Q2 2019 Earnings Call

[laughter].

[laughter].

[laughter].

Got their water wash your first and last name please.

Hi, I am I am calling for the.

Penn National Gaming earnings call.

It's a direct line to our team to register you Frac and puts you in that can have your first name.

[noise].

Michael last name is village VI C H.

So rich or what company are you with.

<unk>.

<unk>, it's felt <unk> era.

Our year end.

USCIS AEROSURF.

<unk>.

Okay, and your telephone numbers time with Jericho. Please.

In the one nine to seven eight to nine fact.

Just one last thing are your email address please.

It's Michael My first name at Air out of the company name Dotcom.

Michael I'd add Rebecca.

Okay, I'll pass you directly and so it would be a one moment.

[noise].

[laughter].

Allied to include terrific top and bottom line results at all of our properties in Ohio, Colorado in New Mexico, We finally anniversary the smoking ban in Baton Rouge and are very pleased with the results over the last several months since the addition of our new smoking Terrace.

The team at our recently acquired Margaritaville property continue to break revenue and EBITDAR Records every quarter and while still early we couldn't be more pleased with our new Greek town property and team in Detroit, Michigan.

With regard to my choice as of July 30, Onest. We are finally, 100% complete with integration activity and our entire company is now operating on a common platform, though notable though notably disruptive over the last four four months, we are now able to leverage the benefits of fully bankable transferable and portable loyalty points across all of our properties Sportsbook and digital offerings, something we believe will be a competitive advantage for years to come.

Over the coming weeks and months our teams will be very focus on cross property marketing efforts and visitation, particularly of football season commences, given we will be alive with 14 retail sports books across the country by September Onest and after we believe will help to stimulate revenues for the remainder of the third quarter and the fourth quarter.

Now transitioning to sports betting last night, we announced four exciting strategic partnerships that allow us to fully maximize the value of our best in class geographic footprint across 19 states all of the access agreements include risk free topline recurring revenue shares. While some also provide penwith upfront cash payments and or equity in these various successful up and coming sports betting brands.

These are four terrific companies and we are thrilled to be partnered with them on long term deals as we believe all four will be major players in sports betting now and in the future.

Now with regard to our primary license or scan in each of the 19 states. We have honestly analyze this to death and have come to the conclusion that it's all about control as has been proven in Pennsylvania, Illinois in Colorado that first scan is extremely valuable we believe by retaining control of that primary license, we control our future today for sports betting tomorrow for a casino in most if not all states they will be inextricably linked to one another.

If you are of the opinion as we are that the winners in the casino space long term will be the ones that can offer compelling and unique products and experiences in an omnichannel fashion. One that includes best in class diverse brick and mortar destinations, coupled with social and real money digital sports and I casino offerings than relinquishing control of that closed loop strategy and the economics that come with it is a short term deal.

This control doesn't mean, we won't partner with third parties, such as media and technology companies with that primary skin in order to aggressively maximize the value of the opportunity. It simply means we want to maintain control of our future as it pertains to sports betting and interactive digital mobile gaming opportunities that are rapidly coming our way.

For the time being we remain focused on rolling out our can be powered proprietary retail sports books in Indiana in Iowa by the start of football season, as well as our full casino launch in Pennsylvania on August 15.

We believe these new lines of business will be extremely complimentary to our existing revenue streams and database composition as these new offerings attract a younger and much needed demographic.

In summary, this is a very exciting and dynamic time at Penn and we look forward to sharing more on these topics with you in the months ahead.

With that I'll turn it over to BJ.

Thanks, Jim Good morning, everyone I'll make my comments very quick this morning, and touch on our updated 2019 guidance and briefly discuss the share repurchases during the quarter.

Weve revised our guidance to include the projected Greek turn results and the incremental $5 million of cost synergies identified in our release.

The detailed third quarter, an updated full year 2019 guidance and underlying assumptions are found on pages four and five of the press release.

On a high level, our updated revenue guidance for the full year is $5.338 billion.

The increase nets. The addition of Greek term against the flow through the Q2 results the impact of Hurricane Barry and the other impacts in July as discussed by June .

Adjusted EBITDAR for the full year is estimated to be $1.601 billion. The increase reflects the addition of Greek town and the positive flow through the second quarter operating results netted against the impact of Hurricane Barry.

