Q2 2024 PENN Entertainment Inc Earnings Call
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Operator: Please stand by. Your program is about to begin. If you need assistance during your conference, please press star zero. Greetings, and welcome to the Entertainment Second Quarter 2024 Results Call. I would now like to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead.
Speaker Change: Greetings and welcome to the Entertainment second quarter 2024 results call I would.
Speaker Change: I'd now like to turn the call over to Joe Your Phony Investor Relations. Please go ahead.
Joseph Jaffoni: Thanks, Angela. Good morning, everyone, and thank you for joining Penn Entertainment's 2024 second quarter conference call. We'll get to management's presentation and comments momentarily, as well as your questions and answers. During the Q&A session, we ask that everyone please limit themselves to one question and one follow-up.
Joe: Thanks, Angela and good morning, everyone and thank you for joining Penn Entertainment's 2024 second quarter Conference call, we'll get to management's presentation and comments momentarily as well as your questions and answers.
Speaker Change: During the Q&A session, we ask that everyone. Please limit themselves to one question and one follow up now I'll review, the safe Harbor disclosure I won't get into the call.
Joseph Jaffoni: Now I'll review the Safe Harbor Disclosure, and we'll get into the call. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation 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, intends, plans, seeks, may, will, should, or anticipates, or the negative or other variations of these or similar words, or by discussions of future events, strategies, or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures, and operating results. Such forward-looking statements reflect the company's current As such, actual results may vary materially from expectations.
Speaker Change: In addition to historical facts or statements of current conditions. Today's conference call contains forward looking statements within the meaning of the private Securities Litigation 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 intends plans seeks may will should.
Speaker Change: Or anticipates or the negative or other variations of these or similar words or by discussions of future events strategies or risks and uncertainties, including future plans strategies performance developments acquisitions capital expenditures and operating results.
Speaker Change: Such forward looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance as such actual results may vary materially from the expectations.
Joseph Jaffoni: The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q. Penn Entertainment assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast will also include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. With that, it is now my pleasure to turn the call over to Penn Entertainment CEO Jay Snowden. Jay, please go ahead.
Speaker Change: The risks and uncertainties associated with forward looking statements are described in todays news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q.
Speaker Change: Pan Entertainment assumes no obligation to publicly update or revise any forward looking statements.
Speaker Change: Today's call and webcast will also include non-GAAP financial measures within the meaning of FCC rate regulation G. When required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website.
Jay Snowden: Thanks, Joe. Good morning, everyone.
Speaker Change: With that it's now my pleasure to turn the call over to pen entertainments CEO Jay Snowden Jay. Please go ahead.
Speaker Change: Yeah.
Jay Snowden: Thanks, Joe and good morning, everyone I'm here and while messing with our CFO Felicia Hendrix, our head of operations, Todd George and for the first time, we're joined by Aaron Berg, Our New Chief Technology Officer, Mary Thanks, a J.
Jay Snowden: I'm here in While Missing with our CFO, Felicia Hendrix, our Head of Operations, Todd George, and for the first time, we're joined by Aaron LaBerge, our new Chief Technology Officer. Welcome, Aaron. Thank you, Jay.
Jay Snowden: Aaron officially joined Penn on July 1st, and as we've shared, he's responsible for driving our technology strategy and execution, as well as serving as the key business leader for our interactive division. As most of you know, Aaron comes to us from Disney, where he had a terrific 20-year career. In addition to his many accomplishments and accolades throughout his time there, Aaron was deeply involved in ESPN's technology due diligence on Penn Interactive. While he's only been on the ground at Penn for a few weeks, I thought it'd be good to open the call today with some of his early thoughts and key takeaways.
Speaker Change: Aaron officially joined Pan on July 1st and as we've shared he's responsible for driving our technology strategy and execution as well as serving as a key business leader for our interactive division as most of you know Aaron comes to us from Disney where he had a terrific over 20 year career. In addition to his many accomplishments and accolades throughout his time, there and was deeply involved in.
Aaron: S. P N technology due diligence on Penn interactive, while he's only been on the ground that patent for a few weeks I thought it'd be good to open the call today with some of his early thoughts and key takeaways amie. Thanks, It's really great to be here with everyone and I'm really excited to have officially joined the Penn family.
Aaron LaBerge: Thanks. It's really great to be here with everyone, and I'm really excited to have officially joined the Penn family. During my first couple of weeks, I had the opportunity to do a deep dive with our interactive teams in Toronto and Philadelphia, focusing on our product roadmap and growth strategy. I continue to be so impressed with this team, their world-class capabilities, and the robust and scalable technology stack they've built. We're currently live in 19 jurisdictions across North America, with New York going live in late August, pending regulatory approval.
Speaker Change: During my first couple of weeks I've had the opportunity to do a deep dive with or interacted teams in Toronto in Philadelphia, focusing on our product roadmap and growth strategies I continue to be so impressed with this team they're world class capabilities, and the robust and scalable technology stack the adult.
Aaron: We're currently live in 19 jurisdictions across North America, with New York going live in late August pending regulatory approval.
Aaron LaBerge: We currently have a user database of nearly 4 million unique digital bettors that was built over the past three and a half years. This strong foundation positions us well for continued growth and innovation. And while we're proud of our rapid expansion, we know we have some ground to make up, particularly in key feature categories such as parlays and player products. This is a consequence of the laser focus that we placed on our platform migration, rebranding, and new state launches.
Aaron: We currently have a user database of nearly 4 million unique digital betters that was built over the past three and a half years. This strong foundation positions us well for continued growth and innovation.
Speaker Change: And while we're proud of our rapid expansion. We know we have some ground to make up particularly in key feature categories, such as parlays and player props.
Speaker Change: This is a consequence of the laser focus that we placed on our platform migration rebranding and new state launches. However, I see this as an exciting opportunity to roll up my sleeves, with our engineering and product teams to create a best in class experience for our customers.
Aaron LaBerge: However, I see this as an exciting opportunity to roll up my sleeves with our engineering and product teams to create a best-in-class experience for our customers. As we will touch on later, we recently introduced some significant product improvements, with several more in the pipeline for the coming months, and I am confident that we'll continue to close the gap with our competitors. Our goal here is simple. We want to create the best product for sports fans by elevating how they find and track their bets, both within ESPN VET and across the entire ESPN ecosystem. By delivering here, we'll drive our monetization through enhanced engagement, retention, and reactivation.
Speaker Change: As we will touch on later, we recently introduced some significant product improvements with several more in the pipeline for the coming months and I am confident that we'll continue to close the gap with our competitors.
Speaker Change: Our goal here is simple we want to create the best product for sports fans by elevating how they find place and track their bets both within E. S. P N bet and across the entire E. S. P N ecosystem.
Speaker Change: By delivering here will drive our monetization through enhanced engagement retention and reactivation.
Aaron LaBerge: ESPN and Penn share a common vision. We want to make ESPN bet America's sportsbook. Sports betting is a key pillar of ESPN's future growth because sports betting content and connectivity drive user engagement. Collectively, we have a truly unique opportunity to create a frictionless ecosystem for fans to enjoy the sports they love and engage in sports better. We are both deeply committed to making ESPN Bet a top name in sports betting in the coming years. We don't just want to compete here; we want to win. And with that, I'll turn it back over to Jay. Thanks.
Speaker Change: E S P N and Penn share a common vision, we want to make ESPN that America sports book.
Speaker Change: Sports betting is a key pillar of espn's future growth, because sports betting content and connectivity drive user engagement.
Speaker Change: Collectively we have a truly unique opportunity to create a frictionless ecosystem for fans to enjoy the sports they love and engage in sports betting.
Speaker Change: We are both deeply committed to making E. S. P. N bet, a top named sports betting over the coming years, we don't just want to compete here, we want to win and with that I'll turn it back over to Jay.
Jay Snowden: Thanks, Aaron. We are planning to host a meeting with investors during G2E at our M Resort property in Las Vegas on October 7th. So you can see firsthand the construction activity for the new hotel tower and property expansion there. And, of course, get a chance to meet Aaron in person and hear a company update from him and the rest of our executive management team. With that in mind, let me turn back to the results for the quarter.
Jay Snowden: Thanks, Aaron we are planning to host a meeting with investors during G. T V. At R. M resort property in Las Vegas on October 7th. So you can see firsthand the construction activity for the New hotel tower and property expansion, there and of course get a chance to meet Aaron in person in here a company update from him and the rest of our executive management team.
Speaker Change: With that let me turn back to the results for the quarter as you'll see on slide five in our Investor presentation, our retail business delivered solid quarterly results as our industry, leading operators continue to execute across our portfolio I'm extremely proud of the results. Our property teams continue to deliver in the face of ongoing competition and new supply.
Jay Snowden: As you'll see on slide five in our investor presentation, our retail business delivered solid quarterly results as our industry-leading operators continue to execute across our portfolio. I am extremely proud of the results our property teams continue to deliver in the face of ongoing competition and new supply. This quarter, we benefited from strong market share growth in several markets, including Ohio, Maryland, and Iowa, coupled with continued momentum at some of our flagship properties, including Hollywood Casino at Greektown and Emory Resort in Las Vegas.
Speaker Change: This quarter, we benefited from strong market share growth in several markets, including Ohio, Maryland, and Iowa, coupled with continued momentum at some of our flagship properties, including our Hollywood Casino at Greektown and M resort in Las Vegas.
Jay Snowden: We included a case study on Greektown on slide six to illustrate how our recent hotel room renovations and the introduction of our first ESPN Bet Retail Sportsbook have delivered impressive revenue and market share growth at this downtown Detroit property. You'll recall we successfully opened our first ESPN Bet Retail Sportsbook for a multi-day NFL activation at Greektown, including live draft coverage at the casino by ESPN personalities.
Speaker Change: We include a case study on Greektown on slide sex to illustrate how our recent hotel room renovations and the introduction of our first E. S. P. N bat retail sports book have delivered impressive revenue and market share growth at this downtown Detroit property.
Speaker Change: You'll recall, we successfully opened our first ESPN bet retail sports book for a multi day NFL activation at Greektown, including live draft coverage at the Casino I E. S. P N personalities.
Jay Snowden: Revenues at the property are up more than six and a half percent year over year, and we saw a 90 basis point increase in year over year market share growth during the quarter. We also included a case study on our Ohio properties, on slide seven, illustrating how our ongoing investments there, including refreshed casino floors, expanded high limit areas, best in class sports books, and new food and beverage offerings have resulted in strong year over year growth. Our Columbus property continues to be a standout performer.
Speaker Change: Revenues at the property are up more than six 5% year over year, and we saw a 90 basis point increase in year over year market share growth during the quarter.
Speaker Change: We also included a case study on our Ohio, Our Ohio property is on slide seven illustrating how our ongoing investments there, including refreshed casino floors expanded high limit areas best in class sports books, and new food and beverage offerings have resulted in strong year over year growth.
Speaker Change: Our Columbus property continues to be a standout performer and we're very excited about our ongoing hotel project, there and the upcoming rebranding of our sports book to E. S. P N bat.
Jay Snowden: And we're very excited about our ongoing hotel project there and the upcoming rebranding of our sports book to ESPN VET. Speaking of retail sportsbooks, on slide 8, we listed the other upcoming brand conversions to ESPN VET across our portfolio and sports-centric market. These will help to further our brand connectivity and create meaningful cross-sell opportunities in order to capitalize on the incredible growth we have seen in our database. As you'll see on slide 9, we are also making great progress on our exciting new growth projects, all of which remain on budget and on track to open by the first half of 2020.
Speaker Change: Speaking of retail sports books on slide eight we listed the other upcoming brand conversions to E. S. P N better across our portfolio and sports centric markets.
Speaker Change: These will help to further our brand connectivity and create meaningful cross sell opportunities in order to capitalize on the incredible growth we have seen in our database.
Speaker Change: As you'll see on slide nine we are also making great progress on our exciting new growth projects, all of which remain on budget and on track to open by the first half of 'twenty six.
Jay Snowden: We will provide some additional information about these projects at G2A. In our interactive segment, Top of Funnel Growth, Improved Risk and Trading Execution, and Refined Promotional Strategies contributed to record quarterly NGR, which helped narrow our interactive segment losses quarter over quarter, despite a seasonally slower second quarter sports calendar. Our revenues, excluding the tax gross up, were up by more than 65% compared to the first quarter.
Speaker Change: I'll provide some additional information about these projects at G. Two eight.
Speaker Change: In our interactive segment top of funnel growth improved risk and trading execution and refined promotional strategies contributed to record quarterly N. G. R. What's helped narrow our interactive segment losses quarter over quarter, Despite a seasonally slower second quarter sports calendar.
Speaker Change: Our revenues, excluding the tax gross up were up by more than 65% compared to the first quarter and we saw a $93 million adjusted EBITDA improvement from our first quarter results.
Jay Snowden: And we saw a $93 million adjusted EBITDA improvement from our first quarter results. As highlighted on slide 11, ESPN-BET continues to drive meaningful growth in both our digital database and our active user base, providing a strong foundation for future growth as we introduce new product improvements. Our Penn Play database now boasts approximately 31 million members, including 3.8 million in our digital database, which is an increase of more than 80% since the launch of ESPN MET.
Speaker Change: As highlighted on slide 11 E. S. P. N back continues to drive meaningful growth in both our digital database and our active user base, providing a strong foundation for future growth as we introduce new product improvements.
Speaker Change: Our Penn play database now boasts over 30, approximately 31 million members, including $3 8 million and our digital database, which is an increase of more than 80% since the launch of E. S. P N bet.
Speaker Change: We also saw a more than 138% year over year increase in our monthly active users.
Speaker Change: Based on sensor tower data, we continue to hold a top three ranking and weekly active users among our top OSB and daily fantasy sports competitors.
Jay Snowden: We also saw more than 138% year-over-year increase in our monthly active users. Based on Sensor Tower data, we continue to hold a top three ranking in weekly active users among our top OSB and daily fantasy sport competitors. People are active in our app, and our goal over the next several quarters is to drive higher loyalty and retention and better monetization through better monetizing the significant engagement activity through an improved product and expanded offerings. Turning to slide 13, improved risk management and trading execution in a higher parlay mix helped contribute to higher hold rates this quarter.
Speaker Change: People are active in our apps and our goal over the next several quarters is to drive higher loyalty and retention and better market and better monetization.
Speaker Change: Through CIT.
Speaker Change: Better monetize excuse me the significant engagement activity through an improved product and expanded offerings.
Speaker Change: Turning to slide 13 improved risk and trading execution and a higher parlay mix helped contribute to a higher hold rates this quarter looking at parlays as a percentage of total handle in Illinois.
Jay Snowden: Looking at parlays as a percentage of total handle in Illinois, for example, ESPN bet was at 24.2% versus our top competitors at 34.5% and 23.8%, respectively, and the rest of the market at 22.2%. As I've said before, ESPN bet is attracting a wider user base and more casual bettors, which we really, who really enjoy betting on parlays. And we will be adding additional parlay offerings and features to our product prior to week one of the NFL season this year and over the remainder of 2024 to better engage and serve these customers.
Speaker Change: For example E S. P N bat was at 24.2% versus our top competitors at 34.5% and 23, 8%, respectively and the rest of the market at 22.2% as I've said before E. S. P. N bad is attracting a wider user base and more casual better, which we really and who really enjoy betting on parlays.
Speaker Change: And we will be adding additional parlay offerings and features to our product prior to week one of NFL season, this year and over the remainder of 2024 to better engage and serve these customers.
Jay Snowden: We expect to further increase our digital footprint with the prospective launches of ESPN bet in New York, subject to regulatory approval, and with SCORE bet in Alberta when the market eventually opens. We plan to maintain our disciplined approach to customer acquisition and engagement when we launch in New York.
Speaker Change: We expect to further increase our digital footprint with prospective launches of E. S. P N bet and New York subject to regulatory approval and with the score bet in Alberta, when the market. Eventually opens we plan to maintain our disciplined approach to customer acquisition and engagement. When we launch in New York. Despite the challenging tax rate, we will benefit greatly from U S. P&C.
Jay Snowden: Despite the challenging tax rate, we will benefit greatly from ESPN's extensive linear and digital reach there. Meanwhile, with both online sports betting and iCasino, we expect Alberta to be a very strong market for us given the power of the ScoreBet brand in that market and the success we have seen in Ontario. As Aaron referenced, we are continuing to roll out new ESPN bet product enhancements and will be launching the remaining key upgrades prior to the start of the college football season and our anticipated New York launch.
Speaker Change: Stenseth linear and digital reach there.
Speaker Change: Meanwhile, both online sports betting and I casino, we with both online sports betting in a casino, we expect Alberta to be a very strong market for us given the power of the score bat brands in that market and the success. We have been we have seen in Ontario.
Speaker Change: As Eric referenced we are continuing to rollout new E. S. P N bad product enhancements and we'll be launching the remaining key upgrades prior to the start of college football season, and our anticipated New York lunch as.
Jay Snowden: As highlighted on slide 17, this will include things like dark mode and improved home screen experience and navigation and a much more competitive parlay, same game parlay, and player prop market offering, just to name a few.
Speaker Change: As highlighted on slide 17. This will include things like dark mode, and improved home screen experience and navigation and a much more competitive parlay same game, partly in player prop market offering just to name a few in.
