all of our amazing property in corporate leaders on this extraordinary accomplishment.
From a financial standpoint.
We exceeded 5.3 billion in revenue 1.6 billion and EBITDAR and 30% EBITDAR margins for the first time in our company's history. We also raised our synergy target from 100 million to 120 million in cost synergies and another 15 to 20 million in revenue synergies over the course of 2019 some of which.
Our <unk> are starting to materialize now that we have implemented our loyalty program my choice across all of our properties.
Lastly, we now find ourselves with over 40 properties across 19 states a footprint footprints that is unmatched and strategically critical for Penn as we move forward and speaking about future, let's spend a little.
I'm on that.
As exciting as 2019 wise, we have bigger plans and even more to accomplish in 2020.
We are currently under construction with our two category four facilities in Pennsylvania, We anticipate opening our new ground up facility in Morgantown in November and our York property at the very end of this calendar.
The year.
We also announced last week on January 29, our investment in partnership with Barstool Sports a unique partnership that we believe will deliver immense value to both parties and our shareholders team members and loyal customers and fans for decades to come.
When possible with.
And in May 2018, we knew the casino industry was going to be changed forever and pen with physician better than any other gaming company to lead the industry Revolution.
We have the broadest footprint in the U.S.
We're regional gaming is best operators, we have the broadest footprint in the United States.
We have an extremely.
From a real and innovative culture and group of leaders as well as some of the nation highest quality regional gaming assets and brands. What we were missing however, what the sports betting name and audience to lead with and to activate.
We also did want to sell the rights to or get about economics around the sports betting and I casino.
Opportunities given we believe strongly this convergence with retail casinos is where the future <unk> of our industry has had.
We met with dozens of potential partners over the last 18 month and finally found the one that checked all the boxes for them and for US That's barstool sports.
We couldn't be more excited to be partnering with Davenport.
<unk>, Eric and Ardine and the rest of the Barstool sports family and their 66 million loyal stool is.
Well be launching retail branded barstool sports books across the country over the coming quarters as well as our mobile sports betting that Barstool Sports book later in the third quarter.
Our goal is to be.
Top three and sports betting market share in every state, where we operate and number one and profitability both retail and online.
We also aspire to be the industry's first and only pure omnichannel provider of sports and casino experiences and entertainment in the U.S.
And because we have the best team and because one of.
And we control, 100% of our future and the economics associated with it we're confident we can deliver on these ambitious goals.
With that I'm going to turn it over to BJ to walk you through 2020 guidance and then well open it up for questions. Thanks, Jay and good morning, everyone. Only address two items. This morning first with respect to our guidance.
Going forward will only be providing guidance range for EBITDAR for the year I think you all acknowledge that our guidance is still equal to if not more than what most other gaming companies provide.
Well still be providing in the press release, our cash lease payment forecast for the year as well as other key issue. Other key uses of cash to allow for a.
Relation of the free cash flow generation.
Our EBITDA guidance range for the year is $1.67 billion to $1.7 billion and our free cash flow guidance is $405 million to $430 million.
It's important to note the while our guidance does not include any impact related to the personal transaction. It does include all of that.
Cost associated with the launch of our sports betting a later this year.
Our total lease payments for the year, including the Threeg LPI leases and the two beachy leases are forecast to be $901 million to $905 million the ranges, depending upon achieving escalators for which we will provide updates as we progress through the year.
The trailing 12 month rent coverages as of 12 30 119 for the GLP I leases are as follows depend master lease was 1.93, the amended pinnacle Master lease was 1.77 and the meadows lease was 1.97.
The second item to cover. This morning is that you will notice we have recorded impairment charge were about.
Balance sheet of over $170 million.
Majority of discharge is related to the adoption of the least standard I guess CH 42, and is an accounting change on how the financing obligations of the pen and Pinnacle master leases are addressed.
The charge also reflects the impact of changes in gaming legislation in Illinois, Indiana and Pennsylvania.
Pena, primarily on the acquired Pinnacle properties since legislation became effective post acquisition of the company.
With that I'll turn it back to Jay.
Thank you BJ before I open it up in hand, it back over to Frank for questions I didn't want to thank.
I think a couple of people as all of you know a this is.
Jay fares last earnings call BJ is leaving pen at the end of March and I wanted to personally think BJ for 'cause countless contributions to Penn.
Over the course, the last six plus years, both in his role as Chief Development Officer, and his role as Chief Financial Officer.
BJ is the consummate.
Pro great colleague, he's going to be sorely missed and I want to personally thank him for that for being a great Guy and also for agreeing to stay on through the end of March and work through a seamless transition with Dave Williams, who will be starting as our new CFO in early March. So BJ. Thank you. Thank you Jay it's been an honor and it has a.
Nominal company. Thank you I also wanted to eat he's not here without this morning, but I can assure you. He's on our call I wanted to think in Walmart for a few things he probably will be on every one of our calls and he'll be critiquing me after our call so well I welcome that called him.
I wanted to thank him for I've no.
I've known him for almost 20 years now from our time together at Caesars as well as our time together at Penn Tim's than a mentor of mine throughout that time.
He's a great partner he's been an amazing sounding board for me over those 20 years. These taught me a tremendous amount and most importantly, Tim is a just a dear friends and.
On behalf of the board on behalf of the company, Tim I want to thank you for the.