Our total lease payments for the year, including the Threeg LPI leases in the two DG leases are forecast to be $869 million, our trailing 12 month rent coverages as of 630 19 for the GLP leases are as follows depend mass release was 81.89.

The amended pinnacle lease was 1.75 and the meadows lease was 1.92.

Our guidance includes full escalation in November under the pen Master lease we did not incur an escalator under the amended pinnacle lease at the completion of the lease year on April Thirtyth.

And although it is very close we do not forecast to include an escalator under the meadows lease at the end of the lease year on September Thirtyth.

However, should the performance at the meadows exceed forecast, we will incur at least a partial escalator for the year.

And we'll report coverages on the Beachy leases next quarter when the numbers become more meaningful.

Free cash flow generation for the year is estimated at $398 million in net free cash flow after mandatory debt payments and other obligations is expected to be $308 million maintenance capex guidance remains unchanged.

Cash on hand as of 630, 19 was $379 million our lease adjusted net leverage ratio as of 630 19 was 5.8.

Our cash flow generation remains on pace to return to our target leverage ratio of 5.0 to 5.5 times EBITDAR by the end of 2020.

With respect to our share repurchases during the quarter, we purchased approximately 1.3 million shares at an average price per share of $19.55 for a total of approximately $25 million.

The repurchases were completed through both open market purchases under the company's completed Tenbfive trading plan.

And with that I'll turn it back to Tim.

Thank you BJ.

Before I turn it over for questions I did want to provide some brief comments on the news of my upcoming retirement and Jay succeeding me as CEO .

First I'd really like to thank Peter Carlino, and the pen Board for Great 12 years here at Penn in the last six as Chief Executive Officer.

It was important for me to leave pen.

When it was well positioned to continue to grow and create shareholder value for the foreseeable future.

As we've just completed three acquisitions, we now have a geographic footprint.

That in the long term will create value for our shareholders.

As evidenced by the recent announcement yesterday of for example.

The ability to take advantage of sports betting igaming across 19 different states.

I am also leaving at a time, where we have a very strong management team that continues to run the businesses more efficiently and more effectively than anyone else in the regional gaming space as evidenced by our results today.

And finally, it was important to me to be able to turn over the keys to someone I can trust.

Who can take pending the higher levels of excellence and value creation for our shareholders.

Jay and I have worked closely here at Penn for the last eight years.

I know very well, how we think how we leads how we demand excellence and accountability for results.

For himself and the entire team.

I have no question that Penn will continue to prosper under Jays leadership going forward.

With that I'd like to operator turn it over for questions.

Thank you.

I would like to register a question. Please press the one followed by the four on your telephone you will hear three come from taking all the general question. If your question has been answered and we would like to withdraw your registration. Please press the one followed by the stream.

Again, ladies and gentlemen, if you wish to ask a question press. The one followed by the four on your telephone keypad.

Our first question comes from the line of Steven Lesinski with Stifel. Please proceed with your question.

Yes, thanks, guys good morning.

Tim Congrats on the retirement.

Maybe you can.

To help the Yankees now solve their other they are pitching situation.

There is but.

Anyway, So Jay you normally give us some pretty good commentary around there.

Your customer base in terms of what you're seeing from the different tiers and can you maybe I missed it I don't I don't think I did but can you help us think about or help us.

Show Us what you're seeing right now from the high end to low end are you still seeing that weakness in your low tier customer base as well and then maybe any indications of what you guys Saudi Arabia properties in July .

Yes, no problem, Steve you didn't method I didn't include that in my in my comments. There was nothing notable this quarter versus the previous four or five quarters, we're seeing strength at the high end so were seeing strength throughout the database and an unrated in terms of spend per visit visitation continues to be a mixed bag. Its strong at the high end and and in the unrated segments. The lower worth statements, where we continue to refine our marketing strategies and drive profitable visits.

We see declines in visitation, there, but I would tell you. It's it's a little bit misleading you look at revenue figures and regional gaming and I think the industry has been pretty good about focusing on on EBITDA and you're not seeing robust revenues and a lot of these markets other than some of the newer markets, but youre seeing really strong EBITDA growth and I think you know.

Many of many of the companies ourselves included you're taking some of the lower with customers that maybe came two or three times, a month and you're changing what the offerings are to those customers because most of those visits were unprofitable maybe now they're coming one or two times a month, but both of those visits are profitable so.

