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spk08: Greetings and welcome to the Penn Entertainment third quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. I would now like to turn the conference over to Mr. Joe Giaffone, Investor Relations. Please go ahead.
spk07: Thank you, Frank. Good morning, everyone, and thank you for joining Penn Entertainment's 2022 third quarter conference call. We'll get to management's presentations and comments momentarily, as well as your Q&A. During the Q&A, we ask that everyone please limit themselves to one question and one follow-up. Now I'll review the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which involved risk 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 expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from 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 10-K and Form 10-Q. Penn National assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. With that, it's now my pleasure to turn the call over to the company's CEO, Jay Snowden. Jay, please go ahead.
spk09: Thanks, Joe. Good morning, everyone. Joining me today is our CFO, Felicia Hendricks, and our head of operations, Todd George, as well as other members of our executive team. We provide a link to our investor presentation in our earnings release, which we'll be referring to in the prepared remarks if you want to follow along. Pleased to report that despite continued economic headwinds, the competitive and promotional environment has largely remained stable, and we once again had another solid quarter of with revenues of $1.625 billion and adjusted EBITDA of $472 million. We saw revenue growth of 7.5% year over year, driven by our interactive segment and strong results at our retail operations. Our leaders and team members across the company continue to do an outstanding job. As you'll see on slide six, our interactive results for the quarter included costs associated with the launch of Kansas, our first full football season in Ontario and Louisiana, lobbying expense of $12.5 million for California that we account for above the EBITDA line, and a payment processing fee adjustment of $7.9 million. Given our strong revenue growth, disciplined approach to marketing, and the fact that our interactive segment was profitable in October, we remain confident in our ability to deliver profitability in 2023. As we've highlighted in prior quarters, we're continuing to see growth in our My Choice database with year over year increases in rated theo across all segments except for the 65 and older group. I would like to focus your attention in particular on slides eight and nine, which illustrate the strong recent growth in our 21 to 44 year old segments. In just a few years, we've seen this group grow from just a bit over 10% of our total theoretical revenue to nearly 20%. We are continuing to reimagine our properties to appeal to this demographic with dynamic retail sportsbooks and sports bars, third-party F&B concepts, refreshed hotel products, new entertainment, and best-in-class technology, which we believe will pay meaningful dividends in the quarters and years ahead. Speaking of technology, we recently introduced our industry-leading three Cs in Kansas, making it our 10th property in four states where we're live. We expect to roll the technology out to several additional properties by the end of this year, pending regulatory approvals. Our early experience with 3Cs is proving out that guests that adopt our digital wallet demonstrate both higher frequency visitation and greater gaming spend per trip. And we are excited about the long-term prospects for this innovation. Our newly rebranded Hollywood Casino Greektown in Detroit on slide 10 is a good example of our strategy to reimagine our properties. As you may recall, the hotel has been unavailable for nearly two years due to water damage. This gave us the opportunity to completely remodel our standard rooms and hotel lobby to add updated offerings and new F&B concepts. With our renovations nearing completion, we think Greek Town is well positioned to improve performance as downtown Detroit continues to rebound. Turning to slide 13, on September 1st, we launched both retail and online sports betting in Kansas. Beginning with the Hollywood 400 presented by Barstool Sportsbook and continuing with coordinated joint marketing efforts, Our omnichannel approach there has delivered one of our most successful launches to date when you combine both retail and online sports betting results. We saw our highest ever level of first-time deposits on a per capita basis in the state, and over 45% of our online handle is being driven by our existing MyChoice database. On October 21st, Todd and I and some other members of our The team attended the successful opening of our retail Barstool Sportsbook at LeBaird's Baton Rouge in Louisiana. We were joined by Dave Portnoy and Big Cat, who were also in town for the Barstool college football tour at the Ole Miss LSU game right up the street. Great event overall and lots of excitement generated by Barstool at the Sportsbook and the events surrounding the game. Turning to slide 14 in Ontario, we're seeing meaningful benefits from our integrated media ecosystem with the SCORE Media users contributing over 80% more GGR than non-media users. We believe this experience positions us for similar success in the US following completion of the initial integration of the Barstool Sportsbook into the SCORE Media app, which began on October 19th. Our transition in Ontario to our proprietary tech platform has exceeded our expectations by performing seamlessly with increased utilization new betting markets, and other features. Notably, Ontario has already become our top market in North America for both online sports betting and iCasino, and we are seeing very nice momentum in both categories through our first football season. We remain on track to migrate the Barstool Sportsbook to our proprietary tech platform in mid-2023, after which we will begin to realize cost savings and improve marketing capabilities in the U.S. On the iCasino front, as highlighted on slide 16, we are seeing continued momentum this quarter with the introduction of 226 new third-party games across all platforms. Meanwhile, Penn Game Studios recently launched Barstool Roulette and has developed our first in-house multi-line slot game, which is set to launch next month. We are particularly excited about our initial iCasino results and retention KPIs in Ontario, the advanced promotional capabilities of our player account management system, have helped drive these results in Ontario, and we look forward to bringing these same capabilities to the Barstool Casino in the U.S. next year post-migration. Turning to slide 19, despite some general industry softness in digital advertising, our media business has delivered solid results in Q3 as the score grew year-over-year engagement and continued to build out our sports media presence with the addition of content from NFL insider Jordan Schultz. Meanwhile, Barstool Sports also continues to add new content, new influencers, and grow its audience, including the launch of a new NBA-focused podcast featuring Barstool Sports' Roan and Pat Beverly of the Los Angeles Lakers. Before turning it over to Felicia, I wanted to give a shout-out to our general manager, Maureen Wazloski, and her entire team at Ameristar Vicksburg for their efforts in support of the nearby city of Jackson, Mississippi, during this summer's water crisis. Our team members delivered several pallets of much needed water and emergency supplies, in addition to providing temporary housing to those in need. These are the type of actions that define our culture at Penn Entertainment, and I'm really proud of Maureen and her team for their efforts. In addition, as you'll see on slide 21, this quarter we launched a scope one and two carbon emissions assessment, which we expect to be completed by the end of the year. On the DE&I front, We were honored to have been named for the second year in a row as a champion of board diversity by the Forum of Executive Women for having female members comprise 44% of our corporate board of directors. Finally, as part of our $4 million commitment to fund STEM scholarships at historically black colleges and universities, we're proud to name Prairie View A&M in Texas and Jackson State in Mississippi as our fifth and sixth schools to enter the program. With that, I'll hand it over to Felicia.
