Q3 2022 PENN Entertainment Inc Earnings Call

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[noise] greetings and welcome to the Pan Entertainment third quarter results conference call. During the presentation of 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.

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I would now like to turn the conference over to Mister George a phony Investor Relations. Please go ahead.

Thank you Frank Good morning, everyone and thank you for joining pen entertainments 20, twenty-two third quarter conference call, we'll get to management's presentations and comments momentarily as well as your Q&A during the Q and a we ask that everyone. Please limit themselves to one question and one follow up now.

Now I'll review the State Park Safe Harbor disclosure. In addition, historical facts or statements of current conditions. Today's conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, which involve risks and uncertainties.

These statements can be identified by the use of forward looking terminology such as expects believes estimates projects and tens plans seeks may well should or anticipate or the negative or are there variations of these or similar words or by discussions of future events strategies are 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.

Ah such actual results may very materially from expectations.

The risks and uncertainties associated with the forward looking statements are describing today's news announcement in in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q.

In Nashville 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 F. C. C regulation J when required a reconciliation of not Ah all non-GAAP financial measures to the mass 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 website.

With that it's now my pleasure to turn the call over to the company C. E O J J. Please go ahead.

Thanks, Joe Good morning, everyone, Jeremy today, as I, CFO , Felicia Hendrix, and our head of operations taught George as well as other members of our executive team we.

We provide a link to our investor presentation in our earnings release, which will be referring to in the prepared remarks, if you want to follow along.

Pleased to report that despite continued economic headwinds the competitive and promotional environment has largely remained stable and we once again had another solid quarter with revenues of 1.625 billion and adjusted EBITDAR at 472 million.

We thought revenue growth of 7.5% year over year, driven by our interactive segment and strong results at a retail operations our leaders in team members across the company continue to do an outstanding job as you'll see on slide sex are interactive results for the quarter included costs associated with the loss of Kansas, Our first for football season and.

[noise] terrio in Louisiana lobbying expanse of 12, and a half million for California that we account for above the EBITDA line and a payment processing fee adjustment of 7.9 million.

Even our strong revenue growth disciplined approach to marketing and the fact that our interactive statement was profitable in October we remain confident in our ability to deliver profitability in 2023.

As we've highlighted in prior quarter's we're continuing to see growth and our might choice database with your every year increases in right at the L across all segments, except for the 65 and older group.

I would like to focus your attention in particular on five eight and nine which illustrate the strong recent growth in our 21 to 44 year old segments.

And just a few years, we've seen this group grow from just a bit over 10% of our total theoretical revenue to nearly 20 per cent.

We are continuing to re imagine our properties to appeal to this demographic with dynamic retail sports books in sports bars third party F&B concepts refreshed hotel products, New Entertainment and best in class technology, which we believe will pay meaningful dividends in the quarters and years ahead speak.

Speaking of technology, we recently introduced our industry, leading three six and Kansas, making it our 10th property in four states that we're we're live we expect a roll of the technology out of several additional properties by the end of this year pending regulatory approvals.

Early experience with three seasons proving out that got that adopt our digital wallet demonstrate both higher frequency visitation and greater gaming spend per trip and we are excited about the long term prospects for this innovation.

Arguably rebranded Hollywood Casino Greektown in Detroit on flight 10 is a good example of our strategy to re imagine our properties as you may recall the hotel had been unavailable for nearly two years due to water damage that gave us the opportunity to completely remodel our standard rooms, and hotel lobby to add updated offerings and new FNB concept.

With our renovations nearing completion, we think re town as well positioned to improve performance is downtown Detroit continues to rebound.

Turning to slide 13 on September 1st we launched both retail and online sports betting in Kansas, beginning with the Hollywood 400 presented by Barstool Sports book and continuing with can walk coordinated joint marketing efforts are Omnichannel approach. There has delivered one of our most successful launches to date when you combine both retail and online sports betting result.

We saw our highest ever first.

Ever level at first time deposits on a per capita basis and the state and over 45 per cent of our online handle it as being driven by our existing my choice database.

On October 21st taught and I and some other members of our team attended the successful opening of our retail Barstool Sportsbook Attila Bears Baton Rouge in Louisiana, We were joined by a day of Portnoy and Big Cat, who were also in town for the Barstool College football tour at the old <unk> L. S. U game right up the street great of an overall.

<unk> and lots of excitement generated by barstool at the sports book and the events surrounding the game.

Turning to slide 14 in Ontario, we're seeing meaningful benefits from our integrated media ecosystem, what the score media users contributing over 80 per cent more G. G. R. The non media users, we believe that the experienced physicians us for similar success in the U S. Following completion of the initial integrate.

<unk> of the Barstool sports book into the score media App, which began on October 19th.

Transition in Ontario to our proprietary tech platform has exceeded our expectations by performing seamlessly with increased utilization new bedding market and other features.

Notably, Ontario has already become our top market in North America for both online sports betting and Icasino and we are seeing very nice momentum in both categories through our first football season, we remain on track to migrate the barstool sportsbook to our proprietary tech platform and mid 2000 twenty-three after which we will begin to realize.

Savings and improve marketing capabilities in the U S.

On the Icasino Fry is highlighted on slide 16, we are seen continued momentum this quarter with the introduction of 226, New third party games across all platforms means.

Meanwhile, Penn Games Studios recently launched Barstool Roulette and has developed our first in-house multiline slot game, which is set to launch next month.