Jay Snowden: In parallel with our efforts, our partners at ESPN are expanding our unique ESPN bet media integrations, including those with ESPN's leading Fantasy Football product, which will feature deep-linked markets and personalized in-app betting offers. ESPN Fantasy Football now boasts over 12 million active users, and before the end of the year, we plan to implement account-linking capabilities to provide personalized experiences inside ESPN Bet based on a user's ESPN Fantasy team and ESPN favorite.
Speaker Change: In parallel with our efforts our partners at ESPN or expanding our unique E. S. P. N bet media integrations, including those with E. S. P. N E. S. P N, leading fantasy football product, which will feature deep linked markets and personalized and at betting offers E. S. P. N fantasy football now boasts over 12 million active users and.
Speaker Change: Before the end of the year, we plan to implement account linking capabilities to provide personalized experiences inside E. S. P. N bet based on a user's E. S. P. N fantasy team in E. S. P N favorites.
Jay Snowden: You may have seen that Disney and ESPN recently announced an 11-year media rights extension with the NBA and the WNBA. Under the agreement, ESPN will have increased rights to utilize NBA and WNBA highlights and content within its sports betting coverage and to integrate our ESPN bet promotions. ESPN has also secured the rights to future NBA-focused sports betting specials and Siri. Very exciting stuff and certainly highlights the tremendous value of our relationship with ESPN.
Speaker Change: You may have seen that Disney and E. S. P. N recently announced an 11 year media rights extension with the M. B, a and the WNBA under the agreement E. S. P. N will have increased rights to utilize NBA and WNBA highlights and content within its sports betting coverage and to integrate our E. S. P N back promotions E S.
Speaker Change: <unk> has also secured the rights to future NBA focused sports betting specials.
Speaker Change: N series.
Speaker Change: Exciting stuff and certainly highlights the tremendous value of our relationship with ESPN.
Jay Snowden: Finally, we are continuing to improve our iCasino product offering by adding exciting new game titles from Pen Game Studios, while increasing the breadth of our third-party content and expanding our promotional capabilities. By early 2025, we expect to introduce our first standalone iCasino app, which will allow us to better leverage the strength of the Hollywood brands and robust casino database. I'll now turn it over to Felicia for additional financial details for the quarter, including guidance.
Speaker Change: Finally, we are continuing to improve our I casino product offering by adding an exciting new game titles from Penn game Studios, while increasing the breadth of our third party content and expanding our promotional capabilities.
Speaker Change: By early 2025, we expect to introduce our first Standalone I casino, App, which will allow us to better leverage the strength of the Hollywood brands and robust casino database now.
Speaker Change: And I'll turn it over to Felicia for additional financial details for the quarter, including guidance.
Felicia Hendrix: Thanks, Jay. Second quarter retail revenue results of $1.4 billion and adjusted EBITDAR of $497 million reflect continued solid performance at our brick-and-mortar casinos. April was the weakest month of the quarter with improvement through May and June. For our interactive segment, adjusted revenues excluding our skin tax gross up were $151 million, a 65% sequential improvement over the first quarter of $24. Interactive adjusted EBITDA in the quarter was a loss of $103 million, up $93 million quarter over quarter, and higher than the midpoint of our guidance, reflecting top-of-funnel growth, improved risk-and-trading execution, and refined promotional strategies.
Felicia: Thanks, Jay second quarter retail revenue results of $1 4 billion and adjusted EBITDAR of 497 million reflects continued solid performance at our brick and mortar casinos April was the weakest month of the quarter with improvement through May and June.
Speaker Change: For our interactive segment adjusted revenues, excluding our skin tax gross up 100, 151, million% to 65% sequential improvement over the first quarter of 'twenty four interactive adjusted EBITDA in the quarter was a loss of $103 million up $93 million quarter over quarter.
Speaker Change: And higher than the midpoint of our guidance, reflecting top of funnel growth improved risk and trading execution and refined promotional strategies.
Felicia Hendrix: As usual, you will find on page 8 of our earnings release a table that summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest, and total CapEx. Of our total $88 million of CapEx in the quarter, $43 million was Project CapEx, primarily related to our four development projects.
Speaker Change: As usual you will find on page eight of our earnings release, a table that summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords cash taxes cash interest and total capex.
Speaker Change: Total $88 million of Capex in the quarter 43 million with project Capex, primarily related to our four development projects we.
Felicia Hendrix: We ended the second quarter of 2024 with total liquidity of $1.9 billion, inclusive of $878 million in cash and cash equivalents. Our liquidity will remain strong through 2024. As you know, we have no debt maturities until 2026, which is our $330 million convertible note. We continue to expect our least adjusted net leverage to peak in the third quarter of 2024, which is largely a function of our net leverage calculation, including our trailing 12-month EBITDA, which captures the outside adjusted EBITDA loss we recorded in Interactive in the fourth quarter of 2023 as we were launching ESPN Bet. As a reminder, on February 15th, we received covenant relief under our credit agreement for the four quarters of 2024.
Speaker Change: We ended the second quarter of 2024 with total liquidity of $1 $9 billion inclusive of $878 million in cash and cash equivalents I liquidity will remain strong through 'twenty 'twenty four as you know we have no debt maturities until 'twenty 'twenty, six which are our $330 million convert.
Speaker Change: Oh notes, we continue to expect our lease adjusted net leverage to peak in the third quarter of 2024, which is largely a function of our net leverage calculation, including our trailing 12 month, EBITDA, which captures the outside adjusted EBITA loss, we recorded an interactive in the fourth quarter of 'twenty to 'twenty three.
Speaker Change: As we were watching ESPN that.
Felicia Hendrix: And we continue to expect to exit the relief period by the end of this year, as we will significantly delever starting in the fourth quarter and throughout 2025. By 2026, our interactive segment will generate meaningful adjusted EBITDA, which will augment our strong cash flowing core retail business, inclusive of the four retail growth projects. I will now provide guidance for our retail and interactive segment. Based on the second quarter results and our outlook for the remainder of the year, our 2024 retail guidance ranges are unchanged from the full year guidance we provided last quarter.
Speaker Change: As a reminder, on February 15th we received covenant relief under our credit agreement for the four quarters of 'twenty 'twenty four and we continue to expect to exit the relief period by the end of this year as we will significantly delever starting in the fourth quarter and throughout 2025 by 2026 our interact.
Speaker Change: This segment will generate meaningful adjusted EBITDA, which will augment our strong cash flow and core retail business inclusive of the four retail growth projects.
Speaker Change: I will now provide guidance for our retail and interactive segments.
Speaker Change: Based on our second quarter results and our outlook for the remainder of the year, our 'twenty 'twenty four retail guidance ranges are unchanged from the full year guidance, we provided last quarter. Our guidance continues to factor in stable custard, yet customer demand new supply in Nebraska, Illinois in Louisiana and road construction in a few mark.
Felicia Hendrix: Our guidance continues to factor in stable customer demand, new supply in Nebraska, Illinois, and Louisiana, and road construction in a few markets. For the interactive segment in 2024, our adjusted EBITDA guidance range improves by $15 million to a loss of $510 million to a loss of $460 million from our prior guidance of a loss of $525 million to a loss of $475 million. This revised forecast includes the anticipated impact of higher OSB gaming taxes in Illinois, which went into effect in early July, and severance charges from a recent reduction in force at Penn Interactive.
Speaker Change: <unk>.
Speaker Change: For the interactive segment and 2024, our adjusted EBITDA guidance range improved by $15 million to a loss of $510 million to a loss of $460 million from our prior guidance of a loss of 525 million to a loss of $475 million. This.
Speaker Change: Revised forecast includes the anticipated impact of higher OSB gaming taxes, and Illinois, which went into effect in early July and severance charges from our recent reduction enforced at Penn Interactive these items offset a portion of our 22 million dollar upside to the midpoint of guidance provided on our first quarter earnings.
Felicia Hendrix: These items offset a portion of our $22 million upside to the midpoint of guidance provided on our first quarter earnings call. Our guidance also assumes the launch of ESPN BET in New York later this month and reflects our unique position of being able to leverage the reach of the ESPN brand in New York without a heavy promotional lift. As a note, our updated guidance does not assume a future launch in Alberta, Canada.
Carl: Carl our guidance also assumes the launch of ESPN bet in New York later, this month and reflects our unique position of being able to leverage the reach of the ESPN brands in New York without a heavy promotional lift as a note our updated guidance does not assume a future launch in Alberta, Canada.
Felicia Hendrix: For the third quarter of 2024, we expect to generate interactive adjusted EBITDA in the range of a loss of $135 million to a loss of $115 million. We expect 2024 corporate expenses of roughly $105 million, inclusive of our cash settled stock-based awards. Total CapEx for 2024 will be approximately $500 million, inclusive of $275 million of Project CapEx. For cash interest expense, we forecast approximately $175 million for full-year 24 before roughly $15 million of interest income.
Speaker Change: The third quarter of 2024, we expect to generate interactive adjusted EBITDA in the range of a loss of 135 million to a loss of $115 million, we expect 'twenty 'twenty four corporate expense of roughly $105 million inclusive of our cash settled stock based awards.
Speaker Change: Total capex for 'twenty 'twenty, four will be approximately $500 million inclusive of 275 million of project Capex for cash interest expense, we forecast approximately 175 million for full year 'twenty for the for roughly $15 million of interest income.
Speaker Change: For cash taxes, we are projecting a small tax refund in 2024, and our basic share count as of the end of the second quarter was 152 1 million shares and we typically have roughly $15 million of diluted shares inclusive of the 14 million share dilution from the converts.
Felicia Hendrix: For cash taxes, we are projecting a small tax refund in 2024, and our basic share count as of the end of the second quarter was 152.1 million shares, and we typically have roughly $15 million of diluted shares, inclusive of the $14 million of share dilution from the converts. And with that, I'll turn it back over to Jay.
Speaker Change: With that I'll turn it back over to Jay.
Jay Snowden: All right. Thanks, Felicia. I want to take a moment to recognize the incredible work of Justin Carter, our chair of our diversity committee here at Penn, and all of our property leaders and team members across the enterprise. Our annual Penn Diversity Scholarship Fund recently awarded over $1 million in scholarships to the children of our team members, and we look forward to celebrating the graduating class of 44 scholars from the inaugural year of the scholarship program.
Jay Snowden: Thanks, Felicia I want to take a moment to recognize the incredible work of Justin Carter, Our chair of our diversity Committee here at Penn and all of our property leaders and team members across the enterprise our annual Penn Diversity Scholarship Fund recently awarded over $1 million in scholarships to the children of our team members and we look forward to celebrating the graduate.
Speaker Change: <unk> class a 44 scholars from the inaugural inaugural year of the scholarship program. This quarter. We also kicked off our annual corporate days of listening to gather feedback from team members on all matters of diversity and inclusion and we were honored to be named by diversity magazine as one of the best of best of the best 2024 top diverse employer.
Jay Snowden: This quarter, we also kicked off our annual corporate Days of Listening to gather feedback from team members on all matters of diversity and inclusion, and we were honored to be named by Diversity Magazine as one of the Best of the Best 2024 Top Diverse Employers.
Speaker Change: In closing I want to reiterate that while 2024 is an investment year at Penn Our biggest losses and digital are now behind US looking ahead 2025 will be a year of delevering the balance sheet as monetization improves with E. S. P. N bet and we launched our Standalone Hollywood Casino App early in the year by 2026, we expect all four.
Jay Snowden: In closing, I want to reiterate that while 2024 is an investment year at Penn, our biggest losses in digital are now behind us. Looking ahead, 2025 will be a year of delevering the balance sheet as monetization improves with ESPN Bet, and we launch our standalone Hollywood Eye Casino app early in the year. By 2026, we expect all four of our growth projects to be open, and we will begin generating positive cash flow from our interactive unit, as Felicia mentioned.
Lisa: All of our growth projects to be open and we will begin generating positive cash flow from our interactive unit as Lisa mentioned again with Aarons addition to our team are confident that we can build a market leading products that will allow us to realize the power of our portfolio of leading digital brands and something we're all very excited for what the future holds in store for Pan Entertainment and it's valued shareholders.
Jay Snowden: Again, with Aaron's addition to our team, we're confident that we can build a market-leading product that will allow us to realize the power of our portfolio of leading digital brands. In sum, we're all very excited for what the future holds in store for Penn Entertainment and its valued shareholders. And with that, Angela, if we could open up the lines for questions.
Speaker Change: And with that Angela if we could open up for questions the lines for questions.
Angela: At this time, if you would like to ask a question. Please press star one on your telephone keypad.
Operator: At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. We'll take our first question from Carlo Santarelli on behalf of Deutsche Bank. Please go ahead.
Speaker Change: May remove yourself from the queue at any time by pressing star two.
Speaker Change: We'll take our first question from Carlos <unk> with Deutsche Bank. Please go ahead.
Carlo Santarelli: Hey everyone, good morning.
Carlos: Hey, everyone. Good morning.
Jay Snowden: Jay, Aaron, whoever wants to take this one. One of your competitors obviously talked about, you know, a very good customer acquisition market in the 2Q. You guys seemingly remained promotionally disciplined in the 2Q and obviously, you know, outperformed your expectations, guidance, etc.
J Aron: J Aron whoever wants to take this one one of your competitors, obviously talked about a very good customer acquisition market and the <unk> you guys seemingly remained promotional discipline in the <unk>.
Speaker Change: Obviously outperformed kind of your expectations guidance et cetera.
Carlo Santarelli: As we move, though, into August and the start of college football season with a lot of the stuff that you guys are doing and acknowledging that you just provided 3Q guidance, how are you guys thinking about kind of the customer acquisition push in 3Q and then maybe how that bleeds over into 4Q from the perspective of trying to get more people in the funnel to experience the newer product and a lot of the new amenities that have been added?
Speaker Change: As we move though into the August and started college football season with a lot of the stuff that you guys are doing and acknowledging that you just provided <unk> guidance. How are you guys thinking about kind of the customer acquisition push in <unk>, and then maybe how that bleeds over into <unk> from the <unk>.
Carlos: Perspective.
Speaker Change: Trying to get more people in the final two experience would be the newer product and in a lot of the new amenities that have been added.
Speaker Change: Yes, it's a great question Carlo.
Jay Snowden: Yeah, it's a great question, Carlo. Our assumption around customer acquisition is obviously completely built into the guidance for the rest of the year that Felicia provided. And the environment right now is actually quite good. But that doesn't mean that we're going to be super aggressive. It means that with the guidance that we provided, we think that we can continue to drive top of funnel, understanding, of course, that the most valuable and most efficient top of funnel we have is our partnership with ESPN.
Carlos: Our assumption around customer acquisition, obviously is completely built into the guidance for the rest of the year that Felicia provided and the environment right now is actually quite good. It doesn't mean that we're gonna be super aggressive it means that with the guidance that we provided we think that we can continue to drive top of funnel understanding of course that the most valuable and most of them.
Carlos: Fishing and top of funnel, we have is our partnership with ESPN.
Carlos: And the deep integrations that we not only have today, but are going to have by the start of football season, a lot of enhancements in the E. S. P. N media App and then of course fantasy, which we have a few slides on so I would say that with the environment being healthy right now.
Jay Snowden: And the deep integrations that we not only have today but are going to have by the start of the football season, a lot of enhancements in the ESPN media app, and then, of course, fantasy, which we have a few slides on. So, I would say that, you know, with the environment being healthy right now, that allows us to continue to focus on top of the funnel mostly through our relationship with ESPN. We'll do some spending around that, but again, that's all built into our guidance for the rest of the year. And remember, we have a digital database of almost 4 million customers, and a lot of those digital customers only bet on football.
Carlos: That allows us to continue to focus on top of funnel, mostly through our relationship with E. S. P. N will do some spending around that but again, that's all built into our guidance for the rest of the year and remember we have a digital database of almost $4 million and a lot of those digital customers only only bet on football so theres a huge.
Jay Snowden: So there's a huge reactivation opportunity for us, and we think with the much improved product that we have and all of the new features that Aaron and I and Todd will talk about, I'm sure, throughout this call, we feel like we have an opportunity to drive better engagement, deeper loyalty, and retention, and monetization as we move forward. Great, thanks. And then just if I could have a follow-up on the brick and mortar side, you guys, it seems as though margins have broadly stabilized at this 34 to 35%.
Speaker Change: <unk> an opportunity for us and we think with the much improved product that we have in all of the new features that Aaron and I and Todd talk we'll talk about I'm sure throughout this call. We feel like we have an opportunity to drive better engagement.
Speaker Change: Deeper loyalty and retention and monetization as we move forward.
Speaker Change: Great. Thanks, and then just if I could a follow up on the brick and mortar side.
Speaker Change: You guys at.
Speaker Change: It seems as though kind of margins have broadly stabilized and this 34% to 35% range.
Please stand by, your program is about to begin. If you need assistance during your conference, please press R0.
Jay Snowden: Unknown Speaker Obviously, you know, summer months do tend to be a little bit more margin-friendly. But as you think about the back half of the year, and then if you could just provide some color on the back half of the year, and then if you could kind of talk about what you think the brick and mortar net will do.
Speaker Change: Obviously summer months do tend to be a little bit more margin friendly.