The seamless transition these CEO transition don't always go well and it could not have gone better with you being as gracious as you are.
And taking the time to make it exactly that this was so well orchestrated by you and I just can't think enough for being.
So with that Tim. Thank you great haven't dinner last Monday I'll see you soon for another dinner.
And with that Frank when it turned over to you to open it up for questions.
Thank you.
If you would like to registry question. Please press the one fall by the four on your telephone you will hear a three told prompt.
Acknowledge your request if your question has been answered and you would like to a draw your registration. Please press star one followed by the three one moment. Please for the first question.
Our first question comes from the line up Joe Greff with JP Morgan. Please proceed.
Hi, good morning, everybody and before I ask my question does want to say was great working with the BJ and and really wish you. The best of luck and that's the endeavor that you embark on thanks Joe.
My first question, Hey, guys would relate to your your outlook for for this coming year.
The $30 million of EBITDAR range can you explain what's sort of baked in at the low end and what gets you to the top end how much of it is related to Massachusetts.
Colorado and Pat top that's gone on maybe the sports betting AD platform and then.
Jay can help quantify what that sort of op.
Yeah. This year in terms of getting that sports betting add up that's probably something that.
At least we didn't or at least on our side, we probably did incorporate any kind of expenses for this year.
Yeah, Joe It's a great question in you know, we're providing guidance in a range and different than we have in the past without revenue guidance and I'm sure we'll.
Since that later as well.
Look here's what I would say about about guidance is that and we mentioned this on in the earnings release and also on BJ. His opening comments that that the guidance range includes the costs associated with the launch of our sports betting out because you have to remember that we're building out and infrastructure.
Structure right now a team of developers and engineers that are working we have been big large office in Philadelphia developing what we believe is going to be a best in class.
Well, we don't have the scale yet of the revenues coming in for that happens. So we launched this app in August and we'll watch a few states and then there'll be a cadence of going live in states as we.
Move forward every month or month and a half after the initial launch so I think you'll see Joe that.
The benefits of our sports betting App and sports betting overall, well I think be more visible in 2021 in 2022, we're launching the sports betting app. So it's more of a a cost to build out that infrastructure.
Sure and the resources associated with it and 2020, but as we get the scale on the revenue side I think you'll see that it'll be a really good growth story for us and that's not too far off as fast as states are continuing to legalize sports betting and then with regard to your first question on on the range. It's it's a range you know I wouldn't.
Say, there's any one particular thing that drives the lower end of the range or the top end of the range are the only reason why the range mid point isn't right that consensus is because of this cost of start out for our sports betting app or else. We would have been there we feel really good about our core business right now probably honestly the best I felt in.
Years, given what we're seeing how we finished the year the benefits of my choice and the impact were seen in multi property markets like Saint Louis in Kansas City. Both top line bottom line January started strong you saw the Maryland numbers came out last night I think you'll find other states are going to look a lot like Maryland. So.
We feel really good about our core business and we'll see how that plays out but there's really nothing in particular driving the lower end of the range of the higher end, we're just given ourselves some some wiggle room, because it's hard to anticipate what'll happen throughout the year.
Great excellent and then as a follow up Jay I know you talk.
I guess for.
Months now a that maybe accelerating on ways to accelerate your balance sheet.
Net debt reduction plan.
And that would include things like Troponin Prairie State gaming potentially can you talk about maybe where you guys are in in terms of assessing monitors that monetizing those.
Among other things that you might be looking at how formulas that process or is it just sort of the theoretical more reactive process.
It's a little bit of both I would say on the Prairie state gaming a little bit more on the reactive and on the Tropicana side, there's been so much as I mentioned on our last call until.
Limited interest that it's just that very active we got another call two days ago with interest and potentially acquiring some or all the land holdings. There. So it's very active I would tell you that from a prioritization standpoint for me and for the company now that we've gotten the Barstow news out there.
It's all around barstool, and activating that barstow audience at our properties in our and launching retail sportsbook.
Obviously working on the build out of this app the development of the sports betting App and that's successful launch in August and that is absolutely critical to us. So that's you know top priority and the other top priority.
As Delevering, we want to get this balance sheet.
Continued we want to continue improve the balance sheet, we would love to get our net adjusted or at least lease adjusted net leverage down to 5.0 by the end of the year. Obviously, if you calculate our free cash flow, we're not getting there just through free cash flow, we pay get down to five to five.
Through free cash flow, but de levering is a very high priority for all of US here, we're continuing to have active conversations and we're encouraged because with the draft coming up the NFL draft in April in Las Vegas. The Raiders Stadium is almost completed a seasoned launches in August September.
There's just a it's a great convention year for Vegas as well, there's there's a lot lot of interest we know the land. We have there is extremely valuable and we're going to continue to explore that it's a high priority for us.
Thank you very much guys congratulations thanks.
Our next question comes from.
Felicia Hendrix with Barclays. Please proceed.
Hi, Thank you so much.
And last last quarter, I I say goodbye.
Sure.
Right and we hate along advice, we should think about now [laughter].
So.
Yes.
In general clarify that for each might be.
You didn't give revenue guidance on that you will see EBITDA margin.
EBITDAR margins, rather higher year over year.
Nick mainly my question is around wondering sports betting trying to.
And I'll be heading back here.
