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spk03: Greetings and welcome to the Penn Entertainment first quarter 2023 results conference call. During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. I would now like to turn the conference over to Mr. Joe Jaffone, Investor Relations. Please go ahead.
spk08: Thanks, Frank. Good morning, everyone, and thank you for joining Penn Entertainment's 2023 First Quarter Conference Call. We'll get to management's presentation and comments momentarily, as well as your questions and answers. During the Q&A, we ask that everyone please limit themselves to one question and one follow-up. Now, we'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 risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as expects, believes, estimates, projects, intends, plans, seeks, may, will, should, or anticipates, or the negative or other variations of these or similar words, or by discussion 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 the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q. Penn Entertainment assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast will 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.
spk12: Thanks, Joe. Good morning, everyone. I have here with me in Wyoming our CFO, Felicia Hendricks, and our head of operations, Todd George, as well as other members of the executive team who can help answer any questions that you may have during Q&A. As for the first time as an official member of our Penn family, we're also joined by Erica Ayers, CEO of Barstool Sports. As you know, we completed our acquisition of Barstool on February 17th, and our integration efforts to date have gone as planned, but more on that in a moment. First, we're pleased to report that Penn delivered another solid quarter with consistent retail performance across most of our portfolio. Our properties proved to be more resilient than initially anticipated, given the increased supply in a few markets and the ongoing uncertain macroeconomic environment. Turning to slide four in our investor presentation, Penn generated first quarter revenues of $1.67 billion and adjusted EBITDA of $478.2 million, with strong performance in our Northeast segment, helping to offset softer year-over-year results in the South. As you'll see on slide five and six, our retail EBITDA margins were negatively impacted by approximately 100 basis points due to the regional shift in our gaming revenues year over year to the northeast, which has a higher blended tax rate of approximately 42% versus the south, which is approximately 22%. And to a lesser extent, the settlement of certain property litigation matters. Looking beyond the first quarter, April really was a story of two halves. We started the month off slowly with the Easter weekend, but finished strong in the final two weeks, including having our number one company-wide slot volume weekend of the year so far in the last weekend of April. Given our Q1 performance combined with current trends, we are increasing our prior revenue guidance for the year to reflect the acquisition of Barstool Sports while maintaining our current adjusted EBITDA guidance. Felicia will be providing more color on our guidance in a few minutes. Turning to slide nine, we generated over 350,000 new signups this quarter for our industry-leading customer loyalty program, which is a 13% increase year over year. 63% of our Q1 database growth came from our online offerings. Notably, in Q1, we saw the strongest growth rates in our 65-plus-year-old age segment and rated theoretical revenue. These guests appear to be returning to more normal pre-COVID behavior of late, and are responding well to our added amenities and continued improvements in our non-gaming offerings. At the same time, the 21 to 44 year old age demographic was stable in Q1 year over year after very strong growth throughout 2021 and 2022, and continues to grow significantly when compared to 2019. This age segment has grown from 13% of total rated theoretical in Q1 19 to 18 and a half percent in Q1 of 23. Our VIP play also remains strong in Q1, with year-over-year increase in both guest count and frequency of visitation. The positive momentum in our database comes at a perfect time as we recently launched PennPlay, our enhanced and rebranded customer loyalty program, which is designed to help better align all of our brands under the Penn Entertainment umbrella and create a more seamless omni-channel experience. Some of the new perks. include the ability for day one customers to begin immediately earning meaningful rewards just by signing up. In addition, members can now earn loyalty points across all of our business verticals, interactive, as well as retail gaming and marketplace, featuring popular retailers where they can redeem gifts and earn tier points and pen cash on everyday items. Members also have access to entertainment experiences with Penn partner brands, including Live Nation and Choice Hotels. PennPlay is supported by our industry-leading 3Cs technology, which we've talked about before, and which is currently deployed at 21 of our properties, collectively representing 70% of our retail EBITDA. We've grown our total Penn Wallet customers to 195,000 and received 104 million in total Penn deposits as of the end of the first quarter. As we've emphasized in the past, those guests who use the digital wallet demonstrate superior loyalty through increased visitation, time on device, and total theoretical. And as you'll see on slide 11, our effective cross-marketing efforts combined with our ability to deliver a seamless, best-in-class customer experience has led to a significant increase in guests who engage with us across multiple channels, which is the key to our future growth. Our interactive segment saw revenue improvement during the first quarter, driven in part by our acquisition of Barstool Sports as well as our recent sportsbook launches, including Ohio and Massachusetts. In addition, as highlighted on slides 17 and 18, we're continuing to generate impressive results from the Scorebet and iCasino in Ontario, where