PENN Entertainment, Inc.

Please stand by. Your program is about to begin. If you need assistance during your conference, please press R0. Greetings, and welcome to the Penn Entertainment second quarter 2024 results call. I would now like to turn the conference over to Joe Giaffone, Investor Relations. Please go ahead.

Thanks, Angela. Good morning, everyone, and thank you for joining Penn Entertainment's 2024 second quarter conference call. We'll get to management's presentation and comments momentarily, as well as your questions and answers. During the Q&A session, we ask that everyone please limit themselves to one question and one follow-up. Now, I'll review the Safe Harbor disclosure, and we'll get into the call. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as expects, believes, estimates, projects, intends, plans, seeks, may, will, should, or anticipates, or the negative or other variations of these or similar words, or by discussions of future events, strategies, or risks and uncertainties, including future plans, strategies, performance, developments, acquisitions, capital expenditures, and operating results. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from the expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q. Penn Entertainment assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast will also include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. With that, it's now my pleasure to turn the call over to Penn Entertainment CEO Jay Snowden. Jay, please go ahead.

Thanks, Joe. Good morning, everyone. I'm here in while missing with our CFO, Felicia Hendricks, our head of operations, Todd George. And for the first time, we're joined by Aaron LaBerge, our new chief technology officer. Welcome, Aaron. Thank you, Jay. Aaron officially joined Penn on July 1st. And as we've shared, he's responsible for driving our technology strategy and execution, as well as serving as the key business leader for our interactive division. As most of you know, Aaron comes to us from Disney, where he had a terrific over 20-year career. In addition to his many accomplishments and accolades throughout his time there, Aaron was deeply involved in ESPN's technology due diligence on Penn Interactive. While he's only been on the ground at Penn for a few weeks, I thought it'd be good to open the call today with some of his early thoughts and key takeaways.

Aaron. Thanks. It's really great to be here with everyone, and I'm really excited to have officially joined the Penn family. During my first couple of weeks, I've had the opportunity to do a deep dive with our interactive teams in Toronto and Philadelphia. focusing on our product roadmap and growth strategies. I continue to be so impressed with this team, their world-class capabilities, and the robust and scalable technology stack they've built. We're currently live in 19 jurisdictions across North America, with New York going live in late August, pending regulatory approval. We currently have a user database of nearly 4 million unique digital bettors that was built over the past three and a half years. This strong foundation positions us well for continued growth and innovation. And while we're proud of our rapid expansion, we know we have some ground to make up, particularly in key feature categories such as parlays and player props. This is a consequence of the laser focus that we placed on our platform migration, rebranding, and new state launches. However, I see this as an exciting opportunity to roll up my sleeves with our engineering and product teams to create a best-in-class experience for our customers. As we will touch on later, we recently introduced some significant product improvements with several more in the pipeline for the coming months, and I am confident that we'll continue to close the gap with our competitors. Our goal here is simple. We want to create the best product for sports fans by elevating how they find, place, and track their bets, both within ESPN Bet and across the entire ESPN ecosystem. By delivering here, we'll drive our monetization through enhanced engagement, retention, and reactivation. ESPN and Penn share a common vision. We want to make ESPN Bet America's sportsbook. Sports betting is a key pillar of ESPN's future growth because sports betting content and connectivity drive user engagement. Collectively, we have a truly unique opportunity to create a frictionless ecosystem for fans, to enjoy the sports they love and engage in sports betting. We are both deeply committed to making ESPN Bet a top name with sports betting over the coming years. We don't just want to compete here. We want to win. And with that, I'll turn it back over to Jay.

