Q2 2022 Penn National Gaming Inc Earnings Call
Yes.
[music].
Sure.
[music].
Please standby the conference will begin momentarily we thank you for your patience and I thought you. Please remain on the line. Please standby.
[music].
Yeah.
Yeah.
Greetings and welcome to the Pan Entertainment second quarter Conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
I would now like to turn the conference over to Joseph Sony Investor Relations. Please go ahead.
Thank you Dana good morning, and thank you everyone for joining Penn Entertainment's 2022 second quarter Conference call, we'll get to management's presentation and comments momentarily as well as your question is the question and answers, but ill first review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions. Today's conference call contains forward looking statements within the meaning of the private Securities litigation.
She reform act of 1095, 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 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 capped.
Expenditures and operating results such forward looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance.
Such actual results may vary materially from expectations.
The risks and uncertainties associated with forward looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission.
Including the company's reports on Form 10-K and Form 10-Q.
National assumes no obligation to publicly update or revise any forward looking statements.
Today's call and webcast will include non-GAAP financial measures within the meaning of SEC regulation G. When required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the Companys website with that it's now my pleasure to turn the call over to the company's CEO Jay Snowed.
Jay Please go ahead.
Thanks, Carol Good morning, everyone. Joining me today is our CFO , Felicia Hendricks and our head of operation pod, George as well as other members of our executive team as usual, we have provided a link to our investor deck in our earnings release, we will be referring to in our prepared remarks.
So I'm sure you no doubt noticed our company's new logo and name change to pen entertainment over the past few years penetrating formed our business through a highly differentiated strategy focused on organic cross sell opportunities, which is reinforced by our investments in our market, leading retail casinos sports media asset owned technology, including a state of.
Our fully integrated digital sports and online casino betting platform and an in house I casino content studio.
Our new name maintain ties to our legacy while better reflecting our evolution into north America's leading provider of integrated entertainment sports content and casino gaming experiences next.
Next month, we will also be celebrating the 15th anniversary of Penn National race course, which is where our company's story began we're all proud of our heritage and how Peter Carlino took over from his father and grew the company from that single race track into one of the top regional gaming companies in the country I'm honored to follow in his and Tim Walmart's footsteps and to help right.
This next chapter in our company's growth story.
In terms of our results as you'll see on slide six and seven we had a good quarter with consistent performance across the portfolio.
Beat consensus on both revenues and EBITDAR and generated sequential up upside over last quarter. Thanks in part to the performance of our interactive segment and strong results at our retail operations. Despite a tough comp against the second quarter last year.
As highlighted on slide 10, our destination properties, which benefited from hotel Remodels, New restaurants Entertainment and Barstool branded sports books performed particularly well in the second quarter.
Our my choice database has increased by over 1.2 million registration over the last four quarters, driven by both our retail properties and our new interactive offerings, which provide significant opportunities for future growth. We are encouraged by the ongoing visitation and engagement.
Growth in the VIP segment of our database in addition to year over year increases in rate at theoretical across all segments, except those at age 65, and above which is highlighted on slide 11.
Our unrated segment trends, though down in the second quarter year over year, partly due to federal stimulus payments last year and more entertainment options outside of our casino offerings and online offerings available. This year also reflect reflect a strong conversion of non rated players into our my choice loyalty program.
Turning to slide 12, our <unk> card lift cashless and contactless technology and Omnichannel engagement also continued to drive our growth or my wallet cashless experience is now available at nine properties in three states and we expect to roll the technology out to 12 additional properties by the end of this calendar year pending.
<unk> approval.
Get that use our mobile wallet and who engage with us via online offerings are not only more loyal but they also play at a higher spend level when visiting our property and generate a higher total value when they're engaging with us across multiple channels.
Given our second quarter results and strong volumes in July we've decided to maintain our current 2022 guidance range, which we notably increased last quarter to between $6 5 billion to $6 $55 billion in revenue and EBITDAR of 187 5 billion to 2 billion.
We believe that our property level EBITDAR margins are sustainable in the current revenue environment at approximately 37%.