We anticipate Felicia continued improvement in EBITDAR margin, Todd George as our regional leaders our property general managers laser focused and always have been always will be we know there's still need on the bone.
We.
We think that meat on the bone both in terms of revenue opportunities and cost opportunities and are encouraged by the way. The year has started and our ability to execute on both so yeah I took the the costs associated with the launch of our App is what it is you can kind of I kind of carve that out and say what how do you look.
At our core business and we look at our core business and say it's healthy.
Consumer sentiment as strong confidence is there.
Folks have jobs, and they're seeing wage growth as well and real estate values are holding up so we feel we feel really good heading into the year.
Okay, and instead, the trajectory of EBITDA margin growth perhaps.
Understand same path.
I think thats a good assumption Felicia there's no reason to think or assumes that our margins are going to plateau anytime in the near future.
Okay, Great helpful. And then just switching gears over to Barstool sports.
And I know you guys are planning to give a lot it detailing in gene right I'm sure you can gas, we're getting a lot of questions on it. So just hoping you can help on some of the into but I'm. Just wondering if you couldn't help frame what kind of market share you might garner in each state you're in and then.
And also how you're thinking about promotional and I think some folks there also using nature walking EBITDA profit margin approximately 30. So wondering if that are real sneaking in I just have a follow up after.
Sure Felicia.
Look we I think we're thinking about this opportunity different than than Mostar.
I think the real key benefit here in the combination of Barstool sports and Penn National Gaming is that this is an omnichannel strategy and we don't even launch our sports betting app until.
Ill aug, but our teams were together on on Monday brainstorming all day on how we can activate the barstool sports.
Audience of stool is because there are so excited to participate and to see our properties and to be there for March madness at our retail sportsbook.
So for us, it's so much bigger and broader than just having a sports betting brands and launching an app. This really is if we do it right, we're creating an ecosystem and if you like sports betting you like gambling and casinos or you like online slots online.
Mobile sports betting whatever you like had has an offering for you is the way we envision the future and hopefully every state where at the legal our footprint, obviously helps without a lot and you know as we think about the the profitability of sports betting and of course down the road I casino is that.
Continues to be legalized across the country, that's really really where we believe we're going to stand out we've set our goal police it to your specific question to be a top three revenue market share leader for sports betting retail and online casino you could certainly say the same thing, although I would hope were higher than top three.
For I Casino and we think the difference for US is that we can be number one and profitability. We think we can run the vast margins for that sports betting and I casino business because of our footprint because we don't have the friction costs associated in most states with having to go in with a skin partner and pay five.
The 15% of net gaming revenue just for access that is a huge cost savings and then number two.
Because the barstow audiences, so fiercely loyal to that brands that we believe the cost of acquiring customers for Penn leading what the Barstool sports.
Ports book brands.
Going to be very different than everyone else out there are others that had to spend hundreds of millions of dollars to create the brand that they have today and to build a database and we think that weve looked at this differently and through our investment in Barstow Theres, a more efficient path to profitability for us and.
The last thing I would mention is that you know just on a pure standalone basis, though you know I don't think you can look at this investment in year. One is a typical accretion dilution analysis, but we believe that barstool is worth a lot more than 450 million even today and that's that's our opinion you take that for.
Or what it's worth.
But this is a business that now is doing a 100 million in revenue, it's profitable and it's been growing at top line by over 50%. The last two years and there's really no and insight in terms of where the growth can go. So we feel great about the investment in Barstool, we believe and barstow as a standalone as.
As a company as a brand.
And then of course, all the synergies when you combine pen and barstool together. So I think that's a long winded answer to a relatively short concise question, but that's the way we're thinking about it.
Thank you that's helpful. And then my follow up kind of along those lines and then.
Customer.
Mission I.
I think everybody understands.
LTL.
Barstool.
My fault.
I have competitors tumor, giving away a lot of.
Money quite frankly in promotion.
Okay and marketing.
The answer the day I.
You can find for some folks and really kind of understand or add on how that how sticky definitely LC wellbeing.
Yeah, but let's see how this plays out Felicia it's hard for me I'd be completely speculating now on what exactly as our strategy going to be five months post launch of our App I will tell you. This if there is.
And I know, Jason Robbins, well, he's a friend, but there's any chance of draftkings getting to 35% margins.
They also can't be spending at the promotional levels that they are today. So that's not going to last forever I think right now it's all about acquisition acquisition, we believe the partnership.
Barstool sports is a very powerful acquisition tool and a very powerful retention tool will we have to have some promotions here in there to.
Keep the loyalty I would say potentially what we doesn't to see how this plays out and it's too early for us to do that today.
Okay. Thank you.
Thanks Lisa.
Our next question comes from Thomas Allen with Morgan Stanley. Please proceed.
Hey, good morning, So just on the 2020 guidance.
I know you're no longer giving quarterly guidance, but qualitatively can you just talk about oil qualitatively.
If you're well cost data, but just talking about how we should think about the seasonality of EBITDA and just got like the one time items that may hit 2020.
Sure Thomas I would here's what I would say first half of the year.
Q1 in Q2 again I.
There's always the weather factors I don't really know what to do about the weather.
After it's been mild this year last year. It wasn't that's obviously beneficial so far this year knock on wood.