Thanks, Aaron. We are planning to host a meeting with investors during G2E at our M Resort property in Las Vegas on October 7th. So you can see firsthand the construction activity for the new hotel tower and property expansion there. and of course get a chance to meet Aaron in person and hear a company update from him and the rest of our executive management team. With that, let me turn back to the results for the quarter. As you'll see on slide five in our investor presentation, our retail business delivered solid quarterly results as our industry-leading operators continue to execute across our portfolio. I'm extremely proud of the results our property teams continue to deliver in the face of ongoing competition and new supply. This quarter we benefited from strong market share growth in several markets, including Ohio, Maryland, and Iowa, coupled with continued momentum at some of our flagship properties, including Hollywood Casino at Greektown and M Resort in Las Vegas. We included a case study on Greektown on slide six to illustrate how our recent hotel room renovations and the introduction of our first ESPN Bet Retail Sportsbook have delivered impressive revenue and market share growth at this downtown Detroit property. You'll recall we successfully opened our first ESPN Bet retail sportsbook for a multi-day NFL activation at Greektown, including live draft coverage at the casino by ESPN personalities. Revenues at the property are up more than 6.5% year-over-year, and we saw a 90 basis point increase in year-over-year market share growth during the quarter. We also included a case study on our Ohio properties on slide 7. illustrating how our ongoing investments there, including refreshed casino floors, expanded high-limit areas, best-in-class sportsbooks, and new food and beverage offerings have resulted in strong year-over-year growth. Our Columbus property continues to be a standout performer, and we're very excited about our ongoing hotel project there and the upcoming rebranding of our sportsbook to ESPNBet. Speaking of retail sportsbooks, on slide eight, we listed the other upcoming brand conversions to ESPNBet across our portfolio, in sports-centric markets. These will help to further our brand connectivity and create meaningful cross-sell opportunities in order to capitalize on the incredible growth we have seen in our database. As you'll see on slide nine, we are also making great progress on our exciting new growth projects, all of which remain on budget and on track to open by the first half of 20SEX. We will provide some additional information about these projects at G2E. In our interactive segment, Top of Funnel Growth, improved risk and trading execution, and refined promotional strategies contributed to record quarterly NGR, which helped narrow our interactive segment losses quarter over quarter, despite a seasonally slower second quarter sports calendar. Our revenues, excluding the tax gross up, were up by more than 65% compared to the first quarter, and we saw a $93 million adjusted EBITDA improvement from our first quarter results. As highlighted on slide 11, ESPNBET continues to drive meaningful growth in both our digital database and our active user base, providing a strong foundation for future growth as we introduce new product improvements. Our PenPlay database now boasts over approximately 31 million members, including 3.8 million in our digital database, which is an increase of more than 80% since the launch of ESPNBET. We also saw a more than 138% year-over-year increase in our monthly active users. Based on sensor tower data, we continue to hold a top three ranking in weekly active users among our top OSB and daily fantasy sport competitors. People are active in our app, and our goal over the next several quarters is to drive higher loyalty and retention and better monetization, better monetize, excuse me, the significant engagement activity through an improved product and expanded offerings. Turning to slide 13, improved risk and trading execution in a higher parlay mix helped contribute to higher hold rates this quarter. Looking at parlays as a percentage of total handle in Illinois, for example, ESPN bet was at 24.2% versus our top competitors at 34.5% and 23.8% respectively, and the rest of the market at 22.2%. As I have said before, ESPN bet is attracting a wider user base. and more casual better who really enjoy betting on parlays. And we will be adding additional parlay offerings and features to our product prior to week one of NFL season this year and over the remainder of 2024 to better engage and serve these customers. We expect to further increase our digital footprint with prospective launches of ESPN bet in New York subject to regulatory approval and with the score bet in Alberta when the market eventually opens. We plan to maintain our disciplined approach to customer acquisition and engagement when we launch in New York. Despite the challenging tax rate, we will benefit greatly from ESPN's extensive linear and digital reach there. Meanwhile, with both online sports betting and iCasino, we expect Alberta to be a very strong market for us given the power of the Scorebet brand in that market and the success we have seen in Ontario. As Aaron referenced, we are continuing to roll out new ESPN bed product enhancements and will be launching the remaining key upgrades prior to the start of college football season and our anticipated New York launch. As highlighted on slide 17, this will include things like dark mode and improved home screen experience and navigation and a much more competitive parlay, same game parlay, and player prop market offering, just to name a few. In parallel with our efforts, our partners at ESPN are expanding our unique ESPNBet media integrations, including those with ESPN's leading fantasy football product, which will feature deep-linked markets and personalized in-app betting offers. ESPN Fantasy Football now boasts over 12 million active users, and before the end of the year, we plan to implement account linking capabilities to provide personalized experiences inside ESPNBet based on a user's ESPN fantasy team, and ESPN favorites. You may have seen that Disney and ESPN recently announced an 11-year media rights extension with the NBA and the WNBA. Under the agreement, ESPN will have increased rights to utilize NBA and WNBA highlights and content within its sports betting coverage and to integrate our ESPN bet promotions. ESPN has also secured the rights to future NBA-focused sports betting specials and series. Very exciting stuff and certainly highlights the tremendous value of our relationship with ESPN. Finally, we are continuing to improve our iCasino product offering by adding exciting new game titles from Penn Game Studios while increasing the breadth of our third-party content and expanding our promotional capabilities. By early 2025, we expect to introduce our first standalone iCasino app, which will allow us to better leverage the strength of the Hollywood brand and robust casino database. I'll now turn it over to Felicia for additional financial details for the quarter, including guidance.