Turning to our interactive segment, we experienced nearly 100% year over year revenue growth this quarter, excluding the impact of gaming tax reimbursements to third party skin partners.
We remain on track to deliver EBITDA losses of approximately $50 million for the year. The largest portion of the loss will occur in the third quarter due to our contribution to the California sports betting ballot initiative, along with the start of football season in new markets, like Ontario, and Kansas and we remain on track to be profitable starting in the fourth quarter of this year.
As highlighted on slide 13, our barstool branded retail sports books are really resonating with the younger demographics and creating meaningful cross sell opportunities. Our recently converted Barstool sports book in Lake Charles Louisiana set a new standard for retail sports book experiences and we are seeing very encouraging results from.
The addition.
We are on track to open the Barstool sports book at Lebaron, Baton Rouge that fall and based on our ongoing success in Louisiana, We are optimistic about our upcoming sports book launches in Kansas, and Ohio, where we have similar market leading properties bolstered by large casino databases.
And what the legislature recently approving sports betting in Massachusetts, the birth place of Barstool Sports and also home to our <unk> Park Casino, we're excited to add yet another possible retail launch by the end of this year and mobile wagering is anticipated in 2023.
Turning to slide 14, our early results following the successful launch of the score bet mobile App in Ontario on April 4th demonstrates the strength of the brand in Canada, and the benefits of our fully integrated media and betting ecosystem.
Allows us to drive significantly stronger result in a greater than 50% cross sell into I casino.
When we acquired the score we discussed an interactive roadmap that included the score that working towards transitioning to a proprietary risk and trading platform in the summer of 2022 I'm extremely pleased to share that last month, we successfully deployed our risk and trading platform on the score bet, which completed the vertical integration of our sports book.
Operations in Ontario.
I want to thank all of our team members at the score who worked so diligently on this project over the last couple of years and executed this launch on schedule, allowing us to be live in Ontario, with a significantly enhanced product ahead of the fall season.
Custom building all components of our sports book infrastructure is a massive undertaking which clearly demonstrates the industry, leading technology engineering and product expertise that we have in house at Penn between the score Penn Interactive and our corporate product and engineering teams.
That's up very well for the future.
As we've talked about previously the benefits of our vertically integrated online betting operation are numerous.
You'll see on slide 16, we brought in the scores scored bats offerings and increased event prop and in game wagering options.
Second owning all components of this platform unlocks greater personalization and media embedding integration capabilities, allowing us to create the spoke user experiences that are meaningfully engage and subsequently retained customers.
Third we will realize valuable savings over the next 18 months on third party platform costs, while driving wider margin.
And finally, we're operating on a faster more reliable platform that provides for shorter timeframes to build and launch new features.
We also remain on track to transition the Barstool sports book in the U S to the scores player account management and trading platform in the third quarter of 2023, and we are working with our existing providers here in the U S to ensure a smooth transition process.
Post migration, we will begin to realize the full benefits of our in house technology stack, including meaningful cost synergies and improved marketing and promotional capabilities.
Turning to slide 17, and 18, our pen game studios continues to develop highly engaging content.
This quarter. We also introduced 97, new third party slot and table game offerings across our casino platform and we have a deep pipeline of future customized and third party I casino content for both barstool and the score bat.
As Youll see on slide 19, we continue to build momentum on the media front as well with the score growing revenues year over year in the second quarter double digit and monthly sessions were up 20%.
Barstool has also continued to expand its audience and reach while always looking for new outside of the box growth opportunities.
Looking forward, we believe there is upside for the media business as we begin to realize the benefits of cross promotion with Barstool sports and additional monetization opportunities.
Before I turn it over to police I also want to note as highlighted in our deck that we were once again very active on the ESG front this quarter, particularly with our ongoing diversity equity and inclusion efforts.
We recently came in fourth out of 40 gaming companies in the all in diversity projects benchmark D. Eni survey.
In addition, recently Forbes magazine rated US 139 out of 500 of America's Best employers for diversity, which is the highest ranking of any publicly traded gaming company with that I'll turn it over to Felicia.
