PENN Entertainment (NASDAQ:PENN) reported a stable financial performance in its third-quarter earnings call on October 30, 2024, with retail revenue reaching $1.4 billion and adjusted EBITDA at $472 million, surpassing preliminary estimates. The Interactive segment, however, showed an adjusted revenue of $141 million alongside an EBITDA loss of $91 million. The company's CEO Jay Snowden and CFO Felicia Hendrix shared insights into market share growth, the development of ESPN BET, and provided a positive outlook for the future with strategic growth projects on track.
Key Takeaways
- PENN Entertainment's Q3 retail revenue hit $1.4 billion, with adjusted EBITDA of $472 million.
- Market share increased in Ohio, Massachusetts, and Kansas, while declines were seen in the Northeast and South.
- ESPN BET's retail sportsbooks expanded, and monthly active users grew by 127% year-over-year.
- Four growth projects are progressing as planned, aiming to enhance user engagement and retention.
- Q4 2024 retail revenue is projected to be between $1.36 billion and $1.38 billion.
Company Outlook
- PENN anticipates positive free cash flow beginning in 2025, driven by new product offerings and operational improvements.
- The company's growth projects, including the Hollywood Joliet, are on schedule and expected to open in the second half of 2025.
- PENN remains optimistic about stable consumer demand and strategic enhancements to their offerings.
Bearish Highlights
- The Interactive segment reported an EBITDA loss of $91 million despite achieving $141 million in adjusted revenues.
- Weather-related disruptions and renovations at L'Auberge Casino (EPA:CASP) have led to market share declines in the Northeast and South.
Bullish Highlights
- Significant market share increases in select states have offset declines in other regions.
- The launch of new ESPN BET retail sportsbooks and a substantial growth in the digital user base point to a successful expansion in sports betting.
- The average daily handle per user in New York surged, indicating a strong performance in the state.
Misses
- The Interactive segment's EBITDA loss reflects ongoing challenges despite revenue growth.
- A projected $35 million decrease in earnings due to hold percentages, independent of promotional or account linking strategies.
Q&A Highlights
- Integration of ESPN and ESPN BET accounts has led to increased betting and content consumption.
- The standalone Hollywood Casino app in Pennsylvania is expected to capitalize on cross-sell opportunities with slot games.
- PENN is well-positioned in Missouri following the state's recent sports betting vote and anticipates regulatory clarifications.
- Account linking has improved retention rates, especially among users acquired through the ESPN ecosystem.
- No plans to sell non-core assets as the company focuses on strategic investments in both digital and retail segments.
PENN Entertainment has shown resilience in the face of market fluctuations and competitive pressures. The company's focus on strategic growth and operational efficiency, alongside the promising developments in their digital offerings, particularly with ESPN BET, suggests a strong potential for future performance. With a robust liquidity position and no plans to divest assets, PENN is poised to capitalize on market opportunities and consumer demand in the coming years. The company's leadership remains committed to providing updates on their progress, with the next update scheduled for February.
InvestingPro Insights
PENN Entertainment's recent earnings report showcases a mixed financial picture, which is further illuminated by data from InvestingPro. Despite the company's stable retail performance and optimistic outlook, there are several key metrics that investors should consider.
According to InvestingPro data, PENN's market capitalization stands at $3.01 billion, reflecting its significant presence in the gaming industry. However, the company's financial health presents some challenges. With a negative P/E ratio of -7.73 over the last twelve months as of Q2 2024, PENN is currently not profitable, which aligns with the company's reported EBITDA loss in the Interactive segment.
InvestingPro Tips highlight that PENN operates with a significant debt burden, which could impact its financial flexibility as it pursues growth projects. This is particularly relevant given the company's projection of positive free cash flow beginning in 2025. On a more positive note, two analysts have revised their earnings upwards for the upcoming period, suggesting some optimism about PENN's near-term prospects.
The company's stock price movements have been quite volatile, as noted by InvestingPro. This volatility is reflected in the substantial 29.12% price total return over the past six months, contrasting with a -22.29% year-to-date return. This volatility may be attributed to the mixed performance across different segments and regions, as well as the ongoing investments in growth initiatives like ESPN BET.
It's worth noting that PENN does not pay a dividend to shareholders, which may be a consideration for income-focused investors. However, this aligns with the company's strategy of reinvesting in growth projects and improving its Interactive segment performance.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights beyond those mentioned here. In fact, there are 8 additional InvestingPro Tips available for PENN Entertainment, providing a deeper understanding of the company's financial position and market performance.
Full transcript - PENN Entertainment Inc (PENN) Q3 2024:
Operator: Greetings, and welcome to the PENN Entertainment Third Quarter 2024 Earnings Call. I would like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.
Joe Jaffoni: Thank you, Cindy. Good morning, and thanks everyone for joining PENN Entertainment's 2024 third 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. I'll now read the Safe Harbor disclosure and then we'll get into the call. 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. With that, it's now my pleasure to turn the call over to the company's CEO, Jay Snowden. Jay, please go ahead.
