Q3 2020 Penn National Gaming Inc Earnings Call

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Please continue to standby your conference will begin momentarily. We thank you for your patience and we ask that you remain on the line.

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Greetings and welcome to the Penn National Gaming third quarter Conference call.

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Afterwards, we will conduct a question and answer session.

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I would now like to turn the conference over to Georgia Phony Investor Relations. Please go ahead.

Thank you can make a good morning, everyone and thank you for joining Penn National Gaming 2023rd quarter Conference call, we'll get to management's presentation and comments momentarily as well as your questions and answers, but first as always we'll review the safe Harbor disclosure in.

In addition to historical facts or statements of current conditions. Today's call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of make 95, which involve risks and uncertainties. These statements can be identified by the use of forward looking terminology such as expects believes estimates projects intends plans seeks may will.

Ill should or anticipates or the negative or other variations of these or similar words or by discussions 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 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 Companys filings with Securities and Exchange Commission, including the company's reports on form 10-K and form 10-Q Penn.

National warming assumes no obligation to publicly update or otherwise revise any forward looking statements.

This 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 to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's web site.

For your patience with that and it's now my pleasure to turn the call over to the company's CEO Jay Snowden Jay. Please go ahead.

Thanks, Joe Good morning, everyone and thanks for joining us for our third quarter earnings call geared up was that with me. This morning is our Chief Financial Officer, Dave Williams as well as other members of our senior executive team who are here to help answer your question.

I'm truly pleased to report that we were able to generate strong third quarter revenues as well as record adjusted EBITDAR and adjusted EBITDAR margin.

Even with the ongoing social distancing and capacity constraints that are reopened casino properties, which at that point includes all but via park in new Mexico.

Our success this quarter is a clear reflection of the hard work scrapping and determination of our property interactive and corporate management team and all our team members, who continue to work tirelessly to provide a healthy and safe environment for our valued guests and their fellow fellow team members.

Continue to be amazed and incredibly incredibly proud of the way. Our company has responded to the daily challenges this ongoing pandemic present.

One of the biggest highlights of the quarter of course was the launch of our much anticipated Barstool sports book opt in Pennsylvania, while still early the App had been very well received.

I'll say more about our partners that Barstool sports following Dave's financial update, but first I want to touch upon our Companys response to the devastating impact of Hurricane Laura on Lake Charles which was soon followed unfortunately by Hurricane Delta.

Needless to say all of our team members that Lebaron Lake Charles had been personally impacted by these storms some having lost everything discussed.

This continues to be a challenging year in so many ways, but will rally around our Penn family and the community members and Lake Charles because that's what we do.

I'm grateful and proud of the way our sister properties came together to support our fellow team members in their time of need volunteers from Boomtown, Biloxi, Boomtown, New Orleans Hollywood Gulf Coast, and the Bears Baton Rouge had been helping with the cleanup and recovery efforts and it provided temporary housing for displays team members.

I'm also thankful for our partner that Barstool sports too quickly stepped up and created special Lake Charles strong merchandise that could be purchased on their web site. All of the net proceeds from the sales were generously donated to our Hurricane Lora relief fund under the Penn National Gaming Foundation, Barstool Sports CEO, Eric and Ardine also hosted the mayor of Lake Charles.

On her podcasts token CEO to helping more awareness to the needs of the local community in the aftermath of Hurricane Laura.

To date, we have contributed more than two and a half a million dollars to assist Lebaron Lake Charles and the community, which include covering full wages and benefits for our Lake Charles team members during the property closure.

While the National media attention has almost entirely moved on to other stores. We plan to be there to continue to support Lake Charles and its ongoing recovery efforts with that I'll turn it over to Deb. Thanks.

Thanks, Jay and good morning, everyone.

In our earnings release in the accompanying deck, we provided and national had its best quarter in our company's history in terms of adjusted EBITDAR that result is even more remarkable when you consider the continued capacity constraints temporary closure of a bears lake Charles following the hurricanes the late quarter reopening of Tropicana.

In Las Vegas, and the continued temporary closure of the Zia Park in New Mexico.

Our Ohio, and Indiana properties were the standouts for the northeast segment this quarter in the South all of our properties, excluding Lake Charles delivered double digit adjusted EBITDAR growth. Meanwhile, our Midwest segment was able to achieve year over year adjusted EBITDAR growth despite significant capacity constraints.

This outstanding property performance combined with our successful capital raise of nearly $1 billion in September allowed us to repay our revolver balance of $670 million and increase our cash balance to $1.9 billion.

In addition, we reduced our traditional net debt to approximately $693 million at September 30, bringing our lease adjusted net leverage to approximately 4.9 times based on 2019 adjusted EBITDAR.

We are confident that our improved balance sheet provides ample liquidity to support high return projects in our land based business such as the new we can re branded retail barstool sports books, and a further rollout of our interactive products.

Finally in terms of our capital expenditures. This year, we're continuing to be very disciplined despite all but one of our properties being reopened we spent $21.5 million on maintenance Capex in Q3, and approximately $2 million on project Capex related to our cat four casinos in Morgantown, and New York.

We are resuming construction on these projects and anticipate both opening in the second half of 2021.

Back to you Jay.

Thanks, Dave as I referenced on September 18th we officially launched the Barstool Sports book up in Pennsylvania, and it was the number one most downloaded sports betting and sports App in the country. During its first weekend. Despite only having launched in one state. This app launch was a significant milestone for our company and I'd like to personally thank.

