Q4 2022 PENN Entertainment Inc Earnings Call
Please continue to stand by your conference will begin momentarily we thank you for your patience.
[music].
Yeah.
Greetings and welcome to the Pan Entertainment fourth quarter results 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 Mr. Joe Joe Pony head of Investor Relations. Please go ahead.
Thanks, Frank and good morning, everyone and thank you for joining Penn Entertainments 2022 fourth quarter conference call, we'll get to management's presentation and comments momentarily as well as your questions and answers during.
During the question answer session, we ask that everyone. Please limit themselves to one question and one follow up now.
Now I'll review, the Safe Harbor disclosure.
Please note that today's discussion contains forward looking statements.
We're looking statements involve risks assumptions and uncertainties that could cause actual results to differ materially.
For more information please see our press release for details on specific risk factors.
It's now my pleasure to turn the call over to the company's CEO Jay Snowden Jay. Please go ahead.
Thanks, Joe Good morning, everyone I'm I'm hearing why I'm missing with our CFO , Felicia Hendricks and our head of operations Todd George as well as other members of my executive team, who can help answer questions during Q&A.
You can see from our earnings release, and corresponding Investor presentation, we wrapped up another solid year of pen despite ongoing macroeconomic headwinds throughout the year and severe weather in certain parts of the country in December .
Revenues for the fourth quarter were $1 $5 9 billion, and we generated $468 3 million and adjusted EBITDAR.
For the year, our results were slightly above the midpoint of our revenue and EBITDAR guidance ranges. We also ended the quarter on a high note with strong performance across the portfolio between Christmas and New year's which has continued into January .
Slide six of our earnings deck illustrates our year over year revenue growth was driven by our interactive segment, which despite the mattress Max 10 million dollar winning bet on the Australia and the World series was profitable in the fourth quarter with several successful state launches and impressive growth in Ontario.
On slide seven you'll see for 2023, we are guiding to a revenue range of $6. One 5 billion to $6 five 8 billion and an adjusted EBITDAR range of $1 87, 5 billion to 2 billion. This guidance includes our new growth opportunities, including the transition of Barstool sports book to our own proprietary technology platform.
Norm in the U S. This summer it does not reflect our acquisition of 100% of Barstool sports, which we plan to close on later this month and will update in our guidance next quarter.
Notably, we're anticipating that roughly $100 million swing in profitability in our interactive segment in 2023 as we are just beginning to scratch the surface of what we believe will be a tremendous long term growth opportunity for us on.
On the retail side, we felt it was prudent to build into our guidance some element of conservatism given the relatively uncertain economic times and increased supply in some of our key markets, including Council Bluffs Lake Charles in Chicago land. Nevertheless, as we sit here today, we are not seeing a slowdown in business volumes as January was actually a very.
Month for us.
Turning to slide nine our focused marketing strategy and new technology enhancements generated approximately $1 3 million new rated customers last year and our my choice database approximately 300000 of these guys signed up in the fourth quarter, representing a 15% year over year increase notably over 50.
The percent of our database growth in the fourth quarter came from our online offerings.
On slide 10, we show the steady annual increase in play from our younger demo with the 21% to 44 year old segment growing from 10, 8% of total retail theoretical in 2017 to 18, 5% in 2022.
To further capture and retain this group, we're continuing to re imagine our properties with best in class retail sports books, New games greatly enhanced technology refreshed hotel offerings, and new third party restaurant concepts.
During the quarter. We also saw a meaningful increase in our my choice App downloads and the adoption of our industry, leading cashless card lists and contactless technologies, which we call three CS and as highlighted on slide 11.
With the launch of Missouri last week. The three CS are now active in 21 properties, representing approximately 70% of our total retail company wide EBITDAR.
As a result of the continued rollout of this technology at new properties as well as increased engagement in our current three six properties. We had 136000 my wallet customers and received $80 million in total my wallet deposits as of year end, which represent significant sequential growth.
As we've emphasized in the past those guests who use the digital wallet demonstrates superior loyalty through increased visitation time on device and total theoretical.
And our effective cross marketing efforts combined with our ability to deliver a seamless best in class customer experience has led to a 25% increase in guests who engage with us across multiple channels.
On the retail sports book side, We recently opened temporary sports books at our four casinos in Ohio.
On the results to date, we're anticipating our permanent Barstool sports books, which are on track for Q1, well performed very well in a state with such a passionate and knowledgeable sports fans.
With the addition of Massachusetts. This week the birthplace of Barstool Sports. We now operate 31 retail sports books across 14 states with market share of approximately 18%, excluding Nevada. This obviously positions us well for the upcoming Super Bowl March Madness and beyond.
As I mentioned in our interactive segment generated positive EBITDA adjusted EBITDA in the fourth quarter inclusive of expenses related to our online sports betting launches in Maryland, and Ohio, and an unfavorable sports betting outcome in the World series.
Following our successful playbook in Kansas in Maryland, as Youll see on slide 13, our Omnichannel marketing approach in Ohio led to Barstool sports books strongest launch to date, our deep customer database retail footprint and powerful Barstool sports marketing engine contributed to a record number of first time depositors at launch.
Slight minimal external marketing expense.
Importantly, more than 50% of our online handle came from our existing database.
As highlighted on slides 14, and 15, we are seeing improved I casino results. Thanks to our strong performance in Ontario, with our Casino G. G R and pen game studios handle experiencing significant year over year growth.