Thanks, J. This morning, we reported second quarter revenue of $1 $6 million and adjusted EBITDA of $504.5 million, our second quarter 'twenty. Two results are particularly noteworthy given that the comp against an all time record high second quarter in 'twenty, one and despite economic headwinds our St.
Store revenues were down two 7% year over year and impressively were up three 5% sequentially at the property level are rated segment actually increased 1% year over year and was up almost 4% sequentially based on the consistency of our demand trends as Jay mentioned, we are reiterating our.
2022 revenue and EBIT our guidance.
As we noted in our press release earlier. This morning, we continued our share repurchase program in the quarter. During the three months ended June 32022, we repurchased $167 million of shares at an average price of $30 and <unk> 16 per share under our $750 million share repurchase authorization.
Subsequent to quarter end, we repurchased an incremental 3 million shares at an average price of $31 46 per share for an aggregate amount of $95 million.
In total since the inception of our share repurchase program, we have repurchased $437 million of shares at an average price of $35 36.
Or 12, 4 million shares and Codell, leaving $313 million under our authorization.
To put this in context in October 2021, when we closed the <unk> acquisition, we issued 13 million shares at an average price of $77 30.
So to date, if almost entirely offset the dilution from that transaction at over a 50% discount.
Now moving on to some further details regarding the quarter and the second quarter corporate expense inclusive of cash settled stock based awards with $23 6 million or cash rent payments to our REIT landlords with $231 8 million cash interest on traditional debt was $17 5 million.
Taxes net of refunds received were $44 5 million and total capex was $60 million of which $58 million with a combination of maintenance and return generating projects, including hotel room renovations at three six and our barstool retail sports books.
This project Capex associated with our category for our Hollywood York, and Morgantown casinos in Pennsylvania.
As of June 32022, we had 178 million fully diluted shares outstanding.
Regarding certain 2022 modeling metrics, we expect 2022 corporate expense of $98 million inclusive of our cash settled stock based awards.
Total capex forecast remains roughly $300 million of which $100 million return generating discretionary projects and as Jay will discuss further in a moment, we have many levers to pull to protect our free cash flow in a recessionary environment inclusive of reassessing. Our current Capex plan, we are continually evaluating our project pipeline.
And there are various ways, we can simultaneously deliver the high quality experience our guests have come to expect while also remaining prudent with our cash outflows.
For cash interest expense, we forecast $116 million for the full year cash taxes will be $107 million for the full year net of refunds received.
And for the full year, our fully diluted shares are expected to be $175 million, which is before any incremental share repurchases.
As a reminder, in early May we entered into a second amended and restated credit agreement with our various lenders, which provides for a $1 billion revolving credit facility that is undrawn and upsides from our prior $700 million revolver, a five year $550 million term loan a facility and a seven year one bill.
Term loan B facility. The proceeds from the credit facilities were used to repay the existing term loan a facility and term loan b one facility balances.
Transaction was leverage neutral as of June 32022, we ended the quarter with total liquidity of $2 7 billion inclusive of $1 7 billion in cash and lease adjusted net leverage of four to seven times as a reminder, inclusive of our real estate leases, 85% of our total debt is.
Fixed rate and with that I'll turn it back to Jay.
Alright, Thanks Felicia.
Our theme for the second quarter was consistent performance and execution as the competitive environment has largely remained stable that being said we recognize the media continues to beat the drum on a potential looming recession, whether organic or at this point, a self fulfilling prophecy and economic uncertainty and low visibility obviously creates a challenge in terms of modeling our.
Business.
As such we have provided you with a few slides at the end of our investor presentation that illustrate what the potential impacts of a hypothetical recession might look like for us at different revenue levels.
We certainly have a lot of experience from dealing with the pandemic over the last two years and learning what levers can be pulled in the case of an economic turndown. In addition, as you can see on slide 23 regional markets. As a reminder, performed far better than the Las Vegas strip. Following the 2007 2008 downturn and are geographically diversified.