Joseph Jaffoni: Greetings and welcome to the Penn Entertainment Second Quarter 2024 Result call. I would now like to turn the conference over to Joe Jaffoni Investor Relations. Please go ahead. Thanks Angela. Good morning everyone and thank you for joining Penn Entertainment's 2024 Second Quarter Conference call. We'll get to management's presentation and comments. This momentarily as well as your questions and answers. During the Q&A session, we ask that everyone please limit themselves to one question and one follow-up.
Speaker Change: But as you think about the back half of the year and then if you could just provide some color on the back half of the year and then if you could kind of talk about what you think that the brick and mortar net revenue environment needs to look like in 2025 for margins to be flat or perhaps an inflect favorably.
Todd George: What will the Brick-and-Mortar Net Revenue Environment need to look like in 2025 for margins to be flat or perhaps inflect favorably?
Jay Snowden: Yes, sorry, you want to grab that sure thanks, Jay and.
Todd George: Yeah, Todd. You want to grab that? Sure. Thanks, Jay. And Carlo, great question.
Carlo: Carlo Great question.
Todd George: This quarter, obviously, there was a little bit of noise in the south. We did have some disruption related to some weather impact from primary feeder markets. We also had a little bit of impact from hotel construction at our Lake Charles property. And then in the northeast, just a little bit of some accounting adjustments, some favorable last year, unfavorable this year, as well as some table game hold percentage. I think when we think about the remainder of the year, the margins that we're carrying right now, we feel comfortable going through the remainder of this year.
Speaker Change: This quarter, obviously, there were there was a little bit of noise in the south we did have some disruption related to some weather impact from primary feeder markets. We also had a little bit of impact from hotel construction at our Lake Charles property and then in the northeast just a little bit of some accounting adjustments.
Joseph Jaffoni: Now I'll review the safe harbor disclosure and we'll get into the call. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meeting of the Private Security's Legation 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, intends, plans, seeks, may, will, should, or anticipates, or the negative or other variations of these or similar words, or by discussions of future events, strategies, or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures, and operating results.
Joseph Jaffoni: Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from the expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement, and in the company's filings with the Securities and Exchange Commission, including the company's reports on form 10K and form 10Q. Penn Entertainment assumes no obligation to publicly update or revise any forward-looking statements.
Speaker Change: Some favorable last year unfavorable this year as well as some table game hold percentage I think when we think about the remainder of the year. The margins that we're carrying right now we feel comfortable going through the remainder of this year as we look into next year with the improvements we're seeing in technology a lot of our technology initiatives are offsetting.
Todd George: As we look into next year, with the improvements we're seeing in technology, a lot of our technology initiatives are offsetting some of the payroll creep we've seen. I think you may see a little bit in Michigan where that was pretty highly publicized.
Speaker Change: Some of the payroll creep, we've seen I think you may see a little bit and Michigan that that was pretty highly publicized but.
Todd George: But again, we do a case study on that. We're offsetting a lot of that with revenue growth. So from a net revenue standpoint, I think we've weathered the storm with a lot of the new competition introductions. And, you know, we were looking at a pretty stable environment, not only for the back half of this year but going into next year.
Speaker Change: Again, we do a case study on that we're offsetting a lot of that with the revenue growth. So from a net revenue standpoint, I think we've weathered the storm with a lot of the new competition introductions.
Speaker Change: And we were looking at a pretty stable environment not only for the back half of this year, but going into next year.
Joseph Jaffoni: Today's calling webcast will also include non-gap financial measures within the meeting of SEC regulation G. When required, a reconciliation of all non-gap financial measures to the most directly comparable financial measures calculated and presented in accordance with GAP can be found in today's press release, as well as on the company's website.
Speaker Change: Okay, Todd sorry, and it just just as it related to something you said.
Carlo Santarelli: Okay, Todd, sorry. And just as a reminder, related to something you
Todd George: Yeah, obviously, it looks like the OPEX in the Northeast segment specifically spiked pretty aggressively in the second quarter but was very calm in the first quarter. Obviously, looking at last year, kind of insinuates that if you smooth it out, things were pretty stable. A lot of that, just as you mentioned, some of the accounting stuff and things of that nature that might have shifted quarter to quarter. And this, you know, uplift is not a run rate, uplift in OPEX, I should say, is not a run rate for the second half of the year. Correct.
Todd: Yeah, obviously, it looks like the opex in the North East segments.
Speaker Change: Specifically spiked pretty aggressively in the second quarter, but was very calm in the first quarter obviously.
Todd: Looking at last year kind of insinuate that if you smooth it out things were pretty stable. It's a lot of that just as you mentioned some of the accounting stuff in there.
Jay Snowden: With that, it's now my pleasure to turn the call over to Penn Entertainment CEO, Jay Snowden. Jay, please go ahead. Thanks, Joe. Good morning, everyone. I'm here in Wyoming with our CFO, Felicia Hendrix, our head of operations, Todd George.
Speaker Change: And things of that nature that mine has shifted quarter to quarter.
Speaker Change: Uplift is not a run rate up late uplift in Opex I should say is not a run rate for the second half of the year.
Aaron LaBerge: And for the first time, we're joined by Aaron Laburge, our new Chief Technology Officer, Wilk Mern. Thank you, Jay. Aaron officially joined Penn on July 1st, and as we've shared, he's responsible for driving our technology strategy and execution, as well as serving as the key business leader for our interactive division. As most of you know, Aaron comes to us from Disney where he had a terrific, over 20-year career. In addition to as many accomplishments and accolades throughout his time there, Aaron was deeply involved in ESPN's technology due diligence on Penn Interactive.
Speaker Change: Correct.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Joe Stauff with Susquehanna.
Operator: Our next question comes from Joe Stauff with Susquehanna.
Joe Stauff: Thank you good morning.
Speaker Change:
Joseph Stauff: Jay, I wanted to see if you could maybe comment or share on, say, the retail conversion of the new digital customers that you've experienced since launching ESPN bet. You know, are these new unique customers to the whole pen ecosystem, or are they retail customers, essentially, opening, say, an ESPN bet account? And then I'm wondering if you could comment, maybe on the Pennsylvania Supreme Court case that could be somewhat favorable to you in Pennsylvania and whether or not, You know, we've seen this pattern certainly in other states, Kentucky, Virginia, and whether or not you think... Maybe this could also occur in other states in terms of a source of growth going forward.
Joe Stauff: Hey, I wanted to see if you could maybe comment or share.
Joe Stauff: On say the retail conversion.
Speaker Change: Of the new digital customers that.
Aaron LaBerge: While he's only been on the ground at Penn for a few weeks, I thought it'd be good to open the call today with some of his early thoughts and key takeaways. Thanks. It's really great to be here with everyone, and I'm really excited to have officially joined Penn Family. During my first couple of weeks, I've had the opportunity to do a deep dive with our interactive teams in Toronto and Philadelphia, focusing on our product roadmap and growth strategies.
Speaker Change: You've experienced since launching ESPN bet. You know are these new unique customers to the whole Penn ecosystem or.
Speaker Change: You know are they retail customers essentially reopening C and ESPN that account.
Joe Stauff: And then.
Speaker Change: I'm wondering if you could comment.
Aaron LaBerge: I continue to be so impressed with this team, their world-class capabilities, and the robust and scalable technologies that they've built. We're currently live in 19 jurisdictions across North America, with New York going live in late August pending regulatory approval. We currently have a user database of nearly four million unique digital bettors that was built over the past three and a half years. This strong foundation positions us well for continued growth and innovation.
Speaker Change: Maybe on the Pennsylvania Supreme Court case.
Joe Stauff:
Speaker Change: Could be somewhat favorable to you in.
Joe Stauff: In Pennsylvania, and in whether or not we.
Joe Stauff: Seen this pattern certainly in other states, Kentucky, Virginia.
Joe Stauff: And whether or not you think maybe there could.
Joe Stauff: Could also occur in other states.
Joe Stauff: In terms of a source of growth going forward.
Aaron LaBerge: And while we're proud of our rapid expansion, we know we have some ground to make up, particularly in key feature categories such as parlay and player props. This is a consequence of the laser focus that we placed on our platform migration, rebranding and new state launches. However, I see this as an exciting opportunity to roll out my sleeves with our engineering and product teams to create a best in class experience for our customers.
Joe Stauff: Joe do you want to clarify the second part of that question again, I'm not I wasn't following that.
Joseph Stauff: Joe, do you want to clarify the second part of that question again? I wasn't following.
Joseph Stauff: Yeah, just the pending case in the Pennsylvania Supreme Court on skill-based games, determining, you know, if they're legal or not, is what I meant to ask.
Joe Stauff: Yeah, just the pending case in Pittsburgh, Pennsylvania.
Joe Stauff: Pennsylvania Supreme Court.
Joe Stauff: On skill based games.
Joe Stauff: Determining legal or not.
Joe Stauff:
Joe Stauff: Is what I meant to ask.
Jay Snowden: Okay, got it. We'll take a stab at that. I think the first part of your question with regard to the ESPN bet users in this pickup in our database, the lion's share, 90 plus percent of the ESPN bet pickup are really new to Penn, which is great for us. We detailed in our last quarterly call how many of them live proximate to our properties, which is, I think, lays out a great opportunity for us, and especially as we convert more and more of our retail sportsbooks So cross-selling becomes even smoother.
Speaker Change: Okay got it will take a stab at that I think the first part of your question with regard to the E. S. P N that users and this pickup in our database.
Aaron LaBerge: As we will touch on later, we recently introduced some significant product improvements with several more in the pipeline for the coming months. And I am confident that we'll continue to close the gap with our competitors. Our goal here is simple. We want to create the best product for sports fans by elevating how they find place and track their bets both within ESPN bet and across the entire ESPN ecosystem. By delivering here, we'll drive our monetization to enhance engagement retention and reactivation.
Speaker Change: The Lions share 90, plus percent of the E. S. P. N that picked up are really new to pen, which is great for us we detailed in our last quarterly call. How many of them live proximate to our properties, which is I think lays out a great opportunity for us and especially as we convert more and more of a retail sports books and rebrand them to ESPN.
Joe Stauff: And you have the name and brand recognition, so cross sell becomes even smoother.
Jay Snowden: So that's all been good news, and we would anticipate going into the football season, that will continue to be the case. Obviously, we have a huge land-based database that we can market to for ESPN bet in the states where it's legal, of course, iCasino as well. But we have an opportunity to continue to grow through the integrations that we mentioned earlier and all the cross-sell that we're getting from ESPN. So, really good news in terms of incrementality to Penn and the brand and the awareness of that brand on ESPN.
Joe Stauff: So that's all been good news and we would anticipate going into football season that will continue to be the case, obviously, we have a huge land based database that we can market to for ESPN bad in the states, where it's legal of course I casino as well.
Aaron LaBerge: ESPN and Penn share a common vision. We want to make ESPN bet America sportsbook sports betting is a key pillar of ESPN's future growth because sports betting content and connectivity drive user engagement. Collectively, we have a truly unique opportunity to create a frictionless ecosystem for fans to enjoy the sports they love and engage in sports betting. We are both deeply committed to making ESPN bet a top name with sports betting over the coming years. We don't just want to compete here, we want to win. And with that, I'll turn it back over to Jay. Thanks, Aaron.
Joe Stauff: But we have an opportunity to continue to grow through the integrations that we mentioned earlier in all of the cross sell that we're getting from ESPN. So really good news in terms of increments holiday two Penn and the brands and the awareness of that brand of ESPN.
Jay Snowden: The Pennsylvania skill base... That it's a very interesting topic. We have been very vocal in our position that those skill-based games are, they sound, look, smell, like a slot machine. And there's a lot of concern around that.
Joe Stauff: The Pennsylvania skill base.
Jay Snowden: Obviously, we continue to fight against what has been a rapid expansion of skill-based games in Pennsylvania through the court system. We think that we have a very strong position there. Our industry is very much aligned against the expansion of skill-based games, not just in Pennsylvania but around the country. So we'll see how things play out in Pennsylvania. But I think that my comments speak for themselves in terms of our position.
Speaker Change: That it's a very interesting.
Joe Stauff: It's a very interesting topic, we have been very vocal in our position that those skill based games are.
Jay Snowden: We are planning to host a meeting with investors during G2E at our M Resort property in Las Vegas on October 7th. So you can see firsthand the construction activity for the new hotel tower and property expansion there. And of course, get a chance to meet Aaron in person and hear a company update from him and the rest of our executive management team.
Joe Stauff: They they sound look smell like a slot machine and.
Joe Stauff: There's a lot of concern around that obviously, we continue to fight against what has been a rapid expansion of skill based games in Pennsylvania through the court system. We think that we have a very strong position there our industry is very much aligned on fighting against the expansion of skill based games not just in Pennsylvania, but around the country. So we'll see how thing.
Jay Snowden: With that, let me turn back to the results for the quarter. As you'll see on slide five in our investor presentation, our retail business delivered solid quarterly results as our industry leading operators continue to execute across our portfolio. I am extremely proud of the results our property teams continue to deliver in the face of ongoing competition and new supply. This quarter we benefited from strong market share growth in several markets, including Ohio, Maryland and Iowa, coupled with continued momentum at some of our flagship properties, including Hollywood casino at Greek town and M Resort in Las Vegas.
Joe Stauff: <unk> play out in Pennsylvania, but.
Joe Stauff: I think that my comments speak for themselves in terms of our position.
Joe Stauff: Okay.
Speaker Change: Okay. Thanks, and just maybe one quick follow up is there any best guess as to when a ruling may come out.
Joseph Stauff: Okay, thanks. And just maybe one quick follow up. Is there any best guess as to when a ruling may come out?
Speaker Change: Okay.
Speaker Change: Now we would be completely guessing on that one Joe not not really comfortable putting out a.
Jay Snowden: Now, we would be completely guessing on that one. Joe, I am not really comfortable putting out an Unknown Attendee A date range.
Speaker Change: A date range.
Jay Snowden: We included a case study on Greek town on slide six to illustrate how our recent hotel room renovations and the introduction of our first ESPN bet retail sports book have delivered impressive revenue and market share growth at this downtown Detroit property. You'll recall we successfully open our first ESPN bet retail sports book for a multi day NFL activation at Greek town, including live draft coverage at the casino by ESPN personalities. Revenues at the property are up more than six and a half percent year over year and we saw a 90 basis point increase in your over your market share growth during the quarter.
Speaker Change: Understood. Thanks, a lot.
Joseph Stauff: understood. Thanks a lot.
Speaker Change: Sure.
Brent <unk>: Our next question comes from Brent <unk> with Barclays.
Operator: Our next question comes from Brandt Montour with Barclays.
Brandt Montour: Um, good morning, everybody. Thanks for taking my question. Maybe first, going back to slide 10, Jay or Felicia, you know, the sequential pickup in adjusted revenue. I was hoping maybe you could maybe split that out between OSB and iGaming and where you saw those relative growth rates in the quarter.
Brent: Good morning, everybody. Thanks for taking my question.
Speaker Change: Maybe first going back to slide 10.
Brent: Jr. Felicia the sequential pickup in and adjusted revenue was impressive I was hoping maybe you could maybe split that out between OSB.
Speaker Change: OSB and I gaming and where you saw.
Speaker Change: Those relative growth rates in the quarter.
Jay Snowden: We also included a case study on our Ohio properties on slide seven, illustrating how our ongoing investments there, including refresh casino floors, expanded high limit areas, best in class sports books, and new foot and beverage offerings have resulted in strong year over year growth. Our Columbus property continues to be a standout performer and we're very excited about our ongoing hotel project there and the upcoming rebranding of our sports book to ESPN vet.
Speaker Change: Yeah happy to.
Jay Snowden: Yeah, happy to. Most of that growth, because we're talking NGR here, was on the sports betting side, but there is growth on the iCasino side as well. But we really didn't have a whole lot of promotion spend against iCasino last quarter relative to what it was in Q2. So the biggest delta that you see there in growth in revenue is driven by more efficient revenue on the growth side, being that it's flowing through to net as our promotional costs from the initial launch continue to come down. And I think us just continuing to get smarter in terms of the promotions that we have out there for new users as well. So really a combination of those two, but more driven by OSB.
Speaker Change: Most of that growth because we're talking MGR here was on the sports betting side. There is growth on the eye casino side as well, but we really didn't have a whole lot of promo spend against I casino last quarter relative to what it was in Q2. So the biggest delta that you see there and growth in revenue was driven.
Speaker Change: By more efficient revenue from on the growth side being that its flowing through to net as our promotional cost from the initial launch continue to come down and I think us just continuing to get smarter in terms of the promotions that we have out there for new users as well so really a combination of those two but more driven by OSB.
Jay Snowden: Speaking of retail sports books on slide eight, we listed the other upcoming brand conversions to ESPN vet across our portfolio and sports centric markets. These will help to further our brand connectivity and create meaningful cross sell opportunities in order to capitalize on the incredible growth we have seen in our database. As you'll see on slide nine, we are also making great progress on our exciting new growth projects, all of which remain on budget and on track to open by the first half of 26.
Speaker Change: Thanks for that Jay and then a different question.
Brandt Montour: Thanks for that, Jay. And then a different question. One of your competitors announced a potential gaming surcharge, the launch for them in 2025. You know, I know it's not been out there for a long time. And so you probably haven't had a ton of time to mull it over. But could you just provide some initial your initial reaction to that?
Speaker Change: One of your competitors.