But I would say as you're looking at how you're going to spread quarterly you would probably say Q1 in Q2 would be a normal seasonal spread based on what we're saying we're going we would do in EBITDA EBITDAR and.
Revenues with Pi reflect that with some margin growth and then Q3 in Q4 would be a little bit different because we're launching our sports betting app and so the second half of the year might look different than the first half of the year from a seasonal standpoints simply because you've got some one time and initial startup costs that are hitting in August through December.
Sure that wouldn't have been there if we weren't launching our own sports betting it out so if hopefully that answers your question.
Yeah. It's helpful. And then just can you talk about I'm kind of what same store growth has been how it's trended through 2019, okay, how you're thinking about it and 2020.
Thanks for we actually have you have you look at fourth quarter and you carve out plainridge everybody knows the story there with encore opening we had a lot of construction disruption at our meadows property and we're starting to get both well we're starting at meadows back on track and we'll see how things play out of Plainridge although.
Part of the year is better than what we saw in the fourth quarter and third quarter I would just tell you that we feel very good about same store sales growth and you know we're comfortable saying excluding those two in the fourth quarter that fourth quarter would have showed probably the best same store sales growth that we saw all year.
You just have the noise of Plainridge and meadows that are negatively impacting the result, but as you look at 2020, we're assuming you know low single digit same store sales growth and most all of our markets with very few exceptions, including the too that I mentioned, although we believe meadows will continue to ramp up now that construction behind us.
Okay, and so sorry, just confirming plainridge and meadow Plainridge will still be down and meadows will be down but get better is that the way to understand that yeah. I think you can assume a ramp to sort of flat revenues here in the next couple of quarters and that we should start to see some growth at meadows second half of the year.
Then the only other why don't we.
Okay, and thus are we highlight this on our earnings.
Earnings release, which is there's a lot monarch opening in Black Hawk Q1, Q2, I think the dates are still kind of moving around but we did build in some assumptions around impact, which we believe will be short term in nature. I mean, we I think everyone has been to black Hawk.
I would agree that we need more hotel rooms, our revenue per available room that are black Hawk hotel was by far the highest in the company. We wish we could build more hotel rooms, we just don't have the land to do it and I think monarch opening up several hundred high quality hotel rooms, right across the street is really good for monarch and I think it's really good for Penn in.
To start Blackhawk long term.
Helpful. Thank you.
Thanks.
Our next question comes from a steep zinski with Stifel. Please proceed.
Hey, good morning, guys.
Jay So you in the past you talked about.
Yeah, I think on the last couple of calls you were seeing weakness in Europe.
You are lower tier customer level, which was always expected given the change in marketing spend it did you guys and some of your competitors doing as well, but I.
I guess question as you know have you seen that lower tier customer.
Start to bottom out and maybe also help us think about what you're seeing across some of your.
Your other tier levels as well.
Sure Steve Yes is the answer I think we are starting to see a bottoming out of our lowest worth segments. The retail segment.
We saw in the fourth quarter growth and unrated.
Which is always a good side of to me the health of the and.
Set of eyes consumer we saw tremendous growth at our VIP segment strongest growth of the year at our mid worth segment, we saw some growth.
Visitation is kind of across the board as we've talked about before but consistent with the path.
But we are starting to see signs of a bottoming out of that retail.
Segment, we we've made a number of marketing reinvestment decision and adjustments over the course of the last couple of years and so we're encouraged by what we're seeing at the moment, but I would say generally speaking that database trends that I've talked about in previous quarters Q4 was pretty consistent with those trends.
Okay got.
Sure. Thanks, and then I don't I missed this or not but in terms of the northeast and Plainridge.
With with wind up there have you seen.
Guys start.
Pull back on the promotional side of things at all or is it still are they still throw in all kinds of money there at that potential customers.
Oh, we havent seen any material.
Cereal change at this point, Steve It's still aggressive and you know it's just we don't get involved in those things were obviously protecting our VIP customers and the mid worth that are geographically closer to our property.
We're not going to get into a marketing war, we wouldn't when anyway against the two and a half billion dollar.
So we're being patient were being smart I think the team there is doing a really good job thinking on their fee and making adjustments on the fly and again, we're encouraged by more recent trends that we're seeing there versus what we were seen in Q3 in Q4, so there could be something happening behind the scenes that we have it actually seen yet in our competitive shopping.
And I think that we're making the appropriate adjustments as well and hope that the trends for 2020 are better than what we saw in Q3 in Q4 at Plainridge.
Okay, great. Thanks, guys and best of luck BJ.
Thanks, Steve.
Our next question comes from Carlos Santarelli.
Which bank. Please proceed.
Hey, guys. Good morning, and thank you for taking my question.
Jay It sounded like you talked to a number that was maybe around 15 million of cost with the comment that you made relative to consensus and the midpoint of your guidance that being so and we think about kind of greektown for the.
Full year this year.
I guess the remaining piece is kind of the synergies achieved in 29 team and what kind a lingers for 2020 related to that to the pinnacle transaction would you be able to kind of quantify that the 2019 bucket and obviously than we could do the math on on what's to come in 2020.
Yeah.
Yeah, I'm really not a lot has changed from our last call Carlo with regards to synergies we actually internally are moving on from the word synergy and it's now about operational excellence and sharing of best practices.
Yeah, I think pit Tim said on our last call roughly half of those hundred 20 million of tossed synergies.