spk00: Thanks, Jay. Given our solid third quarter results and our consistent performance into October, we're reiterating our 2022 revenue and adjusted EBITDA guidance range of $6.15 to $6.55 billion and $1.875 to $2 billion, respectively. And we expect to be slightly above the midpoint for both the guided revenue and adjusted EBITDA ranges for the year. Our balance sheet remains very strong. We ended the quarter with a cash balance of $1.7 billion, liquidity of $2.7 billion, and least adjusted net leverage of 4.3 times. Further, 85% of our debt is fixed rate, inclusive of our capitalized rent payments, and our nearest debt maturity is not until 2026. Additionally, as we highlight on slide 37 in the appendix of our earnings deck, our leased properties are subject to modest and capped annual escalators that are importantly not tied to CPI. I will speak in a moment about our new lease with GLPI, which is also subject to a modest and capped annual escalator. Given our strong financial positioning and our continued belief that there is significant dislocation between our stock price and our intrinsic valuation, We repurchased an incremental 5.35 million shares in the third quarter for $168 million, or an average price of $31.40 per share. Subsequent to the end of the quarter, we repurchased an additional 1 million shares for $29.1 million, at an average price of $28.95 per share. We currently have $211 million remaining under our $750 million authorization. Now moving on to some further details regarding the quarter. In the third quarter, corporate expense inclusive of cash settled stock-based awards was $26.5 million. Our cash rent payments to our REIT landlords were $232 million. Cash interest on traditional debt was $38.5 million. Cash taxes net were $800,000, and total CapEx was $64 million, of which $1.9 million was Project CapEx associated with our Category 4 Hollywood York and Morgantown casinos in Pennsylvania. Now, regarding certain 2022 modeling items, we expect 2022 corporate expense of approximately $100 million, inclusive of our cash-settled stock-based awards. Our total CapEx forecast remains roughly $300 million, of which $200 million remains maintenance CapEx, and $100 million is return-generating discretionary projects, including the three Cs, our cashless, carless, contactless technology, our barstool retail sportsbook, and hotel room renovations. As we've discussed in the past, we are continually evaluating our project pipeline and have many levers to pull to preserve free cash flow if we begin to experience the impact of economic headwinds while simultaneously maintaining the high-quality experience our guests have come to expect. For cash interest expense, we forecast $115 million for the full year 2022. Cash taxes will be roughly $60 million for the full year net of refunds received. And for the fourth quarter, you should use approximately 173 million weighted average fully diluted shares which is before any incremental share repurchase we would make in the quarter. Finally, as it relates to the new growth projects we announced on October 10th, Penn entered into an agreement with GLPI to create a new master lease, which would include the two new land-based facilities in Aurora and Joliet, Illinois, in addition to Hollywood Columbus and Hollywood Toledo in Ohio, the M Resort in Las Vegas, the Meadows in Pennsylvania, and Hollywood Perryville in Maryland. The new master lease will have a fixed annual escalator of 1.5% and the Columbus and Toledo properties will no longer be subject to the 20% variable rent structure. With that, I'll turn it back to Jay.