It's a little bit misleading you can certainly see there's health in our EBITDA growth and health and our overall flow through as a company with regards to July look we had headwinds that are well known we had hurricane Barry impacts and Louisiana certainly the southern part of the state was impacted we had to shut down our New Orleans property for weekends and really nobody traveled from Texas to Louisiana for the entire weekend, So Baton Rouge and Lake Charles were impacted as well and then we just have residual effect from the flooding of the three Midwest properties carried over into July for at least the first two weeks of the month that hampered results a bit and we spent we just finished up a matter of fact, two days ago with the full integration of our Mychoice loyalty card program. So I think August as probably the first month, you'll be able to look at for Pan am not an excuse guy, but we just had a ton of weather issues impacting us this year in the winter and spring and our August is going to be a clean month for us from a loyalty card program from a weather perspective.

Flooding issues are behind us in the rearview mirror hurricane berries in the rear view mirror and going forward with football season, coming up and the launch of a couple of or actually three new retail sports books in Indiana in Iowa.

We're really bullish on our ability to start to stimulate some some revenues and visitation and drive more EBITDA August September through the remainder of the year.

Thanks, Jay that's good color and second question. None of this is this is for you or Tim but.

Maybe now looking at potential cross marketing opportunities and with with my choice.

Now fully under one platform I guess the question maybe is that does that change your view.

You know around the troponin and Las Vegas, and the future expansion plans at that property at all.

Steve. This is Tim we are we're just rolling out my choice and.

Having that now.

Connected to Tropicana with with a $2 million.

Active pinnacle customers that we picked up last October .

We have not.

That all changed our thoughts about long term Tropicana is still on hold we're still we're still we still want to see the impact of all these new customers on Tropicana before we make any long term decisions on capital and as I said.

In my remarks, our primary focus over the over the next four to six quarters, we'll take our to take our free cash flow and de risk our balance sheet.

The only thing I would add to Tim's comments.

And I think that does have a lot to do with Mychoice integration and we're finally there to the finish line is the last round of offers that we're sending out across the database. We're seeing our strongest results I just talked to our general manager at Tropicana earlier this week and so I'm encouraged by that I think that has a lot to do with people understanding that they can use one card and transfer their points from the Midwest or or southern properties northeast et cetera, and use those points when they visit Las Vegas. So I'm encouraged to see what happens here over the next couple of quarters due to sports betting as well as my choice now being common platform across the company.

Okay, Thanks, guys and congrats again to Tim and he will address.

Thanks, Steve Thanks, Dave.

Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question.

Hi, Hey, Tim. Thank you very much for your time and congratulations on a great career.

Thanks Jay.

Congratulations on the move.

Obviously, you've had plenty of experience.

Hi, guys, if I could just when I think about your your your same store results and I'm, referring to the same stores inclusive of pinnacle's properties last year, Margaritaville, Greektown et cetera, and I look at kind of the dynamic of what those properties contributed in the Two Q1 8 relative to what you reported in the two Q1 9, it looks as though revenue down call. It seven ish percent EBITDA down somewhere in the one to two range on an apples to apples basis.

I know with whether any other challenges into twoq and there's been a couple here in there beyond just the flooding and stuff.

What do you guys see as as actually organically taking place in the business. When you look at properties, where you havent seen whether it's competition or or weather events or flooding or something along those lines. What are you seeing in kind of the core generic property in terms of revenue and EBITDA.

Yes, Carlo it's a great question and maybe there is a lot of lot of noise. There is a lot of variables and.

I hate talking about weather impacts and flooding here in hurricane there because it does just confuse the message and when you strip out the noise the Baton Rouge smoking ban in the bridge work at Lake Charles.

The flooding impacts hurricane Barry all this nonsense.

We're looking at trends that are very consistent with what we saw in 2018, you're seeing low single digit same store sales growth and very healthy EBITDA flow through on that.

But man if weve been impacted in so many markets its hard to show you that through our earnings without giving you a 10 footnotes to explain exactly what's going on in the business, but I feel great about our customer I feel great about our ability to continue to drive more profitable.

Visitation and revenues throughout the portfolio and you look at the Ohio's of the World and Blackhawks, there's properties both on the Margaritaville.

All these acquisitions there is there's really there's pockets of great great trends.