I would be realized a 19 and roughly half realized in 2020, obviously run rate and realize are two different things, but I think it's safe to say that that's very much the case and as you build up from our 1.6 billion up EBITDAR in 19 to the one point.
Call it seven without some impact from the launch of our sports betting.
It out in 2020, you can see that roughly half realized and 19, roughly half and 20 plus greektown the math works out.
Okay. So so sorry, so said differently. The 120 <unk> you will you will see about 60 million of that in 2020 is that what you were is that the expectation.
Right now and then the revenue synergies will probably be more pronounced in 21.
Or 20, and 21, that's correct Carlo from a realization of synergies I think that's that's safe assumption.
Great all right. Thank you Sir thank you very much.
Hello.
Our next.
Question comes from Barry Jonas with Suntrust Robinson Humphrey. Please proceed.
Hi, guys. This is Jeff entrepreneur. Thanks for taking my questions I guess first off on the asset monetization strategy do you think we could see any negative synergies with the potential sale of the Tropicana.
Just to go along with that how much business do you think.
Could potentially she just shift over to the M resort and would you consider a marketing agreement with another strip operator.
So no negative synergies if that were to happen and yeah. I think we can move some business from top to M resort, we really do we market both of those properties to our database.
Some prefer to be on strips some prefer to be off strip.
M resort is on fire had been for years and so could we accelerate.
Some of that movement, and visitation to and from the strip share because and of course that would be by design I do think to the last part of your question and we've talked about this internally with us.
Obviously have a lot to work through and really need to focus right now on.
You know drop making sure that we're developing a best in class out that has a very high priority for us, but you look down the road and you know the Barstool sports book from a retail standpoint, it's such a compelling brands and the activation of that audience.
The answer is going to be I think really exciting and create a lot of value and.
Yes, we're on the strip then of course, we would use the barstool sports book for a retail sportsbook and if we weren't on the strip I think there could be potentially opportunities to partner with others, who might be looking to do something really unique and different with their retail sportsbook. So time will.
Tell how that plays out and that's down the road I think we have a lot of optionality.
Great. Thanks, and just to go along with that on the general sports betting strategy strategy with access to the National Barstool brand now do you think we could see more M&A or partnerships just to build access more states kind of for that online piece.
Well I think yes is the answer we obviously feel great about our sports betting strategy and we want to be where.
Sports betting is legal and so the nice thing about what Penn has today is we not only had enough.
Scans to to partner with four really.
Hey, good companies to give them access in return for combination of equity upfront cash and in every case revenue share, but we still have enough second and third scans and a number of our markets that we can do some some bartering some trading to get into other states maybe in returned to give them access in the states that we're in so were.
We've got we've got folks that are living this day in day out we obviously want to make sure that were in most if not all states that are legal certainly the ones that have significant population, maybe not the real small states but.
It's a very high priority for us and we think we have a path to access and most if not all.
Great. Thanks, that's.
From appreciate all the color thanks, Jeff.
Our next question comes from Harry Curtis with Instinet. Please proceed.
Good morning, everybody.
Jay you know the the rise in the stock.
Probably in some degree is.
As it is related to the fact that you become.
Or you are becoming a more of a content provider.
And Oh pardon part of that are that the.
Ability is.
Going forward is how you.
You retain and attract talent so.
Can you give us a sense of the of your team now and and and and in terms of how you how you retain them and and how you expand that that base, because it's probably going to become more competitive.
And Harry safe to assume that you're.
Referencing specific to barstool talent.
Yes, I'm sorry.
Okay, Yeah, we I I mentioned that the morning of the announcement on our Investor call that we have the way that we structure this investment and Barstool sports we put a lot.
Hi, I'm in energy into and if there's one more reason why we're so excited to to do something with Dave and Erica and the team at Barstow, because they want it exactly what we want it which is alignment between the two parties and we were able to structure there they're consideration as most more equity than cash and I actually think.
In hindsight, they probably have taken even working at Penn equity than cash and we're talking about that but there's tremendous alignment and so yes part of retention as you know employment agreements Erika Nardini, Dave Portnoy, Dan Cath than others.
Signed up for long term employment agreements.
Which is fantastic and they also have had equity that as you know I'm going to be a investing over periods of time and I think they are incentivized not just because of their employment agreement, but also because of the pen equity that they have shown to be around for the long term and that was very important to us that.
I just wasn't just a quick cash transaction and then you know where they're holding what's left of a media company that we don't completely understand or know how to run yet Erica wants to be around for a really long time, and she and Dave and Dan have done amazing things with Barstool and they just signed up to be around for a long time. So.
So that's our that's our approach I think Harry you can think about it as employment agreement is a big piece and Penn equity in alignment is the other big piece and folks at bar store really excited to be a part of this.
The magic that we're creating.
So to that end and.
Thank you to that end again, focusing on on the content.
That's one moat around the business that you've created and you really the first to put these together how do you build a moat around this.
From a competitive point of view.
Yeah, it's a great.
Question, Harry and we're gonna have to really see how this develops I would tell you that we're already moving on to what's next because that's what we have to do and we have our own view of the answer to your question I don't want to share it at the moment publicly.
But I would tell you that that having that with all.
The media companies out there I don't feel like there is another barstool. That's my honest opinion the loyalty of that audience is like something I've never seen before and I continue to be blown away is the days go by of.