We're particularly excited about our initial icasino results and retention K P I as in Ontario.

Promotional capabilities of our player account management system have helped drive these results in Ontario, and we look forward to bringing these same capabilities to the barstool casino in the U S next year of posts migration.

Trying to slide 19, despite some general industry softness in digital advertising, our media business as delivered solid results in Q3 as the score grew year over year engagement and continued to build out our sports media presence with the addition of content from NFL inside our Jordan Shoults.

Meanwhile, Barstool sports also continues to add new content, new influencers and grow with audience, including the launch of a new N. B, a focused podcasts featuring barstool sports round and Pat Beverly of the Los Angeles Lakers.

Before turning it over to police I wanted to give a shout out to our general manager Marine with Laski in her entire team at Ameristar Vicksburg for their efforts in support of the nearby city of Jackson, Mississippi during the summers water crisis.

Team members delivered several pallets of much needed water and emergency supplies. In addition to providing temporary housing to those in need. These are the type of actions that define our culture at Penn Entertainment and I'm really proud of marine and her team for their efforts.

In addition, as you'll see on slide 21, this quarter, we launched a scope one and two carbon emissions assessment, which we expect to be completed by the end of the year.

A D E N I front, we were honored to have been named for the second year in a row as a champion of board diversity by the form of executive women for having female members comprise 44% of our corporate board of directors.

It's part of our 4 million dollar commitment to fund stem scholarships at historically black colleges and universities, we're proud to name Prairie view and I'm in Texas, and Jackson State in Mississippi, as our fifth and sixth schools to enter the program with that I'll hand, it over to Felicia. Thanks, J given a salary they're quite a result in a consistent performer.

<unk> into October reiterating our 20 twenty-two revenue and adjusted EBITDA guidance range of 6.15 to 6.55 billion and 1.8752 billion, respectively, and we expect to be slightly about the mid point for both the Guy did revenue and adjusted EBITDA arrange it for the.

Balance sheet remains very strong we ended the quarter with a cash balance of 1.7 billion liquidity at 2.7 billion and least adjusted net leverage a 4.3 times.

Further 85% I liked that it's fixed rate increases are are capitalized rent payments and our nearest at maturity is not until 2026.

Distantly as the highlight on site 37 in the appendix of our earnings that are leased properties is subject to modest in caps annual escalators that are importantly, not tied to C. P. I I will speak in a moment about our new Lisa G. L. P I, which is off the subject to a modest in caps annual escalator.

Given our strong financial positioning and I continue to believe that there is significant dislocation between our stock price and our intrinsic valuation we repurchased in increments of 5.35 million shares in the third quarter for $168 million or an average price of $31.40 per share.

Subsequent to the end of the quarter, we repurchased an additional 1 million shares for $29.1 million at an average price of $28.95 per share. We currently have $211 million remaining under a 750 million dollar authorization.

Now moving on to some further details regarding the corner in the third quarter corporate expense inclusive of cash settled Stock-based awards with 26.5 million a cash rent payments to our wheat landlords with 232 million cash interest on traditional that with 38.5 million cash tax.

Isn't that where 800000 in total Capex was 64 million of which 1.9 million with project Capex associated with our category for Hollywood you work in Morgantown casinos in Pennsylvania.

Now regarding certain 20 twenty-two modeling items, we expect 20 twenty-two corporate expense of approximately 100 million inclusive of our cats settled Stock-based Award.

Our total Capex forecast remains roughly 300 million of which $200 million remains maintenance Capex and 100 million is returned generating discretionary projects, including the three CS a cashless hardly contactless technology Barstool retail Sportsbook and hotel room renovation.

As we've discussed in the past are continually evaluating our project pipeline and have many levers to pull to preserve free cash flow. If we begin to experience the impact of economic headwinds, while simultaneously maintaining a high quality experience I guess I've come to expect.

<unk> interest expense, we four cats 115 million for the full year 2022 cash taxes will be roughly 60 million for the full year net of refunds received and for the fourth quarter. You should use approximately 173 million weighted average fully debated fully diluted shares which is before any increments.

They'll share repurchase we would make in the quarter.

Finally, as it relates to the new growth projects, we announced on October 10th Penn entered into an agreement with T. L. P. I to create a new Master Lee, which would include the two new land based facilities in Aurora in Joliet, Illinois. In addition to Hollywood, Columbus, and Hollywood Toledo in Ohio, The end resort in Las Vegas.

Oh as in Pennsylvania, and Hollywood pair you fill in Maryland, the new Master least we'll have a fixed annual escalator of 1.5% and to Columbus in Toledo properties will no longer be subject to the 20 per cent variable rent structure with that I'll turn it back to Jay.

Thankfully shot.

Before I open it up to questions Felicia reference or exciting plans to relocate our riverboat casino licenses in Aurora in Joliet, Illinois to superior locations, where will construct new land based facilities. In addition to building a hotel at Hollywood, Columbus, and adding a second tower at the M resort in Las Vegas, we.

We provide a good bit of detail on each of these projects and slides 22 through 29, and we're happy to provide more color. If you like during the Q&A suffice it to say our casino properties remain at the core of our Omnichannel approached entertainment and these projects are consistent with our strategy to reinvest in and re imagine our properties as I have noted we are seeing are strong.

[noise] results from properties that offer upgraded amenities that appeal to both the VIP segment and the younger segments of our database and we're really excited about introducing brand new land based offerings in Chicago, Chicago land and an expanded footprint to capitalize on strong demand in Columbus and at the end resort.