spk09: Thanks, Felicia. Before I open it up to questions, Felicia referenced our exciting plans to relocate our riverboat casino licenses in Aurora and Joliet, Illinois to superior locations where we'll construct new land-based facilities in addition to building a a hotel at Hollywood Columbus, and adding a second tower at the M Resort in Las Vegas. We provide a good bit of detail on each of these projects in slides 22 through 29, and we're happy to provide more color if you'd like during Q&A. Suffice it to say, our casino properties remain at the core of our omnichannel approach to entertainment, and these projects are consistent with our strategy to reinvest in and reimagine our properties. As I have noted, we are seeing our strongest results from properties that offer upgraded amenities that appeal to both the VIP segment and the younger segments of our database. And we are really excited about introducing brand new land-based offerings to Chicagoland and an expanded footprint to capitalize on strong demand in Columbus and at the M Resort. We're also grateful to have the ability to access attractive financing from our longstanding partners at GLPI of up to $575 million of the $850 million anticipated budget. And I also want to thank the city of Aurora once again for committing 50 million toward the relocation project there. All four projects are expected to begin construction in late 23 with the bulk of the spend in 24 and early 25. We are in great position to be able to pursue these high growth projects while preserving our cash position and overall leverage profile. And I'd like to conclude by talking a bit more about our interactive strategy and outlook. We have remained very consistent in our approach to this nascent opportunity emphasizing product and organic customer acquisition over aggressive external marketing spend. But we also learned a lot over the last couple years and are constantly refining our strategy based on the latest data and, of course, our experiences. While our third quarter results were noisy for the reasons we noted, we are very encouraged by the recent performance of our interactive segment, which includes a profitable month in October, which, by the way, was an average hold month for us in online sports betting. I would specifically like to highlight our momentum with the score bet in Ontario, as you can see on slide 18, which is one of the most competitive and valuable markets in North America. As we continue to invest in that market, we are seeing strong returns based on attractive customer acquisition costs and very compelling retention metrics. We attribute that success to several things, but certainly the most significant relates to the enhanced capabilities of our wholly-owned tech stack which is generating tangible benefits to both our sports betting and iCasino offerings. As our product has improved, in particular the advanced promotional features and bonusing features provided by our player account management system, we are seeing lower CPAs, more loyal customers, and greater returns on our marketing spend and investments, something we think we can replicate in other markets here in the U.S. Through our experience in Ontario, we've identified some real opportunities to build market share once we migrate to our own tech stack in the U.S. in Q3, and of course we'll do that profitably, and we will be prepared to invest in those markets where we see attractive returns while maintaining a disciplined approach. We're also excited about our omni-channel advantages, which have been highlighted by our success in Kansas, driven by strong adoption from our MyChoice database. This success positions us very favorably for Ohio, where we have a robust database from our four leading casinos and still plan to go live on January 1st, as well as in Massachusetts, where our My Choice database will help supplement the very loyal Barstool audience in the state. And pending regulatory approval will be live in Q1 of 2023 in Massachusetts. All of this leads us to be very optimistic about our future. And with that, we'll open it up to questions, Frank.
spk08: Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. We ask that you ask one question and one follow-up only. One moment, please, for the first question. Our first question comes from Joe Greff with J.P. Morgan. Please proceed.
spk03: Hi, Jay and Felicia. Omer Sandaran for Joe. Thanks for taking our questions. Relative to our estimates on the land-based front, the Midwest, West, and South were really strong, but the Northeast was maybe a little bit weaker. Is there anything specific to that market that stands out to you relative to your others? Is this more Pennsylvania, or is it something else?
spk09: Yeah, I think Pennsylvania is going to be the one thing to keep in mind. We've got two longstanding properties there, and we have two newer facilities there, so there's a little bit of noise in Pennsylvania, but Todd, I'm happy to hand it over to you to answer that one.
spk05: Thanks, Jay. Yeah, you're exactly right. It's more from Pennsylvania. Seeing some of the impact from some new competition coming in with the satellite casinos just kind of settling in. We've been fortunate in our new properties opening up in New York and Morgantown, being able to pick up some of that. But our existing properties at the Meadows and PNRC, we did lose some share there. So it's pretty much isolated to those areas.
spk03: One of your peers talked about higher labor cost pressures. Wondering what you're seeing across your portfolio, anything similar or any other markets as well that you'd call out?
spk05: It really comes down to what we've seen. The pipeline is back open now. More people are looking for jobs, so that has helped out. There was a bit of a bump, I would say, early in the quarter. That's really settled in now. Then a lot of what we've been able to do with kind of, you know, you heard Jay talk about reimagining our properties, so we become a little more labor efficient just out of necessity, so we expect to carry that through as we move forward.
spk09: Yeah, and I would just add one comment, which is, you know, we've been talking about what we believe our property level margins will likely settle in at, and we said at the beginning of this year that we felt like 37% over the course of the year was a good target, and Todd and our regionals and our property leaders have done a fantastic job. It's been very consistent this year, which I think shows you that we're managing all of these dynamics, in many cases headwinds, though they're not as significant as they were earlier in the year, but we're managing those very effectively. Q1, our margins were a little north of 37. I think 37.1. Q2 was 37.2. Q3 was 37.3. You will naturally see, I would ask everybody to keep in mind, you'll see some natural seasonality in the Q4, the margins will likely be down a little bit from 37. But when you blend it all together for the year, we think 37 remains a good target for us.
spk08: Our next question comes from Sean Kelly with Bank of America. Please proceed.
spk01: Hi, good morning, everyone. Jay, you know, I wanted to ask about sort of following up on online and digital. You know, you mentioned the lower CPAs and seeing some opportunities to build market share once you get the tech platform stood up. My question is sort of just as we sit here today, there's been a lot of discussion about promotional rationalization in the online environment. You've obviously stayed the course thus far and been extraordinarily disciplined. And so the question is, is the product in a place where you can lean in today or do you really want to get you know, the tech stack and maybe the iGaming offering a little bit further along before you, you know, push further on the marketing, you know, maybe on the direct marketing side?