Penn Interactive team and our partners at Barstool sports for their hard work and collaboration over the last several months.

With all the excitement surrounding the App launch we were able to acquire a significant number of new customers. During the first two weeks of watch as a result, our September results reflect higher promotional allowances as first time depositors took advantage of our initial 500 dollar risk free bat and other promotions all of which were in line with other operators during their first month of launch.

As you will see on slide 11 of the deck, we provided in the earnings release promo credits in September represented 7% of handle as we acquire new customers through promotions for first time depositors as promo credits and hold rates have normalized in October we have continued to see strong handle while reducing our promo spend to 3%.

Total.

Leading to meaningful net gaming revenue, we expect this trend to continue as we launch in it as we launch an additional states given the ability of barstow to quickly and efficiently convert their audience to our sports betting app and our collective ability to retain those customers.

I'd like to emphasize that the impressive results. The App has achieved to date had been without any meaningful external marketing spend which reinforces our belief that we should be able to in the medium and long term achieve a top three market share position in both the sports betting I casino space across the country in states, where we operate and with best in class profitability.

One of the ways in which we can deliver on this goal is through an innovative and an orthodox approach to marketing advertising and customer acquisition costs. For example, the important away from Barstool sports reach out to me last week with the creative idea to team up to help save the historic writing terminal market in downtown Philadelphia, which was hard hit by co bid and has been struggling to keep the line.

It's on they had to go find me a campaign underway to help sustain their operations, but hadn't quite met their goal, Dave and Penn stepped up together and agreed to contribute $100 for every $100 plus new account opened on our Barstool sports book out in a 24 hour period, we ended up raising over $150000 for the writing terminal market to.

Help them complete their goal. In addition, and this is largely due to Dave in his profile online. Another nonprofit organization that supports small businesses in Pennsylvania was so inspired by our efforts they reached out to Dave and they offered to put up another $100000 of matching of pens contributions toward the cod. This was a great win win in terms of attracting new.

Customers and simultaneously providing support for our local community.

While there has been plenty of focus on the performance of the bars. The Sportsbook out. We're also very pleased with our investment in Barstool sports the media company. Despite the temporary loss of live sports in a general slowdown in advertising spend barstow is having its strongest year, yet and have seen profitable revenue growth through a diversified mix of advertising brand licensing and me.

Merchandise business. Most importantly, barstow continues to grow its audience across its podcast network and the largest social media platforms.

Over the last year, we have seen some very favorable comps in the podcast sector and we feel good about barstow competitive positioning in that space as well.

With barstow actively promoting our retail and online sports betting offerings to their large loyal audience. We believe we can retain and cross sell these customers to our land based casinos and I casino products. Our experience to date has shown that customers, who play with us through multiple channels, including land based casinos retail sports books and online casino.

Our over 12 times more valuable than customers, who only play with us at one of our casinos, which illustrates the power of our omni channel strategy.

To further capitalize on Barstools incredible momentum, we're working with them to launch Standalone bar still branded entertainment destinations in key markets. These locations will serve as virtual sports books in large metropolitan areas and state with approved online sports betting, which we believe will further expand the reach of the brand and help us acquire new customers at attractive economics.

On the land based side of our business our operations not and it teams led by Todd George enrich premise have done a terrific job in helping to evolve our company and indeed, our industry towards the new generation of Cardless cash with contact West technology, or what we internally referred to as the three c's.

And a postcode 19 world. We believe this will not only improve efficiency and customer service, but will also result in incremental revenue as we appeal to a younger demographic that has come to expect a cast with experience in their daily lives.

On the Legislative front, we remain actively engaged across the country in advocating for the passage of sports betting and those states where does not currently legal such as Louisiana, which will feature a question on the November ballot that would authorize sports betting at our five casinos in the state. In addition, Maryland voters will also have an opportunity to decide whether to.

Allow sports betting and their upcoming election, we intend to exercise our option to acquire the operating assets of Hollywood Casino, Perryville and Maryland from GLP <unk> before the end of this year, which will provide us with market access to an industry, leading 20 states into and 22021 also on the ballot. This year in a state wide referendum in Colorado.

Auto that will allow local voters.

In the casino towns of Black Hawk, Cripple Creek, and Central city to increase that limits and add new games such as baccarat.

We have been and will continue to be heavily involved in the campaign in Colorado to support its passage on behalf of Ameristar Black Hawk.

Looking ahead, we continue to see solid performance across the land based portfolio in October and we're anticipating an exciting finish to the year as we introduced barstool branded retail sports books across several of the properties in our portfolio and the launch of our Barstool Sports book, App, and new and new I. casino products in Michigan pending final regulatory approval.

And what that can make I'd like to turn it back over to you to open up the line for questions.

Thank you.

If you would like to register a question. Please press the one followed by the four on your telephone you will hear Athree turn prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by industry.

Our first question is from the line of Joe Greff with JP Morgan. Please proceed with your question.

Hi, Good morning, everybody. Thank you for taking my questions Jay I know, it's a super early days in Pennsylvania.

For the performance of the Barstool sports betting at but at a few questions on it.

I just wonder what have you learned about the promotional credits to handle real relationship more sale one.

Yeah, not just in isolation, but also in the context of the competitive market and then when we look at the performance in October relative to the lock in 30 days or so in September handle per day is down and then I realised promos are down as well can you just talk about those two topics and then just.