Footprint helps protect against local economic pressures, while the growth in our younger demographic and ability to offer both retail and interactive experiences provide us an advantage against changes in consumer behavior.
Finally, turning to slide 25, if we do start to see revenues decline in a meaningful way, we're prepared to offset approximately 45% of the impact through aggressive cost mitigation measures, including adjusting our offerings labor management marketing spend and pricing strategies that help keep costs in line bottom line, our strong balance sheet.
Flexible business model and disciplined approach to Capex provide us with multiple levers to maintain free cash flow and an economic downturn and with that we'll now open it up to questions.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone.
Here are three till them prompt to acknowledge your request. If your question has been answered and we'd like to which dry registration. Please press. The one followed by three once again to register for a question over the phone lines. Please press. The one followed by the four and our first question is coming from the line of Joe grief with J P. Morgan. Please go ahead.
Good morning, everybody.
Thank you for taking my question.
Jane My question on the land based casino side of things, referring specifically to slide 11, the database highlight slide.
Can you talk about the changes in fee or by age demographics when.
When you look at that 21 to 54 year old bracket to those younger.
First three buckets.
How does that when compare to 2019 levels and then how do you contrast, it with that 55 and older including that 65 and older bracket. When you look at it relative to 2019.
Yeah, Great question, Joe and the growth versus 2019 is obviously much more significant than what you see here because remember when we started to see real significant growth in these younger demographics, starting in 2021 versus 2019, we were talking growth rates of <unk>.
60% to 70% and now we're seeing which has been a pleasant surprise honestly to all of US here at Penn We're seeing growth on top of that significant growth from 2021. So to specifically answer your question in the second quarter that youngest demographic of 21% to 34.
<unk> growth of 90% versus 2019.
And the 35 to 44 year old segment was up 55% versus 2019, and the 45 to 54 is up 34% to 2019, so really significant growth and again what I'm. Most pleased with is the growth on top of the growth that we saw in 2021, and we actually saw growth of.
10% in that 55 to 64, and then 65 and above of course is where youre seeing declines even still.
Not just versus 2021, but of course versus 2019.
We're showing a decline of 20% still versus 2019 and that oldest segment. So I think that speaks to where we're thinking about upside as we move forward in that.
That oldest segment getting more and more comfortable as time goes post COVID-19.
Post vaccination rollout whatever it makes people feel comfortable though <unk> home and we actually Youll recall in 2021, we were seeing declines versus <unk> 19 in that order segment.
As high as 40% and it dropped down to 30, and we're down to about 20%.
Last quarter or maybe two quarters ago, we had touched maybe in the high teens down versus 19, but we still have a lot of room to make up when you're down 20% versus 2019 and the oldest segment.
Got it and then the 55 to 65 and older. The two older buckets historically, they accounted for what percentage of rated play and how does that compare to <unk>.
More recent trends.
Yeah as you would expect the sort of goes in order from youngest to oldest in terms of total theoretical value for us.
So youre looking at that the oldest segment is about.
A third of our overall revenue and the 55 to 64 Youre looking at probably another 25% of total revenue. So it's significant.
And Theres a lot of opportunity in that down 20% from the oldest segment given that it is a third of the database.
Great and then thank you Jay and then switching over to interactive your comments about being profitable and interactive in the fourth quarter.
Can you talk about is that both in OSB and a casino.
Would you be profitable in the <unk>, excluding what we would look at it maybe sort of one time.
Investments.
Then my last question on interactive is can you talk about the ramp in Ontario.
Maybe.
How that ramp compares to other markets.
The us and.
Maybe challenges in Ontario that maybe we hadn't maybe contemplated before that whether that relates to converting from a gray market, but love to get your updated thoughts on Ontario.
Yes.
I'll share what I can on Ontario in a moment as you know Joe nothing has been shared publicly yet so we're somewhat limited in what we can share, but I'll share what we're what we're capable of.
With regard to your first question, which was a great one.
Yes is the answer if you look at even at second quarter of this year, certainly third quarter, and then going into the fourth quarter prop.