Thanks, Jay. Second quarter retail revenue results of $1.4 billion and adjusted EBITDA of $497 million reflect continued solid performance at our brick-and-mortar casinos. April was the weakest month of the quarter, with improvement through May and June. For our interactive segment, adjusted revenues, excluding our skin tax gross-up, were $150 $151 million, a 65% sequential improvement over the first quarter of 24. Interactive adjusted EBITDA in the quarter was a loss of $103 million, up $93 million quarter over quarter, and higher than the midpoint of our guidance, reflecting top of funnel growth, improved risk and trading execution, and refined promotional strategies. As usual, you will find on page 8 of our earnings release a table that summarizes our cash expenditures in the quarter, including cash payments to our REIT landlords, cash taxes, cash interest, and total CapEx. Of our total $88 million of CapEx in the quarter, $43 million was project CapEx, primarily related to our four development projects. We ended the second quarter of 2024 with total liquidity of $1.9 billion, inclusive of $878 million in cash and cash equivalents. Our liquidity will remain strong through 2024. As you know, we have no debt maturities until 2026, which are our $330 million convertible notes. We continue to expect our lease adjusted net leverage to peak in the third quarter of 2024, which is largely a function of our net leverage calculation, including our trailing 12-month EBITDA, which captures the outside adjusted EBITDA loss we recorded in Interactive in the fourth quarter of 2023 as we were launching ESPN Bet. As a reminder, on February 15th, we received covenant relief under our credit agreement for the four quarters of 2024 and we continue to expect to exit the relief period by the end of this year as we will significantly de-lever starting in the fourth quarter and throughout 2025. By 2026, our interactive segment will generate meaningful adjusted EBITDA, which will augment our strong cash-flowing core retail business, inclusive of the four retail growth projects. I will now provide guidance for our retail and interactive segments. Based on the second quarter results and our outlook for the remainder of the year, our 2024 retail guidance ranges are unchanged from the full-year guidance we provided last quarter. Our guidance continues to factor in stable customer demand, new supply in Nebraska, Illinois, and Louisiana, and road construction in a few markets. For the interactive segment in 2024, our adjusted EBITDA guidance range improves by 15 million to a loss of $510 million to a loss of $460 million from our prior guidance of a loss of $525 million to a loss of $475 million. This revised forecast includes the anticipated impact of higher OSB gaming taxes in Illinois, which went into effect in early July, and severance charges from our recent reduction in force at Penn Interactive. These items offset a portion of our $22 million upside to the midpoint of guidance provided on our first quarter earnings call. Our guidance also assumes the launch of ESPN Bet in New York later this month and reflects our unique position of being able to leverage the reach of the ESPN brand in New York without a heavy promotional lift. As a note, our updated guidance does not assume a future launch in Alberta, Canada. For the third quarter of 2024, we expect to generate interactive adjusted EBITDA in the range of a loss of $135 million to a loss of $115 million. We expect 2024 corporate expense of roughly $105 million, inclusive of our cash-settled stock-based awards. Total CapEx for 2024 will be approximately $500 million. inclusive of $275 million of Project CapEx. For cash interest expense, we forecast approximately $175 million for full year 24 before roughly $15 million of interest income. For cash taxes, we are projecting a small tax refund in 2024, and our basic share count as of the end of the second quarter was 152.1 million shares. And we typically have roughly 15 million of diluted shares, inclusive of the 14 million share dilution from the converts. And with that, I'll turn it back over to Jay.

All right. Thanks, Felicia. I want to take a moment to recognize the incredible work of Justin Carter, our chair of our diversity committee here at Penn, and all of our property leaders and team members across the enterprise. Our annual Penn Diversity Scholarship Fund recently awarded over $1 million in scholarships to the children of our team members. And we look forward to celebrating the graduating class of 44 scholars from the inaugural year of the scholarship program. This quarter, we also kicked off our annual corporate days of listening to gather feedback from team members on all matters of diversity and inclusion. And we were honored to be named by Diversity Magazine as one of the best of the best 2024 top diverse employer. In closing, I want to reiterate that while 2024 is an investment year at Penn, our biggest losses in digital are now behind us. Looking ahead, 2025 will be a year of de-levering the balance sheet as monetization improves with ESPN Bet, and we launch our standalone Hollywood Eye Casino app early in the year. By 2026, we expect all four of our growth projects to be open, and we will begin generating positive cash flow from our interactive unit, as Felicia mentioned. Again, with Aaron's addition to our team, we're confident that we can build a market-leading product that will allow us to realize the power of our portfolio of leading digital brands. In sum, we're all very excited for what the future holds in store for Penn Entertainment and its valued shareholders. And with that, Angela, if we could open up the lines for questions.

At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. We'll take our first question from Carlo Santorelli with Deutsche Bank. Please go ahead.

Hey, everyone. Good morning. Jay, Aaron, whoever wants to take this one, one of your competitors obviously talked about a very good customer acquisition market in the 2Q. You guys seemingly remained promotionally disciplined in the 2Q and obviously outperformed kind of your expectations, guidance, etc., As we move, though, into the, you know, August and start of college football season with a lot of the stuff that you guys are doing and acknowledging that, you know, you just provided 3Q guidance, how are you guys thinking about kind of the customer acquisition push in 3Q and then maybe how that bleeds over into 4Q from the perspective of trying to get more people in the funnel to experience, you know, with the newer product and a lot of the new amenities that have been added?

Yeah, it's a great question, Carlo. Our assumption around customer acquisition obviously is completely built into the guidance for the rest of the year that Felicia provided. And the environment right now is actually quite good. It doesn't mean that we're going to be super aggressive. It means that with the guidance that we provided, we think that we can continue to drive top of funnel, understanding, of course, that the most valuable and most efficient top of funnel we have is our partnership with ESPN. And the deep integrations that we not only have today, but are going to have by the start of football season, a lot of enhancements in the ESPN media app. And then of course, fantasy, which we have a few slides on. So I would say that, you know, with the environment being healthy right now, um, that allows us to continue to focus on top of funnel, mostly through our relationship with ESPN. We'll do some spending around that, but again, that's all built into our guidance for the rest of the year. And remember, We have a digital database of almost 4 million, and a lot of those digital customers only bet on football. So there's a huge reactivation opportunity for us, and we think with the much-improved product that we have and all of the new features that Aaron and I and Todd will talk about, I'm sure, throughout this call, we feel like we have an opportunity to drive better engagement, deeper loyalty and retention, and monetization as we move forward.

Great, thanks. And then just if I could, a follow-up on the brick-and-mortar side. You guys, you know, it seems as though kind of margins have broadly stabilized in this 34% to 35% range. Obviously, you know, summer months do tend to be a little bit more margin-friendly. But as you think about the back half of the year, and then if you could, just provide some color on the back half of the year, and then if you could, Kind of talk about what you think that the brick and mortar net revenue environment needs to look like in 2025 for margins to be flat or perhaps inflect favorably.