Follow up on that you know if you guys were to teach generate 15% to 20% margins pick up margin.

How much in handled you need to generate in order to get those type of keep mid cycle type of margins and that's all from me. Thank you.

Sure thing Joe I'm, all good questions and you're right. It is it is the early days. So I don't know that I'll be able to answer all of those with absolute precision because we're still learning as we go obviously.

Here's what I would sort of think about each of those is that the promotional credit question. We actually took a different view than I think many when they saw the results from September we were really excited about not just the handle but also promo credit as a percentage of handle at 7% the Reed.

And why that was high is because we broke every records for download and registrations and first time deposits.

For any sportsbook launch in any state in the history of the U.S. and sports betting. So it was natural naturally going to happen because as every one of our competitors do we offered people for their first time deposit a free bad of up to $500. So that was expected on our end, we knew that percentage would come down.

As it has in October I think if you look at where Pennsylvania has been since sports betting really started to ramp just call. It you know throughout 2020 is that you typically see promo credits as a percentage of handle right around 3% and we're seeing already in month number too that our percentage is right in that range.

3%, So I think its natural to see that first month high most of our competitors when they launched the same thing happened. They just maybe not as much attention was drawn to that as it was for our first couple of weeks in September and we also think about the handle per day as you look at October.

It's really important to think about what's happening from a promo credit standpoint, because part of what's driving that handle per day number in September being a little bit higher than October is that many of those bets were on US right. Those were that was penned money that people are betting with on that initial bat. So the fact that it really has it's almost immaterial.

The decline from September to October, but yet we're generating real revenue both on the growth side and the net side as we share in slide 11 of the presentation that we attached to our earnings release, we couldn't be happier with what we're seeing in October so far and we think this is just you know we're still in the first inning, we're learning a lot.

In terms of what works.

Effective.

39% of betters.

Since day, one of our launch have bet with Barstool exclusive that which I think is really really telling in terms of retention and stickiness and fixed.

The experience the EU Bucks you know these are the customers astutely fans and others, maybe that weren't still the fans, but have downloaded the app. They really like the experience. The 4.8 Apple App rating is as good as anybody its best in class and people are you know, they're watching Dave and team on their lives stream.

And this is sort of starting to play out how we thought it would likely pay out.

With regard to your margin question I'm going to need more time on that one it's really hard for me to answer that and we have there's so much work to do and you know were weren't one state today, we hope to be in two by the end of this year and I would say hope because we haven't gotten final word from Michigan will be ready when they are ready and we.

We plan on being live in every state, where we operate and where sports betting and online casino is legal by the end of 2021, and so I think when you're thinking about what margins look like will be much more educated and you know scale helps right. So right now we're building out an infrastructure of product developers and engineers that are.

Going to support the launch across all these states, whereas right now it's.

It's all based on Wednesday.

So we're running a little bit more time to answer your third question if that makes sense.

Great. Thank you Jay appreciate it and.

Thanks, Joe.

Thank you.

Our next question is from the line of Felicia Hendrix with Barclays. Please proceed with your question.

Hi, Thank you so much and good morning.

Just wanted to one question on your traditional business and then Warren Guards to a question just on your traditional business and.

A lot of your competitors already have been talking about the sustainability of revenue growth for now and for the sustainability of the margin on I'm. Just wondering you know outside his specific taxes in there in the regions are there any regional segments, where it's going to be harder going to retain that sustainability of the cost savings and.

Or is it pretty similar across the board again Act ex the tax rate and then also higher leasing on fire. So why do you think that is internet keep up.

Sure thing Felicia good morning, Thanks for thanks for asking the question no. We actually we were just talking about this a couple of days ago, how remarkably consistent the revenue pattern. The visitation patterns the spend per visit patterns have been since these properties reopened you've got that first.

Couple of days was a mad rush and then after that it's just been really steady and stable and that goes really across all of the regions and so there really isn't a region that stands out felicia as being more challenging other than there's just some competitive capacity constrain and sort of local requirement.

That are different from market to market and region to region. That's more of the challenge today than anything around tax structure or our ability to generate great margins and flow through.

On topline revenue from one market to the next so I think that and that will all smoothed out over time I don't know when that is but.

When we have these capacity constraints lifted then I think you'll see even improve performance in several of these regions right now we're kind of boxing with one hand tied behind our back.

And just on Ohio.

Oh, I'm, sorry, yes, and on Ohio, well, Ohio has been a healthy market for us.

For forever right since since we went live in Ohio, and Toledo benefited tremendously in the third quarter from Detroit going live a couple of months after Toledo did.

Toledo still performing very very well and we actually think some of that business that we picked up is going to be around for the long run which is great. We have a beautiful property there and I think many people saw it for the first time and realize that it's it's a great offering it's a well run Justin Carter and team, they're doing amazing job. So I think you'll see Toledo continue to perform well.

Well relative to past years.

And Ohio is always going to I should say always for the foreseeable future, it's going to be a growth market for us because it's still relatively new of properties. There have been open for 678 years and you know it's I think we're going to see higher performance. There Felicia than you will probably then versus other markets across the country.

We keep trying to.

Transitioning to Barcelona, you try it CE launch and you put out in at least one back I think those two statistics about kind of what you would need.

Yes. It is.