Just as we think about like the basics can you just give us kind of the lay of the land as it relates to the promotional environment, particularly at some of the kind of lower end and maybe in some of the more competitive markets.
Like Pennsylvania, St. Louis maybe in Mississippi just.
Areas like that where we have started to hear about promos coming out.
Greasing and could you just kind of compare that to.
That happening, but destination is offsetting that or in some of the destination properties are offsetting that or is that maybe not as big of a deal as some of us make out of it.
I would start by saying the ladder.
I think a lot's been made out of this.
A lot about what the promotional environment is I think if you look at Pennsylvania, specifically, there's a lot of moving parts because you have.
A number of categories for satellite casinos that have opened over the course of the last 18 months in Pittsburgh, We have two one in New York one in Morgantown, So youre seeing some shift because new new supply has entered the marketplace and I think the existing operators or existing properties or trying to figure.
What is that right mix of reinvestment now that there is more competition, so Pennsylvania to me as a one off.
And then with regard to Mississippi, St. Louis or any of the other markets in each of these markets I think are unique in a variety of ways, we're not seeing or feeling a heightened promotional environment.
In Mississippi or in St. Louis.
May have a property that just launched a new restaurant or two and so you might reinvest a little bit more for a couple of months to showcase your new amenities or your new renovated hotel product or a new sports book or something like that but I think you can see from the margin stability in the land based business we declared late in.
2021 that we felt that 37% property level margins as something that you can bank on at Penn and we've now delivered that four quarters in a row and so if the promotional environment.
Ben talked about I don't think you would see that consistency and margin delivery the way that it's being delivered not just by us, but by the competitive set as well.
Great and just my follow up would be.
You gave a little color on the sort of unrated segments, and I believe that being down.
Year over year, given just some of the more entertainment options and stimulus is that level of play it's still up from 2019, no and just kind of help us get a sense of how did that trend also just across the quarter or is it still deteriorating or is that sort of leveled off just as we've lapped maybe its a bulk of some of those payments that occurred a year ago.
Yes, I think there's a lot there's a lot of variables shine in that and the answer to that question. I think there is a confluence of factors. We tried to highlight a few of them at the beginning first and foremost I think we've done our property teams and our interactive teams have done a really great job of moving unrated players into the.
My choice database ecosystem. So that's a big part of it is we're just continuing to move people out of unrated and integrated.
They are not rated you don't have a relationship with them and it's hard to cultivate and build on that if you don't know their name and what their email addresses or their their cell phone number to be able to deliver push notifications et cetera. So that is a big piece of it no doubt there was a lot of money in the in the system from the stimulus payment.
That went out in the second quarter of 2021, I don't think youre going to find a business out there that.
Had more so the unrated free business coming through.
Than they ever did in 2021, and so you would naturally see some drop off in 22 of course there is more.
Options in terms of where to spend your entertainment dollars in your discretionary time.
Movie theaters, and restaurants, and bars, and nightclubs and sporting events and concerts and all of those things are sort of back to where they were close to it versus 2019 here in 2022, when they werent there yet in 2021, so I think as you look at it.
Year over year. It was an expected falloff in unrated a lot of it is because we're moving people over to the database, which is great and the good news is Sean if you look at database trends.
Really only with the exception of the 65, plus age segment, which is still down 20% versus 2019.
Every other age all worth groups rated and unrated business, it's still up significantly versus 2019. So it really is for US. Good news story everywhere, except we have to continue to.
Chip away at the 20% decline at the 65 plus age group.
Very clear thank you very much.
Our next question is coming from the line of Steve <unk> with Stifel. Please go ahead.
Hey, Good morning. This is Jeff on for Steve Thanks for taking the question.
I wanted to start on the brick and mortar business, maybe follow up on Sean's question in a slightly different way. If you look across the various markets or are you sensing any weakness anywhere just given potential belt tightening of its higher gas prices and other inflationary pressures, we've heard Mississippi, Louisiana, Pennsylvania, All mentioned this earning cycle, but just curious what youre seeing for your portfolio specifically.
Yes.
Get this question a lot Jeff and I think you look at the monthly state reported numbers and Youll see that Louisiana for us.