spk09: Yeah, great question, Sean. This is something that we talk about internally all the time. And the answer is, it's a bit bifurcated, right? Because in Ontario, we are currently live on our own player account management platform, as well as now our own trading services risk management platform. And we're seeing the benefits of that. And so We've had an opportunity because we're seeing such high retention levels in Ontario to continue to spend into that. And the cost per acquisition has been, I think, better is the way I would describe it in Ontario than what we saw early in the US. And I think this year, even in the US, it's better than it was a year ago. And we've been very consistent in our messaging that our strategy was to lean entirely on organic marketing and database acquisition and feeding the funnel from our own assets and our own brands and our own databases. And we've been doing that 100% in the US. In Ontario, we've been doing that, but we've also supplemented that with some additional marketing spend because we're seeing really good results as I just mentioned. So I would say what you should expect from us is that we're going to make continued investments for as long as we're seeing those dynamics in Ontario. We believe we can grow market share profitably. We believe we've been doing that. It's already our number one market and we certainly stand to benefit Sean next summer when we go live across the US with that same tech stack. And if the CPAs are attractive, and I think we would anticipate even higher retention value in the U.S. once we're on our own tech platforms, that you should expect to see something similar from us the second half of next year and into 24. We'll do all of this in a thoughtful way. We'll be judicious in how much we spend and where we spend. We're not looking to grow market share if we can't do it profitably. But we're seeing in Ontario that we believe we can once we're on our own tech stack and have great promotional and bonus engine capabilities that we didn't have previously, that we can acquire customers, retain them, and continue to grow our market share.
spk01: Thank you very much.
spk08: Our next question comes from Barry Jonas with Truist Securities. Please proceed.
spk11: Great. We're getting closer to when you could potentially, or when you could acquire 100% of Barstool. Just curious if we should expect to see any major changes once you do reach 100%.
spk09: Yeah, we've already publicly made, you know, we've committed to that purchase in February of next year, Barry, and there's no changes in that plan. We're very excited about owning all of Barstool. They've been amazing partners for us over the course of the last two and a half almost three years now and What I would say is from a from a media perspective We'll have a lot more to share once we close on that transaction both with regard to how we're thinking about Opportunities to create synergies with our media assets. We've had a lot of really really exciting meetings here of late talking about advertising partnerships and you know we do historically a On the casino side, we have done, and this is really an industry statement, certainly I'll say it's true for Penn, we have not done a great job of monetizing all of the foot traffic and the eyeballs that are moving in and out of our properties and driving by our properties every day. We have a database now of over 25 million people in MyChoice. We've never really partnered with any third parties on monetization opportunities and partnership opportunities, and the folks at Barstool and The Score We have some of the best salespeople in the sports media industry, and we think there's great opportunities for us to grow that advertising and partnership revenue. And more to come, I would say. Probably in the beginning of next year, we're talking about guidance for 2023. There'll be something in there for media assumptions. And throughout 23, we'll be sharing more and more of our plans, many of which we just haven't publicized yet, but we're working on hard behind the scenes.
spk11: That sounds great. And then just for a follow-up, I wanted to ask about the three Cs. As you continue the rollout, can you maybe talk more about the benefits you're seeing or rather expect to see? Jay, is it more about driving volumes or is it really better analytics for marketing purposes?
spk09: Yeah. The answer is yes. I'll let Todd answer that one.
spk05: Thanks, Barry, and thanks, Jay. Really, we could not be more excited about what we're seeing to date with some big states here on the horizon. So as Jay said, it's yes to both. The real winner in all this is truly the guest, the customer, removing friction from their experience, not having to wait in line, just being able to kind of traverse through the property as they wish is really the overall driver. But then the analytics that we do pick up with behaviors and being able to engage with them more real time than waiting to to hit them back in the mail after they depart the property. This provides us such a real opportunity to engage in the moment, which I think will benefit us as we move forward.
spk08: Our next question comes from Steve Wozinski with Stifel. Please proceed.
spk10: Hey, guys. Good morning. Jay, so I wanted to ask about these the new growth projects. And maybe if you could help us or just remind us what the return metrics you're targeting on those. And are those return hurdles the same pretty much for all four, or are they somewhat different across the new projects that are out there? And then could you also help us think about, are there more of these what we would call kind of add-on growth projects out there across your existing portfolio that could be explored moving forward?
spk09: Yeah, all great questions. And, you know, these four that we announced about a month ago, these are projects that we've been looking at internally for years in some cases. And there were a number of reasons not worth getting into for why it didn't make sense or we couldn't pull the trigger in the past years. And, you know, it all came together for us for four that we are really excited about. And some look at Illinois and say, wow, there's been a lot of supply addition there. Is that the right place? And what we've seen is that everywhere, I've mentioned this before, even in this current economic environment, the properties we have in the portfolio that are quality assets with best-in-class offerings and entertainment offerings that we don't have at many of our smaller, older properties, we perform very well. And we're not really seeing any softness from a database perspective. So for us, Illinois, we think both of these projects are going to be terrific in that they're going to be new facilities, but not only are they new, but we're moving those licenses from their current locations in both cases to much more attractive locations that are right off the interstate and have visibility. In the case of Joliet, part of a mixed-use development that's going to include commercial and residential will be obviously one of the anchors there. And in the case of Aurora, we've just had tremendous partnership with the city. We've got a great location next to Simon Premium Outlet Malls, one of their most successful malls in the country. Tremendous amount of foot traffic. There's very strong Asian business that goes into that Premium Outlet Mall as well. And so we believe those two are going to be terrific projects for us. Definitely more offensive than defensive, a little bit defensive, but certainly more offensive is the way to think about it. Columbus is... one of our top performing properties has been for years. We should have opened that property with a hotel, but we didn't. But here we are. And there were some lease dynamics both with Columbus and Toledo that Felicia mentioned on rev share mechanisms that we now have resolved with the new lease with GLPI that allow us to think about growing those two properties and our databases there and growing our revenues and our EBITDA as well. So feel really good about that. And then M-Resort, we've needed more rooms there for years. That part of the Las Vegas Valley is growing like crazy. When you fly in, you just see all the rooftops continuing to go up surrounding the property there. So all four, we feel really good about the return profile individually, Steve, to your question. We also feel collectively that these four projects will deliver a free cash flow return that's higher than where our stock's currently trading. That's sort of the way we think about it is If we can deliver a better return, do you continue to buy back shares? Do you invest in growth projects? In this case, we can do both because our balance sheet and free cash flow generation allows us to. And so it was a great opportunity for us to grow what's really the core of our omni-channel strategy, our retail casinos, and to upgrade two of our facilities that are tired and dated and to expand at two of our properties that are high growth markets and high growth assets for us. I would say in terms of the – yeah, sorry. And then the last part you said is more to come. I would say, yes, stay tuned. We have a number of other properties that are high growth where we've just really maxed out on the hotel side. We could use more rooms. And then we'll continue to invest on the gaming floor and the non-gaming amenities and 3Cs and hotel renovations. But I think in terms of hotel expansion, there's probably a couple of others that we could potentially pursue in the coming quarters or years.