But man there offset by a number of things that you that you covered and I discovered and Carlo I'll add to that unlike in the west. This in this quarter, we had a onetime expense related to a review of our construction in progress and progress account balances that kind of impacted the western results. They really weren't operationally focused and we didn't call. It out as a normal accounting process that we do but it definitely impacted what otherwise would have been great western results as well.

Understood. Thank you guys for that and then if I could just just one quick follow ups. When you think about kind of the.

The efforts that have been made to two I don't want to say necessarily reduce but but ultimately reduce and more or less be smarter with with promotional and marketing activity.

Can you kind of talk about maybe where where do you see yourself in that process and with now having pinnacle under your belt for about nine months.

Maybe distinguish between where the legacy Penn portfolio is relative to the acquired pinnacle assets.

Yes, it's a great question Carlo we.

One of the things I always point to and I'm talking to investors and analysts about the health of the business is obviously you want to see strength at the at the high end, we continue to see that as strong now as.

As we've seen in a in a in a really long time and you obviously want to see strength at the unrated levels I think that speaks to customers that are not receiving offers that are coming in organically and unrated growth continues to be a good story for us overall outside of impacts that we've discussed.

Now I would tell you at the at the lower where statements to your question around where where are we in the process within that below 100 dollar average daily worth segment, we still run double digit as close to 15% unprofitable visit that used to be 22% and so we continue to whittle that down and we've got a ways to go 15 would be great. If it was zero it won't get to zero ever but we think we can continue to move that number down from 15% into the high single digits is a good target for us.

Theres opportunities on both the legacy Pinnacle and legacy pen side. So we'll be hard at work on this for some time.

It will continue to impact visitation at the low end, but I think you'll continue to see very healthy flow through in EBITDA growth for our company and particularly now that we're hopefully no longer talking about weather impacts to our business is in some of the key market.

Sorry that was great and just to reconfirm twine used to have 22% of your visits were unprofitable that number is now down to 15, the target is high singles.

Thats right. So and this is the below $100 average daily worth segment across the portfolio above 100 Bucks. Most of those visits are profitable, but below 100, you got to got to be careful customers that are worth 20 bucks $15 per trip.

You said, one offer and they flip upside down and they are unprofitable. So we still got a lot of work to do and some markets were more refined.

In our efforts and others, we still have we saw the way to go.

Great. Thank you very much.

Our next question comes from the line of Harry Curtis within Sir. Please proceed with your question.

Hi, good morning, everyone.

First Tim we're going to Miss you.

Welcome to the Cage fight.

[laughter] refinished thanks, Eric.

Yep.

So Tim just wanted to.

It a little clarification on your comments around Vegas.

Your loyalty program is it's going to be one of the biggest in the industry.

Is it just a matter of time before you think you're you're going to need to get bigger in Vegas, and it's just not the right time to expand because and the reason I ask is that you may have the choice of three or four.

Strip properties coming up over the next year.

Well Harry.

I think as we've talked to investors and potential investors.

I think in the short term as I've stated that we want to de risk our balance sheet and continue to take our free cash flow and.

And get our leverage levels down.

I think you know.

Two years from now that story and our perspective may be different and there may be opportunities out out there for us to consider for JD considered with the management team here.

But in the short term I don't I don't see any need.

To look differently on capital allocation on the strip in Las Vegas.

The only thing I would add to that.

Harry as we we don't feel that we have to it's not imperative that we have a las Vegas strip asset or two strip assets.

We're going to drive success at this company through a variety of strategies that have helped create the company. We are today and we do believe that interactive is going to be a big part of our future. So would have been nice to have a center strip asset sure are we going to overpay for one absolutely not not today not ever if the price was right we'd consider it down the road, but tends exactly right that our focus right now is on de levering and getting that balance sheet back down closer to five times leverage and we'll see where we're at once that occurs.

Very good and my second question is.

With respect to the balance of the year guidance. It seems like that the body language from you is that is that.

That's a second half should be.

Should be stronger than the first given the winding down of some of these these headwinds from from weather.

And to what extent.

Do you think that that that that there could be upside and where might it come from and maybe we've seen that in your comment your comments.

The impact of sports betting as.

As it as it starts up because my guess is that there is not much of that.

Assumed in your guidance.

Yeah, Harry we have not assumed any significant pickup from the launches of sports betting and Indiana, Iowa second half of the year, nor any incremental pickup from the properties in markets that are already live with retail sportsbook, so that would be gravy.

Two our guidance I would tell you if you if you really strip.