Barstow conversion into my choice conversion to get to a certain rate very far so to get to certain market share and so just in the early days of this launch I was just wondering if you have any kind of data you could share with us on this players now you're just unique to folks who have signed that naturally expected percentage.

Stuart lease percentage at my choice can you give us any color there.

I appreciate it.

Hi choice conversion more than or adapt adaptation more then yet it seems that those would be helpful.

Yeah sure sure thing Felicia So a few things we.

We set internal goals, obviously, when we launched the App in Pennsylvania, and I would tell you that based on where we are today. We've exceeded every one of the goals that we had set the only one that we're still working to improve right. Now is the live in game betting is a little bit lower than we would like to see it getting better every week, but it's not yet where we want it to be.

But as you think about some of the key stats you know you've got over 60000 downloads of the App in Pennsylvania alone and then those 61000 downloads have converted into 48000 registrations. So youve got almost an 80% conversion from downloads the registrations, which means that.

People you know downloaded there they're continuing to go right people are going through the process of providing you. The information and then from registrations to first time depositors.

You are seeing that conversion rate at 64%, which is also great. We thought to be around 50, and we think 50 is around industry standards. So once people register going through the process of actually establishing a deposit and that's obviously key because people kept that until they do that so.

I think you know we believe those are some best in class percentages of conversion and it's continuing to get better and better the more unique promotions that we do with our partners at Barstool, We're doing things differently I think really creative promotions really creative unique sort of an orthodox unique that.

And opportunities and you bet the over on this game and you've got $100 or more and then you can join the overs club and you win merchandise from Barstow. This is things that we're doing that it others haven't done, but we're seeing that there is it's very effective and I get the fan base really come next what that bar soap brand, so winning merchandise that only few thousand.

And people in the country have as a big deal.

So those are the those are those are important for us and things.

Things like average handle per per better and average wage or per better. It's still so early I want to see how all of that materializes. So were above where we thought we would be.

But even if it came down some are still in great shape right now.

Question on my choice is a good one and.

I'm actually we've been digging into this a lot and I'm happy to share that 95%.

Those that have downloaded the app and registered are brand new to the pen ecosystem. So think about that in the reverse 5% of them were already members of my choice, 95% of them weren't so in terms of acquisition.

New customers to the brand and to our entire ecosystem. What a success story I mean that is big news for us and that same 95% holds true when you look at downloads across the country and there's been over 300000 downloads across the country, 95% of those being new to our ecosystem, but within that 5% of mine.

Always customers that are using the app and betting on the app. They represent about 20% of the wagers or the wager amounts to handle so I think it tells you everything that you would want to know in terms of how incremental from a customer acquisition standpoint has the online sports betting opportunity been and how how.

How amazing I think barstool and their brand and their team have been on driving new people to the within the ecosystem at Penn.

National Gaming and then of course, what we already know is that our mychoice customers are very loyal and they love to game and whether it's inside the casino or online casino and PA or now betting on the Sportsbook app.

Their spend per bat and per time spent on the on the App itself is higher than the average player. So we're learning a lot, but I think those are all you know some nuggets that we're certainly keeping a close eye on and factoid that you probably want to continue to look at and ask us about because they will evolve as time goes and we launch and.

Additional states.

That's super helpful. An interesting creative you are doing to drive the endgame betting.

To drive what I'm sorry, Lisa.

No I think the netting Oh, we're we're trying some things honestly, we're starting to use certain use push notifications and be smarter about when and how to remind people about certain things that theres a favorite that's down at half time and betting on half time, So we're talking to Dave and Big Cat and others at Barstow everyone.

Got ideas. We're just it's still so early I'm, just kind of highlighting that I think that's a that's a number that we can continue to improve upon its not that it's bad. It's just has room for growth and in game betting is great because there's there's more engagement with the fan base.

Thank you so much for all this current industry.

Thanks Lisa.

Thank you.

Our next question is from the line of Shaun Kelley with Bank of America. Please proceed with your question.

Hi, good morning, everyone.

Jay just one or two more follow ups you know that there is something buzz in the prepared remarks and the press release.

A comment on Standalone, I think Barstool brand entertainment destination.

And I guess I'm kind of really curious about what that could mean on could you explain that a little bit more I think you know I'm envisioning something like perhaps barstool sports bars, or something along that line, but what kind of structure. It would we evaluate here is this an out well how would the economics work or something like this in terms of sharing bits.

Wayne.

The block Barstow on the media side, and you know kind of pens interaction, which with somebody like that.

Sure thing so yeah, we've been we've actually been talking about doing these probably since well before we even announce the close of the deal. This is something that Dave and Erica Big Cat are very excited about and we think there's still as great a job as they've done with their brand and you think about the evolution and growth of that brand.

Over the last you know 234 or five years its been spectacular and there's still so much that we can do as a matter of timing in resources and prioritization, but you can envision is they're not completely defined yet Sean we're still working through with the folks at barstool, what exactly these will be when we say its an entertainment destination, but you can do.

We think about it as such.

Sports bar, a certainly like a.

A virtual sports book, because we would be launching these in states for sports betting legal and you'd walk in and it's not going to be an actual retail sportsbook, but with technology and.

I pad and other things that we can do it will feel like a virtual sportsbook certainly during the daytime and they will likely be a nightlife component as well that we have and Dave has lots of ideas on so.