we're live with our fully-owned best-in-class tech stack, which has helped generate record gross revenues from sports betting in March and six-month retention rates that are 118% higher than the U.S., On the iCasino side in Ontario, we had our ninth consecutive record month for GGR through March and 26% higher online sports betting to iCasino cross-sell than in the U.S., which we attribute in large part to our in-house promotional engine. Our success in Ontario provides us with a blueprint for improved performance for the Barstool Sportsbook and Casino after we complete our migration to this platform in July. Having full control of our product roadmap in the U.S. will enable us to connect with our customers on a more personalized level and quickly add new features and betting markets to the Barstool Sportsbook while also enhancing our iCasino product with new content and bonus mechanics. In addition, with an improved customer experience post-migration, we will be well-positioned to drive stronger loyalty and retention while offering seamless cross-play in our omnichannel ecosystem. As I mentioned at the outset of our call, Our integration efforts with Barstool Sports thus far have been going very smoothly, and we've enjoyed exploring new opportunities for growth across numerous verticals. On the media side, Barstool demonstrated strong audience and viewership growth in the first quarter, achieving record cross-platform views, up more than 40% from the prior year, and growing more than 60% in both YouTube subscribers and TikTok followers. During the quarter, Barstool Golf's new partnership with the PGA Tour also led to co-branded merchandise at the players and waste management tournaments. Meanwhile, the Scores mobile business is also delivering strong results in both revenue and engagement metrics, with total user sessions up 22% year-over-year. The Scores award-winning digital media app is providing its highly engaged audience with up-to-date scores, news, community chat features, and betting lines. proving to be a perfect second screen for watching live sports and another strong acquisition funnel for our retail and digital offerings. And with that, I'll now turn it over to Felicia.
spk06: Thanks, Jay. We reported another solid quarter. Our retail properties generated adjusted EBITDA of $511.2 million and an adjusted EBITDA margin of 35.5%. The combination of a stronger mix of revenues from our high-tax geographic segments combined with the settlement of certain property litigation matters created a headwind of roughly 100 basis points to the first quarter 23 adjusted retail EBITDA margin. Our interactive segment EBITDA results of a loss of 5.7 million reflect our January 1st sports betting launch in Ohio, our March 10th launch in Massachusetts, and low holds in January and February. Roughly half of the loss was due to low holds and half was attributable to Barstool Sports due to seasonality and the sports calendar. With the acquisition of 100% of Barstool Sports on February 17th, we now record 100% of Barstool Sports revenue and EBITDA in our interactive segment. As we show on slide seven of our slide deck, our total first quarter 23 revenues include 28.2 million from Barstool Sports post-acquisition. As a reminder, previously, with our 36% interest in Barstool Sports, we did not record any Barstool revenues on our P&L and only recorded our portion of Barstool's net income or loss, including adjustments to our interactive segment, Adjusted EBITDA, one quarter in arrears. I'd like to take a moment to talk about the cadence of Barstool Sports revenues as their business, media, is obviously different from gaming. The first quarter is Barstool's weakest quarter given that ad sales start the year soft, and the third and fourth quarters are the strongest quarters due to the ramp of ad sales as well as the sports calendar. So as you think about modeling Barstool, I would keep this cadence in mind. Now regarding overall company guidance, our new revenue range is $6.37 billion to $6.81 billion up from the prior $6.15 billion to $6.58 billion and assumes revenues of roughly $220 to $230 million from Barstool for the year from the time of the 100% acquisition on February 17th. On a full year standalone basis, we expect Barstool could generate 2023 revenues of approximately $250 million. Regarding EBITDA, our 2023 guidance of $1.875 billion to $2 billion is unchanged given first quarter performance and our expectation for Barstool Sports EBITDA to be break-even for the year. Our land-based casino outlook continues to take into consideration new competition in Nebraska, Kentucky, and Lake Charles and ongoing competition in Chicagoland. and also continues to imply a retail EBITDA margin of approximately 36% given the competition, gaming tax mix, and the economy. For our interactive segment, we expect the fourth quarter to be profitable, while the second and third quarters should look very similar to each other. Given the light sports calendar, build up to our migration in the second quarter, and our third quarter ramp into football season on our new technology, The losses in the second and third quarter should be greater than the losses we reported in our interactive segment for the first quarter, with the fourth quarter more than offsetting the year-to-date cumulative losses from the first through third quarters. Now onto the numbers. Corporate expense in the first quarter, inclusive of cash-settled stock-based awards, was $26.3 million. Cash payments to our REIT landlords was $233.2 million. Cash taxes were $1.1 million, and cash interest on traditional debt was $46.4 million. Total capex was $63.2 million, of which $9.2 million was project capex, mostly associated with our four new development projects. Our fully diluted weighted average common shares outstanding as of March 31, 2023, was $169.5 million, which reflects 2.4 million shares issued for the purchase of Barstool Sports. There are a few additional items on our P&L that I'd like to call out, the details of which you will find in our 10Q filed later today. For the quarter, we