Jay Snowden: Thanks, Joe. Good morning, everyone. I'm happy to be here in Wyomissing with our CFO, Felicia Hendrix; Head of Operations, Todd George; and our CTO, Aaron LaBerge as well as other members of our senior management team. It was great to see many of you at our investor event on October 7 at the M Resort in Las Vegas. Some of you may have missed it. We highlighted some of the significant product enhancements we recently implemented for ESPN BET as well as some early KPIs related to those feature upgrades. We also provided a hands on demonstration of our industry leading three C’s technology and attendees got to see some of our new property automations in action along with several key three business updates that we will review or highlight again with all of you here today. Turning to the results of the third quarter, strong year-over-year market share growth in Ohio, Massachusetts and Kansas helped offset unfavorable hold in our Northeast segment and volume declines in our South segment largely as a result of severe weather disruptions and our accelerated hotel remodeling at L'Auberge Casino in Lake Charles. We are roughly halfway through the planned room renovations there which have been driving higher gaming spend per customer. We look forward to completing this project by the end of January 2025. Meanwhile, we are continuing to mitigate pressure from no new supply in Nebraska, Louisiana and Chicago land through our ongoing efforts to reimagine our properties to improve the customer experience and drive loyalty. Overall, we are seeing stable consumer demand and are performing well in those markets not impacted by new competition profitably gaining market share in several of them. Thanks to our best-in-class operators across the country. We saw sequential month-over-month improvement throughout the third quarter and continuing into the month of October. The first several days of November showed improved volumes as well with a strong first weekend. Finally as noted on slide 4, we have seen 3.6% year-over-year slot volume growth through the first five full weeks in Q4 compared to flat year-over-year slot volumes in the third quarter led by our properties in Michigan, Ohio and ST Louis. The trends we are seeing around the country provide us with continued optimism about our four new growth projects which are highlighted on slide 5. These projects remain on budget and on schedule with Hollywood Joliet expected to open ahead of schedule during the second half of 2025. Turning to slide 6. We unveiled seven new ESPN BET branded retail sportsbooks during the quarter as we continue to implement our rebranding strategy across our portfolio. On the interactive side, as I referenced earlier, prior to the start of football season, we released several product enhancements and ESPN integrations to our ESPN BET offering. These product improvements help contribute to a higher parlay mix and higher structural hold during the quarter. Slide 7 highlights the meaningful growth ESPN Bet has generated for both our digital database and active user base providing a strong foundation for future growth as we introduce additional product improvements. We are now approaching four million members in our digital database. And we saw a 127% year-over-year growth in monthly active users in Q3 2024 versus Q3 2023. As noted on Slide 9, our Interactive segment saw year-over-year OSB NGR growth of more than 200% in Q3, driven by a combination of higher parlay mix from our improving products and lower promotional expenses. While we saw an increase in promotional spend at the beginning of football season from the competition, we have remained disciplined as we primarily focus on reactivation and retention efforts given our deep digital database. As noted on Slide 11, we have seen momentum from September into October and we are seeing encouraging trends in volumes and handle per user. The September launch of ESPN BET in New York expanded our online betting footprint to 19 U.S. states, representing approximately 46% of the U.S. population. Average daily handle per user in New York is 228% higher than the average in our existing states. And our average deposits there are over 87% larger. And with over 10 million average monthly visitors on ESPN, New York provides a significantly greater scale as we leverage ESPN's vast media reach and integrations for efficient customer acquisition. Turning to Slide 13, as of October 30th, account linking between ESPN BET and ESPN is now available for customers. By linking accounts, fans now have the ability to seamlessly track upcoming, live, and settled bets within the ESPN app and on espn.com. Bringing this new feature to market is an important step towards creating an industry leading personalized sports betting experience across the ESPN ecosystem. This will help to further drive monetization through enhanced engagement, retention, and reactivation. This was a tremendous achievement for the talented PENN and ESPN technology teams and really speaks to the depth of our partnership with ESPN. We have some exciting additional product enhancements coming soon as we accelerate our product roadmap. These include an improved same game parley experience, enhanced branding and IP, and upgraded in play betting. Finally, on the iCasino side, as you'll see on Slide 15, Hollywood Casino experienced solid growth in the quarter as well. That momentum has continued into October and will be helped by our recently introduced PENN Play promo credit redemption offering. We're excited for the launch of our Hollywood Casino app in Pennsylvania in early Q1 subject to final regulatory approvals, of course, with additional jurisdictions to follow. I'll now turn it over to Felicia for additional financial details for the quarter.