We're also grateful to have the ability to access attractive financing from our long standing partners at G. L. P. I have up to 575 million of the 850 million anticipated budget and I also want to thank the city of Aurora once again for committing 50 million towards the relocation project they're.

All four projects are expected to begin construction in late twenty-three with the bulk of the spending 24 and early twenty-five we're in a great position to be able to pursue these high growth projects, while preserving our cash position and overall leverage profile.

And I'd like to conclude by talking a bit more about our interactive strategy in outlook. We have remained very consistent in our approach to this nathan opportunity emphasizing products and organic customer acquisition over aggressive external marketing spend but we'd also learned a lot over the last couple of years that are constantly refining our strategy based on the latest data and up.

Of course, our experiences while our third quarter results were noisy for the reasons. We noted we are very encouraged by the recent performance of our interactive statement, which includes a profitable month in October which by the way. It was an average hold month for us and all mind sports betting.

Specifically like to highlight our momentum with the score bed in Ontario, as you can see on slide 18.

Which is one of the most competitive and valuable markets in North America.

As we continue to invest in that market. We're seeing strong returns based on attractive customer acquisition costs and very compelling retention matrix, we attribute that success to several things, but certainly the most significant relates to the enhanced capabilities of our wholly owned tech stack, which is generating tangible benefits to both our sports betting and I casino.

Offerings as our product has improved in particular the advance promotional features and bonus features provided by our player account management system. We are seeing loads lower C. P. A is more loyal customers and greater returns on our marketing spending investments something we think we can replicate in other markets here in the U S.

Through our experience in Ontario, we've identified some real opportunities to build market share once we migrate to our own tech stack and the U as in Q3 and of course will do that profitably and we will be prepared to invest in those markets, where we see attractive returns while maintaining the discipline approach. We're also excited about our omnichannel advantages, which had been highlighted.

By our success in Kansas, driven by strong adoption from our my choice database that success physicians out very favourably for Ohio, where we have a robust database from our four leading casinos and still plan to go live on January 1st as well as a Massachusetts, where are my choice database will help supplement the very loyal barstool audience in the states.

And Ah Penny regulatory approval will be lives in Q1 of 2023 in Massachusetts.

All of this leads us to be very optimistic about our future and what that will open it up to questions Frank.

Thank you.

If you would like to register a question. Please press the one four on your telephone you will hear a three tone prompts so acknowledged your request.

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Our first question comes from Joe grasp with J P. Morgan. Please proceed.

Hi, Jay and Felicia Omar Sandra on for Joe Thanks for taking our questions it's relative.

Relative to our estimates on the land based from the mid West West and South were really strong, but the northeast, which made me a little bit weaker is there anything specific to that market that stands out to your relative to your others, Hey, This more pennsylvania or is it something else.

Yeah, I think Pennsylvania is gonna be the the one thing to keep in mind, we got to you know long standing properties, there and we have two new or facilities. There. So there's some a little bit of noise in Pennsylvania, but taught him happy to hand, it over to you to answer that one that's J yeah, you're exactly right. It's it's more from Pennsylvania seeing some of the impact from some new.

Competition coming in with a satellite casinos, just kind of settling in we've been fortunate in our new properties opening up in New York in Morgantown, being able to pick up some of that but our existing properties at the meadows and pay NRC. We did lose some sure there so it's pretty much a icily.

To those areas.

Alright, and one of your peers talked about higher labor cost pressures wondering what you're standing across your portfolio anything similar or any other markets as well that you'd call out.

So it it really comes down to what we've seen you know the pipeline is back open now more people are looking for jobs. So that has helped out. So there was a bit of a bump I would say early in the quarter. That's that's really kind of settled in now and then a lot of what we've been able to do with kind of you know where you are.

Her J talk about re imagining our properties so we'd become a little more labor efficient just out of necessity. So we expect to carry that through as we move forward.

Yeah, and I I would just add one comment which is you know we've been talking about what we believe our property level margins will likely settled in that and we said at the beginning of this year that we felt like 37% over the course of the year was with a good target and you know Todd and our regional as in our property leaders have done a fantastic job. It's.

Very consistent this year, which I think shows you that we're managing all of these dynamics in many cases headwinds, though they're not as significant as they were earlier in the year, but we're managing those very effectively Q1, our margins. We're a little north of 37 1937. One Q2 was 37 two Q3 was 37 three.

Naturally C I would ask everybody to keep in mind, you'll see some natural seasonality in the queue for the margins will likely be down a little bit from 37, but when you blend it all together for the year. We think 37 remains a good target for us.

Our next question comes from Sean Kelly with Bank of America. Please proceed.

Hi, Good morning, everyone. J, you know I wanted to ask about sort of following up on the online and digital <unk>. You know you mentioned the lower C. P as in and you'll see an opportunity to build market share. Once you get the tech platform stood up well. My question is sort of just as we sit here today you know there's no.

A lot of discussion about promotional rationalization in the online environment. You've obviously you know stayed the course.

Foreign didn't did extraordinarily disciplined and so the question is is the product in a place where you can lead in you know today or do you really want to get you know the tech staff and maybe the igaming offering a little bit further along before you push further on the marketing you know maybe on the on the direct marketing shot.

Yeah, Great Great question, Sean This is something that we talk about internally all the time and the answer is it's a bit bifurcated right because in Ontario. We are currently live on our own player account management platform as well as now our own trading services risk management platform and we're seeing the benefits of that and so we've had an opportunity.