Our ability to continually introduce new games, including proprietary content from Penn game Studios sets the stage nicely for future growth. For example, we've got the score bat branded blackjack games set to launch in the first quarter of this year.
Ontario is now our top market in North America for both sports betting and I casino with strong growth and positive trends through the through our first NFL season, including record gross and net revenues in December we were able to maintain our market share in Ontario. This quarter. Despite a 50% increase in the number of operators in the province.
Which I think really speaks to the quality of our products and the stickiness of the score media ecosystem.
Turning to slide 16, the transition of the score back to our fully owned Tech platform last summer has provided us with advanced trading and promotional tools. They have led to impressive metrics relative to our performance in the U S, including an approximately 85% increase in three month retention and almost 20% improvement.
And our cross sell rates to I casino and a 114 basis point increase in our hold rate.
Our success in Ontario is very promising in terms of the upcoming migration of the Barstool Sports book and Casino to this tech platform later this summer.
Despite well known headwinds currently in the digital media and advertising space as Youll see on slide 17, and 18, the scores media business in Barstool sports continued to produce impressive revenue and engagement results driven by compelling content in an exceptional product experience in October we completed the initial integration of the bar.
Sports book into the score media App. This was great timing considering the scores mobile media audience is more engaged than ever with a 35% year over year increase in sessions during the fourth quarter and meaningful annual user session growth.
Meanwhile, Barstool sports achieved record revenues in 2022, while investing in and expanding into new verticals, including producing in broadcasting live sporting events, such as the Barstool Invitational College basketball tournament on November 11th and the Arizona Bowl on December 30th.
We are excited about the upcoming acquisition of the remainder of Barstool Sports and February later, this month and look forward to welcoming them to the pen entertainment family as you've often heard us say the combination of barstool vast loyal audience. What the score is fully integrated media and betting platform will provide us a powerful top of funnel for new customer acquisition and organic.
Gannett cross selling opportunities like those that we're seeing in Ontario today.
Finally, before turning it over to Felicia I wanted to take a moment to congratulate our entire team for the significant progress we made last year on our ESG journey, we've come a long way in a relatively short amount of time in partnership with our board's nominating and corporate governance committee as well as our internal ESG and diversity committees I'm, particularly proud of patent being named by Forbes magazine.
<unk> last year as the top publicly traded gaming company on their list of America's best employers for diversity in.
In addition, Penn was once again named an employer of first choice and the annual breast all associates spectrum spectrum gaming Executive satisfaction survey and Penn Interactive came in first place in their I gaming and mobile sports betting category as well.
As it relates specifically to the fourth quarter, we finalized our scope one and two greenhouse gas emissions assessment and plan to publish it in April along with our inaugural FASB disclosure as part of our 2022 corporate social responsibility report.
In addition, we completed our mandatory companywide diversity equity and inclusion training and will soon begin a second phase of training and focus on our leadership team's finally I'm proud to report that Penn Interactive received RG check I gave me an accreditation from the responsible gambling council for its online gaming operations Penn Interactive as the first U S. Operator.
<unk> to undergo this accreditation process, which is widely regarded as one of the most comprehensive responsible gaming accreditation programs in the world police that with that I'll hand, it over to you.
Jay as mentioned, we achieved solid revenues of 1.59 billion in the fourth quarter with adjusted EBITDA of $468 3 million and 29, 5% adjusted EBITDA margin for the year. Our results are slightly above the midpoint of our revenue and EBITDA guidance ranges.
Our retail properties generated adjusted EBITDAR of $487 1 million now, while we typically do not like to call out weather the severe storms and freezing temperatures prior to the holidays did have an impact on demand in particular at our properties in the Midwest Importantly, as the weather broke demand returned at least that.
Strong performance from Christmas and New year's which has which continued through January for.
For the interactive segment, we reported adjusted EBITDA of $5 2 million.
Corporate expense in the fourth quarter inclusive of cash settled stock based awards with $23 6 million cash payments to our REIT landlords with 239, I'm, sorry, $231 9 million cash taxes were $26 5 million in cash interest on traditional.
That was $29 1 million total capex for the quarter was $73 8 million of which $1 9 million was project capex, mostly associated with our category for Hollywood Morgan Town Casino, our fully diluted weighted average common shares outstanding as of 12 <unk>.
31, 2022 was $168 7 million.
As you know, we're guiding to a 2023 revenue range of $6. One 5 billion to $6 five 8 billion and an EBITDA range of 1.875 billion to 2 billion. This guidance does not include Barstool sports and we'll provide more color on the acquisition on our next earnings call, while we maintain.
Our view that we can sustain retail EBITDA margins of 37% in a normalized environment our outlook for 2023, which conservatively incorporates an uncertain economy and new supply in some markets implies the retail EBITDA margin closer to 36% for the interactive segment, our guidance assumes a roughly.
$100 million EBITDA improvement from 'twenty to 'twenty, two results of a loss of $75 million.
To further help your modeling for 'twenty to 'twenty, three we expect twenty-three corporate expense of roughly $110 million inclusive of our cash settled stock based awards. The year over year increase is primarily driven by the continued centralization of certain administrative and support functions.
Total capex for 2023 will be $413 million and let me break that down for you is there are several moving parts.
$25 million of the 413 million insurance proceeds, which is an offset to capex.
For project Capex, we are estimating $87 5 million for the year as design work begins at our four growth properties Aurora, Joliet, Columbus and M resort.