Speaker Change: Announced a potential gaming surcharge.
Speaker Change: To be launched for them in 2025, and I know its not been out there for a long time and so you probably haven't had a ton of time to move it over but could you just provide some initial your initial reaction to that news.
Jay Snowden: We will provide some additional information about these projects at G2B. In our interactive segment, top of funnel growth improved risk and trading execution and refine promotional strategies contributed to record quarterly NGR, which helped narrow our interactive segment losses quarter over quarter, despite a seasonally slower second quarter sports calendar. Our revenue is excluding the tax gross up. We're up by more than 65% compared to the first quarter and we saw a $93 million adjusted EBITDA improvement from our first quarter results.
Speaker Change: Yeah, we find it to be very interesting. It was unexpected from from our perspective, but definitely interesting I mean, you really as you think about Penn's view on this you should expect us to.
Jay Snowden: Yeah, we find it to be very interesting. It was unexpected from our perspective, but definitely interesting.
Jay Snowden: I mean, you really should expect us to be observers as you think about Penn's view on this. You know, we have a lot going on in front of us right now in the coming quarter. So I would say when you're talking about a potential tax surcharge in early 25, like that, it's not even on our radar. But it doesn't mean that I hesitate to ever say never. It just means that we're really focused on continuing to improve the product, continuing to drive top of the funnel, and loyalty, and retention.
Speaker Change: To be observers you know we have a lot going on in front of US right now over the coming quarters, So I would say.
Speaker Change: When you're talking about a potential tax surcharge in early twenty-five like that's it's not even on our radar that doesn't mean that it.
Jay Snowden: As highlighted on slide 11, ESPN vet continues to drive meaningful growth in both our digital database and our active user base providing a strong foundation for future growth as we introduce new product improvements. Our pen play database now boasts over 30 approximately 31 million members, including 3.8 million in our digital database, which is an increase of more than 80% since the launch of ESPN vet. We also saw more than 138% Euro be your increase in our monthly active users.
Speaker Change: Is it hate to ever say never it just means that we're really focused on continuing to improve the products continuing to drive top of funnel and loyalty and retention and so we would not be a first mover on something like that we're going to stay very close to it we will observe we'll see what the reaction is assuming that it does launch in early 'twenty five and then we'll probably have more to share.
Jay Snowden: And so we would not be a first mover on something like that. We're going to stay very close to it. We'll observe, we'll see what the reaction is, assuming that it does launch in early 25. And then we'll probably have more to share with all of you on our quarterly earnings calls throughout 2025. Thanks.
Speaker Change: With all of you on our quarterly earnings calls throughout 2025.
Speaker Change: Makes sense thanks, everyone.
Brandt Montour: That makes sense. Thanks, everyone.
Jay Snowden: Based on sensor tower data, we continue to hold a top three ranking and weekly active users among our top OSB and daily fantasy sport competitors. People are active in our app and our goal over the next several quarters is to drive higher loyalty and retention and better monetization through better monetize, excuse me, the significant engagement activity through an improved product and expanded offerings. Turning to slide 13 improved risk and trading execution in a higher parlay mix helped contribute to higher hold rates this quarter, looking at parlay as a percentage of total handle in Illinois.
Speaker Change: Yes.
Speaker Change: Our next question comes from Joe Greff with J P. Morgan.
Operator: Our next question comes from Joe Gruff with J.P. Morgan.
Joseph Greff: Good morning, everybody, and good morning, Aaron. Jay, can you talk about maybe how your new user acquisition... Unknown Attendee, can you tell us where or how strategies or tactics have changed or evolved given DraftKings' recent plans to increase new user promos and how do you compete against that at the same time you're launching an enhanced ESPN bet platform in front of the football.
Joe Greff: Good morning, everybody.
Joe Greff: Good morning Erin.
Speaker Change: Jay.
Speaker Change: Can you talk about maybe how your new user acquisition.
Speaker Change: The strategies or tactics have changed or evolved given youre asking.
Speaker Change: <unk> plans to increase user promos.
Pete: Pete against that at the same time, you're launching an enhanced ESPN.
Speaker Change: That platform in front of the football season.
Jay Snowden: For example, ESPN vet was at 24.2% versus our top competitors at 34.5% and 23.8% respectively, and the rest of the market at 22.2%. As I have said before, ESPN vet is attracting a wider user base and more casual better, which we really enjoy betting on parlay and we will be adding additional parlay offerings and features to our product prior to week one of NFL season this year and over the remainder of 2024 to better engage and serve these customers.
Speaker Change: Yeah, I hit on it a little bit earlier, Joe in terms of how we're thinking about driving acquisition and top of funnel we have this.
Jay Snowden: Yeah, I hit on it a little bit earlier, Joe, in terms of how we're thinking about driving acquisition and top of the funnel. We have this, you know. We're in this great position where we've got deeper integrations with ESPN and their core digital products with the ESPN media app, as well as fantasy. Fantasy is all brand new going into the football season. And even the deep links that we have in the ESPN media app, they're going to be now no longer just in GameCast but on the scores tab on the home screen, really anywhere where you see a score for an event in the major sports, you're going to have that six-pack of odds and deep links with ESPN bet.
Speaker Change: We are in this great position, where we've got the deeper integrations with ESPN in their core their core digital products with ESPN media App as well as fantasy fantasy is all brand new going into the football season, and even the deep links that we have in the E. S. P N media App.
Speaker Change: They're going to be now no longer just an gamecast, but on the scores tab on the home screen really anywhere where you see a score of a an events. The major sports youre going to have that six pack of Ards and deep links with E. S. P. N that so we're in a we're in a very fortunate position, where obviously that will drive top of funnel that will drive.
Jay Snowden: So we're in a very fortunate position where obviously, that will drive top of the funnel that will drive a lot of engagement with our app. And so that is extremely efficient for us. And that's going to be the biggest driver of acquisition. There's, there is some other acquisition outside of ESPN that we will continue to pursue. But the lion's share of acquisition for us is going to be through that ESPN channel.
Jay Snowden: We expect to further increase our digital footprint with prospective launches of ESPN vet in New York subject to regulatory approval and with the score bet in Alberta when the market eventually opens. We plan to maintain our discipline approach to customer acquisition and engagement when we launch a New York. Despite the challenging tax rate, we will benefit greatly from ESPN's extensive linear and digital reach there. Meanwhile, both online sports betting and Icasino, with both online sports betting and Icasino, we expect Alberta to be a very strong market for us given the power of the score bet brand in that market and the success we have been we have seen in Ontario.
Speaker Change: A lot of engagement with our App and so that is extremely efficient for us and that's going to be the biggest driver of acquisition. There is there is some other acquisition outside of ESPN that will continue to pursue but the lion's share of acquisition for us is going to be through that E. S. P N channel.
Jay Snowden: I would anticipate that the acquisition environment will, from our perspective, be healthy but be cost effective as well. And we talked a little bit about New York and our prepared remarks. And we're going to continue to take a different approach in terms of launching in New York versus what we did when we launched across 17 states in the fourth quarter of last year and really lean a lot more on the product improvements, the integrations, and, of course, the connection that ESPN has with millions and millions of New York-based sports fans. And so that's going to really be our approach where we think that Nobel Laureate
Speaker Change: I would anticipate that the acquisition environment will from from our perspective be healthy, but b be cost effective as well and we talked a little bit about New York in our prepared remarks since youre going to continue to take a different approach.
Speaker Change: In terms of launching in New York versus what we did when we launched across 17 states in the fourth quarter of last year and really lean a lot more on the product improvements. The integrations of course, the connection that ESPN has with millions and millions of New York based sports fans and so that's going to really be our approach.
Jay Snowden: This will include things like dark mode and improved home screen experience and navigation and a much more competitive parlay, same game parlay and player prop market offering just to name a few. In parallel with our efforts, our partners at ESPN are expanding our unique ESPN media integrations, including those with ESPN ESPN's leading fantasy football product, which will feature deep linked markets and personalized in at betting offers. ESPN fantasy football now boasts over 12 million active users and before the end of the year, we plan to implement account linking capabilities to provide personalized experiences inside ESPN bet based on a user's ESPN fantasy team and ESPN favorites.
Speaker Change: That's where we think that based on everything that we covered and I just highlighted that will have a steady flow of top of funnel, but the biggest opportunity to be very clear and mentioned. This earlier also is going to be around reactivation. We have this significant database a lot of them are in the App you see that in our sensor tower data, but we just we need to continue to do.
Speaker Change: Live better retention and higher share of wallet and we think with all the product enhancements that were launching between now and the end of the month and then of course throughout the football season. When you get to later in the fourth quarter, we talked about being able to to have account linking done with ESPN, that's gonna take personalization to a whole different level. So the great thing.
Jay Snowden: You may have seen that Disney and ESPN recently announced an 11 year media rights extension with the MBA and the WMBA under the agreement ESPN will have increased rights to utilize NBA and WMBA highlights and content within its sports betting coverage and to integrate our ESPN bet promotions. ESPN has also secured the rights to future NBA focused sports betting specials and series. Very exciting stuff and certainly highlights the tremendous value of our relationship with ESPN. Finally, we are continuing to improve our iCocino product offering by adding exciting new game titles from Penn Games studios, while increasing the breadth of our third party content and expanding our promotional capabilities.
Speaker Change: Our relationship with ESPN as it's a driver of both top of funnel as well as ongoing retention.
Joseph Greff: Great, thank you for your thoughts there, Jay.
Speaker Change: Great. Thank you for your thoughts there Jay.
Joseph Greff: Separate topic. Some of the financial media and even some of the gaming trade rags reported a while back. And there's been a lot of stuff reported in the financial media with respect to you guys, but my specific question is, are you looking at selling individual assets or properties? And if that is a focus, can you talk about maybe what the strategic rationale might be there?
Speaker Change: Separate topic.
Speaker Change: Some of the financial media and even some of the gaming trade rags had reported a while back.
Speaker Change: And there's been a lot of stuff reported in the financial media with respect to you guys, but.
Speaker Change: My specific question is.
Speaker Change: Are you looking at selling individual.
Speaker Change: Such properties.
Jay Snowden: By early 2025, we expect to introduce our first standalone iCocino app, which will allow us to better leverage the strength of the Hollywood brands and robust casino database.
Speaker Change: And if that is a focus can you talk about maybe what the strategic rationale might be there.
Felicia Hendrix: I'll now turn it over to Felicia for additional financial details for the quarter, including guidance. Thanks Jay, second quarter retail revenue results of 1.4 billion and adjusted EBITDAR of 497 million reflects continued solid performance at our brick and mortar casinos. April was the weakest month of the quarter with improvement through May and June. For our interactive segment, adjusted revenues excluding our skin tax gross up were 151 million, a 65 percent sequential improvement over the first quarter of 24.
Speaker Change: Well I guess at a high level Joe.
Jay Snowden: Well, I guess at a high level, Joe, and you'd expect this answer that, you know, we don't comment, we haven't commented, and won't comment on market rumors and speculation. What I will say is that, as a company, and as a board, we always, always have, and will always evaluate opportunities to enhance value. And we'll continue to take actions that we believe are in the best interests of the company and our shareholders.
Speaker Change: You would expect this answer that we don't comment we haven't commented and won't comment on market rumors and speculation.
Speaker Change: What I will say is that as a company and as a board. We're always and always have always will evaluate opportunities to enhance value and we will continue to take actions that we believe are in the best interest of the company and our shareholders.
Jay Snowden: With that said, we're very confident in our strategy and the value that it's going to deliver for shareholders over the short term, medium term, and long term. So that's the way I would answer that question. And I don't, you know, I would say don't believe everything you read. And with regard to your specific question about assets, just remember that our assets, land-based assets, are all part of different leases. And so it's not as simple and easy as, oh, you just sell off an asset.
Speaker Change: With that said, we're very confident in our strategy and the value that it's going to deliver for shareholders over the short term medium term long term. So that's the way I would answer that question and I don't you know I would say don't believe everything you read and with regard to your specific question on assets just remember that.
Felicia Hendrix: Interactive adjusted EBITDAR in the quarter was a loss of 103 million up 93 million dollars quarter over quarter and higher than the midpoint of our guidance, reflecting top of funnel growth, improved risk and trading execution, and refined promotional strategies. As usual, you will find on page eight of our earnings release a table that summarizes our cash expenditures in the quarter, including cash payments to our retail landlords, cash taxes, cash interest, and total catbacks.
Speaker Change: Our assets land based assets are all part of different leases and so it's not it's not as simple and easy as Oh, you just sell off an asset. So I don't want to comment any further than that because then you are commenting on something you said youre not going to comment on so I'm, just going to I'm going to leave it at that.
Jay Snowden: So I don't want to comment any further than that because then you are commenting on something that you said you were not going to comment on. So I'm just going to I'm just going to leave it at that.
Speaker Change: I appreciate it thanks guys.
Felicia Hendrix: Of our total 88 million dollars of catbacks in the quarter, 43 million was project catbacks primarily related to our four development projects. We ended the second quarter of 2024 with total liquidity of $1.9 billion, inclusive of $878 million in cash and cash equivalents. Our liquidity will remain strong through 2024. As you know, we have no debt maturities until 2026, which are our $330 million convertible notes. We continue to expect our lease-adjusted net leverage to peak in the third quarter of 2024, which is largely a function of our net leverage calculation, including our trailing 12-month EBITDA, which captures the outside adjusted EBITDA loss.
Speaker Change: The next question comes from Barry Jonas with tourists Securities.
Operator: The next question comes from Barry Jonas with Truist Securities.
Barry Jonas: Hey, guys.
Barry Jonas: Hey guys, head one for Aaron. Welcome, Aaron. I know you just started but I'm curious if you have any early thoughts about how you see putting your imprint on the company and the ESPN bet strategy.
Barry Jonas: One for Aaron well welcome Erin I know you just started but curious if you have any early thoughts about how you see putting your imprint on the company and the ESPN that strategy.
Aaron: I mean, I think J J touched on a lot of them I think we're super excited about the integration with ESPN were talking about fantasy. This year, Jay just talked about account linking that's going to come in.
Aaron LaBerge: I think Jay, I mean Jay touched on a lot of them. I think we're super excited about the integration with ESPN. We're talking about Fantasy this year. Jay just talked about account linking that's going to come in November, which if you think about ESPN's digital and social reach today, I think last month it was 181 million users. So when you think about knowing the fan-avidity, personalization, uses, and preferences of all those people and then being able to target them, whether it's introducing them to sports betting, or people that are already sports bettors giving them personalized offers, and then moving them seamlessly between the apps with no friction, it is a massive opportunity.
Speaker Change: In November <unk>.
Speaker Change: If you think about ESPN digital and social reach today I think last month. It was 181 million users. So when you think about knowing the fan avidity personalization users' preferences of all those people and then being able to target them, whether it's introducing them to to sports betting or <unk>.
Felicia Hendrix: We recorded an interactive in the fourth quarter of 2023 as we were launching ESPN bet. As a reminder, on February 15th, we received covenant relief under our credit agreement for the four quarters of 2024, and we continue to expect to exit the relief period by the end of this year as we will significantly deliver starting in the fourth quarter and throughout 2025. By 2026, our interactive segment will generate meaningful adjusted EBITDA, which will augment our strong cash flowing core retail business, inclusive of the four retail growth projects.
Speaker Change: People that are already sports betters, giving them Personalised offers and then moving them seamlessly between the apps with no friction. It is a massive opportunity and what we know is no matter what platform that you bet on today you placed your bed and then you're on ESPN tracking your bet and consuming information to try to piece together where you're at.
Aaron LaBerge: And what we know is no matter what platform you bet on today, you place your bet, and then you're on ESPN tracking your bet and consuming information to try to piece together where you're at in a parlay or whatever. And being able to place a bet on ESPN bet and then seamlessly package together the way to track that bet and make it more efficient and frictionless, we think is going to be a huge competitive advantage for us and something that no one else can do, and we're really focused on that.
Speaker Change: And Ah parlay or whatever.
Speaker Change: And being able to place a bet on ESPN bet, and then seamlessly packaged together the way to track that and make it more efficient frictionless.
Felicia Hendrix: I will now provide guidance for our retail and interactive segments, based on the second quarter results and our outlook for the remainder of the year. Our 2024 retail guidance ranges are unchanged from the full year guidance we provided last quarter. Our guidance continues to factor in stable customer demand, new supply in Nebraska, Illinois, and Louisiana, and road construction in a few markets. For the interactive segment in 2024, our adjusted EBITDA guidance range improves by 15 million to a loss of 510 million to a loss of $460 million from our prior guidance of a loss of 525 million.
Aaron: We think is going to be a huge competitive advantage for us and something that no. One else can do and we're really we're really focused on that that's very exciting and.
Aaron LaBerge: That's very exciting, and the teams are already working together in a way where it doesn't even feel like they're separate teams. So, you know, coming from ESPN, I think that's super exciting. I think the opportunity someone mentioned in the previous question with the land-based casinos and the size of that database, which I don't actually know if we share that, but it is actually quite massive, and being able to take people from that environment, move them into ESPN bet, and then further move them into our iCasino products is super exciting, too. So, you know, beyond that, focusing on the product experience, making sure that when people interact with our products, it feels good, it's frictionless, and it's fun to use is what I'm going to be focused on.