Todd, do you want to grab that? Sure. Thanks, Jay. And Carlo, great question. This quarter, obviously, there was a little bit of noise. In the south, we did have some disruption related to some weather impact from primary feeder markets. We also had a little bit of impact from hotel construction at our Lake Charles property. And then in the Northeast, just a little bit of some accounting adjustments, some favorable last year, unfavorable this year, as well as some table game hold percentage. I think when we think about the remainder of the year, the margins that we're carrying right now, we feel comfortable going through the remainder of this year As we look into next year with the improvements we're seeing in technology, a lot of our technology initiatives are offsetting some of the payroll creep we've seen. I think you may see a little bit in Michigan. That was pretty highly publicized. Again, we do a case study on that. We're offsetting a lot of that with the revenue growth. So from a net revenue standpoint, I think we've weathered the storm with a lot of the new competition introductions. And, you know, we're looking at a pretty stable environment, not only for the back half of this year, but going into next year.

Okay, Todd, sorry. And just related to something you said earlier, Obviously, it looks like the OPEX in the northeast segment specifically spiked pretty aggressively in the second quarter, but was very calm in the first quarter. Obviously, looking at last year kind of insinuate that if you smooth it out, things were pretty stable. A lot of that, just as you mentioned, some of the accounting stuff and things of that nature that might have shifted quarter to quarter. And this uplift is not a run rate. Uplift in OPEX, I should say, is not a run rate for the second half of the year. Correct. Thank you.

Our next question comes from Joe Stoff with Susquehanna.

Thank you. Good morning. Jay, I wanted to see if you could maybe comment or share on, say, the retail conversion of the new digital customers that you've experienced since launching ESPNBet. Are these new, unique customers to the whole Penn ecosystem, or are they retail customers essentially reopening, say, an ESPNBet account? And then I'm wondering if you could comment maybe on the Pennsylvania Supreme Court case. It could be somewhat favorable to you Pennsylvania and whether or not, you know, we've seen this pattern certainly in other states, Kentucky, Virginia, and whether or not you think maybe this could also occur in other states in terms of a source of growth going forward.

Joe, do you want to clarify the second part of that question again? I wasn't following that.

Yeah, just the pending case in the Pennsylvania Pennsylvania Supreme Court on skill-based games, determining if they're legal or not, is what I meant to ask.

Okay, got it. We'll take a stab at that. I think the first part of your question with regard to the ESPN bet users and this pickup in our database, the lion's share, 90-plus percent of the ESPN bet pickup are really new to Penn, which is great for us. We detailed in our last quarterly call how many of them live proximate to our properties, which I think lays out a great opportunity for us, and especially as we convert more and more of our retail sportsbooks and rebrand them to ESPN Bet, you have the name and brand recognition, so cross-sell becomes even smoother. So that's all been good news, and we would anticipate going into football season that will continue to be the case. Obviously, we have a huge land-based Database that we can market to for ESPN bed in the states where it's legal, of course, iCasino as well. But we have an opportunity to continue to grow through the integrations that we mentioned earlier and all the cross-sell that we're getting from ESPN. So really good news in terms of incrementality to Penn and the brand and the awareness of that brand of ESPN. The Pennsylvania skill base, it's a very interesting topic. We have been very vocal in our position that those skill-based games are, they sound, look, smell like a slot machine. And there's a lot of concern around that. Obviously, we continue to fight against what has been a rapid expansion of skill-based games in Pennsylvania through the court system. We think that we have a very strong position there. our industry is very much aligned on fighting against the expansion of skill-based games, not just in Pennsylvania, but around the country. So we'll see how things play out in Pennsylvania. But I think that my comments speak for themselves in terms of our position.

Okay, thanks. And just maybe one quick follow-up. Is there any best guess as to when a ruling may come out?

No, we would be... completely guessing on that one. Joe, not really comfortable putting out a date range.

Understood. Thanks a lot.

Our next question comes from Brant Montour with Barclays.

Good morning, everybody. Thanks for taking my question. Maybe first, going back to slide 10, Jay or Felicia, you know, the sequential pickup in adjusted revenue was impressive. I was hoping maybe you could maybe split that out between OSB and iGaming and where you saw those relative growth rates in the quarter.

Yeah, happy to. Most of that growth, because we're talking NGR here, was on the sports betting side. There is growth on the iCasino side as well, but we really didn't have a whole lot of promo spend against iCasino last quarter relative to what it was in Q2. So the biggest delta that you see there in growth in revenue is driven by... more efficient revenue on the growth side, being that it's flowing through to net as our promotional costs from the initial launch continue to come down. And I think us just continuing to get smarter in terms of the promotions that we have out there for new users as well. So really a combination of those two, but more driven by OSB.

Thanks for that, Jay. And then a different question. One of your competitors announced a potential gaming surcharge. to be launched for them in 2025. I know it's not been out there for a long time, and so you probably haven't had a ton of time to mull it over, but could you just provide your initial reaction to that news?

Yeah, we find it to be very interesting. It was unexpected from our perspective, but definitely interesting. I mean, you really, as you think about Penn's view on this, you should expect us to be observers. We have a lot going on in front of us right now over the coming quarter. So I would say when you're talking about a potential tax surcharge in early 25, it's not even on our radar. It doesn't mean that I hesitate to ever say never. It just means that we're really focused on continuing to improve the product and continuing to drive top of funnel and loyalty and retention. And so we would not be a first mover on something like that. We're going to stay very close to it. We'll observe. We'll see what the reaction is, assuming that it does launch in early 25. And then we'll probably have more to share with all of you on our quarterly earnings calls throughout 2025. Makes sense. Thanks, everyone.