So one of your states that you pointed out there is that the.
Top performing state in our portfolio. So we're not feeling that I think the way that we look at it as a little bit less on geography and more on what is the market. What is the competitive set in that market and where does your your asset where does your casino.
<unk> package compare to the rest of the competition and so it's not so much geographic what I would tell you is that the properties that we have in the portfolio or maybe the oldest and most data that have the most limited amenity package or the ones that are seeing some softness at the lower worth segments.
Not surprisingly.
The good news is the vast majority of our assets across the country are quality assets and many of them are on the newer side over built opens acquired in the last 10 years and we're seeing that those properties, where the core demographic is maybe a mid worth to a higher end customer.
Continue to be robust I don't know how else to explain it I know you've heard this from others, who have reported already on second quarter earnings, but we're just we're just not seeing the softness at the vast majority of our properties and the vast majority of our market. There's a couple of pockets of softness and again, it's a maybe a more limited amenity package in at the lower worth customers.
And it might be some falloff in unrated play.
But the consumer continues to look healthy.
One thing that we've.
We've talked a lot about internally and I don't know that it's really sort of analyze this way but.
If you if you assume that we're either in or there is a recession looming, we're about to head into one I do think it makes sense to take a step back and think about the.
The fact that no two recessions are identical and if theres a lot of comparisons right now understandably two O seven OE, but if you remember what was happening in El <unk> and the impacts of what was happening at a macro level to the consumer to the average family very different than what youre seeing today in the <unk>.
When an OE you had financial market turbulence, you had real estate.
Home value.
<unk> and home values were dropping significantly at a very rapid pace.
Had unemployment really starting to skyrocket during that timeframe.
And all of those things impacted peoples wallet that impacted their balance sheet.
And what we're seeing this time around clearly there is inflationary pressure.
And so cost of living are going up, but youre seeing unemployment still near multi decade lows.
You are seeing wages and income levels grow maybe not completely keeping up with the pace of inflation, but pretty close.
And Youre also seeing home values that are holding steady if not continuing to grow across the country in most markets. So the things that actually impact the consumer and how they feel and we are seeing a shift in spend today from goods to services and I think youre seeing that in the results from lodging companies and casino gaming.
Companies and so I'm not sure that we should all expect whatever we're in today to be like what we saw and experienced in <unk> seven <unk> hundred nine there'll be differences is obviously geopolitical noise out there this time around that wasn't there.
<unk>.
But we're seeing a healthy consumer and we're seeing a consumer that still wants to get out they want to spend money they want to have fun with.
Close the books preliminarily on July we had a great month in July .
We just don't we don't have much to share in terms of looking out that concerns us.
Our next question is coming from the line of Barry Jonas with Chewy Security. Please go ahead.
Hey, guys.
To start around labor.
Any updates in terms of what you are seeing some labor shortages or wage growth.
Thanks.
Yes, not a whole lot Barry if anything I would say trends are getting better every day, we're seeing more applications come through for open positions across most of our markets.
There was certainly theres still some pockets of wage pressure certain roles certain positions both on the land based side as well as on the interactive side, but I would say we're in a much better.
Environment today than we were even two months ago, and certainly a lot better than we were at the beginning of 2022, it was pretty dire and we couldnt get applicants to come through and apply for roles for dealing school.
<unk>, where we are.
Pain, plus coke rate somewhere close to $100000 a year in people wouldn't apply for these roles and we would train them for free and.
Put them behind the table in a couple of weeks and so we're not seeing that now we're seeing applications start to come through we're seeing less wage pressure and that environment certainly is improving.
That's great and then I was hoping to get a little more color on the three CS specifically, maybe if you could elaborate on your full vision.
Tabling Omnichannel engagement.
When you think we could see everything in full force as well.
Yes.
We haven't shared a whole lot in terms of the the early results were very encouraged we continue to see more and more people sign up for <unk>.
My choice App as well as our my wallet capabilities.
We're live in three states, we want to get to a level of scale before we really start sharing data publicly again very encouraged and we're seeing.