200 million is maintenance Capex and 100 million is growth capex on our ROI generating projects such as new hotel Remodels. The continued rollout of our barstool retail sports books and technology investments at our properties.
On February 17th we expect to complete the acquisition of the remaining 64% interest in Barstool sports that we do not own the remaining interest will be acquired for approximately $388 million and we expect to use $320 million of cash to complete the purchase inclusive of the rig.
Payment of debt and transaction expenses.
For cash interest expense, we forecast 164 million for the full year 2023, and cash taxes will be roughly $155 million for the full year of 2023, our weighted average fully diluted common share count for the year, assuming no further share repurchases is project.
It could be $168 1 million.
Now speaking of shares we repurchased two 9 million shares in the fourth quarter for $91 million at an average price of $31 69 per share. This brings our total purchases in 2022 to $17 6 million shares for $601 million or $34.23 per share.
Subsequent to quarter end, we repurchased an incremental 1 million shares for $31 $5 million or $31.20 per share. We currently have $118 million remaining on our February 3rd 20 $20 million to $750 million authorization as a reminder, we were.
Seeped board approval for a further $750 million share repurchase authorization. This past December .
We continue to believe that our current stock price does not reflect our intrinsic valuation nor does it capture the momentum we face this year and beyond as we think about the cadence of our share repurchase program going forward, we will balance this view with our cash needs for 'twenty, three which includes the acquisition of Barstool sports as well as keeping her.
Powder dry for additional growth opportunities further we remain committed to our balance sheet strength as such managing our lease adjusted net leverage in the near term will also be a factor in determining the cadence of future share repurchases.
So as you think about our share repurchase activity for the remainder of 2023, you should assume that we will continue to be opportunistic, but also prudent which could lead to lower share repurchase activity this year compared to 2022.
For 'twenty, two we entered the year with $2 $6 billion in liquidity inclusive of $1 $6 billion in cash and cash equivalents traditional net debt at the end of the quarter was $1 1 billion, an increase of roughly $190 million from December 31, 2021 due to a lower cash balance reflecting our share.
Our repurchase activity, we ended the year with lease adjusted net leverage of 4.4 times compared to four one times on December 31, 'twenty 'twenty, 185% of our debt is fixed rate. If you include our leases and our nearest debt maturity is in 2020 six and with that I'll turn it back to Jay.
Alright, Thanks, Felicia in closing as we look back on 2022. It was another transformative year for Pan and which we undertook a successful rebrand of our company to pen Entertainment. We opened six new retail sports books went live in a number of online sports betting jurisdictions and announced four new retail growth projects in Illinois, Ohio and Navarre.
And this was a huge year for us on the technology front as the migration to our own tech stack in Ontario was a tremendous milestone and we cannot be more pleased with the results thus far.
With full control of our product roadmap, we've been able to quickly add new features and betting markets to the score bet, including our own same game parlay offering which has led to a noticeable increase in hold both compared to our pre migration track record in Ontario, as well as what we're seeing here in the U S.
More importantly, our advanced promotional capabilities are helping to deliver higher retention and higher revenue per player metrics in Ontario than in the U S. This experience gives us confidence that there is meaningful upside for the Barstool sports book and I Casino once we complete our tech stack migration. This summer and are able to offer a product that is on par with our competitors.
Looking ahead I continue to be excited about our long term potential in the eye casino space, beginning with the migration to our own player account management system, which is performing very well in Ontario. We are also taking steps behind the scenes to better connect our brands from a marketing perspective and to provide a more seamless omnichannel experience for our customers, which we think can have a mean.
<unk> impact on both our retail and online casino offerings.
We've also heard a lot about the promotional environment getting more rational or becoming more rational in the online sports betting space and I think we're starting to see this play out to some extent for instance, our CPA as the new markets such as Ohio are very attractive compared to prior state launches and we think this trend could certainly continue throughout this year.
As you know thus far we have remained very disciplined and relied primarily on organic customer acquisition, rather than external marketing spend and this strategy has yielded impressive results as we were able to generate positive EBITDA in Q4, despite the cost of redundant tech stacks and abnormally low hold which we covered earlier.
Looking forward as I noted last quarter, we think there'll be an opportunity to be more aggressive from a marketing perspective post migration in second half of this year two are when they convert to our own tech stack in order to profitably grow our market share, particularly as others are potentially pulling back, but we will continue to be measured in our approach is reflected in our EBITDAR guidance straw.
<unk>, we certainly continue to play the long game.
I look forward to sharing more information on these topics in future quarters and with that Frank I think we can go ahead and open up the line for questions.
Thank you.
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One moment please for the first question.
Our first question comes from Barry Jonas.
Securities. Please proceed.
Thank you good morning, guys.
For the 2020 guidance, specifically, specifically land base could you maybe break out what's in there for general macro related headwinds as opposed to the specific its you are assuming from a new supply threats and I guess also does the 36% margin guidance just reflect lower revenues.
Rising costs like labor also in there yeah.
Yeah, I'll I'll try.
Try to hit that at a high level I know Todd will have some comments on that as well I mean here here's the approach barrier that we took for 2023 guidance. We are as we built out our budget you know from bottom up property by property and interactive and at the corporate level. We included some anticipated impact in a few of our markets, which we mentioned earlier.
Lake Charles Council Bluffs, Chicago land.
And we came up with a number but based on what we're continuing to read from and look we're not there's no economists on this team we're not experts in that area, but we are continuing to read but all the banks are continuing to say and anticipate for 2023, and so we decided to put some level of conservatism is we took a haircut.