reported a gain on the Barstool Sports acquisition of $83.4 million, reflecting an adjustment to fair market value. We also reported a gain on REIT transactions of $500.8 million, which reflects a net benefit to our balance sheet following the amended and restated Penn Master Lease and the subsequent lease reclassifications associated with our four new growth projects. You likely noticed the impact of the amended and restated Penn Master Lease on our income statement. The majority of the year-over-year increase in G&A All of the year-over-year decrease in DNA and the majority of the decline in interest expense are all due to the lease reclassification. Importantly, none of these changes affect our cash rent payments to GLPI or VG. To further help you with your modeling for 2023, we expect 23 corporate expense of roughly $105 million, inclusive of our cash-settled stock-based awards. Total CapEx for 2023 and all of its components is in line with our prior guidance of $388 million net of insurance proceeds. For cash interest expense, we forecast $133 million for the full year 2023 after roughly $30 million of interest income. Cash taxes will be roughly $155 million for full year 2023 and our weighted average fully diluted common share count for 23, assuming no further share repurchases, is projected to be 169.1 million. We repurchased 1.6 million shares in the first quarter for $50 million at an average price of $30.36 per share, Subsequent to quarter end, we repurchased an incremental 647,000 shares for $19 million or $29.21 per share. We have $80 million remaining under our February 22 authorization and $750 million remaining under our December 22 authorization. In the first quarter, we ended the year with $2.3 billion in liquidity, inclusive of $1.3 billion in cash and cash equivalents Traditional net debt at the end of the quarter was $1.4 billion, an increase of roughly $300 million from December 31st, 2022, due to a lower cash balance reflecting a net cash payment of approximately $315 million for the acquisition of Barstool and recent activity under our share repurchase program. We ended the quarter with lease-adjusted net leverage of 4.6 times compared to 4.4 times on December 31st, 2022, 85% of our debt is fixed rate if you include our leases, and our nearest debt maturity is in 2026. We expect our lease adjusted net leverage to end the year at roughly 4.5 times. And with that, I'll turn it back to Jay.
spk12: Thanks, Alicia. In closing, I want to call special attention to our 2022 Corporate Social Responsibility Report, which was published on April 25th and is available for download on our website. I'm really proud of how much our ESG initiatives have grown over the last two years since we issued our first report. I want to thank the members of our ESG and diversity committees, as well as our board's nominating and governance committee, which helps to oversee and guide our efforts, and all of our property and interactive leadership teams across the country for their continued support of our ESG journey. Slide 22, excuse me, details some of our most recent activities, including holding numerous events to drive open and meaningful conversation around DE&I. providing disaster relief to those affected by tornadoes in Mississippi, and Barstool's efforts to help raise awareness for mental health issues on college campuses. So before I turn it over to the operator, I just wanted to extend a giant thank you to all of our retail, casino, interactive, and media team members for continuing to give us 110% every day and provide best-in-class service and experiences to our customers, guests, and fans across North America. And with that, Frank, I'll turn it back over to you to open it up for questions.
spk03: Thank you. If you would like to register a question, please press the one followed by the four 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 also ask that you ask one question and one follow-up only. One moment, please, for the first question. Our first question comes from Barry Jonas with Truist Securities. Please proceed.
spk11: Hey, guys. Last quarter, you noted the midpoint of EBITDA guidance could be conservative, potential upside of earlier trends held. Do you still feel that way? And should Interactive still total to about positive $25 million for the year? Thanks.
spk12: Hey, Barry. Good morning. I would say no change to how we felt when we had our call in February. It's still very early in the year. So it really depends on the macro and your guess and speculation around what's going to be the environment three months or six months from now is probably better than mine or as good as any. So I think it's too early in the year to consider doing something like that. just highlight what we said earlier during the prepared remarks in terms of our core retail casino businesses and momentum. We had our strongest slot volume weekend of the year, the last weekend of April after a relatively slow start around Easter. So it's hard to pay. We talk about it a lot internally and you go through these pockets of two or three weeks where trends start to soften up and then they come back strong. And we're still kind of going through that real time. So as of right now, we're feeling really good about the volumes and customer trends and behavior. But I would say too early in the year. And yes, is the answer to your question on interactive.
spk03: Our next question comes from Joe Gref with JP Morgan. Please proceed.
spk13: Hey, good morning. It's Omer Sandaran for Joe. You mentioned in the past that you're likely to reinvest more or increase your marketing and get more active in promos in your digital business through 2024 as your competitors likely ratchet down those activities. And this is the reason why the arc of ramp and profitability may look different for Penn than your OSB and iGaming peers. And the hockey stick-shaped profit growth will be more in 2025 and beyond. Can you please talk about how you're presently thinking about this and what directionally this might look like in 24 and 25 relative to 2023 digital profitability?