Sort of the detail away and look at what our assumptions are for the remainder of the third quarter and fourth quarter from a same store sales growth perspective, its not anything robust. We're just assuming that there is.

A stronger result from properties that have been impacted throughout the year from weather event. So assuming we don't have any significant weather events between now and end of year.

We're very comfortable with where we have guidance for Q3, and Q4 and it will continue to be at very healthy flow through as we have demonstrated over the last years certainly even more so since the pinnacle acquisition closed.

Thanks, very much everyone.

Thanks, Eric.

Our next question comes from the line of Joe questions JP Morgan. Please proceed with your question.

Hi, Good morning, everybody and I'd also like to express my out warm wishes and congratulations to both you Tim and Jay.

Thanks, John I have.

I have two questions.

One is on balance sheet.

You mentioned the target leverage yeah, five to 5.5 times by the end of next year on a lease adjusted basis.

If we were to look at it on a more traditional net leverage to EBITDA basis, what does that translate into.

BJ I want to take that one yes, you'll be right around.

Two just little over two.

Great. Thanks.

And then my question is on the on the Tropicana not sure. If you really talked about it much Jay but can you just talk about how that that property is performing what the.

The prospects for improving performance there.

And then.

Maybe you can talk a little bit just about sort of the strategic rationale for the troponin.

Love to get your views on that and short no employees listening to this but.

Well consider it but to what degree have you considered perhaps monetizing that because the asset value that is there's a lot more than what's embedded in the stock price. It's a quick way to reduce.

Your balance sheet leverage and perhaps there are other ways to sort of anchor and into a hub and spoke system.

Using Las Vegas, much the same way pinnacle and others have done.

Thank you.

Yes, Joe all all great valid valid questions and.

Well here is what I would say about Tropicana, we acquired that property four plus years ago and.

It did basically zero EBITDA, we've continued to work on revenue and cash flow generation we've been.

I'm pleased with our results there, particularly over the last probably 18 months and the results should only get better obviously as we continue to drive mychoice visitation across the portfolio in the coming quarters and into next year.

Now I would tell you in terms of long term strategy with that asset. There is a there is a lot of potential paths here and we've actually been receiving inbound calls.

Pretty regularly over the course of the last six months and what Theres lots of potential options. One of those options is to use other peoples money to monetize the land that we have there we've got 35 acres and some of those acres about four right on that corner of Las Vegas Boulevard, and Tropicana Avenue or some of the most valuable real estate in the country and not proud to say that but it's probably the most underutilized valuable real estate in the country, but it does.

Open the door for potential partnerships that we can do and use third party money to really develop that land the way that it needs to be developed and ride the upside.

So we're in conversations and we'll see where those conversations go I don't think you should expect for us to be status quo. The way we have been at trop.

For the foreseeable future I think we've got to figure out a way to.

Monetize the investment as as you've mentioned here and we think that Theres lots of third parties that would love to partner with us to do just that.

Great excellent appreciate the thoughts.

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

Hi, good morning, everybody and I'll add my sense is that for both you Tim and Jay So.

Thanks for all your service.

So maybe just to hit on it slightly different topic.

You, obviously outlined a really big kind of partnerships on the sports betting side and I think the team was very clear on maintaining control can you.

Just give us a little bit more of your thoughts specifically on maybe the opportunity around core I gaming in Pennsylvania, because that's that's going live sounds like fairly soon for you guys. How do you expect that to ramp and sort of play off both the core business and the database a little bit.

Yeah Shaun look.

Pennsylvania is a tough one to start with because the tax rate is agregious and it can be very difficult for anyone to make money.

As an online operator, when you're paying over 50% tax rate on growth for slots. So let me just start with that we think that the tax rate in Pennsylvania is flawed that needs to be addressed and hopefully it will be addressed.

We view, Pennsylvania is an opportunity for us to kick start our I gaming efforts and to learn and there's opportunities I think to make some money and table games and poker and potentially in online sports as well, although that tax rate in the mid Thirtys is also very very aggressive.

I wouldn't I wouldn't anticipate any major flow through in Pennsylvania online in our efforts in the foreseeable future because of those tax rates, but I do think that what youre going to find much has taken place in new Jersey.