Aaron: And the teams are already working together in a way where it doesn't even feel like they are separate teams. So it is coming from U S. P and I think that's super exciting.
Speaker Change: Thank the opportunity someone mentioned in the previous question with the land based casinos in the size of that database, which I don't actually know if we share that but it is actually quite massive and being able to take people from that environment move them into ESPN bet and then further move them into our I casino products is.
Felicia Hendrix: This revised forecast includes the anticipated impact of higher OSB gaming taxes in Illinois, which went into effect in early July, and severance charges from our recent reduction in force at Penn Interactive. These items offset a portion of our $22 million upside to the midpoint of guidance provided on our first quarter earnings call. Our guidance also assumes the launch of ESPN bet in New York later this month. And reflects our unique position of being able to leverage the reach of the ESPN brands in New York without a heavy promotional lift.
Aaron: It's super exciting too so you know beyond that focusing on product experience, making sure that when people interact with our products. It feels good its frictionless and it it's fun to use as what I'm going to be focused on.
Aaron: That's great and then Jay and maybe maybe Todd.
Barry Jonas: That's great. And then Jay, and maybe,
Jay Snowden: Maybe Todd, you know, there's been concerns around macroeconomics, specifically at the low end consumer level. Can you maybe talk a little bit more about what you're seeing across the database? Yeah, I'll take a stab. Todd, feel free to jump in.
Jay Snowden: Concerns around the macro specifically at the low end consumer level can you maybe talk a little bit more about what youre seeing across the database.
Jay Snowden: Yeah, I'll take a stab Todd.
Jay Snowden: Really no change. From what we have said in previous quarters, we saw very consistent trends in the second quarter, as you see in our results. July, remember that you have calendar shifts. People seem to forget that often. So if you traded in the month of July, you lost a Saturday and Sunday and picked up a Tuesday and Wednesday; that's going to impact your top line results. And August, you benefit from a calendar shift.
Jay Snowden: To jump in and really no change from what we have said previous quarters.
Felicia Hendrix: As a note, our updated guidance does not assume a future launch in Alberta, Canada. For the third quarter of 2024, we expect to generate interactive adjusted EBITDA in the range of a loss of 135 million to a loss of 115 million. We expect 2024 corporate expense of roughly $105 million, inclusive of our cash settled stock based awards. Total CAPEX for 2024 will be approximately $500 million, inclusive of $275 million of project CAPEX.
Speaker Change: We saw a very consistent trends in the second quarter as you see in our results.
Speaker Change: July remember that you have calendar shifts people seem to forget that oftentimes. So you traded in the month of July you lost a Saturday Sunday and picked up a Tuesday Wednesday, that's going to impact your topline results in August you benefit from the calendar shift so my expectation would be that year over year August looks better than July.
Jay Snowden: So my expectation would be that, year over year, August looks better than July. It's interesting because we've been hearing from some of the lodging companies, as well as from air travel, that they're seeing some cracks in that lower end consumer. We're not seeing anything incremental in regional gaming or in our digital, our digital trends. So, I mean, it is an interesting dynamic that if people are staying, or they're traveling less, whether it's air travel, or they're staying in hotels less, that tends to be beneficial for regional gaming; people are staying closer to home. It's a drive.
Speaker Change: We really it's interesting because we've been hearing from some of the lodging companies as well as from air travel that Theyre seeing some cracks in that lower end consumer we're not seeing anything incremental in regional gaming or in our digital our.
Felicia Hendrix: For cash interest expense, we forecast approximately $175 million for full year 24 before roughly $15 million of interest income. For cash taxes, we are projecting a small tax refund in 2024, and our basic share count as of the end of the second quarter was $152.1 million shares, and we typically have roughly $15 million of diluted shares, inclusive of the $14 million share dilution from the converts.
Aaron: Our digital trends. So I mean, it is interesting dynamic that if people are staying are they are traveling less whether its air travel or there.
Aaron: Staying in hotels left that tends to be beneficial for regional gaming people are staying closer to home, it's a drive and gas.
Jay Snowden: And, you know, gas prices are actually quite stable right now, so it all adds up to, I think, what could be a good, stable environment for us. We're not seeing anything from an incremental standpoint that concerns us right now. Yeah, the only thing I'd add.
Aaron: Gas prices are actually quite stable right now so that all adds up to I think what could be a just a good stable environment for us we're not seeing anything from an incremental standpoint that concerns us right now the only thing I'd add.
Jay Snowden: And with that, I'll turn it back over to Jay. All right, thanks Felicia. I want to take a moment to recognize the incredible work of Justin Carter, our chair of our diversity committee here at Penn and all of our property leaders and team members across the enterprise. Our annual Penn Diversity Scholarship Fund recently awarded over $1 million in scholarships to the children of our team members, and we look forward to celebrating the graduating class of 44 scholars from the inaugural year of the scholarship program.
Todd George: Unknown Attendee And I think one thing I'd add, you know, that little more detail at 50 to 99, even 100, 399, 400 plus, all very stable throughout the quarter year over year. And then just a little bit, I think Carlo touched on this in his question, but we did see really decent play from our unrated segments. So that kind of offset anything that we saw in the lower segment from zero to 49, but even that was stable. And even though it's early in August, we're seeing really positive trends in the first few days of August.
Aaron: A little more detail that 50 to 99, even the 103 99 400, plus all very stable throughout the quarter year over year.
Aaron: And then just a little bit I think Carlo touched on this in his question, but we did see really decent play from our unrated segment. So.
Jay Snowden: This quarter we also kicked off our annual corporate days of listening to gather feedback from team members on all matters of diversity and inclusion, and we were honored to be named by Diversity Magazine as one of the best of the best of the best 2024 top diverse employer. In closing, I want to reiterate that while 2024 is an investment year at Penn, our biggest losses and digital are now behind us. Looking ahead, 2025 will be a year of delivering the balance sheet as monetization improves with ESPN bet, and we launch our standalone Hollywood Icasino app early in the year.
Aaron: That that kind of offset anything that we saw in the the lower segment that zero to 49, but.
Aaron: Even that was with stable and even though it's growing in August we're seeing really positive trends. The first few days of August.
Speaker Change: Great I appreciate it thanks.
Barry Jonas: Great. I appreciate it. Thanks.
Aaron: Our next question comes from Shaun Kelly with Bank of America.
Operator: Our next question comes from Shaun Kelley with Bank of America.
Shaun Kelly: Hi, good morning, everyone.
Shaun Kelley: Hi, good morning, everyone. Aaron, maybe a strategic question for you to lead off, and then welcome. My question is really this, right? As we think about the digital side here, I kind of feel like there are two major technological areas. One's going to be the marketing side, targeting, retargeting, A-B testing, all that stuff. The other is going to be the pure engineering side, and I think Jay's done a great job of outlining some of the product improvements.
Aaron: Aaron maybe.
Jay Snowden: By 2026, we expect all four of our growth projects to be open, and we will begin generating positive cash flow from our interactive unit as Felicia mentioned. Again, with Aaron's addition to our team, we're confident that we can build a market leading product that will allow us to realize the power of our portfolio of leading digital brands. In some, we're all very excited for what the future holds in store for Penn entertainment and its value shareholders.
Shaun Kelly: Strategic question for you to lead off and then welcome.
Shaun Kelly: Yes, My question Julien right as we think about digital.
Speaker Change: The digital side here kind of feel like Theres two major technology areas, one is going to be the marketing side targeting re targeting AB testing all of that stuff, yeah, theres going to be the pure engineering side and I think Jay has done a great job of outlining some of the product improvement I'm curious given your background in streaming could you just talk a little bit about how you think about allocating.
Shaun Kelley: I'm curious, given your background in streaming, could you just talk a little bit about how you think about allocating resources between marketing and advertising tech versus core engineering? Where do you lean, and what are you most excited about as you take your streaming skills and think about betting? Thanks.
Angela: And with that, Angela, we could open up the questions, the lines for questions.
Angela: At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two.
Speaker Change: Resources between marketing and advertising tack versus core engineering, and kind of where do you lean in what are you. Most excited about as you kind of take your streaming skills to think about thinking about better. Thanks.
Carlos Antirelli: We'll take our first question from Carlos Antirelli with Deutsche Bank. Please go ahead. Hey everyone, good morning. Jay Aaron, whoever wants to take this one, one of your competitors obviously talked about a very good customer acquisition market in the two queue. You guys seemingly remained promotionally disciplined in the two queue. And obviously, you know, I'll perform kind of your expectations guidance, et cetera. As we move though into the, you know, August and start a college football season with a lot of the stuff that you guys are doing and acknowledging that you just provided three queue guidance.
Aaron LaBerge: Great question. Well, what I'm most excited about, and I got a glimpse of this as we were doing the partnership with Penn, is the underlying foundational infrastructure that powers ESP-Embed is incredibly sound, super sophisticated, and is the foundational piece on which we're going to build everything on top of. And so this isn't an engineering project to come in and fix something that's broken. It's something that we're going to build on top of.
Speaker Change: Great question, well, so what I'm, most excited about and I got a view of this as we were doing the partnership with Penn is the underlying foundational infrastructure that powers ESPN bet is incredibly sound Super sophisticated and is the foundational piece in which we're going to build everything on top of.
Aaron: And so this isn't a engineering project to come in and fix something that's broken is something that we're going to build on top of and so right now and I mentioned in my remarks, you know, we sort of lagged our competitive set in terms of full features and functionality and being able to quickly build on top of that foundation to iterate the product I think.
Aaron LaBerge: And so right now, and I mentioned in our remarks, we sort of lag our competitive set in terms of full features and functionality, and being able to quickly build on top of that foundation to iterate the product, I think, is super exciting. I think marketing and acquisition are just part of the business. We're going to continue to get smarter and better there, and I think some of our results show that we're already doing that.
Carlos Antirelli: How are you guys thinking about kind of the customer acquisition push in three queue and then maybe how that leads over in the four queue from the perspective of. We're trying to get more people in the funnel to experience, you know, would be the newer product and a lot of the new amenities that have been added.
Aaron: Super exciting I think marketing and acquisition is just part of the business, we're going to continue to get smarter and better there and I think some of our results show that we are already doing that.
Aaron LaBerge: So, you know, to me, it's about building the best product and then really taking advantage of the integration opportunities with ESPN, which will also require some technical sophistication. And, of course, that's one of the best teams in the world as well. So, you know, just super excited about all of it.
Aaron: So.
Speaker Change: To me, it's about building the best product and then really taking advantage of the integration opportunities with ESPN, which will also require some technical sophistication and of course, that's that's one of the best teams in the world as well so.
Jay Snowden: Yeah, it's a great question, Carlo. Our assumption around customer acquisition, obviously, is completely built into the guidance for the rest of the year that Felicia provided. And the environment right now is actually quite good. It doesn't mean that we're going to be super aggressive. It means that with the guidance that we provided, we think that we can continue to drive top of funnel, understanding, of course, that the most valuable and most efficient top of funnel we have is our partnership with ESPN.
Aaron: Super excited about all of it.
Speaker Change: Thank you.
Shaun Kelley: Thank you. And maybe just as a follow-up and a little bit more about the numbers, you know, for Jay or Felicia, I think last quarter you gave a little bit of detail around kind of the promotional cadence as a percentage of handle. This quarter, we didn't get those stats, but you did give us more detail on hold and parlay mix. So my question is simply, like, you know, just could you give us an update on the percentage of handle?
Speaker Change: Just as a follow up and a little bit more about the numbers.
Speaker Change: For gay or Felicia I think last quarter, you guys, you gave a little bit of detail around kind of the promotional cadence as a percentage of handle this.
Speaker Change: This quarter, we didn't get those stats, but you did give us some more detail on hold and parlay Max. So my question is simply like just could you give us an update with the percentage of handle so we think about the promo this quarter versus last is that relatively stable and what really changed was hold this quarter or have you continued to sequentially improve on your promotional cadence.
Jay Snowden: And the deep integrations that we not only have today, but are going to have by the start of football season, a lot of enhancements in the ESPN media app. And then of course, fantasy, which we have a few slides on. So I would say that, you know, with the environment being healthy right now, that allows us to continue to focus on top of funnel mostly through our relationship with ESPN. We'll do some spending around that, but again, that's all built into our guidance for the rest of the year.
Shaun Kelley: So we think about the promo this quarter versus last. Was that relatively stable, and what really changed was hold this quarter, or have you continued to sequentially kind of improve on your promotional cadence? And how do we think about, you know, that trend in the back half? Thanks.
Speaker Change: And how do we think about that trend in the back half. Thanks.
Jay Snowden: Yep, really; it was a combination of the two. Our promotional reinvestment as a percentage of handle went down from Q1 to Q2. Obviously, we had a slide that we shared there on the hold percentage. So, it was a combination of those two things.
Speaker Change: Yes.
Jay Snowden: And remember, we have a digital database of almost four million and a lot of those digital customers only only bet on football. So there's a huge reactivation opportunity for us. And we think with the much improved product that we have and all the new features that Aaron and I will talk about. I'm sure throughout this call, we feel like we have an opportunity to drive better engagement, deeper loyalty and retention and monetization has been moved forward.
Speaker Change: Really it was a combination of the two our promotional.
Speaker Change: Reinvestment as a percentage of handle came down from Q1 to Q2, obviously, we had a slide that we shared there on the hold percentage. So it was a combination of those two things.
Speaker Change: We anticipate you know when you kind of look out to 2025, our promo reinvestment rate being between two and 3% like right in that mid market range, we don't expect to be higher.
Shaun Kelley: We anticipate, you know, when you kind of look out to 2025, our promotional reinvestment rate being between 2% and 3%, like right in that mid-market range. We don't expect it to be high or low. We just want to be really at market as a percentage of handle. It's hard to anticipate exactly what it's going to be in the third quarter just because you do have the New York launch. And again, we're approaching it very differently. It might take up a little bit, but nothing material, and then probably come back down again in Q4. That's what I would anticipate.
Speaker Change: High or low we just want to be really at market as.
Speaker Change: As a percentage of handle.
Speaker Change: It's hard to anticipate exactly what it's going to be in the third quarter. Just because you do have the New York launch and again, we're approaching it very differently.
Todd George: Great. Thanks. And then just if I could follow up on the brick and mortar side, you guys, you know, it seems as though kind of margins have broadly stabilized in this 34 to 35% range. The brick and mortar net revenue environment needs to look like in 2025 from margins to be flat or perhaps inflect favorably.
Speaker Change: Tick up a little bit, but but nothing material and then probably come back down again in Q4 is what I would anticipate.
Speaker Change: Thank you very much.
Speaker Change: Yeah.
Speaker Change: Okay.
Operator: Our next question comes from Chad Beynon with Macquarie.
Speaker Change: Our next question comes from Chad Beynon with Macquarie.
Chad Beynon: Good morning, Thanks for taking my question.
Chad Beynon: Morning, thanks for taking my question. You mentioned some of the cost improvements on the interactive side that led to the beat for the quarter. Jay, obviously, not to steal any thunder from the investor presentation in October and kind of the launch of NFL, but has anything changed just in terms of the path to profitability, the timing of that, and if 25 is that important, or if maybe we should kind of look out to 26 in terms of getting all the benefits from what you're doing internally that will be rolled out soon? Thanks. Yep.
Jay Snowden: You mentioned some of the cost improvements on the interactive side that led to the beat for the quarter. Jay Obviously, you know not to steal any thunder for the investor presentation in October and kind of the launch for NFL, but has anything changed just in terms of the path to profitability the timing of that and if 25 is.
Todd George: Todd, you want to grab that? Sure. Thanks, Jay.
Todd George: And Carlo, a great question. This quarter, obviously, there was a little bit of noise in the south. We did have some disruption related to some weather impact from primary feeder markets. We also had a little bit of impact from hotel construction at our Lake Charles property. And then in the Northeast, just a little bit of some accounting adjustments, some favorable last year, unfavorable this year as well, some table game hold percentage.
Speaker Change: That important or if you know maybe we should kind of look out to 'twenty six in terms of getting all the benefits from from what Youre doing internally that'll be rolled out soon thanks.
Jay Snowden: Yep, we'll probably spend more time on this topic at G2E at the investor event, so I won't say a whole lot other than to say nothing's changed in terms of how we're thinking about 25 and 26 from what we said in the last quarterly call.
Speaker Change: Yes, well probably spend more time on this topic at GTA V. At the Investor event, So I won't say a whole lot other than to say nothing's changed in terms of how we're thinking about 25% and 20 seconds from what we've said in the last quarter call.
Todd George: I think when we think about the remainder of the year, the margins that we're carrying right now, we feel comfortable going through the remainder of this year. As we look into next year with the improvements we're seeing in technology, a lot of our technology initiatives are offsetting some of the payroll creep we've seen. I think you may see a little bit in Michigan that was pretty highly publicized. But again, we do a case study on that.
Speaker Change: Okay. Thank you.
Chad Beynon: And then, in terms of Alberta, we definitely sensed your optimism there in terms of what that could be from a contributing standpoint. What is the timeline there?
Speaker Change: And then in terms of Alberta, we definitely sensed your optimism there in terms of what that could be from a contributing.
Speaker Change: Standpoint, what is the timeline there and are there any major differences in terms of the current dynamics with maybe gray market players are kind of how you see.