More to come I would with your question with regard to how to think about the economics well share more as we start to develop these but I'm certainly viewing it more as an opportunity for youre getting the brand out there even more than it is today and as a another efficient way to acquire new customers.

In key markets those are the top priorities for us I think that the the economics will be what they are but that's not the really the sole motivation or really even the top motivation for for wanting to deploy some some resources behind this idea.

Interesting, let's look forward to hearing more and then.

The second thing would just be on obviously, you've been pretty clear and I. Appreciate all the detail on the promotional side, but there's still be external marketing piece here, which you've been I think very disciplined on on given the way you want it to launch.

You know just this product so kind of curious on what's your expected cadence around a broader external marketing spend I think it would be unfair to assume you guys are going to do zero external marketing spend as a as kind of the final study state, but obviously you probably want to have markets to leverage it leverage that spending across so kind of where are you on.

I'd say is when should we expect to see some external marketing stand and how do you think that could impact your trends that we're all ultimately going to see in some of the kiosk.

Yeah.

TBD really Sean we're we're working through our plan.

And you know to date. Despite the results. We've spent zero on TV, we spent in zero on radio Billboards.

Billboards were billboards already in our portfolio that we just swapped out the creative on the Billboard So weve been zero incremental dollars on Billboard we've really been spending on the customer and so when they come into the App. They have a great experience and we've got you know.

Some different some different boost opportunities for them to get good odds on games or on online.

Tibet with people that they know it barstool and of course, there's things that we can do like we did with the readying terminal market in Philly, but I think it's just like that Super creative it's a win win everywhere. It's an orthodox but you know we got more bugs out of that than we would've gotten for spending $10 million on TV and pens.

Sylvania for the month and so we're just we're going to do things differently I think you'll find it to be more efficient I think it's safe to say that when we do start to spend some.

Third party marketing dollars and advertising.

That it will still be best in class and lowest in class but.

But it's not to say that we never will to your point, especially as we move from Pennsylvania in Michigan and on to other states.

We'll have a little bit of a different approach in the states that were sort of moving on from because we want to stay super relevant in those states and so we're still working through exactly what that plan is but I think it's safe for you to assume and everyone to assume that we'll continue to do things in a very pen barstool way and it's not going to include the same.

Approach as everybody else in the space.

Thank you very much.

Thank you.

Our next question is from the line of Thomas Allen with Morgan Stanley. Please proceed with your question.

Hey, good morning, and thank you for the incremental color on barstool.

So just qualitatively what have you been hearing from the betters in terms of what they like about the App and then Conversely.

You know, whether our stool leaders, who have not been betting on that have you heard anything or why they're not betting on there and then.

Second question on sports betting do you think you'd been more successful.

Since launch attracting more casual or more serious betters versus kind of your expectations before thank you.

Sure thing Thomas Oh.

I'll answer the second one first we've been pleasantly surprise, we've got you know a lot of heavy action on games from people. We did not know when we launch the app, they're definitely in that 95% of being new to the pen ecosystem. We've got obviously the math as we mentioned, we've got 30001st time deposit or.

Okay.

Awesome to watch.

Then when something happens how the responses for the end user because of how loyal that audience is and they're following what Dave and Dan and others do all day every day and so that's been great. We have some unique features on ours one's called move the line, where you can kind of move that if you do.

Not like where the money line is you can kinda spread it one direction or the other than the odd move with it but a lot of people like that for point spreads and money lines.

And of course whenever we're boosting odds you know that's a big deal and so those helping you doing push notifications and people get a chance to especially when it's hometown teams. We've been doing most of those sorts of things around the Eagles and the Steelers, while we're MPA and will continue to do those things were getting the operating at 4.8 is there for a reason and that's.

After thousands of of App ratings.

We'd love to be 5.0 and.

It actually interesting if you if you look at the ratings that have brought it from a 49248, it's like 90% frustration that we're only in Pennsylvania.

That's what you see when people download and it's really not critiquing the app as much as it is hurry up and come get to us because I want to play on this app, which I think is a really good time.

It's running and then just send you a brick and mortar business you know board last week talked about longterm getting margin mid thirties fuses on their last earnings called talks about essentially getting margins into the into the forties, you know kind of where where do you sit in terms of where you think you're you're you're locked your emergence go. Thank you.

Yep.

I would say, we feel really good about our business right now and Todd in our regional team in our property leaders have done an amazing job since we reopen these properties and continue to we're not feeling concerned about you know maintaining or what we know is that things will continue to evolve.

And we know that there are some costs that have to come back in the business.

Recently, just finally were able to bring salaries back to where they were for people who took haircuts on their salaries and we'd go back to matching 401k programs for our team members and we went back and gave folks on the on the hourly level, they're raises for the year and retro those back so that because that that's what we are.

Right you you take care of your team members and so there's a naturally going to be some costs that comes back.

But I really think that the way to answer. Your question you have to I guess sort of provide contacts first so I guess I would need to know what is the environment.

But the environment is at.

At or better than it is today, then I think you should expect most of what you've seen from a margin improvement standpoint to stay.

If the environment is something less than that then we're gonna be scrapping our butts off like everybody else figuring out how to adjust as we need to and I. Just don't I don't know how to answer that question. Because we're just in uncertain times and I don't know what the markets and it looked like in two months or four months or six months in a vaccine or effective antibody treatments and I I don't.