spk10: Okay, that's great color. Thanks, Jay. And then you talked a lot about that younger demographic that you're seeing kind of coming into the properties and whatnot. I don't know if you have the data or not, but is there any way to help us think about what that spend level looks like for that younger demographic versus the rest of your traditional database? And I assume what you're trying to do here is you know, just get that younger demographic in your ecosystem, let them kind of grow from there, let them mature and watch their spending ability move higher and just try to capture that person over time. Is that kind of the right way to think about this?
spk09: It's exactly the right way. And I'll let Todd answer your question. I would just, you know, as you're thinking about, and we try to share this with some real color and visibility for all of you on a quarterly basis, because it's very exciting. You know, all the things that we talk about and what's going on in the business right now, the one that we are most positive and encouraged by at Penn is that that 21 to 44-year-old age segment just a few years ago was a little over 10% of our revenues, and now it's approaching 20. And that's moving the Titanic quickly. And so you think about the LTV associated with those customers. If they might be lower spend today than the older age segments, but getting them into the ecosystem, really working on cultivating the relationship, generating a loyalty factor and then continuing to, you know, stay close to them on the relationship side through the years is where the real value is. Todd, anything you want to add?
spk05: Thanks, Jay. Yeah, just, you know, in response to your question, I look at it a little bit looking on a per-trip basis. So, when you think about our overall database, we are seeing increased visitation in this 21 to 44 group, but where we're really starting to close the gap, and traditionally, That 21 to 44 and then the 45 to 54, 55 and above, it just goes up sequentially. They all spend a little more per trip. And there used to be a pretty decent delta between that younger group and then the older groups. We've been able to close that delta. So on a per trip basis, they've been coming in. A lot of that relates to their level of engagement with our properties and the offerings that we have. So it's not only the gaming experience, it's also the way they're looking at dining, the way they're looking at lodging. So That will be the focus as we move forward. It's seeing decent growth on a trip basis, but the spend per trip is where we're really making significant headway.
spk08: Our next question comes from Ryan Segal with Craig Helen Capital. Please proceed.
spk02: Good morning, Jay, Felicia. I want to start with interactive. So I think I caught it right that you said positive in October. and Q4, but can you confirm that and then also kind of your confidence in that inflection in Q4 and for 2023 relative to maybe where you were three months ago?
spk09: Yeah, happy to. We did mention in the release and our prepared remarks that we were profitable in October, and I'll reiterate again, that was with an average hold percentage. That wasn't overholding. We actually got beat up pretty good the last Sunday of the month. So it was not hold-driven, which is, I think, encouraging for We anticipate being profitable in Q4. I would say that a couple of factors to keep in mind for Q4. One is we're going to have very likely, we don't have a date yet, but we're going to have a Maryland state launch in Q4. It's looking like sometime in November. That hurts a little bit on the EBITDA side as you're continuing to see the initial dollars, the deposit match dollars, work their way through the system. There's usually a month and a half to two-month period of time where they're working through that. So that'll impact a little bit to the downside, but obviously we're going to invest in state launches. Ohio is going to go live on Jan 1. There will be some spend in December leading up to that go-live date of Jan 1. So those two factors that'll hit Q4 a little bit in the last two months of the quarter. And then the other factor is, and we haven't publicized this, but I think others have noted it, We're part of the Mattress Mac World Series bet. So he's got a couple million on the line with us that would pay out $10 million. So go Phil's for sure. And I think if Mattress Mac doesn't hit, we'll be profitable at Q4. If he does, then it'll probably be closer to break-even-ish, somewhere in that range.
spk02: Great. Then just one follow-up on that. So it seems some nice early positive player metrics from your triple C initiatives. Curious what else is in the pipeline kind of in the near term, then over the next several years that you're excited about to kind of greater integrate the online and land based experiences. One that comes to mind is shared wallet across state cross online and land, but maybe talk to that and then anything else that you're excited about. Thanks.