spk12: Hey, Omer. Great question. And I would say that your summary is consistent with how we're thinking about things. It's a little too early to get into a detailed discussion around what that stick is going to look like in 24 versus 25. I would say that we're very encouraged by the product based on our trends in Ontario. We shared a lot of stats around retention and the success of our promotional engine, the momentum we have in not just online sports betting, but importantly, we continue to set new records every month in online casino in Ontario. So we're feeling really good about what bringing that product to the US and that technology stack is going to allow us to do much better than we do today here in the US. You have to recall that we really had kind of a frozen product for the last six to nine months, and it'll continue to be frozen until we migrate in July. Everything's on track for that migration. Benji Levy and our team at the SCORE and Penn Interactive have been doing a great job getting ready for July. Everything's on track. And I would say more to come in terms of how we're thinking about what football season this year and then going into 2024, what that looks like. But I think you're right about we have a great product. We're going to invest in that product and make sure that people know we've got a brand new product that we believe is going to be as good, if not better, than most everything out there. And you can't just launch a product without supporting it from a marketing standpoint. So we will do that. And I think 2025, obviously, will be really important for a year and when you'll start to see the EBITDA growth really start to make a difference. as we report numbers on a quarterly and annual basis.
spk13: Great, thanks. And then a follow-up to that, how do you think about the profitability in Barstool Sports in 2024? What drives the improved profitability versus the top-line growth? How will profitability sort of be different going forward? In short, what's the bull case versus the base case?
spk12: Yeah, sure. And Erica, feel free to jump in. I'll just make a couple of comments on that. We provided this morning revenue cadence throughout the year of how things will likely play out from a quarter-to-quarter basis here in 2023. You should assume that from a seasonal perspective or seasonality perspective, that would look the same in 2024. And, you know, we're assuming roughly break-even here in 2023. We have and will continue to make investments in top talent as well as new potential business verticals for us, of which we're exploring a number of with Barstool Sports now. So I don't want to get into a 2024 discussion around Barstool Sports and guidance. We'll do that at the right time more toward the end of the year. As we sit here today, I think you should continue to see revenue growth because we've been showing strong revenue growth every year. As a reminder, Barstool Sports revenues have more than doubled since we made our initial investment three years ago, and 2023 is going to show nice growth on 2022. We'd expect to see that in 2024 as well. But with regard to 2024 and some of the things that we're working on and are excited about, Erica, I'll hand it over to you to make a few comments.
spk01: Sure. So, you know, when I look at this quarter in particular, we had record growth. So we did 19 billion cross-platform video views. Nearly six of those were original content. When you think about the future, our vision is to monetize those impressions fully. We're beating our peers in terms of our year-over-year revenue growth, and our audience continues to grow, and we continue to grow on multiple platforms. So being sure that we maximize that with a diverse revenue set will continue to be our priority, and then we'll obviously get more efficient about how and where we do it.
spk03: Our next question comes from Carlos Santorelli with Deutsche Bank. Please proceed.
spk10: Hey, thanks. Good morning, everyone. Jay, Felicia, when you guys think about kind of the segments in the first quarter where you saw revenue growth, namely kind of the northeast and the midwest, and you look at the flow through, and obviously with the Pennsylvania growth that you guys saw and the tax rate there, it's understandable. But you're also in both segments lapping periods where clearly more employment came back on, more amenities came back on, et cetera, and staffing levels were higher. When do we start to see, over the course of this year, flow through start to normalize to what you guys have experienced in the past in those regions?
spk12: I'll let Todd answer that one, Carlo. It's a great question.
spk02: Hey, Carlo. I think you're kind of seeing it now. And I think what had been happening with some of the expense creep, you know, there was some inflationary pressure in there. But I think what we're seeing is that starting to moderate more kind of muted growth in there. And then as we've added the amenities back, we've been more strategic than we were. And, you know, you still look at 2019 and what we were flowing through then. compared to what we're flowing through now and we're still showing tremendous improvement. As we start looking at our models, our playbook, we're more strategic in our offerings. We're trying to avoid the entitlement programs that were there in the past and the offerings that were there in the past that really didn't add a tremendous amount of value. So I think what we're seeing, especially February, March timeframe, starting to see what will be normalized as we go forward. There's still obviously going to be seasonality in some of the different regions, but that growth coming from the lower segments compared to 2019 and finally starting to see the older demographics come back, it's feeling more like we can start looking to traditional trends in this area.