Just how how how devout and.
Rabid the fans are at Barstow, and how much because erica and Dave and Dan and the team at Barstow, they've been so smart about.
How they connect with their audience and it through audio it through video it through digital through social and its regular and its 24 seven and.
We're just.
Talking before the call here in the room about how you go on to Barstools website, you just kind of get law like meeting in a good way just click here click they are they going to you to there's so much content and its entertaining.
And that's really unique that's really special it's one thing to have a really compelling sports brand and there's lots of those out.
There, but I'm not sure that those sports brands have the deep connection between the talent behind that sports brand and the fan and that's what Barstow has that we believe is truly unique.
Okay. That's terrific. Thank you.
Thanks, Larry.
Our next question comes from the line up our Shaun Kelley with Bank of America Merrill Lynch. Please proceed.
Hi, good morning, everyone on.
Just wanted to go back to the either customer acquisition topic for a quick moment just make sure we were kind of thinking about on the cadence correctly. So it seems like.
From a guidance perspective, you're definitely banking on some some opex investments here, which I think there's probably going to be engineering talent and things to roll out the out on but is there any meaningful investment either needed or contemplated just purely on customer acquisition dollars <unk> that are actually in the guidance for let's call. It. The post August period post launch or just how are you thinking.
About kind of that dot period from August until end of year as you start up and running and some of the state.
Yeah, Great question, Sean Thank you.
It's worth clarifying on that we really want to see you know the value of.
Customer acquisition from the Barstool.
Base and so we are not planning any aggressive material customer acquisition to go along with that for the first few months were planning to launch and I think it's three states in August and we'll come out with a a cadence on our June analyst day as to what the total walked schedule looks like but we want to we want to.
See what the our ability to attract and retain and convert.
Stool ease over to the Barstool sports book is without getting into significant.
Customer acquisition commitments beyond that it doesn't mean that we're not going to spend money elsewhere. It doesn't mean that we.
I'll spend some money even at watch with through other channels. It just means that our primary strategy certainly for 2020. After launch is gonna be focused on the the barstool database.
Great I think thats going be helpful for folks and then the second question similar topic, but probably more clarification as you on I think you.
And in response to a prior question, but there will be some kind of one time and initial startup cost as you were talking about the kind of cadence on how we think about the quarters through guidance on he just to be clear on that as well Jay is that is the one time and initial startup costs is that the extra let's call. It pick your number 15 or 20 million that we're seeing.
Some of the corporate overhead or or is that we're already seeing into guidance or is there one timers that you're going to exclude for launch cost state that we should also be thinking about.
No you're you're thinking about at the right way that it's really focused on you know the lead up and lot, mostly the launch and post launch costs.
Related to the engineering and developing development team around that App, there's a little bit of onetime cost, but more the infrastructure starts to run through our income statement August going forward.
Great and last question and it's a little bit of a lead in ended June but we are also.
We're getting a number of kind of questions on the topic here what should just be could you talk a little bit about the depend side of the interactive team I believe on you've got a number of people you know the I think you guys are going to be on the front lines as it relates to actually the engineering piece of rolling out the front end out could you just talked a little bit more about the team <unk>.
You've got in place here I think theres. Some so next media exactly that maybe helping that effort in Philadelphia, and just a little bit more color on kind of what you're doing on on that side of the talent roster and we all got I know the barstool brand in our are pretty confident and durability and reach on on the media piece, but sort of maybe help us with.
<unk> piece, a little bit and again I appreciate we're going to get a lot more color and Jim and that's it for me.
Yeah, Great Sean how happy to we Ah, we actually recruited a gentleman and John capital that's to run our interactive Division. He started with US I think it was little over a year ago 13 months ago January of 2019 and.
John joined US from Comcast Nbcuniversal was responsible for their new business development Division. He's a sports betting guy at its core online gaming guys first job out of college is with the World Poker tour. So he's he's been involved in gaming and sports betting for a long time.
I'm hit media background has been extremely helpful. As we thought about our options in the media space along with Kris Rogers, our head of Devon strategy. We just spend a lot of time together talking about the pros and cons of all these different options will then John joined US. He also brought over a few people that work on his.
Team.
They actually developed the sports predictor at NBC Comcast that's been launched now for about a year, if not a little longer than a year and so they do they had really good experience around sports betting really good experience around launching an app.
And that team has been in Philadelphia.
The continuing to recruit and build out and obviously you know what the after the Barstow news our ability to recruit has become even better but we have a team now of over 50 product developers and engineers and Philadelphia, we're moving into permanent office space. There I believe in May right now we're in some we work space.
But we're running out of room, and we feel great about the team we've assembled a we feel great about the product we've been beta testing that product against our competitors and New Jersey with real online sports betters for many months, we like what we see in terms of how that product to scoring and user experience.
Ease of use a to attract attractiveness all of those things. It's a it's a it's a great app and we obviously still have more work to do but I would just add that.
Dave Portnoy, and Dan Cats, and others that barstool, they love betting on sports and they have been for a long time and.
Obviously know the old the real money online sports betting apps, well from New Jersey and elsewhere and.
They're gonna be you know given us a lot of ideas and working with us to make sure that the app that we launch in August and that we're developing is going to be a best in class App and we feel like we're going to be able to deliver on.
Thank you very much.