spk09: Yep. Thanks Ryan. Yeah. Look, shared wallet. I've, I've mentioned before, I think on our last call, that is a, That's a huge piece for us, likely a 2024-ish event. We're really focused right now on tech migration, bringing the tech platforms that we're live on in Ontario back to the U.S., going live next summer, really thinking about how we want to leverage that to profitably grow our market share in the second half of 23 and into early 24. Behind the scenes, we are already working – collectively between our land-based operators and technology folks and engineers, along with the team we have at Interactive and the SCORE, to plan for the future so that we're not making decisions now that'll hurt us in our quest to get into one consolidated wallet across all of our offerings. So that's probably the one that I think is nearest, Ryan, after you think about tech migration. But as it relates to omnichannel, I think Look, from my perspective, it's sort of a must. It's table stakes that you have to be able to offer your customers one wallet, and then they can move seamlessly throughout your ecosystem, whether those are online offerings, those are retail offerings. And so high priority for us. And we've got some other things that we're talking about internally that I think we'll be ready to share in early 23 and on from there.
spk08: Our next question comes from David Katz. With Jeffries, please proceed.
spk04: Hi. Good morning, everyone. Thanks for taking my questions. Interested in the demographic dynamic that you've been talking about in today, have you indicated like what catalyzed that or what started it? Like where did it come from? Because it seems to be not coming, not something we're hearing much of from your peers.
spk09: Yeah, David, I would say a couple of things about that. And Todd, Felicia, please jump in anything that I missed or you want to add in color. I think we've been really focused on this for the last several years. Two things obviously helped a lot. One is COVID. And the way that COVID helped certainly was that when we reopened, so we closed all the casinos, as you know, in March of 20. We started reopening them in May, June, July. timeframe of 2020. And when we did, we were one of the very few entertainment destinations that was open at that time. And so we saw an influx of younger demographics come in, of course, our focus at the time was we got to get them into our loyalty program. We have to build relationships. And so we worked very, very hard to do that. Otherwise they come in, if they don't have, they're not in your loyalty program, they leave and you don't know how to contact them on the back end. So I think our property teams did a great job of getting people signed up into our loyalty program. And that was, that was a big opportunity for us, but we want to make sure we didn't lose them. And as I've mentioned, Previously, with all the growth that we saw in those younger segments in 2020 and 2021, you see in the slide that we provided, we're showing now growth on top of growth here in 2022, which I think is very exciting and showing that we're not losing these customers. We're actually continuing to grow the relationship and grow that segment in quantity as well. The other factor, of course, is online sports betting legalization in May of 2018. We ended up going live in the fall of 2020 and we were actually looking at this the other day which is I think really fascinating that if you look at the number of customers that we have been able to grow we've been able to bring into the database from our interactive offerings our online casino we have 80 plus percent of our total revenues are coming from people between 21 and 44 years old and And if you look at online sports betting, it's 90% between 21 and 44 years old. So we're obviously bringing in younger customers through our interactive offerings, particularly online sports betting. But no doubt, post-COVID, being able to bring customers into our casinos and building relationships with them was another contributing factor. And, of course, the big opportunity is, you know, what does that loyalty look like when you look two years, five years, ten years down the road that we're most excited about?
spk05: Jay, the only thing I would add is to your point, when everything else was closed and we were the one that was open, we did see this influx, and then it became more the problem we were solving is how to retain them. In the past, maybe we looked at sports and concerts and everything else as kind of competition for that entertainment budget, that discretionary budget. then we started to view them more as a partner. So then it became how do we offer better entertainment? How do we unlock experiences with professional sporting events? And I think that all led to people viewing the casino experience more as an entertainment experience. And then to Jay's point, this year our growth and people that engage with us across multiple channels, so a casino experience and then an online experience, is up over 25%. So we're seeing more people engage with us across multiple channels, which really helps us create loyalty as we move forward.
spk04: Understood. And if I can follow that up, Jay, when we last talked with a group at a G2E, there was discussion about cultivating the rebranding of Penn and reimagining the loyalty program and that obviously comes on the heels of what you're doing technology-wise. I assume that this younger demographic is a part of that reimagination of all of this stuff and repositioning of all of this, and you're comfortable that it's something that's durable over the long term.
spk09: That's exactly right, David, and we'll have more to share on the loyalty program evolution and rebranding in early 2023. We're hard at work right now on what that is, and we are definitely thinking about it. We're whiteboarding what a loyalty program should be in the gaming and interactive and entertainment business as opposed to starting with what has it been. And I think you should expect to hear more from us on that, but you should also expect to hear some new things, even in how we're thinking about the program and what it's called and the vernacular around the points that you have and what you can use them for. We're really trying to deconstruct and then build this up the way that it should be for the long term, keeping not just younger folks in mind, but all of the demographics and how we can appeal to customers that we don't currently have within our ecosystem.
spk08: Our next question comes from Jason Tilchen with Canaccord Genuity. Please proceed.
spk12: Good morning and thanks for taking the question. In the prepared markets, Jay, you talked about the average hold rate for digital in October. I'm just wondering if you could maybe comment on Q3, how much of the growth in digital was driven by favorable outcomes? And in terms of in Ontario, you talked about the really strong performance there. The parlay mix or the in-game mix, was any different in Ontario than versus the U.S. due to the tech stack being in-house versus outsourced?