Jay Snowden: And are there any major differences in terms of the current dynamics with maybe gray market players or kind of how you see that market going green? Thank you. Yeah, happy to. The market is very similar in terms of the gray market today.
Todd George: We're offsetting a lot of that with the revenue growth. So from a net revenue standpoint, I think we've weathered the storm with a lot of the new competition introductions. And, you know, we were looking at a pretty stable environment, not only for the back half of this year, but going into next year. Okay, Todd, sorry. And just as related to something you said, obviously, it looks like the op-ax in Northeast segments, specifically spiked pretty aggressively in the second quarter, but was very calm in the first quarter.
Speaker Change: That market too.
Speaker Change: To go Green Thank you.
Jay Snowden: Yeah, happy to market is very similar in terms of the gray market today, and regulated soon. We don't have an exact date for that chat.
Speaker Change: Yeah happy to market is very similar in terms of gray market today.
Chad Beynon: And regulated and soon we don't have an exact date on that Chad.
Chad Beynon: [music].
Speaker Change: And then my back lives.
Chad Beynon: Yep, I have got you now. Thank you.
Todd George: Obviously, looking at last year, kind of insinuate that if you smooth it out, things were pretty stable. A lot of that, just as you mentioned, some of the accounting stuff and things of that nature that might have shifted quarter to quarter. And this uplift is not a run rate uplift in op-ax. I should say is not a run rate for the second half of the year. Correct. Thank you.
Chad Beynon: Yes, I got you now thank you.
Jay Snowden: Okay, we don't have an exact date for Alberta, and I don't want to speak obviously for the government or the regulators there.
Chad Beynon: Okay.
Speaker Change: We don't have an exact date on Alberta, and I don't want to speak obviously for the government and the regulators there, but I would say we're thinking sometime towards the end of this year early twenty-five as kind of the rough timeframe. We would anticipate that the success that we've seen in Ontario with the score in the score a bet, we would be able to replicate.
Jay Snowden: But I would say, you know, we're thinking sometime toward the end of this year, early 25 is kind of the rough timeframe, we would anticipate that the success that we've seen in Ontario with the score and the score bet would be able to replicate that in Alberta. The score is a very popular brand throughout Canada. It's not just a Toronto or Ontario thing. So given the success we've had in Ontario and given that Alberta will have very similar tax rates, as we understand it, and be both OSB and iCasino, we think it's going to be a really important North American market for us, probably a top three or four market for us. Interesting.
Speaker Change: Get that in Alberta, the score is a very popular brand throughout Canada, it's not just a toronto or Ontario things. So given the success, we've had in Ontario, and given that Alberta will have very similar tax rates as we understand it and be both OSB and a casino. We think it's going to be a really important north American market for us probably the top three or four market.
Jo Stoff: Our next question comes from Jo Stoff with Susquehanna. Thank you.
Jo Stoff: Good morning.
Jay Snowden: Jay, I wanted to see if you could maybe comment or share on say the retail conversion of the new digital customers that you've experienced since launching ESPN bet. You know, are these new unique customers to the whole pen ecosystem, or, you know, are they retail customers, essentially, you know, reopening say in the ESPN bet account. And then I'm wondering if you could comment maybe on the Pennsylvania Supreme Court case. Could be somewhat favorable to you in Pennsylvania and whether or not you know we've seen this pattern certainly in other states Kentucky, Virginia and whether or not you think maybe there this could also occur in other states in terms of a source of growth going forward.
Speaker Change: Yes.
Chad Beynon: Interesting. Thank you very much.
Speaker Change: Interesting. Thank you very much.
Dan <unk>: The next question comes from Dan <unk> with Wells Fargo.
Operator: The next question comes from Dan Politzer with Wells Fargo.
Daniel Politzer: Hey, good morning everyone, and thanks for taking my question. First one on interactive: I think in your slide deck, you outline your hold in the quarter in a select number of states. I think it was 8.2%. How should we think about that kind of evolving over time? Is there a long-term target, time to get there? And then similarly, you know, is there an underlying trading and risk management opportunity? And I only ask that because some of your peers have really been building out that aspect of their tech stack. Thank you.
Dan <unk>: Hey, good morning, everyone and thanks for taking my question first one on the interactive I think in your slide deck you outlined your hold.
Speaker Change: In the quarter.
Speaker Change: It's like number of states I think it was eight 2% how should we think about that kind of evolving over time is there a long term target time to get there and then similarly is there an underlying trading and risk management opportunity and I only ask that as some of your peers have really been building out that aspect of their tech stack. Thank you.
Jay Snowden: Yeah, say a couple of things about hold percentages. I think it's important to note that we really haven't changed our assumptions from last quarter to this quarter in terms of what's built in for guidance for the rest of the year, still in that seven to 8% range. So if the trend that we have delivered of late in the last quarter and July as those results come out, there could be some opportunity for upside there potentially. So now again, it's a different time of year; you tend to hold a little bit better during the slower season of baseball.
Speaker Change: Yeah.
Speaker Change: Say a couple of things about hold percentages I think it's important to note that we really haven't changed our assumptions from last quarter to this quarter in terms of what's built in for guidance for the rest of the year are still in that 7% to 8% range. So if the trends that we have delivered of late the last quarter in July as those.
Jay Snowden: Joe, do you want to clarify the second part of that question again? I wasn't following that. Yeah, just the depending case in Pennsylvania Supreme Court on skill based games, determining if they're legal or not is what I meant to ask. Okay, got it. We'll take a stab at that. I think the first part of your question with regards to the ESPN vet users in this pickup in our database, the lion share 90 plus percent of the ESPN vet pickup are really new to the ESPN, which is great for us.
Dan <unk>: The results come out.
Dan <unk>: There could be some opportunity for upside there potentially so again, it's a different time of year, you tend to hold a little bit better during the slower season of baseball and so on.
Jay Snowden: And so we'll see how that plays out. But we feel really comfortable in terms of what's built into guidance and where we think we could end up trending as we close out 24 and head into 25. I think, as we think about the opportunity, sort of medium term for us, FanDuel has been in a class of their own from a hold rate percentage perspective because their parlay percentage, excuse me, is, you know, best in class.
Dan <unk>: We'll see how that plays out, but we feel really comfortable in terms of what's built into guidance and where we think we could end up trending as we close out 24 and heading into twenty-five I think as we think about the opportunity sort of medium term for us.
Speaker Change: You know <unk> been in a class of their own from a hold rate percentage from a whole rate perspective, because they're parlay percentage excuse me is.
Jay Snowden: We detailed in our last quarterly call how many of them live proximate to our properties, which is I think lays out a great opportunity for us and especially as we convert more and more of our retail sports books and rebrand them to ESPN vet. You have the name and brand recognition. So cross L becomes even smoother. So that's all been good news and we would anticipate going into football season that will continue to be the case.
Dan <unk>: Best in class in what we're seeing already keeping keeping in mind that.
Jay Snowden: And what we're seeing already, keeping in mind that our parlay offering is going to be significantly better at the start of the football season than it's ever been. And I say that with regard to same-game parlay, parlay, just, you know, data feeds and player props, all sorts of things that, without getting into too much detail, it's going to be a significant improvement and enhancement from what people experienced last year when we went live during the football season.
Dan <unk>: Our parlay offering is going to be significantly better at the start of football season than it's ever been and I say that with regard to same game parlay parlay, just data feeds and player props, all sorts of things that without getting into too much detail. It's gonna be a significant improvement enhancements from what two people experienced last.
Jay Snowden: Obviously we have a huge land based database that we can market to for ESPN vet in the states where it's legal. Of course, I casino as well. But we have an opportunity to continue to grow through the integrations that we mentioned earlier and all the cross sell that we're getting from ESPN. So really good news in terms of incrementality to pen in the brand and the awareness of that brand of ESPN.
Speaker Change: Here when we went live during football season, So we think that at Penn with ESPN bet exactly what Aaron said in his prepared remarks that we want to be the American sports book, and that's going to mean that you're really catering to the masses and theres a lot of casual betters in there who loved parlays, we're seeing that already and I think for you.
Jay Snowden: So we think that at Penn, with the ESPN bet, exactly what Aaron said in his prepared remarks, that we want to be America's sportsbook. And that's going to mean that you're really catering to the masses. And there are a lot of casual bettors out there who love parlays. We're seeing that already. And I think for, you know, the Illinois example, for us to be sort of sitting at a number two position in terms of parlay as a percentage of handle when our parlay offering hasn't been as competitive as it is about to be at the start of football, we think there's a lot of opportunity for us to continue to close the gap between us and FanDuel in terms of parlay.
Jay Snowden: The Pennsylvania skill base that it's a very interesting. It's a very interesting topic. We have been very vocal in our position that those skill base games are they sound look smell like a slot machine and there's a lot of concern around that. Obviously we continue to fight against what has been a rapid expansion of skill base games in Pennsylvania through the court system. We think that we have a very strong position there.
Speaker Change: The Illinois example for us to be sort of sitting at a number two position in terms of partly as a percentage of handle when our parlay offering hasn't been as competitive as it is about to be at the start of football. We think theres a lot of opportunity for us to continue to close the gap between us and <unk> in terms of.
Jay Snowden: Parleys, excuse me, as a percentage of handle. And with that will come an improved hold percentage. I'm not saying that we're going to get to fan dual letters, not going to give you a time frame, but clearly there's a big opportunity for us to continue to close that gap over time as we improve the experience for those that like to bet on Parleys and, overall, just bet inside the app.
Dan <unk>: Parlays excuse me as a percentage of handle and with that will come in improved hold percentage I'm, not saying that we're going to get to <unk> letter is not going to give you a timeframe, but clearly there's a big opportunity for us to continue to close that gap over time as we improve the experience for those that like to bet on parlays and overall just that inside the app.
Jay Snowden: Our industry is very much aligned on fighting against the expansion of skill base games, not just in Pennsylvania, but around the country. So we'll see how things play out in Pennsylvania. But I think that my comments be for themselves in terms of our position. Okay, thanks. It just maybe one quick follow up. Is there any best guess as to when a ruling may come out? Now we would be completely guessing on that one. Joe, not not really comfortable putting out a date range. Understood. Thanks a lot.
Daniel Politzer: Got it. That makes sense. And it just is a follow-up. But maybe I missed it. But for the guidance, did you provide an online revenue number? And I know previously, you've given that, but perhaps I missed it. No, we didn't, but you should assume it.
Speaker Change: Got it that makes sense and then just as a follow up but maybe I missed it but for the guidance did you provide an online revenue number I know previously you had given that but perhaps I missed it.
Jay Snowden: No, we didn't, but you should assume it's still within that range. Maybe it's a little bit higher than the midpoint, much like EBITDA was a little higher than the midpoint, but we didn't provide it. But you should assume it's still within that range.
Speaker Change: No we did it but you should assume it's still within that range, maybe it's a little bit higher than the mid point much like the EBITDA was a little higher than the mid point, but.
Speaker Change: We didn't provide it but that you should assume that it's still within that range.
Speaker Change: Got it thanks, so much.
Brent Montour: Our next question comes from Brent Montour with Barclays.
Operator: The next question comes from Bernie McTernan with Needham & Company.
Speaker Change: The next question comes from Bernie Mcternan with Needham <unk> company.
Jay Snowden: Good morning, everybody. Thanks for taking my question. Maybe first going back to slide 10, Jay or Felicia, you know, the sequential pickup and adjusted revenue, was impressive. So maybe you could maybe split that out between OSB and eye gaming and where you saw those relative growth rates in the quarter? Yeah, happy to. Most of that growth because we're talking NGR here was on the sports betting side. There is growth on the eye casino side as well, but we really didn't have a whole lot of promos spend against eye casino last quarter relative to what it was in Q2.
Bernie Mcternan: Great. Good morning, Thanks for taking the question just with the strong growth in <unk> in the quarter I know you talked to your promotional intensity falling off and maybe can you walk through some of the other puts and takes and the sequential growth between handle and GTR.
Bernard McTernan: Great. Good morning. Thanks for taking the question. Just with the strong growth in NGR in the quarter, I know you talked about promotional intensity falling off, but maybe can you walk through some of the other puts and takes in the sequential growth between Handel and GGR?
Jay Snowden: Sure. Um, yeah, Bernie, listen. Great question.
Speaker Change: Let's say from one time sure.
Bernie Mcternan: Yes, Bernie listen Great question I think.
Jay Snowden: I think, um, the promo was the primary driver, but you start looking at just seasonality, and a huge piece of that is seasonality. So again, that converted customer from ESPN, the converted customer from our Penn Play database that's moving over, all that comes over pretty frictionless, so they're just good.
Speaker Change: The promo was was the primary driver, but you start looking at <unk>.
Speaker Change: Just seasonality is a it's a huge piece of this so again that converted customer from ESPN to converted customer from our Penn play database, that's moving over all of that comes over pretty.
Jay Snowden: So the biggest delta that you see there in growth in revenue is driven by more efficient revenue from on the growth side, being that it's flowing through to net as our promotional cost from the initial launch continue to come down. And I think us just continuing to get smarter in terms of the promotions that we have out there for new users as well. So really a combination of those two but more driven by OSB.
Speaker Change: Frictionless, so theyre just going into the App I think that's benefited all of us and then.
Speaker Change: The improvement in hold percentage kind of again was the big driver there keep in mind that Todd last point on hold percentage one of the real benefits that you get from higher hold percentage is that a lot of our expenses third party expenses data feeds and geolocation et cetera payment processing.
Brent Montour: Thanks for that Jay.
Todd George: Unknown Attendee Keep in mind that Todd's last point on hold percentage, one of the real benefits that you get from a higher hold percentage is that a lot of our expenses, third-party expenses, data feeds, and geolocation, etc., payment processing, payment processing, those are the real benefits.
Brent Montour: And then a different question.
Jay Snowden: One of your competitors announced a potential gaming surcharge to be launched for them in 2025. I know it's not bent out there for a long time. And so you probably haven't had a ton of time to mold it over, but could you just provide some initial your initial reaction to that news? Yeah, we find it to be very interesting. It was unexpected from from our perspective, but definitely interesting. I mean, you really, as you think about pen view on this, you should expect us to be observers.
Speaker Change: The processes.
Speaker Change: Given by a handle right. So when you handle is may be more stable, but your whole percentage is higher and your revenues are higher it's a great mix in terms of how that flows through the P&L and we would anticipate that dynamic for Penn continuing given the upside I mentioned earlier on parlay percentage in hold percentage upside.
Jay Snowden: Yep, makes a lot of sense. And then, Jay, you pointed out ESPN having greater rights to add betting content, given
Speaker Change: Yes. It makes a lot of sense and then Jay you pointed at ESPN, having greater rights to add betting content given their new NBA deal I was just wondering if you could add any specifics in terms of what ESPN couldnt do under the prior deal and what they might be able to do in the future with the new deal.
Bernard McTernan: Unknown Attendee: I was just wondering if you could add any specifics in terms of what ESPN couldn't do under the prior deal and what they might do. Yeah, maybe we'll spend a little bit more time on that in October at the G2E event. It's a great question. I don't want to speak for ESPN. What we shared is what was public, but maybe we can get some more information from them or have a representative there to answer that question in more detail, if that works, Bernie. Perfect. Thanks, Shay.
Jay Snowden: You know, we have a lot going on in front of us right now over the coming quarter. So I would say, when you're talking about a potential tax surcharge in early 25, like that's, it's not even on our radar. It doesn't mean that I hesitate to ever say never. It just means that we're really focused on continuing to improve the products, continuing to drive top of funnel and loyalty and retention. And so we would not be a first mover on something like that.
Speaker Change: Yeah, maybe we'll spend a little bit more time on that in October at the <unk> event. It's a great question I don't want to speak for ESPN. What we shared is what was published but maybe we can get some more information from them or have a representative there to answer that question in more detail if that works Bernie.
Bernie: Perfect. Thanks, Jay.
Jay Snowden: We're going to stay very close to it. We'll observe, we'll see what the reaction is assuming that it does launch in early 25. And then we'll probably have more to share with all of you on our quarterly earnings calls throughout 2025. Makes sense.
Operator: The next question comes from Ben Chaiken with Mizzouho.
Bernie: The next question comes from Ben Chaiken with Mizuho.
Unknown Attendee: Thanks everyone.
Speaker Change: Hey, Thanks for taking my question for Aaron or maybe J whoever wants to take us into <unk>.
Benjamin Chaiken: Hey, thanks for taking my question. For Aaron, or maybe Jay, whoever wants to take this, in the deck and on the call, you've referenced a few different initiatives for the OSB product, several of which are ESPN bet integrations into traditional ESPN products, which, as you mentioned, are top of the funnel initiatives that make a lot of sense. I guess what's your thought on going the other way as well and integrating more ESPN content into the ESPN bet app?
Speaker Change: And on the call you referenced a few different initiatives for OSB product several several of which are ESPN integrations into traditional ESPN products.
Joe Graf: Our next question comes from Joe graph with JP Morgan. Good morning, everybody. Good morning, Aaron.
Speaker Change: Which as you mentioned our top of the funnel initiatives that make a lot of sense I guess, what's your thought on going the other way as well and integrating more ESPN content into the ESPN.