So the number that we organically came up with just based on what we know about current trends, what we know about new supply in key markets.
And felt like that is probably the prudent approach for 2023 if.
What I would say at a high level as that of what we're seeing in the business today on the retail side and interactive if that as status quo for the year than the midpoint of guidance will end up being conservative, but it's way too early to say if that's how it is going to play out we felt like it was the appropriate approach going into a new year I think we're the only gaming company out there right now.
Providing guidance so felt like being conservative in how we do that would probably be the best approach, but Todd you may have other things to add I think all of that's right. The only maybe a couple of other items Barry that we continue to be impressed and very pleased with.
The industry and our approach to marketing. So we continue to envision a very rational marketing approach for all of us, but we do see some some potential labor dollar increases, but much of that offset with our improvements in technology. The way, we're looking at the business from a from a yielding and especially those non gaming amenity.
So to Jay's point, it's it's really a conservative approach you.
You know in the continuing evolution of our business model and adding a little bit of a room for labor increases.
Our next question comes from Chad Beynon with Macquarie. Please proceed.
Hi, Good morning, Thanks for taking my question one more just on the land based side.
Can you just kind of went into some details in terms of how youre thinking about it in 'twenty three but dissecting the three months in the fourth quarter, and then maybe going even a little bit more into January Joe you talked about continuing trends as we saw the equity markets become more volatile and as we saw interest rates rise.
And more fears around the housing market.
Was there any change in terms of what you saw from a spend per visit standpoint, I know that's kind of been leading the recovery visitation is still well off of prior levels, but it's really that spend per visit within the different tiers. Just wondering if you saw anything kind of ebb and flow throughout the quarter. If it was consistent.
It's actually been really interesting as we look back at 'twenty, two because Chad to your point there are periods of time, where it just sort of softens up a little bit you notice it from a visitation and spend per visit perspective, we saw a little bit of that in June and then fourth of July came up.
Round and we were right back hitting on all cylinders going forward, we did hit a little period of softness some of it was due to weather, which has been highlighted by us and others and then there was just a little bit of general malaise kind of mid November through mid to late December and so we you know we're kind of looking at that like is this the start of something new.
Got to the holidays robust between Christmas and new year's is good as any year I can remember and then the momentum has really continued on through January .
Much stronger January of this year than last year, you'll see the state number is starting to come out there's probably several factors there can be a little bit of of what we lost potentially in December and moved over to January so not really sure exactly how those dynamics play out, but certainly trends currently feel good but yeah. We did see a little pocket of softness somewhat due to weather and just a little a little.
[noise] malaise.
Yeah, Chad the only this is Todd the only thing I would add is to your point on Impac.
Impact on interest rates.
I do think.
We there's a lot of factors that go into that so the other thing that we did see across the country and especially in some of our key markets the decrease in gas pricing.
Lot of that just due to supply and demand and relatively mild winter.
You know that that all factors into that equation as well so when you start looking at that.
We're actually seeing numbers that are in line or slightly above the spend per visit from last year and significantly above where they were in 2019.
Todd just triggered a thought for me as well and this is something that we've highlighted before haven't been asked the question a whole lot in 2022 about you know what to potentially cause a recession and what impacts our customer behavior and.
I've been doing this now for a long time, it's coming up on 25 years and I would say looking back over those years that there's really only two economic factors that we've seen over the years that are really tightly correlated to customer behavior and customer health at least will be talking about our core consumer which is the labor market.
And whether you are looking at jobs unemployment percentage wage growth is actually in great shape. It was encouraging I think yesterday to watch chair Powell talk about starting to see the beginning of disinflation and how he's.
My words, not his butt paraphrasing that he is cautiously optimistic that they can potentially get this inflation level back down to desired levels without seeing any real erosion as it relates to employment that would be ideal because that certainly has a very tight correlation for our consumer and housing is the other one which though though it's come down off the peaks.
Held in relatively well so those are the two that we continue to keep an eye on those seem to have a much bigger impact overall to consumer behavior, and visitation and spend per visit patterns and our businesses than anything related super tightly to our gas price move a five or 10% of the big shifts that Todd mentioned, that's different but slight shift.
And gas prices or interest rates really don't seem to affect consumer behavior on our end.
Our next question comes from Shaun Kelly with Bank of America. Please proceed.
Hi, Good morning, everyone I'm, Jay I was hoping we could we could delve into kind of the core online trends a little bit more in the quarter. You showed some really strong <unk> growth in the gaming side, and obviously, Ontario continues to gain some momentum can you help us think about what you saw in kind of core OSB year on year, obviously there is.
Pretty big hit from mattress snack, but could you help us think about sort of the growth rate and trend you saw there.
Yes, it's a great great question, Shaun and it's interesting because we're in a we're in a sort of a peculiar spot right now in the U S. A that all that I'll describe at a high level.
We have our entire engineering and product teams really primarily focused on two things right. Now one of course is the upcoming migration to our own platforms in the U S, which will happen sometime in July a later later this summer lot of work going into the preparation for that and then.
Of course, we are continuing to as we always will innovate and iterate around making sure that we have a best in class product in Ontario, because that's the platform that we're gonna be on here in the U S and across our portfolio across North America. Later this summer and so that's really been where the focus has been where we have not been focusing and understandably.