spk09: Yep, happy to, Jason. Q3, I think it's been well noted. Football season, we had a good, I think it was three weeks in the month for NFL and four weeks for college football. So hold worked in our favor. July and August, I don't recall really being, you know, noisy one direction or the other. So probably average-ish hold. So sort of take that for what it's worth. I don't have in front of me what the impact was. It wasn't really material for us given it was really just three weeks of the quarter. I do think that when you're looking at Ontario and the fact that October, and again, this is still early. We've been on our own tech stack now for just really for football season for all intents and purposes. But we are seeing really, really strong parlay play. We're starting to build out our in-game parlay offerings. So you'll see more from us on the parlay side. We're going to be launching several in-game parlay features here in November. and going to have all of the major sports covered before the end of the year. So as good as the results have been in Ontario, that's with us sort of, you know, fighting with one arm tied behind the back. We don't have all of the same offerings that everyone else has, but we are continuing to grow daily active users, monthly active users, handle, and our GGR, as we show on slide 18. We've got great momentum in the business there, and you should assume that that's all happening, that market share is is continuing to grow and that we're doing that in a profitable way. And we are seeing a slightly, again it's early, a slightly higher hold percentage in Ontario as it relates to online sports betting than we are here in the U.S. given that we're on our own tech stack and we can really think about how we target parlay bettors versus money line bettors differently in Ontario. And we'll be doing obviously more of that in the U.S. once we migrate over next summer.
spk12: Great. That's really helpful. And just one quick follow-up on Kansas. You talked about the really strong customer acquisition there and depositors. Is there anything you can call out that you did differently in terms of marketing tactics or anything that you can take from learnings from there and apply those in Maryland, Ohio, Massachusetts?
spk09: Yeah, for sure. And Todd will speak to this. I mean, Kansas is a smaller population state, so we prefaced all of our comments with it's on a per capita basis. But when you look at what we've been able to do there in terms of sign-ups and deposits and then cross-selling to our casino My Choice database. It's been our best launch to date when you combine retail and online sports betting. So for sure, there's learnings there that Todd can cover that will apply to Ohio, Maryland, Massachusetts, and elsewhere.
spk05: Thanks, Jay. Yeah, so we jumped out a little bit earlier and were able to mobilize our My Choice database. You see that called out on one of the slides and in the comments where A lot of the people that have been engaging with us through the sports book have come right from our My Choice database. So getting that out there early, creating that education process, working through how to download the app, how to engage with us, helped out a tremendous amount. And then I would say the other real big impact for us, and it really goes back to that omni-channel opportunity that we've created, Almost 27% of our new accounts at our Kansas property have been created since the launch of the sportsbook. So total new accounts for the property have jumped significantly just since launching the sportsbook. And then finding new ways to engage with them, whether it's online or coming into our property, we've seen great results doing that, which, again, as Jay mentioned, the population base and the size of our database for Ohio, we feel very optimistic as we go in there applying these learnings to that state.
spk09: And last comment, and I know everyone's aware of this, but the fact that Barstool started in Massachusetts, we think that's going to give us a huge advantage in addition to our casino database in the state there in Q1 when we go live. And Ohio is another state that Barstool has always over-indexed. And so we anticipate between our four assets and the database that Todd referenced, in addition to the Barstool Sports strength of the brand there, these are going to be very good states for us.
spk08: Our next question comes from Bernie McTernan with Needham and Company. Please proceed.
spk14: Bernie McTernan Great. Thanks for taking the question. Just wanted to double check if that $50 million for interactive loss has still made sense for the year. I don't think so given the prior commentary, but just wanted to double check. And then as other competitors are reporting better than expected profitability, Not sure if it's too early to call this U.S. sports betting 2.0, but do you think there's any broader industry implications or implications for your relative positioning in the industry?
spk09: Very good question. With regard to the 50, I think just based on the payment processing fee of $8 million, which was not anticipated going into the quarter, in addition to a couple of state launches, I think that number is probably not the right number to use. But as Felicia mentioned in her prepared remarks, if you look at, the midpoint of our guidance. We expect to come in a little bit ahead of midpoint for both revenues and EBITDA for the fourth quarter and for the remainder of the year when you look at the total year results. So I think if you do the math there, you're looking at interactive probably coming in slightly positive in the fourth quarter, add that to where we are Q1 through Q3, and that's probably where you should be for the year and where you should be for the fourth quarter. I think as it relates to the industry sort of 2.0, it's a good way of putting it, I think. There is a lot more focus right now on profitability, which I think is great for the industry, all of us. And we've always said that we've been focused on a profitable model from day one. We've really leaned hard on organic marketing and tapping into this great ecosystem that we have and moving people throughout that ecosystem through cross-sale. That's the magic of what we're doing at Penn. termed omni-channel, it's an overused term today, but I think we have the ability to really execute on that well from a technology, from an owned database perspective, and from partnerships that have proven to work so far. I think as the rest of the industry continues to focus more and more on profitability, that's probably going to open the door for us as we're starting to see even already in Ontario that CPAs will likely continue to look more attractive. And we have the ability to lean into that when and where it makes sense. We will not do that in the U.S. until we're live on our own tech stack. So you shouldn't expect to see us pushing forward with that strategy. We will support state launches, of course, three coming up here in the coming months. And we will continue to push forward and lean into what is attractive CPA and retention results in Ontario and eventually the second half of 23 in the U.S. as well, which will be great for us. you know, just continuing to grow our market share profitably over time.