spk12: And I would just add one thing to Todd's comments, which we hit a little bit in the prepared remarks and the earnings release, that And you've noted this, Carlo, most have, that there is some new supply that entered the market over the course of the last, call it, you know, six to 12 months between Blackhawk, Council Bluffs, obviously Lake Charles with the horseshoe opening there. And we've been pleasantly surprised. You know, we had estimates kind of, you know, worst case, base case, best case in terms of what the impact would be. And I would say that we've held up better in most all of those markets with new supply. Todd and our team of regional executives and general managers in those markets have done a great job really focusing on the customers that are of highest value and that we have very strong long-term relationships with. So that continues to be a good story, and you can see that on the revenue growth in terms of being ahead of where I think a lot of us estimated we would come in in Q1, maybe a little bit less so for this quarter on the earnings for all the reasons that we've covered. and making some additional reinvestment at the VIP and strong core player level in some of those key markets. But I agree with everything Todd said, and you're starting to see things settle out here. And this is probably, I would say, maybe April of this year should be the last time that we're really talking about noise on a year-over-year basis. I think for the first four or five months of this year, you probably still want to compare to 2019 to see what the trends really look and feel like because last year, Jan, Feb, you had softness between weather and Omicron hangover, and then you had pent-up demand in March, April, and so those year-over-year comps look a little odd, but I think April is a good example of you'll want to look at it versus 19 also. Once we get to May, certainly June, I think you can just start looking finally year-over-year and going forward, that'll be the case.
spk10: Great. Thanks, Todd, and thank you, Jay. Jay, one more follow-up, and you kind of gave a little bit of a prelude to the question I'm about to ask, but I think if you just look at the four regions year-over-year, EBITDA is down about 3%. Obviously, the mix of revenue and the tax impact that that has was a factor. But when you isolate the assets that did not see year-over-year competition or said differently – How much of that year over year was stemmed from some of the competitive impacts that you guys mentioned?
spk12: Yeah, I mean, Todd, feel free to jump in here. I guess I would answer it this way, Carlo, that as you look at our portfolio of properties, market by market and asset by asset, we have some that are showing very strong growth on the top line, bottom line, and even margins, despite how strong the margins were last year. And then you've got some offsets and some And some markets where you've got new supply or you've got assets that you know are more tired some of which we're addressing Obviously like the two in Illinois Joliet and Aurora, so it's a bit of a mixed bag but certainly when you look at markets like Ohio and Missouri and you know even it's interesting because even though we are down year over year and I always stress year over year in the south if you look at our results region by region compared to 2019 the South region is still showing the strongest results from a top line and bottom line perspective of all of the regions. So it's down a little bit. There's some noise and pent-up demand and whatever that was in there last year, but we feel good about the trends that we're seeing across most of the portfolio with the exception of some new supply. Todd, feel free to jump in with anything.
spk02: Yeah, the only thing I'd add, Carlo, that South segment, yes, it's down year over year, but It was such an amazing quarter last year, so it's still an amazing quarter this year, just comparatively speaking. It's down slightly. And then maybe a little more color on the new competition. What we're seeing is traditionally when new competition had come into a market, it really came in very aggressive, and they were trying to get people to come over and kick the tires. But I think what we're seeing is a more rational approach, trying to come out of the gate very responsibly, So it's led to a really good competitive environment in all the markets that we're seeing. And Jay and I and others were recently traveling around viewing our own properties, but also some of the competition. It's well thought out. It's well done. And the goal will be that they'll continue to grow the overall market and grow the overall pie, and we'll hold on to our share.
spk03: Our next question comes from Sean Kelly. Would Bank of America please proceed?
spk00: Hi, good morning, everyone. Thanks for taking my questions. Jay, I just wanted to start with the younger demographic. So kind of going back to the slide deck, I think you pointed out there that in the lowest demographic cohort, you know, things actually did slow a little bit, you know, year on year, you know, just kind of how would you characterize that? I think broadly speaking, you know, you're still up a lot from where we were in 19. Is this just a little bit of behavioral normalization? Kind of what are your people on the ground telling you about that change?
spk12: Yeah, I think, Sean, another good question. I think it's probably more of a last year dynamic than a this year dynamic. We're not hearing or seeing anything from our folks on the ground telling us that things have changed. And the point that you made about what these age demographics look like versus 2019, I think, is really important. And when you're looking at it versus 2019 in Q1, that 21 to 34 year old age segment is still up 76% versus 19. The 35 to 44 year old segment is up 51% versus 19. 45 to 54 is up 38% compared to 19. And 55 to 64 is up 12%. And then you have a decline of 13% at 65 plus. So we feel really good about the mix. And we've been you know, trying to answer because we haven't had a great answer on why is that 65 plus still down and when is it going to normalize and return. And I'm not sure that you get back to flat there on a versus 19 basis just because some of those older segments were your most frequent visitors on buffets and things that we're not offering anymore. So I don't know that we should set the target at getting back to break even versus 19. But I think getting it from 13% down to a single digit number, given that we're starting to see some more sort of pre-pandemic visitation pattern behavior return right now, I think is probably a good goal. And if we can keep these other segments continuing to grow with such strong growth versus 19, but even if we have a small hiccup in this current quarter of down 5% versus last year, growth in all of the other segments obviously more than offset that, and we've been adding so many new amenities that I think appeal to all of the age demographics, but in particular the younger. Todd and Seema have done a great job figuring that out, and we've seen a ton of success as we've shared every quarter for the last couple of years.