Is that the platforms that we run on here in the U S, which are third party platforms, we have not been able to throw the resources out those to innovate and iterate and really focus on enhancement. So we've fallen a bit behind and I think our market share in sports betting. This this fall and this winter here in the U S has softened up.
A little bit and we really haven't been as focused on driving acquisition, knowing that our products isn't as competitive currently here in the U S. As it was compared to everybody else a year ago and so we made the conscious decision that we're okay with that we want to focus on retention here in the U S. We want to focus on both acquisition and re.
Tension in Ontario, but we're very pleased with the progress that we're seeing across all metrics in Ontario, that's going to allow us to really lean in once we convert over and migrate to our own platforms in the U S. Second half of the year. So you should expect us to be I think lauder from our marketing.
[noise] standpoint, as we head into football season, twenty-three knowing that we have at that point platform and promotional capabilities and CRM capabilities bonuses capabilities.
Parlay capabilities that we just don't have in the U S. Today, So that's sort of the way we've been thinking about it we've been focused on I casino growth across North America. We're happy we've made some progress there in the fourth quarter, we got a long ways to go but we're seeing progress and then generally speaking OSB and I casino, we've seen really nice trends in Ontario that we.
Believe we can duplicate here in the U S second half of the year.
Thank you very much and maybe just as my follow up to keep it short.
Could you talk a little bit about the.
Yes.
When you talk about the demographics on your kind of core cohort slide by by age type.
I find this data like really fascinating and can you help us think about some broader implications here for how that spending might evolve and how you're investing a little bit behind that I know obviously the retail sports book initiative has been there, but what other revenue streams are you seeing what are some of the kind of broader implications of this shift is as demographic.
<unk> changed a little bit in the business.
Yes, Sean this is Todd I'll take that.
So a lot of our investment the last few years as we started the spot this trend coming out of the pandemic really involves not only our game offerings, where maybe you'll see now a bit of a greater mix of electronics.
Electronic table games, which allow you a different price points. So you can enter at a different level, but especially in the non gaming amenities in the entertainment offerings. So the way we're looking at our hotels and we just completed the Greektown hotel and in the fourth quarter of last year, and it's really been performing quite well and then.
Sticking with that property just looking at some of the restaurant offerings as well as the first retail offering that we put in that futures. The Amazon just walk out technology are starting to see that ramp up quite a bit.
And then a lot of the work we did around the three CS and making that more.
More related bowl to all the folks that have been coming in that use venmo and Apple pay in all of those different forms of currency that they're used to they can now find those in our casino. So we've got a great roadmap in front of US I think as Jay mentioned earlier, we're just scratching the surface on that but we've seen great results so far.
Yeah.
Our next question comes from Joe Greff with Jpmorgan. Please proceed.
Hi, good morning, everybody.
I know, it's early days in Ohio, but I was hoping you could talk a little bit about.
The impact of the sports betting on land based GTR in profitability.
And then a follow up on interactive.
Talking roughly about $25 million in positive EBITDA.
In that segment for the full year.
Do you think it could be profitable in the first half or is it really weighted towards the second half. If you can give us some details on that that's all for me. Thanks.
Yeah, we'll grab both of those Joe I'll I'll hit the second one first and Todd can hit the Ohio question, which is a good one I would say as you think about sort of the cadence on the interactive side for 2023 by quarter, you should think about the first two quarters, both been pretty breakeven ish, maybe a little positive little neck.
There's not a lot of movement there third quarter is where we will have some negative negative numbers not significant but there'll be negative as we really plan for football season September being the first month of both college and NFL and so we'll be starting to lean in from a marketing standpoint, but you won't have an entire quarter of the volumes that come with it.
And then the fourth quarter is where you should really expect to see the highest levels of profitability that get you to that positive number for the year that.
That would be the cadence of how to think about for the for 2023, Thanks, Jay and Joe as it relates to the Ohio properties. This was really our most successful launch for Barstool sports book in.
The property teams and corporate marketing everybody just working so well together and what we've seen also would've been good if maybe we could have launched a day earlier or Ohio State would have won that game. Because then we would have picked up a another huge day, but Jay and I were just talking last weekend, one of our properties in Ohio had.
At an all time record for volumes since opening beating out a new year's Eve and it was really amazing to see so again, what we've seen in other states, where that 21% to 44 year old demo coming in experiencing things for the first time, it's really been a great complement to our existing database that's in there so.
Could not be more pleased with the way we're looking at it right now with all four of our Ohio properties exceeding budget and prior year.
Just to be Super clear on that all time volume record day that was last Saturday, which was not a holiday weekend. It was just a Saturday in January so we do attribute a good portion of that to the addition of retail sports betting the influx of for.
For the most part younger customers coming in are being introduced to new people and people realizing once they come in there's a lot of fun things to do other than just bet on sports, but to do some gambling and partake in the restaurant and entertainment offerings. So yeah, very very encouraging I think Todd and the team have done a great job and all of these markets and we're just we're getting smarter every.
Time, we launch in a new state in terms of the collaboration between interactive and retail and really planning for omni channel effect as opposed to just for what what's our market share and handle the first month.
Our next question comes from Ryan <unk> with Craig Hallum Capital. Please proceed.
Good morning, Jay Felicia.
Want to stay on interactive so congrats on the positive EBITDA in Q4 like.
Likely the only operator from our standpoint that'll probably report that here in Q4, but given the mattress Macworld series loss your previous expectation was likely for a swing to a loss potentially in the quarter given that what went better to report that 5 million of positive EBITDA was it primarily the cost side or the user side.