What has already been legalized in West Virginia is that online sports betting and online casino offerings as I mentioned in my opening comments are inextricably going to be linked in many of these states. They may not roll out at the same time, but they're likely to be issued to the brick and mortar casino license holders and so for US. This is going to be a big part of our strategy as we move forward, Pennsylvania is it more about learning and building out our capabilities, our resources and our team and we'll be ready for future states as they launch.

Great great. Thanks for that Jay and then maybe just a high level one as a follow up on just overall competitive and promotional environment on it sounds like it still remains quite benign you mentioned, maybe this is even impacting the broader sort of reported gross gaming revenue figures that are out there is that still the case any flare ups or concerns or areas that you are seeing any behavioral changes of note.

I think benign is a good way to describe it Sean we're not seeing anything.

Look our competitors are laser focused on driving EBITDA as we are and I think that that does impact the headline gross revenue and visitation statistics.

A decade ago companies were fighting for those market share results and a lot of unprofitable actions and activity were the result of that and you're just you're not seeing that today were all I think really honing in on how do we most profitably drive topline revenue and the results I think continue to speak for themselves.

Thank you very much.

Our next question comes from the line of Barry Jonas with Suntrust. Please proceed with your question.

Thank you and congrats Dan again, our amazing career, and Jay very well deserved promotion.

I want to start with sports betting I think in Atlantic City, we've seen some of those national brands like van do on the Draftkings really dominate now you've got Fox getting into the mix and other national media brand. So when you think about your first skin strategy are you looking to develop a national media brand at that level to sort of compete at that mass market level or is really just the main focus your core land based casino player here.

Yes, Barry we continue to be in conversations with a number of significant media sports media companies and European operators.

The point that I'm, making on that primary licenses that there's so much underlying value. We just didnt want to give it away for something minimal in return or short term focus that might catch a better headline but five years from now are we going to be.

Please that we gave that away for a minority position strategically and economically are we going to be feeling good about having control of our future. So.

It doesn't mean, we're going to go it alone it doesn't mean that we're going to create our own brand we may use a.

Through an affiliate deal or licensing deal a well known sports brand, we're having conversations with a number of potential brand and were also engaged with a number of.

Significant media companies that are trying to figure out how involved they want to get in this space. So but this is this is a this is a marathon I think people are a little over zealous around you got to be in it now and first to market and that's in a matter of 10 years I don't buy that I think that the scoreboard is going to look a bit different three four years from now I think that draftkings and fanduel will be on that scoreboard, but that doesn't mean a lot of shifting a lot of moving they have great products. They had a head start because they had daily fantasy sports mobile offerings for years, and they're not going to be the only ones with those offerings. We think some of the partnerships that we announced last night, we think the score had a terrific product or working on they've got a very loyal following.

Point that has proven in new Jersey with no brand recognition and minimal marketing efforts that theyre already 5% owner of market share in New Jersey and.

I think that when we announce our fully.

Thought out comprehensive strategy with its primary license.

Im optimistic it will be very well received you should not expect it to be only what you know today theres other irons in the fire and more to come.

Great that's really helpful.

Wanted to ask about Plainridge any color you can give on sort of the the impact you're seeing from encore and then also any thoughts on the potential for getting table games at Plainridge at some point.

Yes, the first full month of encore impact is right, where we thought it would be.

You really don't know long term, what the impact is going to be until you get through the first 60 to 90 days.

Tremendous amount of trial, it's a beautiful property I'm not sure. How many of you have been there we were all in invested at $250 million in their 10 fold on that so not surprising that people are interested in seeing that products.

We continue to perform very well all things considered our return on invested capital. There is continues to be a great story and I think we'll have more to share on our third quarter earnings call. When we've had a few months.

Excuse me under our belt to determine exactly what the impact is I think by then we'll have a pretty good idea and then with regards to whats happening potentially down the road legislatively. Our local delegation I think have been terrific partners and they've been very proud of what we've delivered which is on everything we said we would within the community driving revenues and tax dollars supporting the horse racing industry and there's some movement. There is some interest in potentially some expansion of slot machines and allowance of table games.

But thats early in the process and we'll see how it plays out that's really being driven by the local delegation.

And we're obviously very interested in supportive of that but it's it's really organic at this point.

Got it and just a quick clarification with with de leverage being the main focus right. Now are you are you going to still remain opportunistic for any buybacks or are really de leverage the focus. Thanks, I think de leverage is the primary focus.

Barry as we've as we've talked to investors and know where our cash flows are going we've gotten the feedback that.