spk02: Sean, just a couple other adds, and sorry to throw more percentages at you, but Even that younger demographic, much of the growth from 2019 is coming from, you know, the value on a per-trip basis. So, you know, that alone is up over 51% for that 21 to 44 segment. And then even on the 55 plus, it's maybe fewer trips, but we are seeing them play at a higher level when they come in. And then Jay and I and Felicia and others were talking about this last week. A lot of that younger demographic is, comes back in during kind of the spring and summer months when we have outdoor events and outdoor concerts and things like that to kind of drive the overall experience. So we're very comfortable with where we're at now as well as the programming we have for the upcoming months.
spk00: Appreciate all the color. And as my follow-up, maybe turning to Barstool and Eric a little bit, obviously there's a pretty big event as it relates to social media and the Barstool team last night I was just wondering if you could comment on that, maybe for Jay, do you expect any sort of financial impact or fallout from that? And for Erica, more of the cultural question, how do you protect the content and the talent acquisition side as you start to grow into this bigger platform with Penn, with obviously a different set of cultural guardrails than maybe you had in the past?
spk12: Yeah, I'll hit that first, and then Erica can jump in on the second part of your question, Sean. We're obviously not commenting on personnel issues on the call or publicly. It was something that happened inside the company that we dealt with. We felt like we dealt with it appropriately. And I would also say that you've been following us and the relationship, and I think the public markets and financial community has gotten to know Barstool pretty well over the last three-plus years. There's going to be some drama sometimes. There's going to be some things that pop up here and there, and we'll manage through those, as we always have. It's one of the strongest sports media brands, certainly in the U.S., if not the world. It's high growth. We've got tremendous people at Barstool, tremendous IP, great leadership, and have a very exciting future ahead of us. But Erica, feel free to jump in on any of the cultural questions or anything else that you want to address.
spk01: Sure. You know, the way we think about things, we have about 100 personalities here. And when you think about Barstool Sports, you know, in some ways we're a media company and in other ways we're a collection of influencers. And when you look at our business overall, there's very, very few competitors left. Most people who play in the digital media space or the cable media space or the print media space don't exist or are faltering. And when you look at the success of our business, A lot of that is due to the fact of how we run our creative team and the freedom we give them, the tools we give them, the entrepreneurial spirit that exists inside of Barstool. We also are a company that talks about anything and everything incessantly, right? This is a company that's authentic. It's a company that's unapologetic. It's a company that exists on the Internet 24-7. And that's part of what makes Barstool Sports interesting is that we are not particularly corporate in how we think about the culture of our content. Now, there are certain lines you don't cross. There's guardrails that exist. Those have obviously increased now that we're in a highly regulated category. And we knew that going into the Penn acquisition. We knew it prior to that going into the Penn investment. And what we really believe is that There is no place like Barstool Sports to make content. There's no platform that will give a talent or a creator a laptop, a microphone, and a camera, and to enable them to broadcast opinions, creative thoughts, franchises, all sorts of content, and to be able to have the promotion of Barstool Sports as well as the monetization engine underneath it. And we feel really strongly about that. That's how we've built the top podcast brands in the world. That's how we've built some of the most captivating creators and influencers in this country. And we will continue to do that.
spk03: Our next question comes from Chad Bunyan with Macquarie. Please proceed.
spk07: Morning. Thanks for taking my question. Just in terms of the iGaming conversation, earlier in the year it sounded like there was a lot of momentum in six or seven states, good just kind of legislative support. All at this point, I believe, have died. Jay, curious how you're thinking about what the industry learned and kind of where the conversation is, maybe the setup for next year, which would obviously be a big catalyst for Interactive and for the industry. Thanks.