Yeah, I would say as you look at it probably better results in Ontario than we had expected which is great for lots of reasons and then we have seen some progress again, we're not where we want to be yet and I casino, but we havent, we have grown our market share in a casino as you can see them.
One of the slides that we provided so I would say those are the two primary reasons. The cost structure is really it's quite predictable.
This is what happens when you're on third party platforms, and then you're working on a migration, but we have a ramping up of our own internal resources, while we're still paying full cost for third party resources on the outside but at least that the ramp that you're seeing in engineering and product and other areas is part of our budget part of our.
Plan and not surprising quite predictable so the cost structure really shouldn't be a surprise throughout the year, it's really going to depend on what happens with revenues what happens with hold percentage those things would tend to fluctuate the results more so than the cost structure.
Yes.
Agree with all that the only other thing I would add and Jay touched on this earlier the great thing for us and it's a little bit unique to our business model with would be the partnerships that we have but keeping that CPA low, especially as we launch into these new states always helps with that expense structure as well.
And then for my follow up just curious any thoughts on Massachusetts with the.
The recent launch live with the three a lot retail sports books, there and then your plans going over the next couple of months. Thanks.
Yep I.
I appreciate it Ryan.
We have high expectations for sports betting in Massachusetts for obvious reasons Barstool was founded there are huge following.
We're celebrating barstools 20th years.
Being launched in 2003, so there's long term relationships and loyalty there with the audience and based on what we're seeing in Ohio and again, we haven't seen market share results. All we're saying is our own numbers, but we're feeling really good about our launch in Ohio, we expect that to be one of our top performing.
States not just not just from a total revenue obviously, there's a significant population there, but we think from a market share standpoint, as well and we expect Massachusetts to be very similar and just a reminder for those that may not know were only live currently as of yesterday with retail sports books, which was great timing at least to be in time for Super Bowl wagers.
We won't be live with mobile until right before March madness as what the regulators currently have plan. So we will be live in March and I think we'll have a lot more information as we get on our Q1 call in early May about both Ohio and Massachusetts.
Our next question comes from Bernie Mcternan with Needham and company. Please proceed.
Great. Good morning, Thanks for taking my questions to start the $100 million swing in interactive profitability. How much of that is driven by just organic growth versus synergies, whether it's revenue synergies or cost synergies.
Growth, we don't actually have synergies kind of working against us in 'twenty three like I said, because we've got redundancy on third party cost platform costs that really carry through the end of the year, while we continue to ramp up building out our own product and engineering teams. So it's it's certainly less synergy.
And it's a lot more us growing the business and us having improved retention results cross sell from sports betting into I casino results the second half of the year.
Those are the factors and then of course, we also highlighted in one of our slides that we're seeing the benefit of increased hold percentage. So if you look at the in the U S. I think we're the lowest average hold percentage of all of the top six players.
We think that that will start to reverse itself. Once we're on our own tech stack and our own player account management.
We're in control more of the trading services, we have great partners third party partners today, but I think what you're seeing when you have a control of the product roadmap and you can put more of those offerings is front and center for the consumer that you can start to move the whole percentage in the right way with especially with the retail masses that are about in mostly on parlays.
We're still sitting at right around 20% of total wagers in the U S. On Parlays I think that's a lot lower than most of our competitors. So are we.
We look forward to that I think those are the enhancements, but it's going to be for 2023 profitability and much more around growth and synergies I think 2024, you'll hear a lot more from us on the cost synergy side of some of those third party costs start to roll off.
Understood.
When the complete buying the virus still happens in two weeks is there anything that we should expect I know I know, we should get guidance at a later time, but operationally or anything to call out that once you have 100% control of it it could be acting differently.
I think certainly more more deeply integrated cross sell opportunities. We've got all sorts of things. We actually were just in Miami for executive retreat and spent a lot of time on this as an executive team along with Erica and so I think more to come we'll spend some time on this in may on our Q1 call Eric.
<unk> will join us on the call and we're happy to we'll probably have a few slides on that happy to answer questions about it but rather not get into it today until after we've closed on the full acquisition.
Okay.
Our next question comes from Brent <unk> with Barclays. Please proceed.
Hey, everybody good morning, and thanks for taking my questions.
So I wanted to actually follow up on one of those points Jay on the parlay mix in Ontario.
Partly mix in the U S. If you look at this slide 16, you guys talk about hold outperformance in Ontario, I assume that's because of the power parlayed mix, there that you're able to get from being on your own tech stack.
Is that the extent of the upside for the U S and maybe another way of asking it is is.
The Ontario Parlay mix.
<unk>.
Up to let's say the market leader.
You see it there is there more is there more to go essentially.
Yeah, I think there's more to go rent.
Even though we're seeing that delta between hold for poor performance in Ontario versus the U S. I would say that we're still in the very early innings in Ontario, as it relates to our parlay offerings. So if you compare to what we're doing in Ontario to what some of the top players in the U S are doing there is still a pre.
Significant Delta I think you can see that even our whole percentage in Ontario being higher than it is in the U S that hold percentage still trails, where the top three or four players.
Players are in the U S. So I would say, there's probably a couple of hundred to 300 basis point opportunity longer term for us to improve our hold percentage given where we're currently run rating here in the U S versus where we ultimately anticipate being.
Okay. Great. Thanks, that's helpful and then a follow up on your on your comments about the second half of this year and getting louder.