Because we're seeing such high retention levels in Ontario to continue to spend in to that and the cost.

Cost per acquisition has been I think better what is the way I would describe it in Ontario than what we saw early in the U S and I think this year, even in the U S. It's better than it was a year ago and we've you know we've been very consistent in our messaging that.

Our strategy was to lean entirely on organic marketing and database acquisition and feeding the final from that are owned assets in our own brands in our own databases and we've been doing that 100 per cent in the U S and Ontario, we've been doing that but we've also supplemented that with some additional marketing spend because we're seeing.

Really good results as I just mentioned so I would say what you should expect from US is that we're gonna make continued investments for as long as we're seeing those dynamics in Ontario, We believe we can grow market share profitably. We believe we've been doing that it's already our number one market and we certainly stand to benefit <unk>.

Summer when we go live across the U S with that same tech stack and if the C. P. A is are attractive and <unk> I think we would anticipate even higher retention value and the you asked once we're on our own tech platforms that you should expect to see something similar from US. The second half of next year and into 24 will do all of this in a thoughtful way.

It'll be judicious and how much we spend and where are we spend we're.

We're not looking to grow market share if we can't do it profitably, but we're seeing in Ontario that we believe we can once we're on our own tech stack and have great promotional and bonus engine capabilities that we didn't have previously that we can acquire customers retain them and continue to grow our market share.

Thank you very much.

Our next question comes from a battery Jonah withdraws security police procedure.

Great we're getting.

Closer to when you could potentially or when you could acquire 100 per cent of Barstool. Just curious if we should expect to see any major changes once you do reach 100 per cent.

Yeah. We're we we've already publicly made you know we've we've committed to that purchase in February of next year buried there's no changes in that plan. We're very excited about owning all the barstool they've been amazing partners for us over the course of the last two and a half almost three years now and.

What I would say is from a from a media perspective, we'll have a lot more to share once we close on that transaction, both with regard to how we're thinking about opportunities to create synergies with our media assets.

We've had a lot of really really exciting meetings here of late talking about advertising partnerships and you know we do historically.

On the casino side, we have done and this is really an industry statement certainly I'll say, it's true for Penn we have not done a great job of monetizing all of the foot traffic and the eyeballs that you know are moving in and out of our properties and driving by our properties. Every day, we have a database now of over 25 million people in my choice, we've never really partnered with any <unk>.

Third parties on monetization opportunities and partnership opportunities and the folks at Barstool and the score.

We have some of the best salespeople in the sports media industry, and we think there's great opportunities for us to grow that advertising in partnership revenue and more to come I would say probably be in the beginning of next year. We're talking about you know guidance for 2000 twenty-three there'll be something in there for a media assumptions and throughout <unk>.

<unk> three will be sharing more and more of our plans many of which we just haven't publicized yet, but we're working on hard behind the scenes.

That that that sounds great in there just for a follow up I wanted to ask about the three CS as you continue the rollout.

Talk more about the benefits you're seeing.

C J is it more about driving or.

Or is it really better analytics for marketing purposes.

Yeah I'll bet taught the answer is yes, [laughter] all that solid answered that one <unk>.

Experi, it's extra really could not be more excited about what we're seeing today and with some some big states here on the horizon. So it is J said, it's it's yes to both the real winner in all of this is truly the guests the customer removing friction from their experience not having to wait in line just being able to kind of.

Traverse through the property as as they wish is really the overall driver, but then the analytics that we do pick up with behaviors and being able to engage with them more real time than waiting to to hit them back in the mail. After they depart the property. This provides us such a real opportunity to engage in a moment, which I think I will.

Benefit us as we move forward.

Our next question comes from Steve was in ski with Stifel. Please proceed.

Good morning, J. So so what did they ask about these the the the new growth projects and and maybe if you could help us or just remind us what you know what <unk>, what the return metrics, you're you're targeting on those and you know are there was returned hurdles the same.

Pretty much for all four or they you know somewhat different across across the new projects at the dinner out there and then you know could you also help us think about like you know are there more of these will we would call kind of you know add on growth projects out there across your your existing portfolio that can be explored moving forward.

Yeah, all great questions and you know these for that we announced about a month ago. These are projects that we've been looking at internally for years in some cases and there are a number of reasons not worth getting into for why it didn't make sense or or he couldn't pull the trigger in the past years.

And you know it all came together for us for for that we are really excited about and you know some some lucky, Illinois and say Wow you know there's been a lot of supply addition, there is that the right place and what we've seen is that everywhere I've mentioned this before even in this current economic environment. The properties, we have in the portfolio that are quality.

Assets with you know best in class offerings and entertainment offerings that we don't have that many of our smaller older properties. We perform it we performed very well and we're not really seen any softness from a database perspective, so for US, Illinois. We think both of these projects are gonna be terrific in that.

They're gonna be new facilities, but not only are they knew but we're moving those licenses from their current locations in both cases too much more attractive that are locations that are right off the interstate and have visibility in the case of Joliet part of a mixed use development. That's gonna include a commercial and residential.

Will be obviously, one of the anchors there and in the case of a war, we just had tremendous partnership with the city. We've got a great location next to Simon premium outlet malls, one of their most successful malls in the country a tremendous amount of foot traffic, there's very strong Asian business that goes into that premium outlet mall as well and so we we believe those two are going to be <unk>.