Felicia Hendrix: Thanks Jay. Our third quarter retail revenue and adjusted EBITDA results of $1.4 billion and $472 million were slightly above the midpoint of the third quarter preliminary results we reported on October 7th. In markets where we are not facing new supply, demand remains stable. October volumes improved over September and continued to improve sequentially through the first weekend in November. For our Interactive segment, adjusted revenues excluding our skin tax gross-up were $141 million and interactive adjusted EBITDA in the quarter was a loss of $91 million. Better than expected holds, driven by a higher parley mix from our approving product and lower promotional expenses drove the upside in the quarter relative to the original guidance we provided on August 8th. These results are at the high end of the third quarter preliminary results we reported on October 7th and also reflect a 12% sequential improvement from our second quarter Interactive adjusted EBITDA results. 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 $132 million CapEx in the quarter $69 million was project CapEx related to our four development projects. We ended the third quarter of 2024 with total liquidity of $1.8 billion inclusive of $834 million in cash and cash equivalents. As you know, we have no debt maturities until 2026, which are our 330 million convertible notes. Our lease adjusted net leverage peaked in the third quarter of 2024 and we're excited to begin our delevering trajectory driven by organic EBITDAR growth and our ability to access GLPI's balance sheet as our growth projects reach completion. We continue to expect to generate positive free cash flow in 2025 and beyond, bolstered by our Interactive segment, which should generate meaningful adjusted EBITA in 2026 and our four retail growth projects, which should all be complete by the first half of 2026. I will now provide guidance for our Retail and Interactive segments. For the Retail segment, we expect fourth quarter 2024 revenues to range from $1.36 billion to $1.38 billion and adjusted EBITDAR to range from $440 million to $460 million. Our forecast assumes continued construction disruption in Lake Charles due to the room remodeling project, which will be completed by the end of January 2025. We also continue to absorb new competition in a few markets such as Louisiana, Nebraska and Chicago land as properties open and make efforts to drive trial. As I mentioned earlier, we are seeing stable consumer demand and we are performing well in the markets not impacted by new competition. For Interactive, given that fourth quarter industry-wide holds has been negatively impacted by customer friendly outcomes quarter to-date. We think it's prudent for now to reiterate the midpoint of our 2024 Interactive EBITA guidance, which is unchanged from our last call. We expect 2024 corporate expense of roughly $105 million, inclusive of our cash-settled stock-based awards. Total (EPA:TTEF) 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 the full year 2024, before roughly 20 million of interest income. For cash taxes, we are projecting a small tax refund in 2024 and our base share count as of the end of the third quarter was 152.2 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.
Jay Snowden: All right. Thanks, Felicia. In closing, -- excuse me, I'm proud to report that our efforts to ensure diversity of backgrounds and perspectives within our corporate boardroom have been recognized for the fourth straight year by The Forum of Executive Women, who named us as one of their Champions of Board Diversity. In addition, we're proud to have been recently named one of the Best of the Best 2024 Top Diverse Employers by DiversityComm Magazine. Finally, our Leap Internship program, which stands for Leadership Excellence at PENN, has been recognized as one of the Top 100 Internship Programs of 2024 by the nation's largest CEI Recruitment platform. And with that, Cindy, can we open up the line for our first question?
Operator: Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] First question from Mr. Barry Jonas of Truist Securities. Please ask your question. Thank you.
Barry Jonas: Great. Thank you. Hey guys, good morning. Maybe starting with ESPN that you're achieving mid-teen share in week – weekly active users but more closer to mid single-digits let's say in GGR, giving your mass market focus what degree do you think you could bridge that delta over time and drive higher spend per user?
Jay Snowden: Yeah. Barry, it's one of those topics we've hit I think on a quarterly basis for the last several quarters. I think what we're – what's encouraging for us is that if you look at our average handle per user We're seeing really nice growth from call it week two of NFL to where we are through week nine every week. We're seeing sequential growth and handle per user. So I think part of this is exactly what you said that ESPN bet certainly draws in a more casual mass market base. We think that's great for the long-term, a higher propensity to bet on parlays and player props is terrific maybe a lower average wager but we are seeing that average wager continue to grow from where we were even just a few weeks ago. So we would expect to see that continue to grow throughout football season as we head out into March Madness as well. It's a big focus for us right now and we think retention we're in a really good place but continuing to improve monetization is going to be key for us.
Barry Jonas: Great, and then just follow up on land based gaming. You know maybe at a high level as we think about 2025. I know there's a few puts and takes. But do you think regional land based gaming can grow next year?
Jay Snowden: We're not going to go fully into 2025, Barry? I appreciate the question. I would say that what we're seeing right now the core business across the country, if you exclude the markets where there's new supply, things are really stable and we've actually seen a really nice uptick here in the fourth quarter that you know I'd be guessing if I said I knew exactly what's driving that whether that's election, pre-election, post-election not really sure but Q4 we've seen a nice bump up from where we were in the third quarter. October, really nice sequential growth from September. So we're feeling good about that. I think as you're looking out into 2025, we've highlighted these but the things that you want to keep in mind in terms of new supply would be Nebraska, Chicago Lands. And then in Louisiana, there's three projects there. Caesars (NASDAQ:CZR), New Orleans just opened their expansion, could be a little bit of an impact there. We don't have a ton – there's not a ton of competition with Caesars, New Orleans, but there is some. And then of course, we've already highlighted Treasure Chest, the Boyd projects and then Bossier City the Cordish project is going to be open I believe sometime in Q1 maybe Q2, somewhere in that time frame. So those are the big ones to keep in mind. The nice thing about Chicago Land, as you sort of circle that one is that's really sort of a first, nine, 10, 11 months of 2025 dynamic for us because we'll be opening our Harris, Joliet relocated land-based project sometime before the end of the year. And then of course our new Hollywood Aurora relocation project, which is going to be a fantastic asset for us that's going to be in early 2026. So Chicago then we'll be able to mitigate, I think pretty well in 2025. But I think in 2026 it's time for us to really start play offense there as well as in Las Vegas with the M Resort tower completion and in Columbus (WA:CLC) Ohio with the Hollywood project hotel expansion as well.