Our next question comes from Joe Gruff with J.P. Morgan.

Good morning, everybody. Good morning, Aaron. Jay, can you talk about maybe how your new user acquisition strategies or tactics have changed or evolved given DraftKings' recent plans to increase new user promos? And how do you compete against that the same time you're launching an enhanced ESPN bet platform in front of the football season?

Yeah, I hit on it a little bit earlier, Joe, in terms of how we're thinking about driving acquisition and top of funnel. We have this, you know, we're in this great position where we've got the deeper integrations with ESPN and their core digital products with ESPN Media app as well as Fantasy. Fantasy is all brand new going into the fall season. And even the deep links that we have in the ESPN Media app, They're going to be now no longer just in Gamecast, but on the scores tab, on the home screen, really anywhere where you see a score of an event of the major sports, you're going to have that six pack of odds and deep links with ESPN Bet. So we're in a very fortunate position where obviously that will drive top of funnel, that will drive a lot of engagement with our app. And so that is extremely efficient for us. And that's going to be the biggest driver of acquisition for There is some other acquisition outside of ESPN that we'll continue to pursue, but the lion's share of acquisition for us is going to be through that ESPN channel. I would anticipate that the acquisition environment will from our perspective, be healthy but be cost-effective as well. And we talked a little bit about New York in our prepared remarks, and we're going to continue to take a different approach in terms of launching in New York versus what we did when we launched across 17 states in the fourth quarter of last year and really lean a lot more on the product improvements, the integrations, of course, the connection that ESPN has with millions and millions of New York-based sports fans. And so... That's going to really be our approach where we think that based on everything that we covered and I just highlighted, that we'll have a steady flow of top of funnel. But the biggest opportunity, to be very clear, and mentioned this earlier also, is going to be around reactivation. We have this significant database. A lot of them are in the app. You see that in the sensor tower data. But we need to continue to drive better retention and higher share of wallet. And we think with all the product enhancements that we're launching between now and the end of the month, and then, of course, throughout the football season, when you get to later in the fourth quarter, we talked about being able to have account linking done with ESPN, that's going to take personalization to a whole different level. So the great thing about our relationship with ESPN is it's a driver of both top of funnel as well as ongoing retention.

Great. Thank you for your thoughts there, Jay. Separate topic, some of the financial media and even some of the gaming trade regs have reported a while back And there's been a lot of stuff reported in the financial media with respect to you guys. But my specific question is, are you looking at selling individual assets, properties? And if that is a focus, can you talk about maybe what the strategic rationale might be there?

Cool. I guess at a high level, Joe, you'd expect this answer that we don't comment, we haven't commented and won't comment on market rumors and speculation. What I will say is that as a company and as a board, we're always and always have, always will evaluate opportunities to enhance value. And we'll continue to take actions that we believe are in the best interest of the company and and our shareholders. With that said, we're very confident in our strategy and the value that it's going to deliver for shareholders over the short-term, medium-term, long-term. So that's the way I would answer that question. And I would say don't believe everything you read. And with regard to your specific question on assets, just remember that our assets, land-based assets, are all part of different leases. And so it's not as simple and easy as, oh, you just sell off an asset. So I don't want to comment any further than that because then you are commenting on something that you said you're not going to comment on. So I'm just going to leave it at that.

Appreciate it. Thanks, guys.

The next question comes from Barry Jonas with Truist Securities.

Hey, guys. Had one for Aaron. Welcome, Aaron. I know you just started, but curious if you have any early thoughts about how you see putting your imprint on the company and the ESPN vet strategy.

I think Jay touched on a lot of them. I think we're super excited about the integration with ESPN. We're talking about Fantasy this year. Jay just talked about account linking that's going to come in November. which if you think about ESPN's digital and social reach today, I think last month it was 181 million users. So when you think about knowing the fan avidity, personalization, uses, preferences of all those people, and then being able to target them, whether it's introducing them to sports betting or people that are already sports bettors giving them personalized offers, and then moving them seamlessly between the apps with no friction, It is a massive opportunity. And what we know is no matter what platform that you bet on today, you place your bet and then you're on ESPN tracking your bet and consuming information to try to piece together where you're at in a parlay or whatever. And being able to place a bet on ESPN bet and then seamlessly package together the way to track that bet and make it more efficient and frictionless is we think is going to be a huge competitive advantage for us and something that no one else can do. And we're really focused on that. That's very exciting. And the teams are already working together in a way where it doesn't even feel like they're separate teams. So, you know, it's coming from ESPN. I think that's super exciting. I think the opportunity someone mentioned in the previous question with the land-based casinos and the size of that database, which I don't actually know if we share that, but It is actually quite massive, and being able to take people from that environment, move them into ESPN Bet, and then further move them into our iCasino products is super exciting, too. So, you know, beyond that, focusing on product experience, making sure that when people interact with our products, it feels good, it's frictionless, and it's fun to use is what I'm going to be focused on.

That's great. And then, Jay, and maybe Todd, you know, there's been concerns around the macro specifically at the low-end consumer level. Can you maybe talk a little bit more about what you're seeing across the database?