spk12: Yeah, Chad, I would say that it's obviously well-covered, well-documented that it looks like there's probably no movement here in 2023. There absolutely could be in 2024. It's really hard to handicap because it does depend on a number of factors, probably well-known but not worth getting into on a year-to-year basis. I think the way we think about this is that it's only a matter of time. And the states that have already legalized online sports betting, that is online gambling. And so online casino is very likely to come. It's a question of what does that cadence look like? Is it staggered? I think once you get a state or two in the Midwest, it usually becomes an arms race for tax revenue purposes. And so it'll probably start to move faster once you get Indiana, Illinois, or Iowa. It'll probably start to move from there. So nothing imminent. I'm not going to try to bring out a crystal ball and say exactly what that might look like in 24 or 25. I would say that from our perspective, given the timing of our technology and product migration this summer, this is actually setting up quite well for us because we have an inferior product today, and we don't believe that's going to be the case the second half of this year. And as we head into 24, we're going to be in a position to be able to launch standalone online casino apps And today it's all mixed in with what we do on the online sports betting side. And so we've got a lot in front of us that's exciting. And so the timing of legalization being maybe pushed off to 24-25 and start to really roll from there, we think that sets up very well for Penn.
spk07: Thanks, Jay. And then, Erica, you mentioned just the changes with Barstool now being part of a bigger and more regulated industry, bigger company, more regulated industry. Just in terms of what that could bring on the positive, more access to capital, how are you thinking about inorganic opportunities with recent valuation adjustments for high-growth companies? Are there things that maybe you decided not to do in the past couple years just because of, you know, where your North Star was and kind of how you were running the company? And now that it's part of a bigger company with different goals, maybe there could be other pieces of the media ecosystem that could make sense. Thanks.
spk01: Yeah, absolutely. It's a great question. It's something I spend a lot of time thinking about. If you look at the last six to nine months, we are putting on major scale live sporting events with our own comedy, with our own personality, with our own commentators on those broadcasts. We are entirely doing that because It's something that Penn has made possible for us. That's not something we would have been able to do prior to the investment or prior to the acquisition. And I really look at Barstool Sports as a company that can create and do most anything. And Penn provides guns, money, and steel for us to be able to do that. So whether that's hiring new personalities or extending into new demographics, new categories, new topics, or taking on more traditional sports in terms of broadcasting events, hosting events, you name it. So we look at a lot of that, and the acquisition, exactly to your point, has made much of that possible, whereas that was not something in the last six years, seven years, that we would have been able to afford nor been able to execute.
spk03: Our next question comes from Ryan Sindahl with Craig Hallam Capital. Please proceed.
spk09: Good morning. I want to start or stay on Barstool. I don't think you've commented, but curious what your thoughts were on the start in Massachusetts, 6% GGR share there in the first partial month, but obviously Barstool's home state.
spk12: Yeah, happy to, Ryan. Look, it's interesting because as you saw in Ohio and then again in Massachusetts, every state provides a little bit different level of granularity in what they report. There's been, I would say, the launches at these states have been more promotional than they were initially in many cases. And so, you know, we have made the decision that we're not going to get into that initial launch arms race of promotional spend and have negative NGR for the first three or four months. So we took a similar approach in Massachusetts. I would expect that as things settle out, you'll see that percentage of market share continue to grow. I also think that you just have to keep in mind, and this has been very strategic on our part, and you have to have patience when thinking about it, but we have not been aggressive because our product really is substandard today, and we know that. You have to think about that as you're launching and how much money do you want to spend to get people on, and you may lose some with a bad first impression. We have to think through all of that. I think we've been very thoughtful and judicious in our approach for these state launches. We're able to generate positive NGR after the first month and profitability really by month three in almost every case. So that's been the approach. I think you'll see us transition when we have a product that we believe stands up well to the competition that will be more aggressive in getting some marketing dollars dedicated toward getting new people into the ecosystem, downloading the app, registering and depositing and engaging with us because we feel like our retention results will be significantly higher based on the new capabilities and the new promotional engine and how we'll think about the business. So I think the setup for us is actually, it's again, sort of like the iCasino question, but the setup for us on OSB is I think a good one in that there clearly is a focus amongst the top five or six players of which we're one of, there's a clear focus on getting to profitability quickly, which means that most of the top tier are going to have to pull back significantly on their marketing and promotional expense. That's the path to getting to profitability quickly. And we're in a position with a much improved product and an ability to support some additional spend to get people onto the platform and engage with us. I think that's a good setup for us as we get to the end of the year and certainly into 2024.
spk02: Yeah, Ryan, the only thing I would add, this is Todd, is if you look at slide 15, that's also a big part of the story for us. And looking at that growth in Massachusetts of over 14% from our traditional core product is pretty impressive, and a lot of that is new to our brand and new to the property, and it's very much driven by the new sportsbook offerings.
spk09: Then just a quick clarification for my follow-up. 2.4 million shares issued to Barstool within the diluted share account. I guess, is that stock options, or was that part of the purchase price of the company? And if it's the latter, was that the company's decision, or was that the Barstool owner's decision to take part stock, part cash? Thanks.
spk06: Yeah, so, Ryan, if you, you know, go back, and we've kind of put this out in our financial document, our Ks and our Qs over time, you know, when we had the the put-call options, there was also an option on the part of Penn to, you know, in terms of the mix of cash and stock.