Nick projects for us definitely more offensive than defensive a little bit defensive but certainly more offensive is the way to think about it Columbus is one of our top performing properties has been for years, we should have open that property with a hotel, but we didn't but here we are and where there was some leaves dynamics, both with Columbus in Toledo that Felicia mentioned on.

Rev share mechanisms that we now have resolved with the new lease with G. L. P I.

That allow us to think about Ah growing those two properties in our database is there and growing our revenues and our <unk> and our EBITDA as well so I feel really good about that Eminem resort, we've needed more room there for years that part of the Las Vegas Valley is growing like Crazy when you fly and you just see all the roof tops continuing to go up surrounding the property there so.

All four we feel we feel really good about the return profile individually Steve to your question. We also feel collectively that these four projects will deliver a free cash flow return that's higher than where our stock is currently trading that's sort of the way we think about it as if we can deliver a better return, let's continue to buy back shares do you invest in girl.

Projects in this case, we can do both because our balance sheet and free cash flow generation allows us to and so it was a great opportunity for us to grow the the you know what what's really the core of our Omnichannel strategy, a retail casinos and to upgrade two of our facilities that are tired and dated and to expand it to her.

Of our properties that are high growth high growth markets and a high growth assets rough.

I would say the yeah, sorry, and then the the the the last part you said is a more more of the time I would say Ah, yes, Ah stay tuned where we have a number of other properties that are high growth, where we've just really maxed out on the hotel side, we could use more rooms, and then will continue to invest on the on the gaming floor in the nongaming them edit.

<unk> and <unk> and hotel renovations, but I think in terms of hotel expansion, there's probably a couple of others that we could potentially pursue in the coming quarters of yours.

Okay. That's great color. Thanks day, and then you talked a lot about the younger demographic did Europe , you know that you're seeing you know kind of coming into the properties and whatnot I I don't know if you have the data not but is there any way to help us think about what that spend level looks like for that younger demographic versus the rest of your you know your traditional database and I assume what you're trying to do here is you know just get.

The younger demographic in your ego system, let them kind of grow from there and let them mature and watch their spending ability move higher and just try to capture that person over time is that kind of the right way to think about those.

Exactly the right way and all that Todd answer your question I I, just you know as you're thinking about and we we try to share this with some some real color and visibility for all of you on a quarterly basis, because it's very exciting you know all the things that we talk about and what's going on in the business right now the one that we are most positive and encouraged by a pen.

Is that that 21 to 44 year old age segment, just a few years ago was a little over 10% of our revenues and now it's approaching 20 and that's that's moving the Titanic quickly and so you think about the L. T V associated with those customers if they might be lower spend today than the older age statements, but getting them in.

The ecosystem I'm really working on the relation of cultivating the relationship generating a loyalty factor and then continuing to you know stay close to them on the relationship side through the years, Israel is where the real value is Todd anything you want to add thanks J I. Yeah. Just you know in response to your question I I I look at it a little bit.

Looking on a per trip basis. So when you think about our overall database. We are seeing increased visitation in this 21 to 44 group, but we're we're really starting to close the gap and traditionally that 21 to 44, and then a 45 to 50 455 and above.

It just goes up sequentially. They all spend a little more per trip and there used to be a pretty decent delta between that younger group and then the older groups, we've been able to close that delta. So on a per trip basis, they've been coming in a lot of that relates to their level of engagement with our properties in the offerings that we have so it's not only the gaming experience. It's all.

So the way, they're looking at dining the way, they're looking at watching so that will be the focus as we move forward, it's seeing decent growth on a on a trip basis, but the spend per trip is where we're really making significant headway.

Our next question comes from Orion <unk> with Craig Helen capital.

<unk>.

Good morning, Jay Felicia you Wanna start with interactive so I think I got it right that you said positive in October and Q4, but can you confirm that and then also kind of your confidence in that inflection in queue for N for 2000 twenty-three relative to maybe where you were at three months ago.

Yeah happy to we we did mentioned in the release and are prepared remarks that we were profitable in October and that and and I'll reiterate again that was with an average hold percentage of that wasn't over holding we actually got beat up pretty good the last Sunday of the month. So it was not hold driven which is I think encouraging we anticipate being profitable in.

Q for I would say that a couple of factors to keep in mind for Q4. One is we're gonna have very likely we don't have a date, yet, but we're gonna have a Maryland state launch in queue for it's looking like some time in November that hurts, a little bit on the EBITDA side as you're continuing to see the the initial dollar.

The deposit match dollars work their way through the system, there's usually a month and a half to two months period of time, where they're working through that so that'll impact a little bit to the downside, but obviously, we're gonna invest in state launches, Ohio is gonna go live on Jan one.

There'll be some spending December leading up to that go live date of Jan one so those two factors that all hit two for a little bit in the last two months of the quarter.

And then the other factor is and we we haven't publicize that's biting others have noted it what part of the <unk> mattress.

Mattress Mac World series that so he's got a couple million on the line with us that would pay out 10 million. So go go pills for sure and I think if if not just Mac doesn't hit will be profitable queue for if he does then it'll probably be you know closer to breakeven ish somewhere in that range.

Great then just one follow up on so it seen some nice <unk> early positive <unk> player metrics from your Triple C initiatives curious what else is in the pipeline kind of in the near term that over the next several years that you're excited about greater integrate the online and land based experiences one that can.

[noise] minded shared wallet across state cross online and land, but maybe talk to that and then anything else that you are excited about thanks yeah.