Higher frequency of visit as well as higher spend per visit with those that are engaged with us in multichannel and or our my choice App in my wallet capabilities I would say that in terms of the vision.
One of the many reasons why we decided to acquire the scores.
The technology company and they have amazing technology team combined with our team at Penn Interactive and our team here at corporate on the engineering and product side, and we envision down the road I wouldn't say, it's a 2023 event I would say, it's likely a 2024 events that we have one wallet across all.
Our offering both retail and digital print.
For now we have wallet capabilities, but they are separate so you'd have to have a.
Digital wallet for interactive in a separate digital wallet for our land based properties.
We would anticipate being live pending regulatory approval with <unk> across all of our businesses land base and having that wallet functionality across all of our different business verticals, it's going to take us a little while to get there, but we're already starting to see a lot of the benefits in the upside.
So this technology enhancement.
Great. Thanks, so much Jay.
Our next question is coming from the line of Chad Beynon with Macquarie. Please go ahead.
Good morning, Thanks for taking my question.
In terms of the cash on the balance sheet at the end of the quarter any undrawn revolver that you talked about can you help us.
Thinking about capital allocation and within that can you remind us on the barstool opportunity to take that in house in the next 12 months. Thanks.
Yes, how are you doing.
Thanks for the question and look at as we said in the past and we have.
We're really proud of our strong balance sheet, we ended the quarter with lease adjusted net leverage of four to seven times and.
Well more than halfway through our.
Our share repurchase.
Authorization in just seven months, so the cash on our balance sheet gives us a lot of opportunities to do a lot of different things.
We obviously think the market is under appreciating our valuation and so again, we're in the fortunate position to be able to take advantage of that dislocation and as we look ahead, we'll continue to monitor market conditions and remain opportunistic with our share repurchases. While also being in the really favorable position of being able to continue.
Are those buybacks against other opportunities that we may face at any given time, so we're really happy with our leverage and I'm sure in your modeling you can see what our free cash flow generation is over the near term and how that is organically delevering.
<unk>, which continues to build up our balance sheet. So we will continue focusing on maintaining our low leverage we will continue to focus on taking advantage of what we think is very favorable market conditions and we will also continue to look at growth capital opportunity.
Great. Thanks Felicia.
And then within the analysis that you talked about with operating leverage can you also remind us on the lease agreements I believe youre exposed to any CPI inflationary pressure like some other companies.
In this space, but can you just kind of remind us on the escalators.
Look over the next five years.
You're absolutely right Chad, we don't have fixed escalators on the majority of our leases.
And for those of you who aren't familiar we do provide the detail on that in our 10-Q, but in a nutshell for our master leases are tenant pinnacle master leases, which are our largest.
We have three components of our rent that land base.
<unk> ran and building base and percentage rent is subject to adjustments every five years under the Penn Master lease and every three years under that Pinnacle Master lease.
And then except for cognizant, Toledo, which is adjusted monthly.
By changing revenues, but our building base rent.
As the largest part is subject to an annual escalator up to 2%, but that's subject to annual.
Adjusted revenue to rent ratio once to 818 to one so they're not fixed and they're not tied to CPI.
Perfect very helpful. Thank you very much.
Okay.
Our next question is coming from the line of David Katz with Jefferies. Please go ahead.
Hi, good morning, Thanks for taking my question.
Covered a lot of ground and I just wanted to touch on one of the slides in the deck slide 19.
When you talk about the media performance.
And I think you do have kind of the interactive segment in your press release, and I'm trying to unpack that just a little bit.
In terms of what the media.
Opportunity is what the media productivity is today and where it could really go.
This slide refers to the score, but theres, obviously, some barstool opportunity there also.
If you can just sort of help us with that media piece I think that segment has about $155 million of revenue and there is a tax gross up.
And there that's 55% or so.
That's what I'm trying to get at.
Yes, I'll be able to help you get at some of it David probably not us.
Maybe not as helpful. As Youre, hoping only because we currently don't own 100% of Barstool, we own 36% as an investor and so you have 36% of cash flow flowing through but we don't reflect any of their revenue and so it is a bit it is a bit noisy as it relates specifically to the score there.