Barry Jonas: Great. Thank you, Jay.
Jay Snowden: Thanks Barry.
Operator: Next (LON:NXT) question from Carlo Santarelli from Deutsche Bank (ETR:DBKGn).
Carlo Santarelli: Hey guys. Good morning and thanks for taking my question. Jay, I'm respecting the fact that you don't want to give a lot as it pertains to 2025. I know, you know that the message so far on the interactive side has been you know getting closer to break even next year. And you know if you just kind of look at the guidance range you you're talking somewhere in the in the ballpark of 400 plus million of a of an EBITA swing. And just big picture, I wanted to understand like the way you guys, think about that, obviously, net revenue growth, substantial promos coming out etcetera some launch costs coming out. But then thinking further in terms of expenses and the path to where you see kind of larger chunkier costs coming out of the business. Is there any color you'd be able to provide on kind of that that sequencing and transition over 2025?
Jay Snowden: Yeah. I will definitely provide a lot more color on this in February when we put out guidance for 2025 both for the retail business as well as interactive. I would say one of the things before we get into cost that, you didn't mention, you mentioned a lot of things on the online sports betting side that will be vast improvements on a year-over-year basis. But you also have to keep in mind, that we're going to be launching our standalone Hollywood Casino offering in Pennsylvania again, pending final regulatory approval sometime in early Q1. And we should be able to follow pretty quickly in states like Michigan, again pending regulatory approval in New Jersey, West Virginia and in Ontario we think Hollywood Casino will perform very well. So we think that's going to be a really nice shot in the arm for us in terms of continuing to grow our online casino business. Obviously that's a really good margin profile. OSB with PARLAY MIX is getting better but the margin profile for online gaming obviously a lot stronger. And I think as you as you think about the cost structure, we continue to have as we as we grow and scale you get efficiencies and that's with regard to your third-party providers and being able to negotiate you get better economics. Of course, the more scale that you have which will have stronger scale. And we also have the marketing spend outside of ESPN. I think we've really figured out or continuing to figure out what's effective, what's working. We're seeing attractive CPAs in our paid digital performance digital spend. And so you know we're getting smarter-and-smarter about what we want and need to spend on the marketing side of things that will continue through the rest of this year and into 2025. So I would say you know with a level of specificity we will provide more in February, but that's the way to be thinking about it at a high-level.
Carlo Santarelli: Great. And then, if I could, just one follow-up on the on the brick-and-mortar business as it relates to the fourth quarter it looks like more or less at the midpoint of the of the net revenue guidance. You you're flattish effectively year-over-year, whereas kind of the midpoint of EBITDA looks to be 25 million lower year-over-year. Is that essentially just the reflection of -- is that a good baseline for kind of what the cost increase looks like from a year-over-year perspective? And could you shed any light on kind of how to think about the outlook for next year, as it pertains to kind of cost free, cost mitigation obviously some of the benefits you'll have from anniversarying some of the competition and some of the disruptions more notably.
Todd George: Hey, Carlo this is Todd. So yeah typically you know there's the seasonality with margins and Q4 is traditionally always the lowest margin percentage. So I wouldn't look at that as a guide for next year, unless you're thinking about Q4 of next year. Also keep in mind; we had some one time good guys last year in Q4. So that is the reconciling item for the difference year-on-year and the EBITDA flow through outside of that. Like Jay talked about for 2025 we'll get into much more detail in February.
Carlo Santarelli: Understood. Thank you guys. Thanks everyone.
Todd George: Thanks.
Operator: Your next question from Brandt Montour of Barclays (LON:BARC). Go ahead.
Brandt Montour: Good morning, everybody. Thanks for taking my question. So the first question is on the fourth quarter interactive guidance. You guys beat the third quarter or your own third quarter guidance by 30 million on EBITA, and then you reiterated the full year end. So the question is, is that not flowing through that third quarter? Is that how we should think about the direct impact from October hold, or is there any other adjustments you made to your core or otherwise KPIs in the fourth quarter we should think about?
Jay Snowden: Yeah, you should think about it as entirely hold related. It's been a rough start to the fourth quarter that's well documented by many of you. You can see it in the New York weekly results even before the October monthlies come out. You can see it in West Virginia weekly results. Having a higher parlay mix is great. Other than when all the favorites are hitting and parlays are also hitting. So that's really been the last five weeks and the first weekend of November was very consistent with what we saw in October. Unfortunately now that it's just a -- it's a luck thing, it does change it switches, it reverses course. And so we just felt as opposed to pulling through the difference between the hold impact in Q4 and what the beat was in Q3. And then now you're banking on hold being an exact number for the rest of Q4. We thought it just made sense. Let's not touch the number. If things improve on the whole percentage side that will be likely a conservative approach. But why bring some of that through if we're not sure exactly what hold is going to end up for the remainder of Q4?