Yep. Thanks, Ryan Yeah look shared wallet I've I've mentioned before I think on our last call that is that's a huge piece for us likely of 2024 ish events. You know, we're really focused right now on tech migration, bringing that back to the the bringing the type platforms that we're live on in Ontario back to the U S.

And live next summer really thinking about how we want to leverage that to profitably grow our market share in the second half of twenty-three and ended early twenty-four behind the scenes. We are already working collectively between our our land based operators and <unk> technology folks and engineers along with the team we have an interactive and the score to play.

For the future so that we're not making decisions now that will hurt us in our quest to get into one consolidated wallet across all of our offerings. So that's probably the one that I think is nearest Ryan. After you think about tech migration, but as it relates to Omnichannel I think it it look it from my perspective, it's it's sort of a must at the table Stakes that.

You have to be able to offer your customers one wallet and then they can move seamlessly throughout your ecosystem, whether those are online offering those or retail offerings and so high priority for us and we've got some other things that we're talking about internally that I think will be ready to share an early twenty-three and and Ah and on from there.

Our next question comes from David Cats with Jeffrey.

Proceed.

Hi, Good morning, everyone. Thanks for taking my questions I'm interested in the the demographic dynamic that you've been talking about in today have you indicated like what catalyzed or what started it like where did it come from because it it.

It seems to be not coming not something we're hearing much from your peers.

Yeah, David I would say a couple a couple of things about that and [noise] Todd Felicia. Please not been anything that I, Miss or you want to add him in color.

I think we we've been really focused on this for the last several years two things obviously helped alot, one is COVID-19 and and the way the Covid health certainly was that when we reopened so we we closed all the casinos as you know in March 20th started reopening them in May June.

Ally timeframe of 2020, and when we did.

We were one of the very few entertainment destinations that was open at that time and so we saw an influx of of younger demographics come in of course, our focus at the time was we gotta get them into our loyalty program, we have to build relationships and so we worked very very hard to do that otherwise they come in if they don't have they're not in your little.

[noise] program, they leave and you don't know how to contact them on the back in so I think our property. It seems did a great job of getting people signed up into our loyalty program and that was that was a big opportunity for us, but we want to make sure we didn't lose and as I've mentioned previously with all the growth that we saw on those younger say.

Minutes, and 2020 and 2021 you see on the slide that we provided we're showing now growth on top of growth here in 2022, which I think is very excited and showing that we're not losing these customers were actually continuing to grow their relationship and grow that segment and quantity as well the.

The other factor of course is online sports betting mm legalization in May of 2018, and we ended up going live in the fall of 2020, and we were actually looking at this the other day, which is I think really fascinating that if you look at the number of customers that we have being able to grow.

Oh, we've been able to bring into the database from our interactive offerings are online casino. We have 80 plus percent of our total revenues are coming from people between 21, and 44 years old and if you look at all lines sports betting, it's 90 per cent between 21 and 44.

Old so we're obviously, bringing in younger customers through our interactive offerings, particularly online sports betting, but no doubt post COVID-19 being able to bring customers into our casinos and building relationships with them. It was another contributing factor and of course, the the big opportunity as you know what what does that loyalty look like when.

You look two years five years 10 years down the road that were most excited about.

Yeah. The only thing I would add is to to your point when everything else was closed and we were the one that was open we did see this influx and then it became more a problem we're solving as how to retain them in.

In the past, maybe we looked at.

Sports and concerts and everything else is kind of competition for that it's entertainment budget that discretionary budget. Then we started a view them more as a partner. So then it became how do we offer better entertainment, how do we unlock experiences with professional sporting events and I think that all lead to.

People viewing the casino experience more some entertainment experience and then to Jay's point this year, our growth and people that engage with us across multiple channels. So casino experience then the online experience is up over 25%. So we're seeing more people engage with us across multiple channels, which.

Really helps us create.

Create loyalty as we move forward.

Understood and if I can follow that up you know J. When we last you know talk to the group energy two weeks there was discussion about cultivating the rebranding of pen.

You know re imagining the loyalty program.

Obviously, you know comes on the heels of what you're doing technology wise.

It is I assume that this younger demographic is a part of that you know re imagination of all of this stuff and repositioning of all of this and you're comfortable that it's something that's adorable over the long term.

That that's exactly right, David and we'll have more to share on the loyalty program evolution and rebranding in early 2023 were hard at work right now on what that is and we are definitely thinking about it where white boarding what a loyalty program should be in the gaming and interact.

To have an entertainment business as opposed to starting with what has it been and I think we're you know what you should expect to hear more from us on that but you should also expect to hear some some new things, even and how we're thinking about the program and what it's called in the vernacular around you know the points that you have and what you can use them for and.

We're we're really trying to deconstruct and then build this up the way that it should be for the longterm keeping not just younger folks in mind, but all of the demographics and how we can appeal to customers that we don't currently have within our ecosystem.

Our next question comes from our Jason <unk>.

Court Genuity. Please proceed.

Yeah, Good morning, and thanks for taking the question in the prepared remarks that you talked about the average hold rate for digital in October I'm. Just wondering if maybe comment on two three how much is it worth some digital was driven by a favorable outcomes and and in terms of in Ontario, you talked about the really strong performance there partly mix it in game.

Mixed with any different in Ontario, the inverse of the U S. B two to the tech staff being in house versus outsourcing.