So repurchasing shares is also a good use of our capital, but not the best use and our primary focus will be deleveraging over the next as I said four to six quarters.

Great Hey, Thank you and congratulations to you both again.

Thanks, Barry Barry.

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

Hi, Thanks, so much I would also like to add to the chorus of well wishers here. So Ken congratulations on your retirement after all your years of service to the industry.

Jay Congratulations on your promotion definitely look forward to working with you for many years, even though I've already had about 90 quarters of listening to Penn earnings call. So I'm not sure what that says about me.

Yes, maybe they'll be 90 more.

So.

Jay and can you just can we just step back for a second and you guys.

Reported a quarter when will that be Glenn.

Most people thought you were going to miss by the amount that you beat by on a like for like basis. So can you just walk us through some of the drivers behind that 80 basis points of margin improvement in the second quarter and in the spirit of what have you done for me lately.

Why shouldn't that flows through to the second half.

Yes.

Theres not a lot to share Felicia in terms of anything new or we're just continuing to get better at.

How we drive profitable revenue and how we think about.

Our marketing efforts really leveraging and I think a lot of it the found $5 million is continuing to leverage the size and scale of the company and negotiate.

Better deals for the organization. So there's not a whole lot to share that new oil I think if you look at our assumptions for remainder year guidance.

Excuse me guidance, you will see that our assumptions for Q3 and Q4 Youre looking at.

Growth in EBITDAR margins of right around what you just saw in the second quarter. So.

You will continue to see that additional flow through in the coming quarters, and I think you'll be happy to see it continue in 2020 as we continue to execute on these.

Synergies from the acquisitions that Tim laid out at the beginning of the call. So nothing new this yet we're just continuing to accomplish what we said we would accomplish and raise raise our synergy targets with some good news along the way.

If you recall on our last call on our last quarterly call. We had talked about people are questioning the third the second quarter and we said look with the Mychoice integration everything else. We're really we're focusing a lot of our marketing efforts and other elements coming into the second half and so that's why I think we're keeping a consistent there.

Great and I guess kind of question at the heart of my question really gets to like what have you.

Is that margin improvement a function of you guys just working harder to mitigate some of the revenue declines that you saw in the quarter. So maybe you came out better than you normally would if you didnt have to work that hard to mitigate those are they assumption is just kind of business as usual.

I, probably put it 90% of it in the latter.

Okay. Felicia that we're just this is what we do and I continue to scratch my head on were questioned on our ability to continue to improve margins. This company. When it's all we've done for the last I don't know I've been here eight years now and before that so this is what we do with it our DNA.

We do it better than anybody else, despite what others like to say and if you adjust our margins on a tax adjusted basis, it's not even close.

So we will continue to drive forward as we have been and will for a long time.

Great. That's helpful and just speaking of synergies just on Creek Count I think we can is closed I think you've previously.

Talked about roughly 6.6 million in synergies from that property basically in two tranches. The first three three and a half in the second little over three so now that it's closed are you seeing any further opportunity there.

Feeling really good about those numbers and if our track record is any indication of future potential on this we might find more it's too early to say, but we'll keep you posted as we have more months operating under our belt, we have a terrific team there it's sprinkled with some folks that we inherited that are.

Fantastic as well as some folks from the pen side and everybody is brainstorming and sharing best practices and we're obviously, taking those great ideas to the rest of the portfolio so more to come Greektown.

It's a it's a large property, it's a $100 million EBITDA business those don't grow on trees and it got us access to a new state so really strategic acquisition for us.

Great. Thanks, and then finally, just BJ just a very quick question is part of the sports betting partnerships, you're getting some upfront upfront cash and I just wanted to confirm that that cash is going to be used to support the new operations and it's not like incremental cash you could use to de lever.

That's correct and the.

We're treating that guys just kind of more like we'd be for M&A.

And so its not in but we will consider the ongoing cash flow that we in the cash flow statements. We provided to you.

Okay great helpful. Thanks, guys.

Thanks Felicia.

Our next question comes from the line of Chad Bennett with Macquarie. Please proceed with your question.

Hi, good morning, and.

Congrats to Tim and Jay as well.

Nice results and good announcement on the sports partnership here.

Wanted to start with maybe a little bit of a tougher subject, Illinois legislation here two parter one does the new legislation make you any more or less excited about the route operations in your Prairie State gaming business, and then secondly, well Super preliminary should we have any expectations that you would consider developing.