Yeah, I'll take a stab, Todd. Feel free to jump in. Really no change from what we have said previous quarters. We saw very consistent trends in the second quarter, as you see in our results. July, remember that you have calendar shifts. People seem to forget that oftentimes. So you traded in the month of July. You lost a Saturday, Sunday, and picked up a Tuesday, Wednesday. That's going to impact your top line results. And August, you benefit from a calendar shift. So my expectation would be that year over year, August looks better than July. It's interesting because we've been hearing from some of the lodging companies that as well as from air travel, that they're seeing some cracks in that lower-end consumer. We're not seeing anything incremental in regional gaming or in our digital trends. So, I mean, it is interesting dynamic that if people are staying or they're traveling less, whether it's air travel or they're – staying in hotels less that tends to be beneficial for regional gaming people are staying closer to home it's a drive and um you know gas prices are actually quite stable right now so it all adds up to i think what could be a just a good stable environment for us we're not seeing anything from an incremental standpoint that concerns us right now yeah the only thing i'd add um

you know, that little more detail, that 50 to 99, even the 100, 399, 400 plus, all very stable throughout the quarter year over year. And then just a little bit, I think Carlo touched on this in his question, but we did see really decent play from our unrated segment. So That kind of offset anything that we saw in the lower segment, that 0 to 49. But even that was stable. And even though it's early in August, we're seeing really positive trends the first few days of August.

Great. Appreciate it. Thanks.

Our next question comes from Sean Kelly with Bank of America.

Hi, good morning, everyone. Aaron, maybe a strategic question for you to lead off and then welcome. My question's really this, right? As we think about the digital side here, I kind of feel like there's two major technology areas. One's going to be the marketing side, targeting, retargeting, A-B testing, all that stuff. The other is going to be the pure engineering side, and I think Jay's done a great job of outlining that. some of the product improvement. I'm curious, given your background in streaming, could you just talk a little bit about how you think about allocating resources between marketing and advertising tech versus core engineering and kind of where do you lean and what are you most excited about as you kind of take your streaming skills and think about vetting?

Thanks. Great question. Well, so what I'm most excited about, and I got a view of this as we were doing the partnership with Penn, is the underlying foundational infrastructure that powers ESP Embed is incredibly sound, super sophisticated, and is the foundational piece in which we're going to build everything on top of. And so this isn't an engineering project to come in and fix something that's broken. It's something that we're going to build on top of. And so right now, and I mentioned in our remarks, we sort of lag our competitive set in terms of full features and functionality. And being able to quickly build on top of that foundation to iterate the product, I think, is super exciting. I think marketing and acquisition is just part of the business. We're going to continue to get smarter and better there. And I think some of our results show that we're already doing that. So, you know, to me, it's about building the best product and then really taking advantage of the integration opportunities with ESPN, which will also require some technical sophistication. And, of course, that's one of the best teams in the world as well. So, You know, just super excited about all of it.

Thank you. And maybe just as a follow-up and a little bit more about the numbers. You know, for Jay or Felicia, I think last quarter you gave a little bit of detail around kind of the promotional cadence as a percentage of handle. This quarter we didn't get those stats, but you did give us some more detail on hold and parlay mix. So my question is simply like, you know, just could you give us an update with the percentage of handle as we think about the promo this quarter versus last? Was that relatively stable and what really changed was hold this quarter? Or have you continued to sequentially kind of improve on your promotional cadence And how do we think about, you know, that trend in the back half? Thanks.

Yep. Really, it was a combination of the two. Our promotional reinvestment as a percentage of handle came down from Q1 to Q2. Obviously, we had a slide that we shared there on the hold percentage. So it was a combination of those two things. We anticipate, you know, when you kind of look out to 2025, our promo reinvestment rate being between 2% and 3%, like right in that mid-market range. We don't expect to be high or low. We just want to be really at market as a percentage of handle. It's hard to anticipate exactly what it's going to be in the third quarter just because you do have the New York launch. And again, we're approaching it very differently. It might take up a little bit, but nothing material. And then probably come back down again in Q4 is what I would anticipate.

Thank you very much.

Our next question comes from Chad Baynon with Macquarie.

Morning. Thanks for taking my question. You mentioned some of the cost improvements on the interactive side that led to the beat for the quarter. Jay, obviously, you know, not to steal any thunder for the investor presentation in October and kind of the launch for NFL, but has anything changed just in terms of the path to profitability, the timing of that? And if 25 is that important or, or if maybe we should kind of look out to 26 in terms of getting all the benefits from what you're doing internally that'll be rolled out soon. Thanks.

Yep. We'll probably spend more time on this topic at G2E at the investor event, so I won't say a whole lot other than to say nothing's changed in terms of how we're thinking about 25 and 26 from what we said in the last quarter call.

Okay. Thank you. And then in terms of Alberta... We definitely sensed your optimism there in terms of what that could be from a contributing standpoint. What is the timeline there and are there any major differences in terms of the current dynamics with maybe gray market players or kind of how you see that market to go green? Thank you.

Yeah, happy to. Market is very similar in terms of gray market today and regulated soon we don't have an exact date on that chad or am i back live yep i got you now thank you okay um We don't have an exact date on Alberta and I don't want to speak obviously for the government or the regulators there, but I would say, you know, we're thinking sometime toward the end of this year, early 25 is kind of the rough timeframe. We would anticipate that the success that we've seen in Ontario with the score and the score bet, we would be able to replicate that in Alberta. The score is a very popular brand throughout Canada. It's not just a Toronto or Ontario thing. So again, given the success we've had in Ontario and given that Alberta will have very similar tax rates as we understand it and be both OSB and iCasino, we think it's going to be a really important North American market for us, probably a top three or four market for us.