No all I would tell you is that we're very comfortable with how we're running the business today and I think you've certainly heard from some of our competitors earlier. This week that they seem to be comfortable as well I I'm not hearing anybody in this or not and sort of one on one calls, but I listen to earnings calls of our competitors and I'm not hearing anyone say can't.

Wait to get back to the way, we marketed pre covid or can't wait to get back to amenity offerings being exactly the same and buffet's reopening across the country I'm not hearing any of that so I'm certainly comforted at the moment that it's it is a rational outlook and approached by.

Those into space it.

It doesn't mean, there's not going to be a one off privately owned or small public company that tries to do things drastically different and in case by case will respond as we need to in those markets.

But I think generally we feel as good about our margin performance and our ability to continue to deliver improved margins. When you look at pre covid versus where we are today I. Just you know what what is the context around the revenue environment I'd have to understand that better to fully answer the question.

Makes sense I guess.

And some.

Thank you.

And the next question is from the line of seafood Kinski receiver. Please proceed with your question.

Hey, good morning J.

So slight eight I think it was really interesting and you know you're showing your retail sports book in Mississippi, and you know I think what you're trying to get adheres, there's there's been an opportunity for.

Ross ceiling between your typical rated player and moving them over to the sports book and I think this is a debate that we've heard a lot about you know over the years, whether the typical sports better is different than your traditional casino patron I understand this is one casino that you're showing here, but just wondering if you could give your kind of bigger picture you know opinion.

In on that debate at this point.

Happy to Stephen you'll you'll recall that.

On our this is our fourth quarter earnings call. We did something similar to this with regard to our Lawrenceburg property, where we had you know.

Retail sports book in the fourth quarter of 2019, and we didn't have a retail sports book at that property in the fourth quarter of 18 and sort of looked at some of some different data, which was around what was the impact to our food and beverage business, which was up 20% year over year on the quarter. Our table game drop was up 20% year over year in the court.

<unk> and our slot business, which had been in decline for years, because of Ohio, legalizing casinos in Cincinnati and Dayton and around Cincinnati.

What was growing low single digit I think it was two and a half 3% something like that so clearly there's a positive impact from these retail sports books, and we believe that by launching barstool branded retail sports books that those trends are only going to get better at existing retail sports books, and when we launched them properties that.

Don't have sports books today, we think will come out of the gate, even stronger than we did with some of these more sort of brand agnostic sort of generic but good well, Brian retail sports books, and what we're seeing in the slide that you're referencing and not just in Mississippi were saying, that's really generally across all of our retail sports books is that [noise].

Sports betting does attract a younger customer and I think that's the slide illustrates that very well 77% of handle was from betters under the age of 50 and just to throw out another stat that I don't think we included but I have in front of me is that 80% of those that have that on the bar stool sports book at 80 person.

<unk> are between 21, and 34 years old so the retail sports books aren't quite as young as those that are betting on the mobile app, but they are still a lot younger than what we see in our casino betting mostly on slot machines and on table games.

We also.

One more side of another business line for us, but our online real money casino in Pennsylvania, very similar to what you're seeing on retail sports betting here. We've got an average age of the early forties as compared to the typical brick and mortar casino, where your average ages in the mid to high fifties.

So whether you are talking about online casino, you're talking about retail sports book or you're talking now about mobile sports book. These demos are younger.

<unk> is our new I mentioned, the 95% on the online being new to our ecosystem and then on this slide you can see two thirds of those.

That are rated sports bettors are new to our ecosystem in 19, or 20 and 72% of those that are real players those that are betting over a thousand dollars on sports that's what they're doing they're also betting on table games and other slot machines. So I think this this tells you a lot about the opportunity and I think some get so narrowly focused.

Guest on you know what his sports betting as a stand alone worth then as you know there's debates about Tam in five years from now and eight years from now and I look at this as.

Just such a huge shot in the arm for the industry overall and certainly for us given the way restructured and all the different business lines that we have in the great partnership and Brandon Barstool that sports betting is even bigger than just what that Tam opportunity and the market share opportunity as in mobile.

It's also because it helps our brick and mortar businesses from the retail sports books, it's great for customer acquisition and once we haven't new customers and our ecosystem.

Whereas good if not better than anybody else in the space of moving people throughout that ecosystem and we have amazing regional assets that are super well run and well maintained and each of the markets, where we operate and we've got great mobile products as well. So we feel really good I know, it's a long answer to a relatively simple quest.

But to me, it's it's broad I mean included the slide because we want to make sure people understand that it's not just about the sports book App. It's not just about opening some new retail sports books. It's what are the sports bettors doing and how how incremental are they swear ecosystem.

That's great. Thanks, J and then second question, which is.

It's gonna be a little more of a negative question, but I guess you know how do you guys think about we're starting to see virus cases pick up in certain parts of the countries in Illinois start to restrict.

Access to certain casinos and now I guess the question is how do you <unk>.

Where do you guys stand at this point or conversations you've had with different regulatory bodies about the potential for you guys to do there have to shut down again or have capacity be reduced even more.

Great question and I was hoping that we wouldn't have to talk about this but we're all looking at the same the same stats and I'm reading the same articles Steve. So it's a very fair question and I would just tell you that it's very fluid.

Most of our jurisdictions are it status quo and you know, we're moving along and we're just all being cautious and but there's not really an active dialogue about any of the things that you mentioned and then there's a couple out there like in Illinois, or or a Colorado, where it's a little bit more active conversation around what are those capacity limitations and should they.