Jay Snowden: Jay, can you talk about maybe how your new user acquisition strategies or tactics have changed or evolved given drafting recent plans to increase new user promos and had he compete against that the same time you're launching an enhanced ESPN bet platform in front of the football season. Yeah, I hit on it a little bit earlier, Joe, in terms of how we're thinking about driving acquisition and top of funnel. We have this, you know, we're in this great position where we've got the deeper integrations with ESPN and their core, their core digital products with ESPN media app as well as fantasy fantasy is all brand new going into the football season.
Speaker Change: So team statistics player stats relevant news et cetera, the idea being to facilitate the wagering process for betters and hopefully make them sticky users of the app.
Benjamin Chaiken: So team statistics, player stats, relevant news, etc., the idea being to facilitate the wagering process for bettors and hopefully make them regular users of the app. I mean, to some degree, you do this already with the score bet and the game preview functionality. It just seems like a significant differentiator amongst betting apps that can struggle not to become a commodity. I would love your thoughts. I think if you look, if you look at what we're doing.
Speaker Change: I mean to some degree you do this already with the score bet and again again preview functionality. It just seems like a significant differentiator amongst betting apps that can struggle not to become a commodity and would love your thoughts. Thanks.
Aaron LaBerge: I think if you look at what we're doing with the ScoreBet, including the recent integration of, or excuse me, of the ScoreMedia app with the integration of ScoreBet, we've now integrated ESPNBet there too, which I think points to some of the things that we're looking to do with ESPN. When we think about the fan, ESPNBet and the ESPN app are inextricably linked, and so moving between those two environments and where you want to consume content and how you consume it, we aren't going to necessarily care where that happens. And so that line, obviously, we're currently working with ESPN to make sure it makes sense, but the goal is that you can move between these apps really fluidly and get what you want, you know, where you Like, for example, when we have account linking in November, if you place a parlay on an ESPN bet, it's going to appear in the ESPN app. You have to do no work.
Speaker Change: So I think if you look if you look at what we're doing with the score better including the recent integration of or excuse me of the score media App with the integration with the score, but we've now integrated ESPN bet, there too, which I think points to the some of the things that we're looking to do with ESPN. When we think about the fan.
Jay Snowden: And even the deep links that we have in the ESPN media app, they're going to be now no longer just in gamecast, but on the scores tab on the home screen. Really anywhere where you see a score of an event of the major sports, you're going to have that six pack of odds and deep links with ESPN bed. So we're in a very fortunate position where obviously that will drive top of funnel that will drive a lot of engagement with our app.
Speaker Change: ESPN bet and the ESPN App are inextricably linked and so moving between those two environments.
Speaker Change: And where you want to consume content and how you consume it we arent going to SD care, where that happens and so that line. Obviously, we're currently working with ESPN to make sure. It makes sense, but the goal is that.
Speaker Change: You can move between these apps really fluidly and in and get what you want where you want it like for example, when we have account linking in November if you. If you place a parlay on ESPN, but it's going to appear in the ESPN App you have to do no work, it's going to be seamless so as I mentioned before you place it.
Jay Snowden: And so that is extremely efficient for us and that's going to be the biggest driver of acquisition. There is there is some other acquisition outside of the ESPN that will continue to pursue but the lion's share of acquisition for us is going to be through that ESPN channel. I would anticipate that the acquisition environment will from our perspective be healthy but be cost effective as well. We talked a little bit about New York and our prepared remarks and we were going to continue to take a different approach in terms of launching in New York versus what we did when we launched across 17 states in the fourth quarter of last year and really lean a lot more on the product improvements, the integrations, of course the connection that ESPN has.
Aaron LaBerge: It's going to be seamless. So, as I mentioned before, you place a bet, and then you're struggling to figure out, you know, how that is performing best because you have a four-leg parlay and you're on ESPN.com, and you have multiple tabs open. We're now going to package that for you with no work. And if anyone here has placed a parlay, you know, more than two or three legs, you know that's a struggle.
Speaker Change: And then you are struggling to figure out how that best performing because you had before like parlay. Your on ESPN Dot Com and you have multiple tabs open where now you have this package that for you with no work.
Speaker Change: And if anyone here has placed to parlay.
Speaker Change: No more than two or three legs, you know that's a struggle and so it's just going to be like magic for you to actually consume that within ESPN and we look at that.
Aaron LaBerge: And so it's just going to be like magic for you to actually consume that within ESPN. And we look at that in both ways. As we think about, you know, you look at Gamecast on ESPN, which is a real-time visualization of a game in progress. Well, imagine a betcast version of that for your bets. Well, whether you track that with an ESPN or an ESPN bet, the module, the content, the experience, will be the same across both platforms and will appear on both platforms.
Speaker Change: And both ways as we think about you know you look at Gamecast on ESPN, which is our real time visualization of the game in progress will imagine a.
Jay Snowden: And so that's going to really be our approach where we think that based on everything that we covered and I just highlighted that we'll have a steady flow of top of funnel. But the biggest opportunity to be very clear and mentioned this earlier also is going to be around reactivation. We have this significant database. A lot of them are in the app, you see that in the center tower data but we just we need to continue to drive better retention and higher share of wallet and we think with all the product enhancements that we're launching between now and the end of the month.
Speaker Change: Beth cast version of that for your bets well, whether you track that within ESPN or an ESPN Beth the module the content the experience will be the same across both platforms and we will appear in both platforms. So.
Aaron LaBerge: So, you know, the essence of your question is that it's going to be seamless across both platforms, and we're really just thinking about what that looks like and what our plans are. But it's one of the major focuses between the teams as we speak.
Speaker Change: The essence of your question is it's it's going to be seamless across both platforms and we're really just thinking about what that looks like and what our what our plans are but.
Speaker Change: It's one of the major focus is between the teams as we speak.
Jay Snowden: And then of course throughout the football season when you get to you know later in the fourth quarter we talked about being able to have account linking done with ESPN that's going to take personalization to a whole different level. So the great thing about our relationship with ESPN is it's a driver of both top of funnel as well as ongoing retention. Great.
Speaker Change: Got it thank you.
Speaker Change: The next question comes from Jordan Bender with citizens JMP.
Operator: The next question comes from Jordan Bender with Citizens JMP.
Jordan Bender: Good morning, Thanks for taking my question.
Jordan Bender: Good morning, thanks for taking my question. It's been some time since we've spoken about it, but the Three Cs initiative remains an important initiative for the company. So can you just kind of give us an update on how that's performing at the properties, financially, operationally, etc.
Speaker Change: <unk> been some time since we've spoken about it but the <unk> initiative I believe that remains an important.
Jay Snowden: Thank you for your thoughts there, Jay.
Jordan Bender: The initiative for the company. So can you just kind of give us an update on how that's performing at the properties financial operationally et cetera.
Jay Snowden: Except for topic, some of the financial media and even some of the gaming trade regs have reported a while back and there's been a lot of stuff reported and the actual media with respect to you guys, but my specific question is, are you looking at selling individual assets, properties, and if that is a focus can we talk about maybe, what the strategic rationale might be there? Well, I guess at a high level, Joe, and you'd expect this answer that, you know, we don't comment, we haven't commented and won't comment on market rumors and speculation.
Tod: Sure. This is Tod great question, and we will talk more about this also at our at our G. Two event, but basically we're seeing.
Todd George: Sure, this is Todd. Great question. And we will talk more about this also at our G2E event. But basically, we're seeing really nice adoption from all levels. And that was one of our priorities as we were going in; we didn't want this just to be for that younger cohort. So we've seen that go across all levels, regardless of age and level of play, and so you get this great advantage of greater time on device, removing friction from every transaction, taking people out of line, keeping them in, whether it's a slot machine or a table game.
Speaker Change: Really nice adoption from all levels and that was one of our.
Speaker Change: <unk>.
Jordan Bender: Priority says we are going and we didn't want this just to be for that younger cohort. So we've seen that go across all levels, regardless of age and the level of play and so you get this great advantage of greater time on device removing friction from every transaction taking people out of line keeping them at.
Jay Snowden: What I will say is that as a company and as a board, we're always and always have always will evaluate opportunities to enhance value, and we'll continue to take actions that we believe are in the best interest of the company and our shareholders. With that said, we're very confident in our strategy and the value that it's going to deliver for shareholders over the short term, medium term, long term, so that's the way I would answer that question and I don't, you know, I would say don't believe everything you read and with regard to your specific question on assets, just remember that our assets, land based assets are all part of different leases, and so it's not, it's not as simple and easy as, oh, you just sell off an asset.
Jordan Bender: Whether it's a slot machine or a table game.
Todd George: Rich Primus and the team have just done a remarkable job of, with each iteration, making it easier and easier for adoption. So I think as we go through this, we're probably over about 80% of our EBITDA-deriving properties right now, and we'll look to see where we go next. But it's both on the revenue side, and then I think I touched on earlier with technology used to offset some of the payroll expenses.
Rich: Rich premise and the team have just done a remarkable job of with each iteration, making it easier and easier for adoption.
Rich: So I think as we go through.
Rich: We're probably over about 80% of our.
Rich: EBITDA driving properties right now and.
Rich: We will look to see where we go next but it's both on the revenue side and then I think I touched on earlier with technology used to offset some of the payroll expense.
Speaker Change: Great and then just on the follow up you know the NFL season, just a couple of weeks away here is it fair to assume that when you close the New York license for sports betting.
Jordan Bender: And then just on the follow-up, you know, the NFL season is just a couple of weeks away here. Is it fair to assume that when you close the New York license for sports betting, the online product will be essentially ready to go the next day? That's correct, yeah.
Jay Snowden: So I don't want to comment any further than that because then you are commenting on something that you said you're not going to comment on so I'm just going to leave it at that.
Speaker Change: The product will be essentially ready to go to the next day.
Jay Snowden: That's correct. Yeah, you should assume that we're living in New York before college football week one, which is the end of this month. And when we go live, and we try to time it up, as you can appreciate, that all these feature enhancements that we've talked about would be live when we go live in New York. So that, you know, again, a great first impression. That's why they're so close together, but we anticipate New York by the end of this month before college week one.
Speaker Change: That's correct Yeah, you should assume that we're live in New York before College football week, one which is the end of this month and when we go live and then we try to time it appreciates that the all of these feature enhancements that we've talked about would be live when we go live in New York, So that you know.
Unknown Attendee: Appreciate it.
Unknown Attendee: Thanks, guys.
Barry Jonas: The next question comes from Barry Jonas with truest securities. Hey guys, how do I want for Aaron?
Aaron LaBerge: Well, welcome Aaron. I know you just started but curious if you have any early thoughts about how you see putting your imprint on the company and the ESPN that strategy. I think Jay, I mean, Jay touched on a lot of them. I think I'm more super excited about the integration with the ESPN. We're talking about fantasy this year. Jay just talked about account linking that's going to come in in November, which if you think about ESPN's digital and social reach today, I think last month it was 181 million users.
Rich: Again, great first impression that's why they are so close together, but we anticipate New York end of this month before college weak one.
Jordan Bender: Great. Thanks, Chad. The next question comes from Ryan Sigdahl with Craig Halob. Hey, great. Thanks for taking our question.
Jack: Great. Thanks, Jack.
Jack: Yes.
Operator: The next question comes from Ryan Sigdahl with Craig Hallam. Hey, great.
Ryan <unk>: The next question comes from Ryan <unk> with Craig Hallum.
Ryan: Hey, great. Thanks for taking my questions just one following on that launch timing, so a lot of the innovation and enhancements and integrations.
Ryan <unk>: Similar to what you were talking about three months ago, we haven't seen much integrated thus far are effective in the app, but I guess, how much was the intention all along to launch everything all at once versus phased updates in the app to users.
Aaron LaBerge: So when you think about knowing the fan of identity, personalization uses preferences of all those people and then being able to target them, whether it's introducing them to to sports betting or people that are already sports better giving them personalized offers. And then moving them seamlessly between the apps with no friction, it is a massive opportunity and what we know is no matter what platform that you bet on today. You place your bet and then you're on ESPN tracking your bet and consuming information to try to piece together where you're at and a parlay or whatever.
Ryan Sigdahl: Yeah, I Ryan, I think you'll see there were actually some that went live yesterday, and you're going to see it sort of happen over the course of weekly between now and the end of the month. But everything that we have in those few slides that talks about product enhancements, all the enhancements around parlay and same game parlay and player props, all those integrations, what we laid out in our deck here is what you're going to have when we go live for football this year.
Speaker Change: Yeah, Ryan I think you'll see there was actually some that went live yesterday and youre going to see it sort of happened over the course weekly between now and the end of the month, but everything that we have in those few slides that talks about products ESPN bad product enhancements all.
Speaker Change: The enhancements around parlay in same game parley and player products all of those integrations will be laid out in our deck here is what youre going to have when we go live for football. This year. So in the next the next few weeks.
Aaron LaBerge: And being able to place a bet on ESPN bet and then seamlessly packaged together the way to track that bet and make it more efficient and frictionless, we think it's going to be a huge competitive advantage for us and something that no one else can do. And we're really focused on that. That's very exciting. And the teams are already working together in a way where it doesn't even feel like they're separate teams.
Ryan Sigdahl: So in the next few weeks, there's a lot of testing that goes on behind the scenes; we want to make sure that we're very comfortable when we go live that it's going to be seamless and very user-friendly. So that's what the work has been like over the last couple of months. But you'll start seeing these go live really weekly between now and the end of the month. Thanks, good luck guys. Okay, we'll maybe take one more question, Angela.
Speaker Change: There's a lot of testing that goes on behind the scenes, we want to make sure that we're very comfortable when we go live that it's gonna be seamless and very user friendly. So that's what that's where the work has been over the last couple of months, but youll start seeing these go lives.
Aaron LaBerge: So as coming from ESPN, I think that's super exciting. I think the opportunity someone mentioned in the previous question with the land based casinos and the size of that database, which I don't actually know if we share that, but it is actually quite massive. And being able to take people from that environment, move them into ESPN bet and further move them into our casino products is super exciting too. So beyond that, focusing on product experience, making sure that when people interact with our products, it feels good, it's frictionless and it's fun to use is what I'm going to be focused on. That's great.
Speaker Change: Really weekly between now and the end of the month.
Speaker Change: Thanks, Good luck guys.
Rich: Okay, well, maybe take one more question Angela.
Jay Snowden: Okay, our last question comes from Stephen Grambling with Morgan Stanley.
Rich: Okay. Our last question comes from Stephen Grambling with Morgan Stanley.
Operator: Hey, thank you. I guess I will
Stephen Grambling: Hey, Thank you I guess as we had a little bit more time under the belt with regard to customer acquisition and ramping of customer spend what is the typical maturation of player economics, as we think about revenue and profit contribution.
Stephen Grambling: , , , , , , ,
Speaker Change: And then in the guidance I think you've got flat digital.
Speaker Change: Contribution in the fourth quarter do you anticipate being profitable in New York by that point or longer term.
Stephen Grambling: Unknown Attendee Point, or longer term
Jay Snowden: Your acquisition question, I think we'll tackle that at G2E. That's a little bit more detailed, so I want to give a thoughtful response to that.
Speaker Change: Your acquisition question I think we will tackle that at G to me, that's a little bit more detailed so let me give a thoughtful response to that.
Jay Snowden: And then Jay and maybe Todd, you know, there's been concerns around the macro specifically at the low end consumer level. Can you maybe talk a little bit more about what you're seeing across the database? Yeah, I'll take a stab. Talk's different to jump in. Really no change from what we have said previous quarters. We saw very consistent trends in the second quarter as you see in our results. July, remember that you have calendar shifts.
Jay Snowden: With regard to New York, the tax rate's high, as you know, and so we're going to be very thoughtful, as I mentioned earlier, around user acquisition and really lean in on the ESPN bet ecosystem. Tremendous, you know, millions of fans that are connected to ESPN and their products that we're going to really work to cross over into ESPN bet. I don't want to give a timeframe on, you know, exactly when that's going to affect profitability, only because we need to see how things go.
Stephen Grambling: With regard to New York tax rates high as you know and so we're going to be very thoughtful as I mentioned earlier around user acquisition and really lean lean in on the ESPN that ecosystem.
Rich: Tremendous millions of fans that are connected to ESPN and their products that were going to really work to crossover into ESPN debt.
Speaker Change: I don't want to give a timeframe on exactly when that's going to inflect to profitability only because we need to see how things go. So again that might be one that we can answer a little bit more intelligently at the meeting in October because we will have been live for a month and a half by that time in New York and also of.
Jay Snowden: People seem to forget that oftentimes. So you traded in the month of July. You lost a Saturday, Sunday and picked up a Tuesday, Wednesday. That's going to impact your top line results in August. You benefit from a calendar shift. So my expectation would be that year over year. August looks better than July. We really, it's interesting because we've been hearing from some of the lodging companies as well as from air travel that they're seeing some cracks in that lower end consumer.
Jay Snowden: So again, that might be one that we can answer a little bit more intelligently at the meeting in October because we'll have been live for, you know, a month and a half by that time in New York and also, of course, we'll have some KPIs to share with all of you from the first two weeks of the football season.
Rich: Of course, we'll have some kpis to share with all of you from the first few weeks of football season.
Stephen Grambling: Great. Look forward to the event. Thank you. All right. Thanks, Steven. And thanks, everybody, for joining the call. We look forward to speaking with you, many of you, at G2B in Las Vegas in October and again talking to you in November on our next earnings call. Thanks.
Speaker Change: Great look forward to the event. Thank you.
