PENN Entertainment, Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Leadership Changes: Aaron LaBerge joined as Chief Technology Officer on July 1, focusing on technology strategy and Interactive division growth.
• Retail Performance: Strong results in markets like Ohio, Maryland, and Iowa; case studies on Greektown (hotel renovations and ESPN BET retail sportsbook led to revenue growth) and Ohio properties (investments in casino floors, sportsbooks, etc., led to growth).
• Interactive Growth: Top-of-funnel growth, improved risk and trading execution, and refined promotional strategies contributed to record NGR. Product enhancements in ESPN BET, including upcoming features like dark mode, improved navigation, and better parlay offerings. Integration with ESPN, including media integrations and account linking with ESPN Fantasy, to drive user engagement.
• iCasino Plans: Adding new game titles, expanding third-party content, and planning to launch standalone iCasino app by early 2025 leveraging Hollywood brand.

Segment Performance

• Retail: Second quarter retail revenue was $1.4 billion with adjusted EBITDAR of $497 million. Strong market share growth in Ohio, Maryland, and Iowa; flagship properties like Hollywood Casino at Greektown saw revenue up over 6.5% y-o-y with 90 basis point increase in market share growth. Ohio properties also showed strong growth with ongoing investments.
• Interactive: Adjusted revenues excluding tax gross-up were $151 million, a 65% sequential improvement over Q1 2024. Record quarterly NGR helped narrow Interactive segment losses q-o-q. ESPN BET drove growth in digital database (over 31 million members, 3.8 million in digital database) and active user base. Parlay mix and risk trading execution contributed to higher hold rates.

Guidance

• Retail: 2024 retail guidance unchanged, factoring stable customer demand, new supply, and road construction.
• Interactive: 2024 adjusted EBITDA guidance improves to loss of $510M to $460M from prior $525M to $475M, including impact of higher OSB gaming taxes in Illinois and severance charges. Third quarter Interactive adjusted EBITDA expected to be loss of $135M to $115M. 2024 corporate expense ~$105M; total CapEx ~$500M; cash interest ~$175M.
• New York Launch: Anticipates launch of ESPN BET in New York later this month, leveraging ESPN's reach without heavy promotional lift.

Risks

• Regulatory Uncertainties: Concerns around skill-based games in Pennsylvania and potential impacts on operations.
• Competition: New supply in various markets and competitive landscape affecting margins and market share.
• Market Conditions: Macro factors like low-end consumer spending and its potential impact on regional gaming and digital trends.

Q: Carlo Santarelli asked about customer acquisition push in 3Q and 4Q, and brick-and-mortar margin outlook.

A: Jay Snowden mentioned customer acquisition mostly through ESPN partnerships, with guidance built into projections. Todd George discussed brick-and-mortar margins, noting stable environment with technology initiatives offsetting payroll creep.

Q: Joe Stauff asked about retail conversion of new digital customers and Pennsylvania skill-based games case.

A: Jay Snowden said most ESPN BET users are new to PENN. On Pennsylvania, PENN is vocal against expansion of skill-based games, with no timeline on ruling.

Q: Brandt Montour asked about sequential pickup in adjusted revenue and initial reaction to competitor's potential gaming surcharge.

A: Jay Snowden said growth driven by OSB sports betting with promotional costs coming down. Reaction to competitor's surcharge was that it's unexpected and not a current focus.

Q: Joe Greff asked about new user acquisition strategies against DraftKings and ESPN BET platform launch.

A: Jay Snowden stated acquisition mostly through ESPN integrations, with focus on top-of-funnel via ESPN media app and Fantasy, and reactivation of existing database.

Q: Barry Jonas asked Aaron LaBerge about imprint on company and ESPN BET strategy, and Jay Snowden on macro consumer impact.

A: Aaron LaBerge focused on building best product and leveraging ESPN integration. Jay Snowden said no major changes in consumer trends seen, with stable regional gaming and digital trends.

Q: Shaun Kelley asked Aaron LaBerge about resource allocation between marketing and engineering, and Jay Snowden on promo cadence and hold percentage.

A: Aaron LaBerge emphasized building on strong tech foundation. Jay Snowden said promo reinvestment as percentage of handle came down, with hold percentage trends positive and opportunity to close gap with competitors.

Q: Chad Beynon asked about path to profitability and Alberta market timeline.

A: Jay Snowden said details at G2E. Alberta market expected to launch end of 2024/early 2025, similar to Ontario success.

Q: Dan Politzer asked about hold percentage evolution and trading/risk management.

A: Jay Snowden said hold percentage within guidance range, with opportunity for upside from parlay percentage improvements.

Q: Bernie McTernan asked about NGR growth and ESPN NBA deal specifics.

A: Todd George discussed promo and seasonality as drivers. Jay Snowden said more detail on ESPN NBA deal at G2E.

Q: Benjamin Chaiken asked about integrating ESPN content into ESPN BET app.

A: Aaron LaBerge said seamless integration between ESPN and ESPN BET apps, with fluid movement between platforms for content and betting.

Q: Jordan Bender asked about 3Cs initiative and New York launch timing.

A: Todd George discussed 3Cs adoption. Jay Snowden said ESPN BET to launch in New York end of month before college football week one.

Q: Ryan Sigdahl asked about launch timing and phased updates.

A: Jay Snowden said product enhancements going live weekly between then and end of month.

Q: Stephen Grambling asked about player economics maturation and New York profitability.

A: Jay Snowden said detailed at G2E, with New York launch leveraging ESPN reach but no specific profitability timeline.