Hey here should they be modified so I don't have anything really specific to share with you other than we're staying very close to the health experts and health officials are regulators local lawmakers and it's.

It's about safety. So this is really a it's a it's a group discussion and that's what we care about more than anything and I just feel.

I feel obviously, Steve after a couple of capital raises that we were able to complete this year in may and September very different sitting here today entering that question than I did in March when none of us thought coming and we were mandated to shut down.

And you know cash is king during times like now and I think we've shared good information with you that shows you we were in a very comfortable position from a cash and cash access standpoint from liquidity standpoint really in any type of a scenario as we move forward.

Okay, great. Thanks, I appreciate it thanks.

Thank you.

Our next question is from the line I'm, sorry, China Securities Police procedures of question.

Hey, guys get morning, J I appreciate the comments about barstool Omnichannel, an integrated with the land based business, but maybe just just to be clear.

What's your view on an acceptable timelines profitability for the interactive line item for the interactive segment and and maybe what are the scale of losses, you want to take on until then.

Yeah. It's a it's a great question, we talk about that a lot internally as you can imagine Barry and I.

I think that well a couple of things one.

Our interactive division today, it's sort of buried in other as you know and I would anticipate that were breaking that out and sharing with you.

What that interactive P&L it looks like some time in 21 I don't know if that's the beginning of year midyear end of year, obviously, we want to have some scale, where it's meaningful to look at and talk about.

But I would also tell you that you know I I hear lots of others in the space talk about profitability potentially in 2023 and with the spending patterns that I'm, saying I don't know, if that's realistic or not I won't speak for them.

I will speak for us and saying that our path to profitability as a lot faster than that will it be in 21, maybe will it be in 22 I'd be very surprised if we weren't profitable and ramping in 2022.

That's great and then just just to clarify you know October hold true.

Jack was about nine a little over 9% for the first 24 days is there anything structural that should give you a higher hold right, whether it's your sort of unique barstool bats, or anything like that or do you expect that some analyze a little lower I don't I don't know, it's it's still early I I'm I've thought about this and a lot we've talked about it with our friends that barstool.

You know.

We I think it depends on where live in game betting goes I think it depends on what percentage of our total are betting on parlays an exotics.

There's a lot of factors there, 9% is obviously really good I would imagine that that's probably toward the high end of the range of where we will normally end up.

We cut it off on that on that Saturday, just so we knew we had good data <unk>.

I think it was well documented all the sports books across the country got hit pretty hard on Sunday bounce back Monday. It. It's it's a seesaw as you can imagine.

But we're we're really pleased at this point with.

The handle the handle per day I actually.

The whole right. The last thing I Lucked out because we're still and we've got to build this out we need to acquire we want to make sure that the operating is great and that are.

Customer acquisition efforts are working so I'm looking more at.

First time registration and first time deposits and downloads and handle.

The whole will be what it is based on how lucky we are in the best that people make.

But I think 9% is probably going to be towards the high end of that range I don't anticipate us or anybody else hold it in 10 plus percent normally in sports betting.

Great and then just if I can ask one last quick one cashless.

Any updated thoughts how that could work I know you get some fees now from a T m's pretty thinking upsides cashless in terms of higher fees players spent or player or maybe it's on the staffing side being lower just any color. There I know, it's early but anything would be helpful.

And very well, where you're gonna be hearing us talk a lot about this entire talking a lot about this on future calls.

And that we're just now planning to get launched in our first state, which is going to be in Pennsylvania that'll.

That'll happen in 2021 and.

I think there's a natural sort of you asked a question around cost and efficiency, there's a natural efficiency in that.

We spend a lotta money millions and millions and millions of dollars.

Handling cash in tracking cash and counting cash in transporting cash in receiving cash it's.

Banking cash I mean, we spent a lot of as as does the industry. So clearly there's efficiencies there if you're moving towards a cashless world.

We will look at it a lot more ass, especially where we find ourselves today since you know since we've reopen our properties. We've got these younger demos in our in our buildings.

And.

There's a lot of like you know you get by the Squirrelly Eyeball look when you tell people that they have to go to an ATM to get cash like it's just not what somebody who's 27 years old are accustomed to doing and then paying a fee to get your own cash is really like.

It's a kick so.

I think the way we were looking at that says.

If we're able to advance the technology inside of a brick and mortar facilities, along with improve the offerings around sports betting and bar stool branded.

Destinations like we've talked about that we also need to make sure that the experience inside the building is what somebody who's 21 to 40 or 45 years old expects and so I think there's revenue upside more so than maybe others are sort of focused on right now and that these younger demos I think we'll probably.

Word will spread and we're going to have the right offerings. If we have the right technology, we have the right access to cash and she their loyalty program and they go to a restaurant and they order on an app as opposed to holding the menu and there's all these things that we know we can do that is that's where the younger generations are and are going to be.

So.

But I would think of it you're going to hear more updates from us policy on upside revenue potential of course will share the efficiencies and there's plenty of that but I think that the the real return on the investment is probably going to be an incremental business.

Awesome. Thanks, so much.

Thanks Bye.

Thank you.

And the next question is from the line of Stephen Cramping with Goldman Sachs. Please proceed with your question.

Hi, Thank you just a couple of quick follow ups first on the brick and mortar business and thinking about demographics can you elaborate on what you're seeing from the younger crowds that seemed to be coming in during initial opening and how their engagement and sending it to the rewards program may have evolved over the quarter.