spk12: So it mirrored the initial award, Ryan. Remember the ownership group structure, the churn-in group was the majority owner and that was all cash, and then for those who were owners from Barstool, founder Dave Portnoy, Erica, Dan, and a number of others who had equity in Barstool, they received 55% consideration was Penn stock and 45% consideration was cash. And so when we moved from 36% owners to 100%, the consideration was the same breakdown.
spk03: Our next question comes from Bernie McTernan with Needham & Company. Please proceed.
spk05: Good morning. Thanks for taking the questions. Maybe to start, Jay, you've talked a lot about just retention capabilities that will be coming that you don't have access to now once you have your own tech stack in the U.S. Can you just talk about some of those, whether it's like the ability to segment customers, if it's certain product capabilities, basically just trying to get at what's driving the better retention in Ontario versus the U.S. currently?
spk02: Hey, Bernie, this is Todd. I'm happy to share some of that. So basically we'll everything you just said is what we're focused on and what we're seeing in Ontario, not only three months, but going up to six months, it's the ability to kind of personalize and tailor the messaging and the reinvestment levels will be a tremendous help to us where we don't have an easy way to do that now. It's much more of a manual process, so it'll bring more automation to the process, allow us to be much more nimble, and really allow us to do a lot better promotions, but You know, traditionally that reinvestment that you would see with a gaming customer, we're excited to have that capability post-migration.
spk12: I mean, to Todd's point, think about what we've been able to do to date on third-party platforms is really more shotgun-style marketing, not personalized really at all. So we do a promotion. It's kind of a promotion for all. That's not an effective approach from a CRM perspective. You're under-reinvesting in some customers, over-reinvesting in some, and so we'll be able to tailor the reinvestment and the promotions based on what we know about the user. A lot of our competition, they're there, on their way there, and we're doing it in Ontario, and we're looking forward to being able to bring that level of personalization in our marketing efforts and a new promotional engine here to the U.S. here soon.
spk05: Great. And then just to follow up for Barstool, Erica, would you possibly get a breakdown of Barstool revenue, just advertising versus e-commerce? I know we got the mix pre-pandemic, but I'm sure it's been shifting since then.
spk12: Hey, I would just add, Erica, I don't think we're ready to provide that level of detail yet. I think, Bernie, we might do that down the road, but I think it's too early and we're trying to keep you know, the results within the interactive at a pretty high level. So I would say more to come. As you would imagine, advertising is the biggest driver, but we're not going to get into exact breakdowns on the revenue mix today.
spk05: Fair enough. Thank you all.
spk12: Thanks, Bernie.
spk03: Our last question comes from John Decree with CBRE.
spk04: Please proceed. Hi. Good morning, everyone. Thank you for taking my question. maybe just one to, uh, to round it out, um, on brand strategy. You know, it's, it's pretty early still, but, um, you know, are there other thoughts or plans, you know, especially in light of the new loyalty program to, you know, integrate some of your brands or would the idea be to kind of continue to, to run a multi-brand strategy? And I guess the question may be specifically for the media properties, Barstool and the score, if there's some ideas and, and kind of cross-pollinating, but, you know, also more broadly across Hollywood or any of the other retail brands.
spk12: Yeah, Todd, I'll let you jump on that one from a Penn Play launch perspective and how we're thinking about sort of enhanced features and how we're thinking about, you know, the Penn Entertainment brand umbrella and everything that fits underneath it. Thanks, Jay.
spk02: And, John, really the Penn Play, moving from my choice to Penn Play is, was a huge step for us as we worked to try to create that brand loyalty and allow people to kind of play across the different channels we have. So when you start thinking about what we've been able to add and it's really listening to what the consumers want and making sure that we can integrate technology where appropriate as well as make it very seamless for them. So kind of a host for all approach where we have different options that we can create through technology, a more seamless experience where people can start engaging with us long before they come to a property or start engaging in wagering or gaming activity, improvements in our app, improvements in our cashless technology, sharing information, being transparent with our reward statements, offering greater flexibility with unified currency, the Penn Cash option, and then eventually having one wallet to play across, not only online, but taking that into one of our properties. And then really that increased awareness that we have. And I think you can look to a lot of the hotel companies that are out there that may have multiple brands in their portfolio, but they're all tied to the major flag, whether that's a Hilton, a Hyatt, a Marriott. So we'll continue to have different brands because they really have a lot of value in the specific markets that we're in, but we'll make sure that people understand that it's part of the broader Penn family.
spk04: Great. The hotel analogy is perfect. Thank you. Thanks.
spk12: Thanks, John, and thank you all for dialing in this morning, and we look forward to speaking with you again next quarter. Have a good one.
spk03: 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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