Yep happy to Jason Q Q3, I think it's it's been well noted football season, we had a good I think it was three weeks and and the and the and the month for NFL in four weeks for college football. So hold worked in our favour July and August I don't recall really been you know.

The one one direction or the other so probably average hold.

So that sort of take that for what it's worth I don't have it in front of me what the impact was it wasn't really immaterial for us given it was really just three weeks of the quarter.

I do think that when you're looking at Ontario, and the fact that October and again. This is still early we'd been on our own texts Doc now for just really for football season for all intents and purposes, but we are seen really really strong parlay play.

We're starting to build out our in game parlay offering so you'll see more from us on the parlays thyroid me launching several endgame parlay features here in November .

And they're gonna have all the major sports covered before the end of the year. So as good as the results have been in Ontario, that's with US sort of you know fighting with one arm tied behind the back we don't have all the same offerings that everyone else has but we are continuing to grow daily active users monthly active users Ah handle and R. G. G R. As we show on.

White 18, we've got great momentum in the business there and you should assume that that's all happening that that market share is continuing to grow and that we're doing that in a profitable way.

And we are seeing a slightly again, it's early a slightly higher hold percentage in Ontario as it relates to online sports betting than we are here in the U S. Given that we're on our own tech stack and we can really think about how we target parlay betters versus moneyline betters differently in Ontario, and we'll be doing obviously more of that in the U S.

Once we migrate over next summer.

Great. That's really helpful. I'm, just one quick follow up on Kansas, you talked about the really strong customer acquisition. Their depositors is there anything you can call out that you did differently in terms of marketing tactics or anything <unk> and anything that you can take her learnings from there and apply those in Maryland, Ohio, Massachusetts.

Yeah for sure and taught Tuttle will speak to this I mean, Kansas has a smaller population state. So we practiced all of our comments with us on a per capita basis, but when you look at what we've been able to do their in terms of sign ups and deposits and then cross sell into our Testino. My choice database, it's been our best launch to date when you combine re.

<unk>, an online sports betting so for sure. There is learning there that talks and cover that will apply to Ohio, Maryland, Massachusetts and elsewhere. Thanks, J. Yeah. So we we jumped out a little bit earlier and were able to mobilize or my choice database you see that call, though on on one of the slides and then the comments where a lot of the people that have been engaging with us through the.

[noise] Sportsbook, you've come right for my choice database, so getting that out there really creating that education process working through how to download the app how to engage with US helped out a tremendous amount and then I would say the the other real big impact for us and it really goes back to that Omnichannel opportunity that we've created almost two.

7% of our new accounts that are Kansas property had been created since the launch of the Sportsbook. So total new accounts for the property have jumped significantly just since launching with Sportsbook and then finding new ways to engage with them, whether it's online or coming into our property. We've seen great results doing that which again is J mentioned the.

The population base in the size of our database, where Ohio Ah.

We feel very optimistic as we go into their applying these learnings to that state.

And last time, and I know everyone's aware of this but the fact that barstool started in Massachusetts. We think that's gonna give us a huge advantage. In addition to our casino database and the state there in Q1, when we go live in Ohio is another state that a barstool has always over indexed and so we anticipate between.

For assets in the database that Todd referenced in addition to the Barstool sports strength of the brand. There. These are gonna be very good states for us.

Our next question comes from burning Mcternan with Needham and company. Please proceed.

Great. Thanks for taking the question just wanted to double check if that 50 million for interactive loss is still made sense of the year I don't think so given the the prior commentary, but I just wanted to double check and then there's other competitors reporting better than expected profitability not sure. If it's too early to call. This U S sports betting to die, though but do you think there's any broader industry.

Occasions or implications for your relative positioning in the industry.

Very good question with regards to the 50 I think just based on the payment processing fee of 8 million, which was not anticipated going into the quarter. In addition to a couple of state launches I think that number is probably not the right number to use but Felicia mentioned in her prepared remarks, if you look at the.

The midpoint of our guidance, we expect to come in you know a little.

A little bit ahead of mid point for both revenues, an EBITDA for that for the fourth quarter and for the remainder of the year. When you. When you look at the total year results.

So I think if you do the math there you're looking at interactive probably coming in slightly positive in the fourth quarter add that to where we are Q1 through Q3, and that's probably where you should be for the for the year.

And what you should be for the fourth quarter I think as it relates to the industry sort of two dot that's a good way of putting it I I think there is a lot more focused right now on profitability, which I think is great for the industry all of US and we've always said that you know we've been focused on a profitable model from day, one we really leans hard on.

On organic marketing and tapping into this great ecosystem that we have in moving people throughout that ecosystem through cross sale. That's the magic of what we're doing at Penn.

Termed omnichannel, it's an overused term today, but I think we have the ability to really execute on that well from a technology.

Owned database perspective, and some partnerships that have proven to work. So far I think is the rest of the industry continues to focus more and more on profitability, that's probably going to open the door for us as we're starting to see even already in Ontario that C. P. A is will likely continue to look more attractive.

And we have the ability to lean into that when and where it makes sense.

We will not do that in the U S until we're live on our own tech stock. So you shouldn't expect to see us pushing forward with that strategy. We will support state launches of course, three coming up here in the coming months and we will continue to push forward and lean into what is attractive CPA and retention result in Ontario, and eventually the second half.

23, and the U S as well, which will be great for US you know just continuing to grow our market share profitably overtime.