Brandt Montour: That's super helpful. And then a follow-up on the congratulations on the announcement on the linkages of the account between ESPN and ESPN BET. Curious, what are the initial success rates on getting people to upgrade to that and to actually link the accounts? If you've seen any increased activity related to those accounts that have a linkage linked, and then the last follow-up to that would just be maybe a refresh on the road map specifically regarding that linkage product development on top of it?
Jay Snowden: Yeah let me let me ask Aaron to speak to that one.
Aaron LaBerge: Yeah, great, happy to. We're pretty excited about account linking. We've had tens of thousands of people link already. As you'd expect they're all placing significantly more bets higher handle, higher GDR and also impressive, they're consuming significantly more ESPN content as well. So these are super fans that are linking. We're incredibly happy with the progress so far. I don't know if you've had an opportunity to link, but it's an incredibly seamless and quick process. And what it really does to get to your second question is it, it's really a foundational development that allows us to now personalize every element of your betting experience not only on ESPN BET, so that we can start serving you personalized promos and offers and content related to your favorite teams and your interest, but also in how that manifests itself across ESPN’s digital platforms. And so in terms of bet tracking and things like that you'll start to see this seamless integration of highlighting of players and teams and results on ESPN, without you doing any work. And we think fans are really going to love this. And of course, the placement of account linking once your -- My Bets module is activated is right there on the homepage of ESPN and then the ESPN app. It's an incredible experience, and it's only going to get better from here.
Jay Snowden: Yes. The last thing I would add is and I mentioned it in my prepared remarks, this is a big technical feat from the team here at PENN as well as at ESPN. And -- it's great having partners where there's alignment and vision and where we want to take this thing. And exactly, how ESPN BET integrations will play into the total ESPN sports fandom and the consumption of sports content, so really happy with the execution and now it's time to start marketing the linked betting opportunity and people are grabbing on to it very quickly. As Erin mentioned, it's been tens of thousands and it's really picked up even in the last 24 hours.
Q – Brandt Montour: Yes. Okay. Thanks, everyone.
Jay Snowden: Thanks, Brandt.
Operator: And your next question from Joe Greff of JPMorgan (NYSE:JPM). Please go ahead.
Q – Joe Greff: Good morning, everybody. Jay, I just wanted to ask you about New York and as we think about the inclusion of your efforts in New York going forward, how so far and how you're thinking about promos in relation to handle with the inclusion of New York. How you think that trends in the near term, and how you think about it you know more medium and longer term.
Jay Snowden: Yeah, we talked about it before Joe and I'd say my answer. Really no different, what we're seeing in New York so far not surprisingly is a higher quality customer. The ones that we have gotten through top of funnel, we're seeing a higher average deposit and not surprisingly higher average handle per user. We've been very disciplined on the promo side, the tax rate is extremely high at over 50% and you don't have any promo deduction opportunity before you pay taxes. And so, you know we're -- later to the game, but it has been a big opportunity for us to grow our user base. Obviously, New York is a really important market for us and ESPN. And there's a lot of people that work in New York, but live in other states like New Jersey and Pennsylvania. And so there's pretty neat cross sell opportunities, depending on whether somebody's -- it's a weekday versus a weekend, whether they're commuting or they're at home. And so New York was a critical market for us to launch, but we're going to remain very disciplined in New York. We're not as worried about handle market share in New York, the way that we are focused on that. And all the other states especially, those that are a combination OSB and iCasino. I think, what's interesting is that the results that we shared with regard to October, we're feeling pretty good about the momentum sequentially. So September, we actually from a -- this is all -- I'm pivoting a little bit, but I think it's an important part of your question. If you exclude New York, because New York we launched and I believe it was late September. So there's a little bit of noise in September and a lot more in October. But if you look at our handle, year-over-year growth for ESPN BET in the month of September, again, excluding New York, to keep it apples-to-apples, it was 32% year-over-year. And in October, excluding New York, it was 45% year-over-year. And that was with our promos as a percentage of handle, down a bit from September to October. So, we're growing handle organically, we're doing it through our retention efforts. We have profit boost tools that we didn't have a year ago. These things are all working and we're seeing improvement sequentially from September and October. Other than obviously, hold percentage has been an impact at just over 5% versus what it was in September.
Joe Greff: Excellent. Thank you for the color. And then good to hear the first five weeks the start of this quarter from a slot volume perspective strong if we were to exclude Michigan, Ohio and the states that you reference is leading the way would you say that still broad based growth in slot volume? Obviously, if you exclude those you're also sort of including those markets with competition. My question is like how broad based or how concentrated is that 3.6% volume growth year over year to those select markets?
Jay Snowden: Yes. It's been surprisingly to the good to the good news side, it's been broad based, but Todd maybe you can speak to that a little more specificity.
Todd George: Yes. Joe, this is Todd. I really this last weekend, Jay and I and others were talking after the weekend results. It was one of the best weekends we've seen in quite some time. And you know that's really kind of continued through this week. So you would reference the competitive markets where there's new competition coming in. Obviously, those are not performing as well. But I would say across the board, we're pleased with results and volumes everywhere. And there's some other key markets that we're seeing that kind of halo effect from the sports betting. And as that comes in we're seeing growth not only in the states that we referenced, but also Plainridge in Massachusetts has been a strong market for us. So we're pleased with where we're headed and I think continued through this week and getting through Tuesday and letting kind of people settle into how they feel about the economy in the future.