Speaker Change: Alright, Thanks, Steven and thanks, everybody for joining the call. We look forward to speaking with you. Many of you at <unk> in Las Vegas in October and again talking to you in November on our next earnings call.
Jay Snowden: We're not seeing anything incremental and regional gaming or in our digital, our digital trends. So, I mean, it is interesting dynamic that if people are staying or they're traveling less, whether it's air travel or they're staying in hotels less, that tends to be beneficial for regional gaming people are staying closer to home. It's a drive and, you know, gas prices are actually quite stable right now. So it all adds up to I think what could be just a good stable environment for us.
Speaker Change: Yeah.
Jay Snowden: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at any time.
Rich: Okay.
Rich: Hum.
Rich: Oh.
Rich: Yes.
Rich: Hum.
Rich: Hum.
Jay Snowden: We're not seeing anything from an incremental standpoint that concerns us right now. Yeah, the only thing I'd add, you know, that little more detail that's 50 to 99 even the hundred three 99 400 plus all very stable throughout the quarter year over year. And then just a little bit. I think Carlo touched on this and his question, but we did see really decent play from our unrated segment. So that that kind of offset anything that we saw in the lower segment that zero to 49. But even that was was stable and even though it's really in August, we're seeing really positive trends the first few days of August. Great. Appreciate it. Thanks.
Rich: [music].
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Rich: Uh-huh.
Rich: Okay.
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Rich: [music].
Aaron LaBerge: Our next question comes from Sean Kelly with Bank of America. Hi, good morning, everyone. Aaron, maybe a strategic question for you to lead off and welcome. My question to this right is, as we think about, you know, the digital side here kind of feel like there's two major technology areas. One's going to be the marketing side targeting, retargeting, AB testing, all that stuff. The other's going to be the peer engineering side and I think Jay has done a great job of outlining some of the product improvement.
Rich: Sure.
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Rich: Okay.
Aaron LaBerge: I'm curious, you're giving your background in streaming. Could you just talk a little bit about how you think about allocating resources between marketing and advertising tech versus core engineering and kind of where do you lean? And what are you most excited about as you kind of take your streaming skills and think about think about that. Thanks.
Rich: [music].
Aaron LaBerge: Great question. Well, so what I'm most excited about and I got a view of this as we were doing the partnership with Penn. And is the underlying foundational infrastructure that powers the SPM bet is incredibly sound super sophisticated and is the foundational piece in which we're going to build everything on top of. And so this isn't a engineering project to come in and fix something that's broken. It's something that we're going to build on top of and so right now, and I mentioned in our remarks, you know, we sort of lag our competitive set in terms of full features and functionality.
Rich: Hum.
Rich: [music].
Aaron LaBerge: And being able to quickly build on top of that foundation to iterate the product, I think is super exciting. I think marketing and acquisition is just part of the business. We're going to continue to get smarter and better there. And I think some of our results show that we're already doing that. So, you know, to me, it's about building the best product and then really taking advantage of the integration opportunities with the SPN, which will also require some technical sophistication. And of course, that's one of the best teams in the world as well. So, you know, just super excited about all of it. Thank you.
Rich: Okay.
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Felicia Hendrix: And maybe just as a follow-up and a little bit more about the numbers. You know, for Jay or Felicia, I think last quarter you gave a little bit of detail around kind of the promotional cadence as a percentage of handle. This quarter we didn't get those stats, but you did give us more detail on hold and parlay mix. So my question is simply like, you know, just could you give us an update with the percentage of handle.
Rich: Okay.
Rich: [music].
Felicia Hendrix: So we think about the promo this quarter versus less. Was that relatively stable? And what really changed was hold this quarter or have you continued to sequentially kind of improve on your promotional cadence? And how do we think about, you know, that trend in the back. Thanks. Yep, really was a combination of the two are promotional reinvestment as a percentage of handle came down from Q1 to Q2. Obviously we had a slide that we shared there on the hold percentage.
Rich: Yeah.
Rich:
Felicia Hendrix: So it was a combination of those two things. We anticipate, you know, when you kind of look out to 2025, our promo reinvestment rate being between two and three percent like right in that mid market range. We don't expect to be high or low. We just want to be really at market as a percentage of handle. It's hard to anticipate exactly what it's going to be in the third quarter just because you do have the New York launch. And again, we're approaching it very differently. It might take up a little bit, but, but nothing material and then probably come back down again in Q4 is what I would anticipate. Thank you very much.
Chad Baynon: Our next question comes from Chad Baynon with McCory. Morning. Thanks for taking my question. You mentioned some of the cost improvements on the interactive side that led to the beat for the quarter.
Jay Snowden: J, obviously, you know, not the stony thunder for the investor presentation in October and kind of the launch for NFL, but has anything changed just in terms of the path to profitability, the timing of that. And if 25 is that important or if, you know, maybe we should kind of look out to 26 in terms of getting all the benefits from what you're doing internally, that'll be rolled out soon. Thanks. Yep.
Jay Snowden: What probably spend more time on this topic at GTV at the investor event. So I won't say a whole lot other than to say nothing's changed in terms of how we're thinking about 25 and 26 from what we said in the last quarter call. Okay. Thank you.
Chad Baynon: And then in terms of Alberta, we definitely sensed your optimism there in terms of what that could be from a contributing standpoint.
Jay Snowden: What is the timeline there and are there any major differences in terms of the current dynamics with maybe gray market players or kind of how you see, you know, that market to go green. Thank you. Yeah. Yeah, happy to market is very similar in terms of gray market today and regulated soon. We don't have an exact date on that chat or. Yeah. Am I back live. Yep, I got you now. Thank you.
Chad Baynon: Okay, we don't have an exact date on Alberta, and I don't want to speak obviously for the government or the regulators there, but I would say, you know, we're thinking some time toward the end of this year, early 25 is kind of the rough timeframe. We would anticipate that the success that we've seen in Ontario with the score and the score bet we would be able to replicate that in Alberta. The score is a very popular brand.
Chad Baynon: Throughout Canada, it's not just a Toronto or Ontario thing. So given the success we've had in Ontario and given the Alberta, we'll have very similar tax rates as we understand it and be both OSB and I could see now, we think it's going to be a really important North American market for us, probably a top three or four market for us. Interesting. Thank you very much.
Dan Politzer: The next question comes from Dan Pulitzer with Wells Fargo. Hey, good morning everyone, and thanks for taking my question. First one on interactive, I think in your slide deck, you outline your hold in the quarter in a select number of states. I think it was 8.2%. How should we think about that kind of evolving over time? Is there a long term target time to get there? And then similarly, you know, is there an underlying trading and risk management opportunity? And I only ask that some of your peers have really been building out that aspect of their tech stack.
Felicia Hendrix: Thank you. Yeah, say a couple of things about hold percentage is I think it's important to note that we really haven't changed our assumptions from last quarter to this quarter in terms of what's built in for guidance for us the year still in that 7 to 8% range. So if the trends that we have delivered of late the last quarter and July as those results come out, there to be some opportunity for upside there potentially.
Felicia Hendrix: So now again at the different time of year, you tend to hold a little bit better during the slower season of baseball. And so we'll see how that plays out, but we feel really comfortable in terms of what's built into guidance and where we think, you know, we could end up trending as we close out 24 and heading into 25. I think as we think about the opportunity, sort of medium term for us, you know, fandals been in a class of their own from a hold rate percentage from a hold rate perspective because their parlay percentage, excuse me, is, you know, best in class.
Felicia Hendrix: And what we're seeing already keeping keeping in mind that our parlay offering is going to be significantly better at the start of football season than it's ever been. And I say that with regard to same game parlay, parlay, just, you know, data feeds and player props, all sorts of things that without getting into too much detail, it's going to be a significant improvement and enhancements from what people experienced last year when we went live during football season.
Felicia Hendrix: So we think that at Penn with ESPN vet exactly what Aaron said and has prepared remarks that we want to be the America sports book and that's going to mean that you're really catering to the masses. And there's a lot of casual betters in there who love parlay's we're seeing that already. And I think for, you know, the Illinois example for us to be sort of sitting at a number two position in terms of parlay as a percentage of handle when our parlay offering hasn't been as competitive as it's about to be at the start of football season.
Felicia Hendrix: We think there's a lot of opportunity for us to continue to close the gap between us and and and a fandal in terms of parlay's excuse me as a percentage of handle and with that will come and improve told percentage. I'm not saying that we're going to get to fandal letters not going to give you a time frame, but clearly there's a big opportunity for us to continue to close that gap over time as we improve the experience for those that like to bet on parlay's an overall just bet inside the at.
Felicia Hendrix: I'm not saying that we're going to get to fandal letters not going to give you a time frame, but clearly there's a big opportunity for us to continue to close that gap over time as we're going to get to fandal letters not going to give you a time frame. God, that makes sense. And it just is a follow up. But maybe I missed it, but for the guidance, did you provide an online revenue number?
Felicia Hendrix: I know previously you've given that, but maybe perhaps I missed it. No, we didn't, but you should assume it's still within that range. Maybe it's a little bit higher than the midpoint, much like the EBITDA was a little higher than the midpoint, but we didn't provide it, but that you should assume it's still within that range.
Felicia Hendrix: Got it. Thanks so much.
Bernard McTernan: The next question comes from Bernie McTernan with Needham & Co. Great. Good morning. Thanks for taking the question. Just with the strong growth in NGR in the quarter, I know you talked through promotional intensity falling off. And maybe can you walk through some of the other puts and takes in the sequential growth between handle and GGR? I'm going to take from what's on. Sure. Yeah, Bernie, listen, great question. I think the promo was the primary driver, but you start looking at just seasonality is a huge piece of this.
Bernard McTernan: So again, that converted customer from ESPN, the converted customer from our pen plate database that's moving over, all that comes over pretty frictionless. So they're just going into the app. I think that's benefited all of us. And then the improvement and hold percentage kind of again was the big driver there. Keep in mind to Todd's last point on hold percentage. One of the real benefits that you get from higher hold percentage is that a lot of our expenses, third party expenses, data feeds and geolocation, etc.
Bernard McTernan: Payment process and process. Those are driven by handle, right? So when when your handle is maybe more stable, but your hold percentage is higher. And your revenues are higher. It's a great mix in terms of how that flows through the PNL. And we would anticipate that dynamic for pen continuing given the upside. I mentioned earlier on parlay percentage and hold percentage upside. Yep, make a lot of sense. And then Jay, you pointed at ESPN having greater rights to add bedding content given their new MBA deal.
Bernard McTernan: I was just wondering if you could add any specifics in terms of what ESPN couldn't do under the prior deal and what they they might be able to do in the future with the new deal. Yeah, maybe we'll spend a little bit more time on that in October at the G2E event. It's a great question. I don't want to speak for ESPN. What we shared is what was public, but maybe we can get some more information from them or have a representative there to answer that question in more detail if that works. Perfect. Thanks, Jay.
Aaron LaBerge: The next question comes from Ben Chacon with Mizzouhou. Hey, thanks for taking my question for Aaron or maybe Jay, whoever wants to take this in the deck and on the call, you you've referenced a few different initiatives for the OSV product several several which are ESPN bet integrations into traditional ESPN products, which as you mentioned are top of the funnel initiatives that make a lot of sense. I guess what's your thought on going the other way as well and integrating more ESPN content into the ESPN bet app, so team statistics, player stats, relevant news, etc.
Aaron LaBerge: The idea being to facilitate the wagering process for betters and hopefully make them sticky users of the app. I mean, something where you do this already with the score bet and the game preview functionality, it just seems like a significant differentiator amongst betting apps that can struggle not to become a commodity and would love you. Collins. Thanks. Well, I think if you look, if you look at what we're doing with the score bet, including the recent integration of, excuse me, of the score media app with the integration with the score bet, we've now integrated ESPN bet there too, which I think points to some of the things that we're looking to do with the ESPN.
Aaron LaBerge: Well, when we think about the fan ESPN bet and the ESPN app are inextricably linked and so moving between those two environments. And where you want to consume content and how you consume it, we aren't going to necessarily care where that happens. And so that line obviously we're currently working with ESPN to make sure it makes sense. But the goal is that you can move between these apps really fluidly and get what you want, you know, where you want it.
Aaron LaBerge: Like, for example, when we have account linking in November, if you, if you place a parlay on ESPN bet, it's going to appear in the ESPN app. You have to do no work. It's going to be seamless. So as I mentioned before, you place a bet and then you're struggling to figure out, you know, how that best performing because you have a four leg parlay and you're on ESPN.com and you have multiple tabs open.
Aaron LaBerge: We're now going to package that for you with no work. And if anyone here has placed a parlay, you know, more than two or three legs, you know, that's a struggle. And so it's just going to be like magic for you to actually consume that with any ESPN. And we look at that.
Aaron LaBerge: In both ways as we think about, you know, you look at gamecasts on ESPN, which is a real time visualization of the game and progress will imagine a, you know, a bet cast version of that for your bets. Well, whether you track that with an ESPN or an ESPN bet that the module, the content, the experience will be the same across both platforms and will appear in both platforms. So, you know, the essence of your question is is it's, you know, it's going to be seamless across both platforms and we're really just thinking about what that looks like and what are what our plans are. But it's one of the major focuses between the teams as we speak.
Jordan Bender: Thank you.
Todd George: The next question comes from Jordan vendor with citizens, JMP. Good morning, thanks for taking my question. It's been some time since we've spoken about it, but the three C's initiative, I believe that remains an important initiative for the company. So can you just kind of give us an update on how that's performing at the properties, financial, operational, et cetera. This is Todd, a great question, and we will talk more about this also at our G2E event, but basically we're seeing really nice adoption from all levels.
Todd George: And that was one of our priorities as we were going in, we didn't want this just to be for that younger cohort. So we've seen that go across all levels, regardless of age and level of play. And so you get this great advantage of greater time on device, removing friction from every transaction, taking people out of line, keeping them at whether it's a slot machine or a table game. Rich premise in the team have just done a remarkable job of with each iteration, making it easier and easier for adoption.
Todd George: So I think as we go through, we're probably over about 80% of EBITDA driving properties right now and we'll look to see where we go next, but it's both on the revenue side. And then I think I touched on earlier with technology used to offset some of the payroll expense.
Jay Snowden: Great. And then just on the fall-up, you know, NFL season just a couple weeks away here. Is it fair to assume that when you close the New York license for sports betting, the online product will be essentially ready to go the next day? Yes, you should assume that we're live in New York before college football week one, which is the end of this month. And when we go live and we try to time it up as you can appreciate that the all of these feature enhancements that we've talked about would be live when we go live in New York, so that, you know, again, great first impression. That's why they're so close together. But we anticipate New York end of this month before college week one.
Ryan Sigdal: Great. Thanks, yet.
Jay Snowden: The next question comes from Ryan Sigdal with Craig Halibh. Hey, great. Thanks for taking our question. Just one following on that launch timing. So a lot of the innovation and enhancements and integrations. Similar to what you were talking about three months ago, we haven't seen much integrated thus far or effective in the app. But I guess how much was the intention all along to launch everything all at once versus phased updates in the app?
Jay Snowden: To users? Yeah, Ryan, I think you'll see there was actually some that went live yesterday and you're going to see it sort of happened over the course weekly between now and the end of the month. But everything that we have in those few slides that talks about product ESPN bet product enhancements, all the enhancements around parlay and same game parlay and player props, all of those integrations. What we laid out in our deck here is what you're going to have when we go live for football this year.
Jay Snowden: So in the next few weeks, there's a lot of testing that goes on behind the scenes. We want to make sure that we're very comfortable when we go live that it's going to be seamless and very user friendly.
Ryan Sigdal: So that's what that's where the work has been over the last couple of months, but you'll start seeing these go live really weekly between now and the end of the month. Thanks. Good luck guys.
Angela: Okay, let me maybe take one more question, Angela.
Stephen Grambling: Okay, our last question comes from Stephen Grahamling with Morgan Stanley. Thank you.
Jay Snowden: I guess as we had a little bit more time under the belt with regard to customer acquisition and ramping of customer spend, what is the typical maturation of player economics as we think about revenue and profit contribution? And then in the guidance, I think you've got flat digital contribution in the fourth quarter. Do you anticipate being profitable in New York by that point or longer term? Your acquisition question.
Jay Snowden: I think we'll tackle that at G2E. That's a little bit more detailed. So want to give a thoughtful response to that. With regard to New York tax rate high, as you know, and so we're going to be very thoughtful as I mentioned earlier around user acquisition and really lean lean in on the ESPN that ecosystem. Tremendous millions of fans that are connected to ESPN and their products that we're going to really work to cross over into ESPN bet. I don't want to give a timeframe on exactly when that's going to inflect a profitability only because we need to see how things go.
Jay Snowden: So again, that might be one that we can answer a little bit more intelligently at the meeting in October because we'll have been live for a month and a half by that time in New York and also. Of course, we'll have some KPIs to share with all of you from the first two weeks of football season. Great. Look forward to the event. Thank you. All right. Thanks, Stephen. And thanks, everybody, for joining the call. We look forward to speaking with you. Many of you at GTV in Las Vegas in October, and again talking to you in November on our next earnings call. Thanks.
Angela: This does conclude today's program. Thank you for your participation. You may disconnect at any time. [inaudible] Yeah. Yeah. [inaudible] Yeah. Yeah. .