PENN Entertainment, Inc.

Greetings and welcome to the Penn Entertainment third 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 Giaffone, Investor Relations. Please go ahead.

Thanks, Frank. Good morning, and thank you for joining Penn Entertainment's 2023 third quarter conference call. We'll get to management's presentation 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. Please note that today's discussion contains forward-looking statements. Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please see our press release for details on specific risk factors. It's now my pleasure to turn the call over to your host, Penn Entertainment CEO, Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone. I have with me here in Wyoming our CFO, Felicia Hendricks, and our head of operations, Todd George, as well as other members of my executive team who can help answer your questions during the question and answer at the end. And it was a pleasure to host many of you at our recent investor event at the M Resort in Las Vegas during G2E. For those unable to attend, Mike Morrison, Head of Sports Betting and Fantasy Sports at ESPN, and I spoke about our highly synergistic strategic alliance and the deep integration of ESPN Bet across the ESPN ecosystem. I couldn't be more pleased with the way our product and design, engineering, marketing, and operations teams at ESPN and Penn have seamlessly and tirelessly worked together to prepare us for this launch coming up on November 14th, pending final approvals. Yesterday, we released a teaser on the ESPN bet landing page featuring SportsCenter anchor Scott Van Pelt. If you haven't seen it yet, there's a link to the video on page 10 in our investor presentation. And early last night, ESPN began exclusively using odds provided by ESPN bet for all editorial and other content. It's all very exciting, but more on that subject in a bit. First, I will cover our results for the quarter. As provided in our earnings release, Penn generated third quarter revenues of $1.62 billion and adjusted EBITDA of $445.1 million and adjusted EBITDA margins of $27.5. Our property level performance was stable during the quarter, reflecting solid customer behavior, particularly from our rated traditional core customer. We also saw the continued return of our 65 plus demographic and moderate growth in our spend per visit trends. All of this helped to offset softness in our unrated business in the South region, a couple major road construction projects, and increased supply in several markets, which we've covered. Overall, I'm pleased with the strength and resilience of our properties, particularly our casinos in Ohio, Kansas, Massachusetts, and Missouri. The broader stability of our operations and performance this quarter highlights the benefits of our geographically diversified portfolio, as well as new and sustained customer engagement driven by the growth of our database and ongoing investment in our properties, including our leading retail sports betting offerings in key markets. As we look ahead to the fourth quarter, we anticipate more of the same in terms of stability across most markets, offset by new supply pressures on the unrated and low end of our database, in addition to the one-time impact of ongoing union negotiations at Greektown in Detroit and road construction disruptions in Charlestown, which started in September but will thankfully conclude in December of this year, and in Black Hawk, Colorado. As it relates to overall company guidance, we anticipate ending the year within 1% of our full-year retail EBITDA guidance. For the interactive segment, we estimate an EBITDA loss of approximately 100 to 150 million for the fourth quarter as we launch ESPN BET in the next couple of weeks. Over the next two months, we look forward to breaking ground on all four of our retail growth projects. As highlighted on slide 14, our Hollywood Aurora and Hollywood Joliet projects provide us the opportunity to replace our existing dated riverboat properties, which have experienced revenue declines over the last several years due to new competition that we would expect to continue absent these relocations. The relocations also allow us to avoid significant capital investments on maintaining the existing riverboats by building new destination quality facilities with enhanced amenities and significantly higher traffic counts from direct access to major interstates, as well as proximity to large third-party retail and entertainment offerings. As a reminder, the city of Aurora, who has been a great economic development partner throughout this process with Penn, will be providing $50 million in funding for the project there, and GLPI has committed up to $575 million. And then you have the hotel projects at two of our highest performing properties, Hollywood Columbus and the M Resort in Las Vegas. In Columbus, we're building a 200-room hotel that's fully connected to our casino. We think this will be a key economic driver in the ongoing resurgence of Columbus's West side, and it will create a true destiny regional destination. At the end will be nearly doubling the size of our hotel by building another tower with three hundred and eighty additional rooms, which will allow us to accommodate the demand for larger group business. When considering the expected continuing revenue declines at Aurora and Joliet over the next few years, we expect these four growth projects to deliver a 15 plus percent cash on cash return on the aggregate project cost of 800 million, which is net of the 50 million contribution from the city of Aurora. These projects will also contribute to our strong free cash flow generation upon opening in late 2025 and early 2026. Turning again to the interactive segment, as I mentioned at the outset, our plan is to go live with ESPN Bet on November 14th, subject again to final approvals, which will occur simultaneously in the 17 states in which we operate sports betting. This allows us to take advantage of a very active Thanksgiving week sports calendar, which includes the NCAA College Football Rivalry Week and the Super Bowl rematch of the Kansas City Chiefs and the Philadelphia Eagles, which will be televised on ESPN's Monday Night Football. In connection with the launch, ESPN will be implementing an initial wave of exclusive integrations across the ESPN ecosystem, which includes 200 million unique monthly users in the U.S., more than 12 million of whom are regular users of the nation's number one fantasy sports app at ESPN. Following an initial advertising campaign headlined by SportsCenter anchors Scott Van Pelt and Elle Duncan, you'll begin to see even deeper platform and media integrations with ESPN over the coming months, providing an unmatched and eventually frictionless media and betting experience. Importantly, when we go live, our existing customers in the Barstool Sportsbook will be prompted to download ESPN Bet and all of their account information and wallet will seamlessly transition over to ESPN Bet. ESPN Bet will be powered by our proprietary and proven technology platform, which has been driving impressive performance in Ontario for over a year now under the Scorebet brand. In fact, October represents a record month for us in GGR and NGR in both online sports betting and iCasino. As you can see on slides 12 and 13, we've had great success in terms of media integration, retention, and cross-sell results, leading to double-digit market share in a highly competitive market Notably, 73% of our total handle in Ontario comes from users already within the ScoreMedia's ecosystem. And in terms of cross-selling, there's over 50% conversion, 5-0, of online sports betting players into iCasino. Besides SkyBet in the U.K., we think Ontario with the ScoreBet provides one of the best blueprints for success in the U.S. with ESPNBet. And with that, I'll turn it over to Felicia.