Got it and then they give you the strength of the media integration in Canada and your strong financial position are you strategically complete with your media assets with the score and barstool or could you look to expand either through M&A or partnerships and if so what kinds of assets could be interesting for you guys.

Yeah, I I would say, we don't have we don't feel like we're missing anything currently there's no hole in the game so to speak so nothing that I'd really share with you today that you know we say you know it's it's on the radar. We're always we're very curious bunch at at Penn. So we're always looking and.

You know engaging with with media companies, whether they are for sale or not but thinking about interesting partnerships potentially we do the same thing in other areas of entertainment and live music and so we're gonna you know I I don't know where that takes us longterm I do know that our strategy overall is really focused on the broader.

Entertainment area and that's not just sports betting that's not just retail casinos.

There's a lot that we can do with our fanbase and audiences in databases across the casinos in our media asset. So I would say stay tuned nothing missing today, but you know world. We're always looking for opportunities to create value as we look down down the road over the next three to five years.

Our next question comes from Ah Jordan Bender with G. M. P Securities. Please proceed.

Great. Thanks for taking my question kind of piggyback on that last question.

It's pretty well understood at the Casino database is it is it pretty good cross sell for online I'll take a candidate can you see yourself by you know land base Canadian asset it kind of bolstered that omnichannel presence up there.

Who knows who knows I I, we're not there's nothing that we're not going to comment on you know we're not we're not looking at anything right. Now so I guess I can comment on that but what I, what I rule out that we would look at a land based assets in Canada, There's two large Canadian based companies up.

There.

We would never rule that out I wouldn't rule much out as you talk about the future and you know there's always maybe around these types of questions. So could that help overall on the strategy given how important and effective omnichannel has been for us in the U S. Sure I think that could make some sense for us, but we're not engaged in any conversations right now there's nothing imminent it could be interesting.

The right opportunity presented itself at the right price at the right time.

Great and then just my follow up Uhm, you've talked about your in house caught and 10 and the <unk> the impressive growth that you've seen over the last couple of quarters can you just kind of talk about how your inhouse games are performing metrics birth is a b some of the third party content on your platform.

Yeah, we we've shared a little bit and and the slide show that just show you. The continued growth in handle on our home grown proprietary games and you know, we're seeing and I I don't have the the stats in front of me, but the last time, we Luckily we're seeing a new jersey that over 20% of our total handle was coming from games.

That we created particularly the digital blackjack games, we now have side that we have those branded with a different IP collection that we have at Penn. So we're really encouraged by that it's interesting cause I was an industry. We've tried in the past or come up with proprietary game. The same as working with third party manufacturers for the land based casinos and they always.

Failed like 100 per cent of the time. So it's it's encouraging to see that we can create games and that we can actually do this in some cases better than some of the third party content provider. So that keeps us pretty pretty encouraged for what we'll be able to do down the road, we just launched a new <unk> <unk>.

Product that we mentioned in our slides are now developing a multiline video slot contents, and so more and more time, but the the early the early impression that we're getting is that we can be successful at doing this and we think we can create more games more rapidly down the road.

Our next question comes from <unk> with Susquehanna. Please proceed.

Good morning, J Felicia [laughter].

I just have two questions like I guess, one and I apologize if he answered as I I didn't hear it but can you provide maybe just like a quarter to date, you know kind of trends and what you've seen certainly and and some of your market has there been.

Naturally any change in terms of where the quarter came in and then secondarily to that.

Yeah, I'm curious to you know another question on onside, nine and and the customer segments [laughter].

You know I think based on your commentary is sure to conclude that most of the increase in in these younger customers has has naturally come from online sports betting, which excuse very male oriented and I was wondering.

You know kind of where you are in in the strategy too you know maybe attract a digital thoughts customer or the you know the traditional kind of retail slots customer within that younger demographic.

Yeah. Great question. This is the second one in particular I'll quickly answer the first one which is that quarter today, which is really October I mean, where what they three of November here track trends are very consistent with what we saw in.

Q3, again I'll highlight that there is seasonality just remember that I should look historically at what gaming revenues and EBITDA margins looks like there usually is a bit of a drop off from the first three quarter average to fourth quarter that will likely happen again here in 2022, but the reason, but the trends are have been very very consistent.

We're very happy with our October results on the interactive side, we've already covered that so if you aren't feeling good honesty as we sit here today and we could ask the question it seems like daily from some different.

Constituencies around what what's happening in the business and.

The answer is things look good and things look consistent they're stable promotional environment is rational competitive environment is predictable, but everybody's got their own narrative on what it's gonna happen. Soon so I don't really know what you even do with our answer but it is that is the answer.

With regard with regards to the younger statements a lot of that growth. As you highlight is younger men, who are coming into the system through online sports betting, but there are also a large number it's not the majority, but there are a large number of younger women coming through as well with online.

<unk> casino, we obviously are getting better and better both with regard to third party content as well as starting to develop our own slot content and I think as we get better and we have a broader library of games, you'll continue to see that that demographic for us grow but as good as these results are they are definitely.

More male skewed today, so as we get I think better at what we do on the floor side. We think this growth can really continue from both the the male audiences and the female audiences.

Thank you.

And frankly, I think we're I think we're out of time, so I'm going to thank everybody for joining us. This morning, I know, it's busy a lot of companies have earnings calls this morning, great catching up with everybody. We look forward to speaking with you next quarter.

That does conclude the conference call for today. Thank you for your participation and is that you. Please disconnect. Your line have a great day everyone.

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