I know you probably don't want to give out any competitive information, but what does that really entail does it something we should be considering in terms of increased marketing spend is it more organic the type of marketing that you guys have tended to do.
Anything that you can provide there would be helpful. Thank you.
Yeah.
I would say, both where you'll see us I think a little more aggressive you shouldn't expect to see us running television commercials every weekend anything like that but I think youll see us be more aggressive on paid media probably more of a focus on digital than anything else. There a lot more heavy leaning in on the organic and cross sell opportunity.
DS and user acquisition our partners at the score in Barstool I think.
You know being even louder, knowing that we have a great platform to showcase to our audience. So you should expect us to be more aggressive, but we're going to do it in a way where we still think we can drive profitability in the fourth quarter and then obviously have some real momentum going into 2024, where we're picking up some market share we're doing it in a profitable way and take those learnings and.
24 and beyond.
Our next question comes from John Decree with CBRE. Please proceed.
Hi, everyone and thanks for taking all the questions.
Let me shift gears a little bit.
Jay There has been some more rumblings in Texas, and Georgia about possible.
Regulating of gaming.
That type of stuff, it's still probably a long road in both states, but curious if you have a view on what's happening. There you usually have a pretty good pretty good sense of that type of stuff and then maybe secondarily.
Any thoughts on potential additional gaming regulation around the country.
Yeah happy to hit those I would say first on the I gaming side.
Not a lot of momentum as we look at legislatively 2023, we are of the opinion that something will start to move probably in the Midwest, whether that's our Illinois, and Indiana, and Iowa and once that happens as we've seen historically in our industry. It just starts to move a lot faster.
By neighboring states, so I wouldn't know how to handicap, whether or not something happens in 'twenty three it's not real active right now.
Honestly from our perspective, that's fine I think we're gonna be a lot more prepared for I gaming generally and competitively on a platform that we feel really good about once we get to the second half of 'twenty three and beyond so if it's a little bit on the slower side no no problem.
But I think something will start to go if not this year feel pretty confident in 2024, you'll see a state or maybe a couple of states continue down that path. It's only our perspective would be it's a matter of time if for the states that have legalized.
And launched online sports betting.
Natural to eventually also legalize online casino like we've seen in Pennsylvania, New Jersey, and Michigan and so it just it will so we'll see how that plays out.
As it relates to Georgia, and not a lot to say on Georgia.
Don't have any real history. There. So we're sort of you know.
Reading, what you're reading, we have lobbyists that keep us connected there seems to be more of an appetite in both states, Georgia and Texas now than there has been really ever.
But take that all with a grain of salt because there really wasn't any interest for a long time and now theres a little interest so Texas.
Texas I feel like we have a pretty good pulse on we.
You've been making strategic investments in horse racing in Texas for a long time.
Over a decade now and we are the owners we have ownership <unk> controlling positions in a number of racetracks in Texas that we think sets us up really well if and when something does happen in Texas.
Early in this legislative cycle for this year as you know, Texas. The legislation legislature only meets every two years there is a lot more conversation and openness.
This legislative cycle than we've really ever seen.
There seems to be some support on the house side and from the Governor and the Senate is really a TBD, but we're very active we're very engaged I've been spending a lot of my own personal time on this in Texas, because we believe it could be a real significant opportunity and exciting one for the company and I would say stay tuned as we know more we're happy to share, but it's there.
Early and I don't like trying to handicap outcomes, a regulatory or legislative way.
Our next question comes from Joe Stauff with.
Kahuna. Please proceed.
Thank you good morning.
Okay.
I wanted to ask you with respect to Ontario.
A very important market given the assets you have there.
And.
Pretty pretty meager or or slim information and so can you maybe comment a little bit about just the competitive landscape you have.
Pretty heavy competition from incumbents and kind of what you guys are doing.
That's encouraging and is.
Leading to some initial success.
Yeah.
Question look.
Ontario is the most competitive market by far that we operate and I can't speak for every operator, but you've got every major U S and international operator in Ontario, some of which were there for many many years when it was a great market and so for us to be able to showcase results and momentum that we have.
In our slide deck on slide 15, we're highly encouraged by that and really there's only two things to point to the score obviously has.
A lot of history in the market a lot of loyalty with a fan base, who for for a long time, new the score more of the Czech scores and updates on their favorite teams and getting conversations and community features about their favorite teams in their favorite games and about betting on sports and all of that so that score media ecosystem certainly it was.
The boost we acquired a very strong brands in Ontario, very strong in the U S as well, but predominantly.
In Ontario.
So I think that that's a huge piece, but then of course, we talked a lot about the platform and the capabilities that we have are very different than what we have to work with here in the U S and so that makes us feel really good about the migration in the U S and being able to compete on a level playing field and be in control of what's in there.
Our product roadmap Q, what you're prioritizing the capabilities.
So those are the two factors and for US. It has also been impressive in that our market share as we calculate it based on the limited information that's been supplied publicly by the Ontario regulators. There is that our market share is holding steady despite an influx of additional operators as I mentioned in our prepared.
Remarks, we saw the number of operators operating in Ontario from Q3 to Q4 grow by over 50% five zero and yet we held onto our market share and continue to really grow our business through football season, both in online sports betting online casino and really excited about online casino because of the cross sell results.
In Ontario have been much stronger than what we've seen here in the U S.
It makes sense and then.