Our next question comes from John Decree would Union Gaming group. Please proceed.
Good morning, everyone. Thanks for all the colors, so far and taken all the questions.
Jay I wanted to maybe asked.
A question about sports a little differently.
With kind of compares you guys to kind of digital media companies, so far but one of your assets are collection of assets is your brick and mortar casinos.
And your depth and breadth there Bob it's pretty hard to replicate from just a capital investment perspective can you talk about how.
Now that kind of gives you some competitive advantages in a market access is the obvious one but other seemingly some other advantages there relative to other competitors in the sports betting space right now.
John Thank you. It's a great question and so this is where we really believe our strategy is differentiated and I won't go into what all of our.
Competitors are doing or have done or have announced a different partnerships et cetera, but we do feel like one we controller on destiny, 100%, we control the economics of that Destiny, 100%, we've got to amazing partner and Barstool sports with complete alignment and a path to control right. So that's that's.
Really important and what I would tell you is that and I shared this on our call last Wednesday. After we after the announcement take our Hollywood Lawrenceburg property as an example, the only difference in the fourth quarter of 2019, and the fourth quarter of 2018 for that property with having a retail sportsbook.
And we're seeing this is even without barstool. This is just have any retail sportsbook, we're seeing table game growth of just under 20% food and beverage growth of just under 20% slot growth three plus percent, which we havent seen there since Ohio legalized casinos. So we're really encouraged by what.
Retail sports can do for a property I think our property leader that lawrenceburg have attributed 10% of their EBITDA in the fourth quarter was due to support the retail Sportsbook, that's really powerful and you start to think about.
Barstool branded retail sports Bugs and live remotes with Dave and Dan.
KFC and PFC and others at at Barstool at our properties. Maybe this is what we're spending time talking about now for March Madness. This year, even though our sportsbook aren't yet branded barstool. That's okay. We can have barstow personalities at our properties activating audiences and having fun and the in sports.
Bars, and betting that the retail sportsbook and playing table games and staying in the hotel seeing a concert what have you. So there's a lot there we'll talk about it more in June when we get together for our analyst day, I think we'll be able to articulate what sort of value potential we see not just with online.
Ports, but with retail sports and online casino and you know you have to make some assumptions around legalization and tax rates and things that nature, but we've got some some pretty I think interesting and provocative thoughts around all of this that we'll share more with everybody in June.
That's helpful. Joe looking forward to hearing about that in June.
And then if I could.
Like we get some question, perhaps on the regulatory landscape, we spend a lot of time on sports betting today and.
Hi gaming piece of this doesn't seem to have as much momentum is sports betting, but it's certainly there and I think you've you mentioned the press release seeking out of profit in Pennsylvania in spite of stuff the tax rate. There can you talk at a high level.
Well about how you kind of view the I gaming opportunity today size and regulatory momentum maybe relative to sports betting.
Sure thing look I always points in New Jersey, because new Jersey as the state that had been a legal and live with casino the longest I think it's five.
There is now and if you look at what happened at watch I think the initial I gaming business was viewed as a bit of a failure because there were estimates by some of it's going to be a billion dollar business out of the gate. What was then it was 150 million in the first year, but you did see growth for the next four.
As of between 20 and 30% each year.
And then you get the 2019, which was the first full year of sports betting retail and online and the impact that that had on I Casino was was amazing. So I casino went from a 25%.
On an annual growth rate for the first for years to over 60% in 2019, So as you look at how.
Sports betting and casino converge and how the synergy between those two because oftentimes people on their mobile device and they're betting on a game, but a lot of downtime when you're waiting on the.
Some of the game and so if you're introduced a casino product you might take the opportunity to go over and tried blackjack or relied or crops are poker, maybe even a slot machine and I think that proving out real time in new Jersey, and what I would say is that so I agree with you today as we sit here the prospect for I casino legalization.
And don't look.
We're not as bullish as we are around I sports the sports is happening so fast I think.
States are always looking for new tax dollars. This is a great opportunity to go after incremental tax dollars versus cannibalizing existing casino tax dollars and new Jersey and the.
You are looking now at your five at the 500 million dollar I casino business that the casino operators. There would tell you and the result of their brick and mortar casinos over the last several years would tell you it's been incremental and so that's really exciting, Michigan, just legalized ice sport and.
Hi, Casino and so I think there's going to be some very large states that have legal I buy casino that John you could see this accelerates because other states are going to be looking up the opportunity and the size of this new business and that's a new addressable tax base and so it could start to accelerate come 2020.
In 2022, if new Jersey, and Michigan in West, Virginia, Pennsylvania, and the other states that are legal continue to ramp now Pennsylvania.
Yes, it's challenging right because the tax rate is so high and we've had to be sold mindful were literally spending zero marketing dollars I mean I might be.
During a little bit but outside of marketing to our database, we're not spending any money. That's the only reason we were able to eke out a profit if you spend any money marketing your business in Pennsylvania for I casino, you're in the rat and so I don't think that's the right approach or strategy I think other states like New Jersey that have reasonable I casino tax rates are.
And the benefit of that and if you compare New Jersey I Casino results to Pennsylvania, I Casino results in their first six months post launch whether you're looking at total revenue or per capita revenue you'll see that new Jersey got some things right in that the tax rate is reasonable and their allowing their businesses to.