Interesting. Thank you very much.

The next question comes from Dan Pulitzer with Wells Fargo.

Hey, good morning, everyone, and thanks for taking my question. First one on interactive, I think in your slide deck, you outline your hold in the quarter in a select number of states. I think it was eight point two percent. How should we think about that kind of evolving over time? Is there a long term target time to get there? And then similarly, you know, is there an underlying trading and risk management opportunity? And I only ask that as some of your peers have really been building out that aspect of their tech stack. Thank you.

Yeah, say a couple of things about hold percentages. I think it's important to note that we really haven't changed our assumptions from last quarter to this quarter in terms of what's built in for guidance for the rest of the year, still in that 7% to 8% range. So if the trends that we have delivered of late the last quarter and July as those results come out, there could be some opportunity for upside there potentially. So now, again, it's a different time of year. You tend to hold a little bit better during the slower season of baseball. And so we'll see how that plays out, but we feel really comfortable in terms of what's built into guidance and where we think we could end up trending as we close out 24 and heading into 25. I think as we think about the opportunity sort of medium term for us, you know, FanDuel has been in a class of their own from a hold rate percentage, from a hold rate perspective, because their parlay percentage, excuse me, is, you know, best in class. And what we're seeing already, keeping in mind that our parlay offering is going to be significantly better at the start of football season than it's ever been. And I say that with regard to same game parlay, parlay just, you know, data feeds and Player props, all sorts of things that without getting into too much detail, it's going to be a significant improvement and enhancements from what people experienced last year when we went live during football season. So we think that at Penn with ESPN Bet, exactly what Aaron said in his prepared remarks, that we want to be the America sports book. And that's going to mean that you're really catering to the masses. And there's a lot of casual bettors in there who love parlays. We're seeing that already. And I think for the Illinois example, for us to be sort of sitting at a number two position in terms of parlay as a percentage of handle, when our parlay offering hasn't been as competitive as it's about to be at the start of football, we think there's a lot of opportunity for us to continue to close the gap between us and FanDuel in terms of parlay, excuse me, as a percentage of handle. And with that will come an improved hold percentage. I'm not saying that we're going to get to FanDuel letters, not going to give you a timeframe, but clearly there's a big opportunity for us to continue to close that gap over time as we improve the experience for those that like to bet on parlays and overall just bet inside the app.

Got it. That makes sense. And it just is a follow-up, but maybe I missed it, but for the guidance, did you provide an online revenue number? I know previously you'd given that, but perhaps I missed it.

No, we didn't, but you should assume it's still within that range. Maybe it's a little bit higher than the midpoint, much like the EBITDA was a little higher than the midpoint, but we didn't provide it, but you should assume that it's still within that range.

Got it. Thanks so much.

The next question comes from Bernie McTernan with Needham & Company.

Great. Good morning. Thanks for taking the question. Just with the strong growth in NGR in the quarter, I know you talked through promotional intensity falling off. Can you walk through some of the other puts and takes in the sequential growth between Handel and GGR?

Sure. Yeah, Bernie, listen, great question. I think... The promo was the primary driver, but you start looking at just seasonality is a huge piece of this. So, again, that converted customer from ESPN, the converted customer from our PenPlay database that's moving over, all that comes over pretty frictionless. So they're just going into the app. I think that's benefited all of us. And then the improvement in hold percentage kind of, again, was the big driver there.

Keep in mind to Todd's last point on hold percentage, one of the real benefits that you get from higher hold percentage is that A lot of our expenses, third-party expenses, data feeds and geolocation, et cetera. Payment processing. Payment processing. Those are driven by handle, right? So when your handle is maybe more stable, but your hold percentage is higher and your revenues are higher, it's a great mix in terms of how that flows through the P&L. And we would anticipate that dynamic for Penn continuing, given the upside I mentioned earlier on parlay percentage and hold percentage upside.

Yep, makes a lot of sense. And then, Jay, you pointed to ESPN having greater rights to add betting content given their new MBA deal. I was just wondering if you could add any specifics in terms of what ESPN couldn't do under the prior deal and what they might be able to do in the future with the new deal.

Yeah, maybe we'll spend a little bit more time on that in October at the G2E event. It's a great question. I don't want to speak for ESPN. What we shared is what was public, but maybe we can get some more information from them or have a representative there to answer that question in more detail, if that works, Bernie.

Perfect. Thanks, Shay.

The next question comes from Ben Chaykin with Mizuho.

Hey, thanks for taking my question. For Aaron or maybe Jay, whoever wants to take this. In the deck and on the call, you referenced a few different initiatives for the OSB product, several of which are ESPN bet integrations into traditional ESPN products, which, as you mentioned, are top of the funnel initiatives that make a lot of sense. I guess what's your thought on going the other way as well and integrating more ESPN content into the ESPN bet app? So team statistics, player stats, relevant news, etc., The idea being to facilitate the wagering process for bettors and hopefully make them sticky users of the app. I mean, to some degree, you do this already with the score bet and the game preview functionality. It just seems like a significant differentiator amongst betting apps that can struggle not to become a commodity and would love your thoughts.