Youre investments that you'll make I guess this year in 2023, Felicia and provided some numbers in terms of project Capex, but what.
What does that mean I guess for specific retail barstools branding and.
Any other.
Sort of cashless investments that youre going to make and expand into 2023, what are your plans there.
I would say inflation you can jump in here, but if I understand your question correctly, Joe when relationship broke down the Capex plans for the year. What you saw is that a total number of call. It 400, and roughly 80 788 night call. It 90 of that is going towards the fall.
Our growth projects that we talked about earlier in the year two.
Illinois, The hotel in Columbus, Ohio, and the hotel at M resort in Las Vegas, the rest of the 300 million and think about it is exactly how we talked about 2022, you've got $200 million in maintenance and then you've got $100 million.
We sort of considered discretionary spend and but it does have a return associated with it in that $100 million will be going towards the exact types of projects that you are referencing the us launching more barstool branded retail sports books <unk> rolled out although we've gotten a lot of that work done behind us we've got more hotel renovation entered.
Payment additions food and beverage that's why the focus for that last 100, and we're very pleased with the early returns that we saw on the $100 million that we spent on those projects in 2022, which is why we're doing more of that in 'twenty three so outside of the growth the four big projects, our Capex plans for 'twenty three.
Almost identical to what they look like in 'twenty. Two please I don't if there was anything you know that that that's exactly right and I think just to underscore that point is that you know while we're investing in these new growth projects.
Business as usual for us.
Elsewhere.
Our next question comes from Steve <unk> with Stifel. Please proceed.
Hey, guys good morning.
So Jay I want to go back to the guidance for this year.
And I think it was the berries I think was the first question on the call, but you obviously you've called out there was there was potential headwinds in front of you.
And new competition, new competition is going to be what it is what it is and you have a pretty good handle on what thats going to look like but I wanted to ask if the consumer stays pretty much status quo I mean, what youre seeing right now through January is it fair to think that there actually could be upside to the.
The upper end of your guidance range.
Yes.
I don't know how else to answer that is.
If the trends that we're seeing in January .
If that status quo for the remainder of the year, then there would be upside to the midpoint of the range that we provided.
We took a haircut to what we anticipated seeing in 'twenty three just to build in some level of recessionary concern.
Conservatism really because that's what we continue to read from those that do this for a living is that something's going to happen later this year.
If that something doesn't happen and what we're seeing in the business today, if the labor market hold steady in housing market hold steady.
Spend per visit and visitation throughout the year it looks like it does in January then.
Yeah, the guidance is going to be conservative.
Okay. Thanks, Jay and then second question either for you or Todd I don't think you guys talked or mentioned it all labor so far on the call and just could.
Could you give us any kind of quick update on what youre seeing out there from a from a labor perspective.
It has the availability of labor gotten any better for you guys.
Sure Steve So the second part of that question is a little bit easier to answer it.
Yeah, we've seen a pickup in inflow of applications in and candidates for most of our jobs. So that that's actually been very encouraging so.
We're able to go at more full capacity with most of our offerings on the first part there's pockets, where there's a little bit of upward pressure I'd say, Colorado with with some of what they've just recently passed from a minimum wage standpoint.
But much of our portfolio. It's it's more kind of status quo, we're not going backwards by any means but there's more pressure I guess just from a state mandate or federal mandate for minimum wage but.
But overall there is a little bit more flow so it offsets the need to pay up for talent.
Our next question comes from Stephen Grambling with Morgan Stanley . Please proceed.
Thanks, just a couple of quick follow ups on interactive first on the implementation of the tech stack, how should we be thinking about the cadence of the rollout are you targeting a simultaneous introduction across states or doing any kind of testing at the state level and rolling it out over time, and then as a follow up on your comments about ramping marketing cost.
Marketing expenses and promotions, maybe post implementation, how do you think CPA or changing in the legacy markets.
Or how might they change as states mature.
Yeah. So the first part of your question Stephen around the Tech stack cadence is we're planning to go live across all states in the U S. At one time were targeting.
Ball all star weekend, when there's literally nothing going on in the sports World in the U S. We've been working very closely and continue to with our regulators in preparation for this we feel really confident in the plan and we've got of course contingencies that you can imagine based on any adjustments.
Adjustments that we need to make that plan between now and July but that is the plan right now for US to go live all at one time and to be live for a month and a half before we have the influx of volume with college football and NFL starting up.
So that's the tech stack plan and then from a from a CPA perspective.
We're seeing that the promotional environment is more rational and youre seeing a little less spend from an advertising perspective for paid media across the online sports betting space, which means that cpas are a little more attractive certainly in new markets like Ohio that we just launched and in Maryland and Kansas.
The truth is we will see once mobile goes live but to your question around some of the markets that have been live now for a year two years three years. We're seeing CPA is there that are a little more attractive than they were a year ago and so that's part of what gives us some level of optimism not just having an improved product.
And tech stack going into football season here in 2023, but also an environment, where I think there is much more of a focus from all of the top operators to get to profitability. We welcome that what's been our focus we got there in Q4. We think we are definitely confident we'll be there for the year in 2023, but it allows.
Us to be a little bit more aggressive maybe when the environment is a little bit more efficient a little bit more attractive from a CPA perspective.
Mr. <unk> I will now turn the call back to you. Please continue with your presentation or closing remarks.
Great. Thanks, everyone for joining us. This morning I appreciate your time and look forward to speaking with you in early may to cover Q1 results.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
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