Revenues were public obviously before we acquired them and we're talking double digit revenue growth on that base of revenue. We experienced the same thing in Q1. So we feel really good about the momentum I would say in terms of a more detailed outlook as to what the media segment within interactive might look.
I would say stay tuned.
Once we close on the full acquisition of <unk> in Q1 of next year.
We'll probably show you a lot more detail and we'll be able to show you on a combined basis, what barstool and the score media business looks like.
And I think.
Not just as it relates specifically to the P&L, but how we're thinking about the ecosystem that we're continuing to build out and.
Different products and services and ideas and.
Monetization opportunities with that audience down the road that we've been working on for some time now and we're very excited about.
If I can just follow that up and maybe give us a sense for how.
How big that can become one day at some time in future.
And the total picture is it something you expect will be modeling out separately at some point in time.
I do David I think that probably makes sense at some point down the road, we will not be doing that in 2023, we would expect media to be blended in with our interactive businesses within the interactive division.
But I could see a day, where we're breaking those two out separately and look.
The way that we think about the media asset today is.
These are high growth businesses. These are businesses that continue to attract new audiences.
And I think it's incumbent on us to think about how we harness all of that in a way that creates long term value and monetization opportunities and again, we have a lot that we'll share once we close on the barstool transaction early next year, but.
This is I think about those media businesses today, it's a law.
What about cross sell and monetization within sports betting and online casino I think theres going to be other cross sell and monetization opportunities down the road, we have a lot in front of us obviously with sports betting and online casino as we continue to ramp in more states legalize, Ontario ramp all of that.
Those will not be the only places where we're planning to grow our overall earnings from the media assets that we've acquired.
Okay helpful. Thank you.
Okay, and we have time for one last question. Our next question is coming from the line of Ryan <unk> with Craig Hallum Capital. Please go ahead.
Great Good morning.
First I appreciate the slides, especially the recession considerations and it goes were nicely done unhelpful.
Curious on Ontario, I know you can't give a lot of detail there, but any qualitative statements I guess you can make on the comparison before and after the tech transition.
Still really early Ryan.
And it's just it's such a slow time of year Sportswise. So we obviously are going to be able to offer a lot more in terms of betting options and personalization as it relates to the experience on the app as well as our CRM activities. So I think next quarter, we'll be prepared to probably answer that question in a thoughtful.
But when you're when you're only major sport as regular season baseball, there's not a whole lot to share.
In these first few weeks, we'll know a lot more at the onset of football season September October and on our next call, which will be in early November .
Maybe just a follow up any glitches or outages I guess, we havent heard of any so I think no news is good news in that respect, but anything to call out there.
Well I think you've just jinxed us Ryan Thank you.
It's been it's been.
I'm knocking on wood as I answer that one.
It's gone as Benji Levy.
Said the other day, it's gone better than he had even hoped and best case scenario. So so far so good again.
And really nice volumes up there, but it is baseball season, and so we want to but the nice thing about this.
<unk> roadmap and the timeline that we put out in terms of critical milestone dates.
Now rely on our entire proprietary tech stack in July of 2022, and we get to not just work on the migration back to the U S. We get 12 to 13 months to do that but we also get to really put that tech stack through high volume intensity through football season in March madness, and do that in an environment where.
We've got significant users and significant volume before we bring it back to the U S and convert.
All of our platform all of our state platforms here in the summer of 'twenty three so so far so good.
We'll continue to keep you updated once we start football season.
Thanks Jay.
Thanks Ryan.
And we have no further questions at this time I'll be turning the call back to you.
Alright, I appreciate everybody's time this morning for dialing in and have a great rest of the summer. We look forward to speaking with you for third quarter results sometime in early November have a good one.
That concludes the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Yes.
Sure.
Yes.
Thanks.
Sure.
Sure.
Okay.
Okay.
Yeah.
Thanks.
Yes.
[music].
Yes.
Yes.
Sure.
[music].
[music].
[music].
[music].