spk14: Got it. And then, Jay, given the strength of the media integration in Canada and your strong financial position, are you strategically complete with your media assets with the score on Barstool? Or could you look to expand either through M&A or partnerships? And if so, what kinds of assets could be interesting for you guys?
spk09: Yeah, I would say we don't feel like we're missing anything currently. There's no hole in the game, so to speak. So nothing that I'd really share with you today that we say it's on the radar. We're a very curious bunch at Penn, so we're always looking and engaging with media companies, whether they're for sale or not, but thinking about interesting partnerships potentially. We do the same thing in other areas of entertainment and live music. I don't know where that takes us long-term. I do know that our strategy overall is really focused on the broader entertainment area, and that's not just sports betting. It's not just retail casinos. There's a lot that we can do with our fan base and audiences and databases across the casinos and our media assets. Stay tuned. Nothing missing today. But, you know, we're always looking for opportunities to create value as we look down the road over the next three, five years.
spk08: Our next question comes from Jordan Bender with JMP Securities. Please proceed.
spk13: Great. Thanks for taking my question. Kind of to piggyback on that last question, you know, it's pretty well understood that the casino database is a pretty good cross-sell for online. Up in Canada, can you see yourself buying, you know, plan-based Canadian assets to kind of bolster that omnichannel presence up there?
spk09: Who knows? Who knows? We're not, there's nothing imminent. We're not, you know, going to comment on, you know, we're not looking at anything right now, so I guess I can comment on that. But what I rule out that we would look at land-based assets in Canada. There's two large Canadian-based companies up there. We would never rule that out. I wouldn't rule much out as you talk about the future, and there's always maybes around these types of questions. So could that help overall in the strategy, given how important and effective Omnichannel has been for us in the U.S.? Sure, I think that could make some sense for us, but we're not engaged in any conversations right now. There's nothing imminent. It could be interesting if the right opportunity presented itself at the right price at the right time.
spk13: Great. And then just my follow-up, you've talked about your in-house content and the impressive growth that you've seen over the last couple quarters. Can you just kind of talk about how your in-house games are performing or metrics versus maybe some of the third-party content on your platform?
spk09: Yeah. We've shared a little bit in the slides here that just show you the continued growth and handle on our platform. homegrown proprietary games. And we're seeing, and I don't have the stats in front of me, but the last time we looked, we were seeing in New Jersey that over 20% of our total handle was coming from games that we created, particularly the digital blackjack games. We now have side bets. We have those branded with the different IP collection that we have at Penn. So we're really encouraged by that. It's interesting because as an industry, we've tried in the past to come up with proprietary game themes working with third party manufacturers for the land-based casinos and they always failed like 100% of the time. So it's encouraging to see that we can create games and that we can actually do this in some cases better than some of the third party content providers. So that keeps us pretty encouraged for what we'll be able to do down the road. We just launched a new roulette product that we mentioned in our slides. We're now developing multi-line video slot content. And so more to come, but the early impression that we're getting is that we can be successful at doing this, and we think we can create more games more rapidly down the road.
spk08: Our next question comes from Joel Stoff with Susquehanna. Please proceed.
spk06: Good morning, Jay and Felicia. I just had two questions. I guess one, and I apologize if you answered this, I didn't hear it, but can you provide maybe just like a quarter to date kind of trends and what you've been seeing certainly in some of your markets? Has there been naturally any change in terms of where the quarter came in? And then secondarily to that, I'm curious to, you know, another question on slide nine and in the customer segments. I think based on your commentary, it's fair to conclude that most of the increase in these younger customers has naturally come from online sports betting, which skews very male-oriented. I was wondering where you are in the strategy to maybe attract the digital slots customer or the traditional retail slots customer within that younger demographic.
spk09: Yeah, great question. The second one in particular, I'll quickly answer the first one, which is that quarter to date, which is really October. I mean, we're what, day three of November here. Trends are very consistent with what we saw in Q3. Again, I'll highlight that there is seasonality. Just remember that as you're looking historically at what gaming revenues and EBITDA and margins look like, they're usually as a bit of a drop off from the first three quarter average to fourth quarter. That will likely happen again here in 2022. But the trends have been very, very consistent. We're very happy with our October results on the interactive side. We've already covered that. So feeling good, honestly, as we sit here today. And we get asked the question, it seems like, daily from different constituencies around what's happening in the business. And the answer is things look good and things look consistent. They're stable. Promotional environment is rational. Competitive environment is predictable. but everybody's got their own narrative on what is going to happen soon, so I don't really know what you even do with our answer, but that is the answer. With regard to the younger segments, a lot of that growth, as you highlight, is younger men who are coming into the system through online sports betting, but there are also a large number, it's not the majority, but there are a large number of younger women coming through as well with online casino betting. We obviously are getting better and better, both with regard to third-party content as well as starting to develop our own slot content. And I think as we get better and we have a broader library of games, you'll continue to see that demographic for us grow. But as good as these results are, they're definitely more male-skewed today. So as we get, I think, better at what we do on the slot side, we think this growth can really continue from both the male audiences and the female audiences.
spk06: Thank you.
spk09: And Frank, I think we're out of time. So I'm going to thank everybody for joining us this morning. I know it's busy. A lot of companies have earnings calls this morning. Great catching up with everybody. We look forward to speaking with you next quarter.
spk08: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.
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