It effectively I think what you will find the Pennsylvania is that it's operators are hamstrung because the taxes are so high we can't market effectively.
I agree Jay Thanks for that Teller looking forward to June and good luck to ship. Thank you. Thanks Don.
Our next question comes.
From a Jarrett Shorja young with Wolfe Research. Please proceed.
Hi, Good morning, everyone. Thanks for taking my question.
So just taking a step back to the fourth quarter results few questions revenue was below the guide costs were better than the guide can you just talked about the driver there.
And then the other revenue was up a little bit sequentially, what's the driving piece there and is that the right run rate going forward and then just lastly share count was lower did you repurchased any stock in the quarter.
We did not repurchase any stock in the quarter. So I'll start with that one BJ any.
Comments on no there's no there's no.
Yeah, we did not purchase any stock in the fourth quarter, so really shouldn't be any any change there.
And actually.
Yeah. So keep ahead okay.
Yeah look I would say with regard to the fourth quarter.
If you carve out plainridge.
It is and meadows that really is the revenue mess for us and so you can see the rest of our business, we performed well in the fourth quarter because the beat on the bottom line would have been even better if we hadn't declined on the top line to the magnitude we did at Plainridge and meadow. So we feel we feel good about that and we're seeing a.
And your nation of that into the first quarter of 2020, which is which is great again, whether it's been mild in the northeast Midwest, which is very helpful. Because last year. It wasn't but it's good to see the growth in Q1, so far.
With regard to the other.
Category that how we report our financials.
Look you're seeing.
Penn Interactive starts to ramp and we're just getting started and you know look at some point.
I don't know when maybe we'll have mentioned this on our and our June analyst day, but we'll report pen interactive as its own region or division, where does not there yet it doesn't have the scale, yet, but because we were able to.
Ramp up our Pennsylvania, I casino business and not lose money that really is the notable difference in the other category from Q3 to queue for so I think it's probably safe to assume you'll see trends more like queue for out of other if not a little bit better as we continue to ramp throughout 2020, Jared just to go back the.
Basic shares you see <unk> consistency between the corridors.
The deluded you just I was permitted just difference between the stock price of which was used to time. So that was really the only change you can see and that side. So it was pretty much the same no change in in no buybacks.
Okay. Thank you that's helpful and J. just to confirm that that last comments. So in terms of modeling purposes any of the revenue and eat that generated from the parcel app that that's not going to be in one of your geographic segments that will be in like in other segment is that how you're thinking about it.
That's right for the early days well at the right time for a report that out separately. So everyone can see what that business looks like on it as a standalone, but for now and for 2020 it'll show up in in the other category.
Great. Thank you and then just one last one last one obviously, it's only been a couple of weeks since the the Barschel announcement is it too soon to notice any positive effects at the property level.
It it is because we haven't really done anything yet, although although interestingly a couple of the barstow personalities <unk> blackjack went out to our national Racecourse property in Granville on their own and they had a heck of a time and I think it's well documented they posted their experiences.
The property and property Dan I'm in team did a great job, making them feel grade and welcoming them and welcoming the philly fans that showed up and I know there's acquaintance we integrate weekend I don't [laughter], maybe it did maybe it did and it's too early to say is what is is my answer but I think you know even after the March madness event, I think we're gonna get a better feel for.
You know how how much potential there is here and again a lot more to come in June on our analysts that.
And Frank we have time for one more question if there is one.
[noise], we have a question from I., David Cats with Jeffrey Please proceed.
[noise] Hi, good morning, everyone and thanks for taking my my question, you've covered a lot of detail and I appreciate all dot just.
With respect to the build out of the technology, you know tributaries in the business, whether it's high gaming or sports.
I am curious the degree to which you know the the traditional technology providers write your <unk> typical sort of gaming floor systems providers et cetera.
Are playing a role in that versus the degree to which you know you're bringing in.
You know new an incremental technologies, along with it and you know that's it for me.
Okay. Thanks, David Yeah, We you know as as you think about the the App that we are building outright now and the platforms that were and technology, we're going to you in that they really are sorta. The the <unk> endemic gaming company.
Land base gaming company partners not to say that that as partners don't have good products and platforms. We just went through a process and we decided that can be.
Was the best platform for us from trading services standpoint, where their largest customer, which I think is really really important to us. They have a Philadelphia base office, because we have a Philadelphia based office, which is really really important to us. So we we feel great about can be in a partner and having their attention and they have our 10.
In and it's been it's been great. So far is can't can't say enough about the candy relationship and then with regard to player account management. The pan the the user experience, we have a rent to own strategy there with a company called White hat and so we want to own the user experience of it touches the customer it needs to be vertical.
Integrated in owned by pen and so that sort of the the difference between the two I think you're based platform and things that are behind the scenes, we don't feel like we necessarily need to own or even want to own because others do it better and they're constantly innovating, but the the front ends the what touches the customer we do want to own that medium term <unk> certainly long term.
From and that's the path that we're on.
[noise], Mr smaller than darnel for the questions at this time.
Alright, great. Thank you Frank and thank you for everyone dialing and we look forward to talking again in three months and talking about the first quarter result celebrate that.
<unk>.
[noise] that does conclude the conference call for today, we thank you for your participation and I start you. Please disconnect Caroline have a great to everyone.
[laughter].
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Or.