In one of these new looked locations that has been proposed thanks.

Chad This is Tim let me take that question to talk about my favorite state.

First on the on the BGT side the legislation did provide.

Net net what we believe will be some upside for Prairie state gaming with the additional.

To add a six machine in establishment where business was warranted.

Plus raise the average bet.

Twofold and also raise the jackpot amount.

We think that will be accretive to the prairie state gaming business.

On the on the flip side we.

We certainly appreciate some tax reductions were going to get.

In the remote gaming environment.

But we have three licenses there and.

With a bit of an industry, that's declining in Illinois, the fact that they're adding potentially 10 more casino locations or slot only locations.

We think it's going to be a very crowded and difficult market to get a good return and you shouldn't see pen.

Investing any new capital in the state of Illinois to take advantage of these new licenses. We have 18 other jurisdictions that are far more stable and predictable to take advantage of organic growth rather than Illinois will we will not be putting capital in that state.

Thank you.

And then Jay I, just wanted to kind of go back to the synergies because it is impressive that now youve increased us two quarters in a row.

And you touched on this early on the call, but you did also mentioned that the marketing activity or their reinvestment rate could come down.

In the in the area of economies of scale and kind of big purchases, whether its slots chairs tables carpets et cetera.

Or is there still a lot of opportunity there that maybe we could see him 2020 2021 as some of the contracts come up.

Or is this a $120 million number probably kind of where we should think about maybe an end goal understanding that you're always going to be looking for more say, it's just a little bit more color there. Thanks.

Yes, Chad were.

We're at a.

$60 million run rate currently for 19 and the other 60 for 2020. So there are still opportunities like the ones that you lay out for procurement and when contracts run out you just you can't get it everything in the first year simply because you have system integration you have contracts and you're going to get us some of those things in the second full year as as opposed to everything in the first full year. So now on the $120 million question. We felt like a 100 million was the right number when we close the transaction and we just continue to find opportunities.

We've got an amazing team and I'm sure every company said that to you guys. On these calls but ours is second to none in corporate and property and we're going to continue to find opportunities as we move forward were only nine months post close and Weve already increased the cost synergies by 20%.

I'd like to believe that that's not the end story, but hundred 20 feels like the right number right now.

Okay. Thank you very much appreciate it.

Operator, we have time for one more question.

Thank you.

Our question comes from the line of David Katz with Jefferies. Please proceed with your question.

Hi, good morning, glad I made it in there.

I just wanted to congratulate everyone.

Particularly in the context of a morning.

10 earnings calls and the like.

The end of the day, it's sort of enjoying dealing with the people.

Otherwise this would all just be a lot of busy work.

So congrats to.

You Tim and.

Jay for for stepping up.

Thanks.

I wanted to just go back to the leverage matter and I will apologize because I've been.

Jumping back and forth a bit.

And the target leverage is five to five and a half times.

Why do you think that that's the right level to be because as we look across the space some are actually targeting.

Less than that.

Why not why why wouldn't it be.

Compelling focus to aim lower than that level.

David This BJ I'll take that one when it kind of goes back where we sit the original target was as we are delivering after the Tropicana acquisition and we basically refinanced a mall and we applied all of the proceeds to debt reduction when we got below that level. We are finding that we weren't really getting any kind of response as far as utilization of capital to the delevering from within the investment community and that was kind of the sweet spot. So we're looking at it with all the other options that we had for capital allocation what were some of the of the alternative uses and that's that's kind of stated one that we've had for the last year year and a half two years.

When we get down there as we see with the current environment is is there a possibility to re examine that and continue to go lower that's a possibility but for right now I think thats the level that based upon our lease adjusted basis, our lease adjusted leverage when you got.

The at least Threed plus components that are based you are not going to ever get rid of as a result of the.

As a result of the lease being out there.

It's really then what's what's the most efficient use and whats the traditional debt leverage that you're looking at.

When you've got the remainder of free cash flow just to remind everyone about three quarters of our leverage is is driven by our rent obligations with our with our various landlords.

Got it.

Thank you very much again, all the best.

Thank you David.

And again, thanks, everyone for participating in our conference call today I look forward to what will be my last earnings call about three months from now as we continue to roll through 2019.

Good day everybody.

Ladies and gentlemen, this does conclude today's conference call. We thank you for your participation and ask that you kindly disconnect your lines.