Thanks. I think if you look at what we're doing with the score bet, including the recent integration of the score media app with the integration with the score bet, we've now integrated ESPN bet there, too, which I think points to some of the things that we're looking to do with ESPN. When we think about the fan, ESPN bet and the ESPN app are inextricably linked, and so moving between those two environments is and where you want to consume content and how you consume it, we aren't going to necessarily care where that happens. And so that line, obviously, we're currently working with ESPN to make sure it makes sense. But the goal is that you can move between these apps really fluidly and get what you want, you know, where you want it. Like, for example, when we have account linking in November, if you place a parlay on ESPN bet, it's going to appear in the ESPN app. You have to do no work. It's going to be seamless. So as I mentioned before, you place a bet and then you're struggling to figure out how that bet's performing because you have a four-leg parlay and you're on ESPN.com and you have multiple tabs open. We're now going to package that for you with no work. And if anyone here has placed a parlay... you know, more than two or three legs, you know that's a struggle. And so it's just going to be like magic for you to actually consume that within ESPN. And we look at that in both ways. As we think about, you know, you look at game cast on ESPN, which is a real-time visualization of a game in progress. Well, imagine a, you know, a bet cast version of that for your bets. Well, whether you track that with an ESPN or an ESPN bet, the module, the content, the experience will be the same across both platforms and will appear in both platforms. So, you know, the essence of your question is, you know, it's going to be seamless across both platforms, and we're really just thinking about what that looks like and what our plans are. But it's one of the major focuses between the teams as we speak.

Got it. Thank you.

The next question comes from Jordan Bender with Citizens JMP.

Good morning. Thanks for taking my question. It's been some time since we've spoken about it, but the 3Cs initiative, I believe that remains an important initiative for the company. So can you just kind of give us an update on how that's performing at the properties, financial, operationally, etc.? ?

Sure. This is Todd. Great question. And we will talk more about this also at our G2E event. But basically, we're seeing really nice adoption from all levels. And that was one of our priorities as we were going in. We didn't want this just to be for that younger cohort. So we've seen that go across all levels, regardless of age and level of play. So you get this great advantage of greater time on device, removing friction from every transaction, taking people out of line, keeping them at whether it's a slot machine or a table game. Rich Primus and the team have just done a remarkable job of, with each iteration, making it easier and easier for adoption. So I think as we go through, we're probably over about 80% of our EBITDA-driving properties right now, and we'll look to see where we go next. But it's both on the revenue side, and then I think I touched on earlier with technology used to offset some of the payroll expense.

Great. And then just on the follow-up, the NFL season is just a couple weeks away here. Is it fair to assume that when you close the New York license for sports betting, the online product will be essentially ready to go the next day?

That's correct. Yeah, you should assume that we're live in New York before college football week one, which is the end of this month. And when we go live, and we try to time it up, as you can appreciate, that all of these feature enhancements that we've talked about would be live when we go live in New York. So, you know, again, great first impression. That's why they're so close together. But we anticipate New York end of this month before college week one.

Great. Thanks, Jeff.

The next question comes from Ryan Sigdal with Craig Hallam.

Hey, great. Thanks for taking our question. Just one following on that launch timing. So a lot of the innovation and enhancements and integrations, similar to what you were talking about three months ago, we haven't seen much integrated thus far or effective in the app. But I guess how much was the intention all along to launch everything all at once versus phased updates in the app to users?

Yeah, Ryan, I think you'll see there was actually some that went live yesterday, and you're going to see it sort of happen over the course weekly between now and the end of the month. But everything that we have in those few slides that talks about product, ESPN bet, product enhancements, all of the enhancements around parlay and same-game parlay and player props, all of those integrations, what we laid out in our deck here is what you're going to have when we go live for football this year, so in the next few weeks. There's a lot of testing that goes on behind the scenes. We want to make sure that we're very comfortable when we go live, that it's going to be seamless and very user-friendly. So that's where the work has been over the last couple of months. But you'll start seeing these go live really weekly between now and the end of the month. Thanks. Good luck, guys. Okay. We'll maybe take one more question, Angela. Okay.

Our last question comes from Stephen Grambling with Morgan Stanley. Okay.

Hey, thank you. I guess as we have a little bit more time under the belt with regard to customer acquisition and ramping of customer spend, what is the typical maturation of player economics as we think about revenue and profit contribution? And then in the guidance, I think you've got flat digital contribution in the fourth quarter. Do you anticipate being profitable in New York by that point or longer term?

Your acquisition question, I think we'll tackle that at G2E. That's a little bit more detailed, so I want to give a thoughtful response to that. With regard to New York, tax rates high, as you know, and so we're going to be very thoughtful, as I mentioned earlier, around user acquisition and really lean in on the ESPN bet ecosystem. Tremendous millions of fans that are connected to ESPN and their products that we're going to really work to cross over into ESPN bet. I don't want to give a time frame on exactly when that's going to inflect to profitability only because we need to see how things go. So again, that might be one that we can answer a little bit more intelligently at the meeting in October because we'll have been live for a month and a half by that time in New York. And also, of course, we'll have some KPIs to share with all of you from the first few weeks of football season.

Great. Look forward to the event. Thank you.

All right. Thanks, Stephen. And thanks, everybody, for joining the call. We look forward to speaking with you, many of you, at G2E in Las Vegas in October and, again, talking to you in November on our next earnings call. Thanks.

This does conclude today's program. Thank you for your participation. You may disconnect at anytime.