Joe Greff: Thank you very much.
Operator: Your next question for Mr. Joe Stauff of Susquehanna. Please go ahead.
Joe Stauff: Thank you. Good morning Jay, Todd, Felicia. I had a question you know realizing it's very difficult in your previous answer, Jay to the 2025 revenue outlook. I'm wondering how you guys think about OpEx in 2025. Is there an opportunity you know to say assume that it could be flat to down or is that more dynamic? What's the right way to think about that? And then maybe just a follow up on the digital side for Erin, with respect to account linking, I appreciate the commentary, and certainly, it's early in that launch of that product. But are you able to deliver say, a personalized promos that, I guess, essentially get fed from fantasy lineups into real sports betting? Is that something that you are able to deliver now or that's something that maybe is what would occur a little bit later?
Jay Snowden: Okay. Joe we'll take both of those Todd and I tag team. The first one I would say, look at a high level again excluding the markets with new supply, because you're always going to feel impacts a bit different market to market there. And we'll know more obviously when we're sitting on the call in February and have a couple more a few more months under our belt of what we're seeing with some of the new competition. I would say, other than that we're certainly feeling a lot better on a year over year basis going into 2025 from an OpEx perspective than we were in 2024. 2024 there were major insurance headwinds. There were several markets of labor headwinds and renegotiated union agreements and labor. So at a high level, I would say, we're feeling better Todd feel free to jump in there.
Todd George: I agree with all that. The only thing I would add is as we continue to kind of pursue technology it's changing the way that we communicate with people from a marketing standpoint. So yesterday we were in a meeting looking at our overall marketing cost and we're moving away from things like postage and mailing costs, and printing costs, and moving more to that digital communication. Those are big dollars for us, also with the way that our properties are laid out. Now, we have set up kind of these clusters of properties where we can create synergies, we can share marketing expenses, we can share labor expenses and we do a really good job of that. But we are turning over every stone, so, more to come. But if you were to kind of again the way you phrased your question up down flat. We're always looking for that flat to downward trajectory without negatively impacting the guest experience.
Aaron LaBerge: And this is Aaron. I'll take the second question. So yeah, absolutely. So account linking does unlock the ability for us to know your Fantasy rosters and then to create and target content based on that. If you look at this year for fantasy football, we actually had a really slick integration with ESPN Bet around that. That was pseudo personalized. Remember this was pre account linking. So, of course, we know who's on everyone's roster and we have markets around all those players, so we could target you based on who was on your roster. And even that implementation that wasn't super personalized had a 20% engagement. So we integrated that through a modal pop up and it was highly engaged. And of course now that we have account linking and we know your roster, you're going to see that integration natively integrated into ESPN's actual game. So, it won't be a pop up. It will be part of the actual experience. So, we're super excited based on that early engagement we know that fantasy players love sports betting and they love this content and they're hyper engaged. And so, this just allows us to take this now to the next level. So we're super excited about it.
Joe Stauff: Thanks a lot.
Operator: Your next question is from Shaun Kelley of Bank of America (NYSE:BAC). Go ahead.
Shaun Kelley: Hi, good morning everyone. I just wanted to touch on the online casino launch or relaunch as we get into 2025. I don't think we've talked about this too much here, but could you just give us a little sense or a little preview on some of the plans there? We have seen you know when people have refocused on efforts there they've wanted to you know have some incremental marketing support for that. So is that something we should expect to be baking into the plans? And then maybe the bigger strategy question is, is it going to be sort of -- what's your kind of cross sell plan? Are you going to lean more to the Casino channel and the brick and mortar side or a little bit more to the OSB cross sell just given you know the success so far with ESPN. Thanks.
Jay Snowden: Thanks, Shaun. I'll hit the cross sell part of it first and I'm sure Aaron and Todd will have some thoughts in terms of the launch itself and what's going to be unique and different about the launch? What's -- so take a step back for a minute. We haven't had the opportunity other than when we initially launched years ago our Icasino offering in the State of Pennsylvania we had it branded Hollywood Casino, but it was with a third party platform IGT and that was discontinued about a year a year ago. And so we really haven't had the opportunity. And again just going back in time, when we launched the Hollywood Casino app in Pennsylvania on that third party platform, we saw pretty strong market share. We were high single digit for most of that time. And obviously the biggest reason is the cross sell opportunity with your land based casinos. Remember that we have four land based casinos in the state of Pennsylvania. They're all flagged Hollywood. We have one in Michigan, one of the three landbased commercial casinos again flagged Hollywood at Great Town. And so the cross sell opportunities for us are going to be very significant when we launch that standalone Hollywood casino app. What we're doing right now is messy, because you're marketing to your land based casino database at Hollywood properties, and telling them that they should download the ESPN bet app to play their favorite slot machine. So it's messy and we know that this is a big opportunity. We've watched our competition launch standalone Icasino apps with great success and many times it was the same brand it was just it led Icasino and so for us it's not only leading with Icasino in that app, but it's also the brand connection which is going to be, I think probably very well we believe pretty powerful for us. With regard to the marketing plans for that launch, it will be built into our guidance. For sure. It doesn't change what we've said about how we've thought at a high level about 2025. But we're definitely going to make sure that we've got some dollars put us to market those new standalone icasino apps, because again great business great margins and great cross sell opportunities both with regard to OSB and our land based businesses.