Yeah sure Steven we've been pleasantly surprised not only by the influx of younger demo coming into the casinos since we reopen but that there are visitation patterns have really been great. It's been as as consistent and stable as any other part of our business. So.

You know we've been it's like.

To find somebody up for a loyalty card and they hold a piece of plastic it's not something that somebody is 26 years old typically does so we have to evolve and yeah. We're signing people up but again you get kind of Squirrelly look when you have to stay on the line and sign up for a piece of plastic. So we're really anxious to get going on.

But what we're finding pleasantly surprised is that they're not they're not over index into table games were actually seen a lot of this younger demo play slot machines almost at the same sort of percentage breakdown is what we see in our sort of mid age and older demos.

That that has surprised me I think the slot technology has continued to advance.

And evolve which is great, but I was still expecting to see that over index to table games. So that's been a pleasant surprise for us.

I certainly think that there are expectations from a non gaming amenity standpoint, and an overall experience standpoint that we're just gonna continue to have to get better and we have a lot of plans that you'll be hearing from us on how we plan to do that and it'll be part of our capital efforts for 2021 and 22 to continue to evolve the.

<unk> instead of our facilities.

Oh, that's super helpful and has an unrelated follow up can you talk about whether the bar stool downloads outside of Pennsylvania, a concentrated any geography, and how that might inform you on the rollout strategy.

[laughter] it it really follows population so.

We've got a lot of people in California, screaming and like it's gonna be a long time before you can play on the mobile App in California, given that the law hasn't passed and probably isn't going through for awhile, there, but you're certainly seen a lot of New York as you would expect a lot in Texas.

Lot of New Jersey, and get a lot of New Jersey feedback and some go as far as the cross the bridge in bed MPA, but most are just waiting for it to come to New Jersey.

But you know if if you followed the sort of population by state, that's where you'd see the hit rates, mostly on these downloads from outside of the state of Pennsylvania.

And so there's none that necessarily sticking out the tell you we should be going to this geography first.

They're they're brand has become so big and it's it's national it's not regional.

Early days it was Massachusetts than it was mass in New York and then it was the northeast and then it was Chicago and now.

Now it's just national.

I don't know if you recall last year when L. S. U won the national title and the first thing that Joe Borough wanted to do is put on his barstool had interview with Big Cat for an bar stool before he minute interview with anybody from the National Media E. S. P N or N b C or the rest of them. So it's just Ah. This brand is as big it's growing every day.

Hey, Dave and Erica and Dan and others. It's just done a phenomenal job, but were anxious to get to we sort of let me answer. This way, we think about the prioritization of states really about number one.

Which states are launching right. So we can be at the starting gate level playing field, we're not playing catch up those are gonna take priority for US Michigan. That's the case in Virginia that would be the case, we're getting our application for Virginia in this week.

Number two which states have both sports betting and online casino, that's a big deal right because we're gonna be able to offer both once we launch in Michigan and so circling back to a state like New Jersey is really important for us as well we're already live N P. A number.

Number three what is the population of the state because the bar stool brand is so big it generally follows how large the state is in population, that's where we wanna be and tax rates, obviously are important for us as well and then there's always the one off the barstool brand is so big that Massachusetts, if Massachusetts or.

Wind, Massachusetts legalized the sports betting they check all of those boxes other than I don't know what will happen for I gaming, but.

Being at the starting gates important that's where Dave started the brand. So we're very much looking forward to launching our product in the state of Massachusetts, but that's sort of the way that we think about it Stephen.

That's helpful colors makes so much that's the one.

Thanks, why don't we can we can take one more question. Please.

Thank you.

Our next question is from the rain or shine to clean with Union gaming. Please proceed with your question.

Good morning, everyone. Thanks for speaking me in here can you just I just have one question. So we'll try to squeeze a little bit more data or antidotes out of you J I think a lot of what we talked about today given the the short time frame that barstool has been lives on registrations first time download. So it's it's probably a little early.

But I'll I'll give it a shot anyway. If you have any anecdotes you can share about the frequency of use are you seeing customers who've been first time depositors' first time wagers are they Monday setting frequently or are they coming back in the first couple of weeks, so any kind of thoughts on frequency would be interesting.

Sure John again, it's early right. So we're we're tracking it every week in terms of those that downloaded and deposited in week one what their behavior in me too and we three and we four and then what are those in week to look like so we're seeing pretty consistent patterns, I think they're probably largely a bit better than industry standard and.

Terms of what is your overall churn rate right. So those that maybe about once and then didn't bet again against how many new people have signed up and deposited we're seeing really good patterns there, but it's it's early we obviously, that's something that will never stop focusing on.

Downloads registrations first time deposit and you can't just bank on the first week you Gotta keep at it and I think that will figure out creative ways to continue to do that like we did with the.

The charity event around the reading terminal market, which was a huge success for us and the local community there.

To generate a lot of first time depositors and to write a big check for a local business non-profit in need.

So what more to come I guess is the way to answer that but we're pleased so far with the trends.

Got that that's fair. Thanks I appreciate it.

Right. Thanks, John Thank you everybody for diving and this morning, I look forward to speaking with you in early February.

That does conclude the constant conflict again, we thank you for your participation and we ask that you just connecting lines. Thank you and have a great day.

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