Aaron LaBerge: Yeah. And I think just to build on what Jay was saying we're seeing a lot of success in cross sell from OSB to casino. What the standalone app lets us do is, there is a whole cohort of Igamers, who as Jay said don't get the fact that they have to access our casino through our sportsbook. And so this completely unlocks that. And then of course, building on that further is, we have the entire omni channel opportunity where people are in our casinos and we can now clearly market to them the same branded product, the same product they're playing on site you know as they go interactive. And so we think that's also going to just be incremental to all the things we're doing here.
Todd George: Yeah they well said the only thing, I would add, we've -- we've actually had great conversations starting at G2E with some of the slot manufacturers. So working with them to get some unique products that no one else is offering. We also have a rather sizable database, all across Pennsylvania that, we'll tap into and kind of look at slots first. But we'll also be able to do some unique items that we're working on, where we'll actually put live Dealer studios, inside of our properties. So we're just kind of looking at everything and how differentiated our approach can be.
Jay Snowden: It to Todd triggered another idea or thought that I wanted to share as well. With regards to the actual launch, but not surprisingly we lean a lot more table games today because the only way to get to Hollywood Casino is through ESPN bet. And so most online sports bets play table games as compared to slots. Whereas people that would be coming into Hollywood Casino as a standalone app, who are land based retail customers and avid casino and slot players casino visitors and slot players. I think you'll see that the product launch and the product offering for Hollywood icasino will definitely be targeting slots first and table game second versus ESPN bet. Hollywood Casino is more of a table games first slot second. So that's a difference that you'll see with this launch as well.
Shaun Kelley: Thank you for all the color.
Operator: Next question from Dan Politzer of Wells Fargo (NYSE:WFC). Please go ahead.
Dan Politzer: Hey, good morning, everyone, and thanks for taking my question. I just wanted to follow up on -- on just kind of that fourth quarter interactive guide that you gave. If we think about kind of the hold impact, which I think it equates about 35 million or that that's the change, I guess, how much of the of that 35 million is hold versus kind of other moving pieces in the quarter account linking you know the New York launch, and then you know does that 35 million swing assuming that is the correct number or does that reflect maybe a change in promotional behavior given your customers have been winning?
Jay Snowden: It's entirely hold percentage, Dan. It's not -- and I mentioned earlier, we're not down $35 million right now, but we've had a rough start from a hold percentage perspective. So we thought it was just prudent to just keep it flat to last quarter because we're in a hole right now. That's not a pen thing. You'll hear this, I'm sure, from others reporting later this week and next week. So we thought let's just take the conservative approach. If hold percentage bounces back and we make up for the really low hold in October and early November, then this is going to turn out to be a very conservative approach. But it's hold percentage related. It's not any of the other stuff where our promos as a percentage of handle, we've got a very good handle on. Account linking was built into our marketing plan for the quarter. So there's nothing new or different other than hold percentage.
Dan Politzer: Got it. That's helpful. And then just a follow-up on iGaming. Is there any research that you've done or any kind of insights you can share on where that -- your current brick-and-mortar database is playing? Is it other omnichannel providers? Or is it kind of the digital-first competitors? And as you think about taking share from those, what are kind of the different buckets as you look at it?
Jay Snowden: Yeah. I'm not sure that we know that answer. I would -- my best guess would be probably a little bit of everything. They're probably playing a little bit with us, some of them and others haven't connected the whole ESPN bet if you're not a sports better, that there's an iCasino there waiting for you that's branded Hollywood. So I would say, think about this as, obviously, we have the loyalty program connection that we're going to be able to introduce more aggressively with people, make sure it's very clear that you can use your -- there's total linkage between what you play and earn on the land-based side and what you play and earn within the digital ecosystem. And so if you're looking to redeem promo credits that you've earned in the land-based side within the iCasino app, you can actually do that now, but we haven't been able to market it as aggressively just because, again, the brand disconnect. So I think the loyalty program connection and linkage is going to be pretty powerful for us.
Dan Politzer: Got it. Thanks so much.
Operator: Next question is from Chad Beynon of Macquarie. Go ahead.
Chad Beynon: Hi. Good morning. Thanks for taking my question. I wanted to ask about initial thoughts on the Missouri sports betting vote, plans for that state. And if you think the outcome of this could have any potential impact on some other states, either in that part of the country or in other regions and then also related to the tax rate that was announced in that market. Thank you.
Jay Snowden: Yeah. Happy to, Chad. We're talking 48 hours ago, but we did have a good feel for whether it was going to pass or not. We know what the structure is. I think Missouri is an interesting state. It's probably one of the last states in the country, obviously, excluding the California and Texas and Florida, but one of the last states outside of those 3 that we know that there's real sports fandom. You've got two major cities really into sports between St. Louis and Kansas City. And of course, we have three land-based casinos in the state of Missouri, two in the St. Louis MSA, one in the Kansas City MSA. We have another property on the Kansas side of Kansas City. So we're -- we think we're pretty well positioned. Tax rate is attractive. I think the structure was attractive. And -- there's been some commentary out there about the land-based casino companies only getting one skin for the whole state. And we're reading again, publicly what I think others can read that maybe that's not the read of the regulators there that it's going to be each of the casino operators that have multiple properties would then have multiple skins in the state. So we're still clarifying that with the regulators, but that's our understanding as we sit here today. So we think overall, this is good news for PENN, obviously, good news for us launching ESPN BET and we feel like we've got a nice database that we can tap into across the state.
Chad Beynon: Thanks. I appreciate it. And then just thinking about seasonality on hold and maybe what a lot of us saw out there with the World Series and the really strong national numbers and viewership. Do you think the hold rates for non-NFL sports have a line have a lot of way to go in terms of? Thanks..
Jay Snowden: Thanks, Chad. That's not on our end. I'm not sure what, Cindy is that?
Chad Beynon: Jay, did you get all that?
Jay Snowden: I think I did, Chad if not just jump in at the end. With regard to seasonality and World Series. Obviously the there was more attention on the World Series and more wagers this year given the match up was two powerhouse cities versus what it was last year. As a Yankee fan it was a brutal World Series, but it also wasn't super helpful on the betting side. I think people were definitely feeling as though the Dodgers were going to win that series especially the way that it started. So I would say you know World Series every year, it's hard to say that there's going to be any seasonality related to World Series. It really depends on the match up and the favorite and where the money is landing. Generally speaking, we would expect the fourth quarter to be a solid in market hold quarter for us. The good news about the fourth quarter even where we sit today is that October is the lightest betting month of the quarter. If you look at handle by month historically typically it's around 30%, 31% in October and then the rest in November and December. So if hold comes around we've got you know heavier volume months ahead of us where it could really help make up some of what's been lost so far quarter-to-date.
Chad Beynon: Thanks appreciate it.
Operator: Next question from Bernie McTernan from Needham. Please go ahead.
Bernie McTernan: Great, good morning. Thanks for taking questions. I want to focus on account linking. Aaron talked about personalization. I know there's bet tracking within the account linking right now. But is there actual personalization that's happening with bets and promotions right now? And if it is driving an uplift embedding the account linking, is there anything you could do to get customers to more aggressively adopt account linking? Would that be something you could look at, or is organically the way to go?
Aaron LaBerge: No we're actually really focused on driving people towards account linking. As Jay mentioned previously, we just started promoting it in the last few days. The results have been really great. So we'll continue both on the ESPN and ESPN BET side to promote the benefits of account linking. You'll see it all throughout your experiences whether signing up for new products, signing up for games. Just targeted approaches to getting you to link and sharing the benefits. Back to your first question in order to personalize your bets and your bet tracking and everything that's going to go with this, we had to link accounts first. So we are literally a few days into that. So obviously as we move forward you will start to see personalized content bet offers all throughout ESPN and ESPN BET and it will just start happening organically. It's not it's not going to be a launch. It's just your experience is going to start getting smarter for you and you'll see it in a bunch of different places including in that module on the ESPN home feed as well. So…
Bernie McTernan: Got it. Thanks, Aaron.
Aaron LaBerge: Yes.
Operator: Next question from Jordan Bender of Citizens JMP. Please go ahead.
Jordan Bender: Good morning, everyone. Thanks for taking my question. When we look at the 3.9 million digital database you have in your slides and then the 1.8 you've added since the launch of ESPN BET. Are you maybe able to help us break down how many of those people have come directly through just an ESPN channel versus we want to call it other channel?
Jay Snowden: I -- we haven't provided that level of detail, Jordan. I would say that since the launch of ESPN Bet you should assume that most of those that have come through were from the ESPN ecosystem. But we haven't provided any more detail than that but it is definitely most.
Jordan Bender: Okay, thanks. And then are you seeing just any in terms of turn rates -- are you seeing any difference between people coming in through the ESPN channel versus again that kind of other bucket?
Jay Snowden: Yeah, retention tends to be stronger with those that come in through ESPN. And obviously, when you add the integrations and account linking that just continues to get stronger. We're quite pleased with what retention looks like. We've got this really large base of mass market casual betters. And I mentioned earlier we're continuing to see higher engagement, better handle per user. Modernization is improving. So we're very focused on that and we have to simultaneously of course continue to attract new and reactivate those that have not reactivated who maybe came in that -- you know, November, December, January, February time frame used promotions maybe placed you know cash wage or better too and then disappeared. And so continuing to focus on reactivating is of highest priority for us. And then of course we're seeing outside of ESPN as I mentioned earlier on our digital performance looks like we're really getting a good feel for what's working, what's not from a CPA perspective. And those CPAs continue to look pretty good both within ESPN they're the best, but they're looking pretty good outside of ESPN as well.
Jordan Bender: Great. Thanks, Jay.
Operator: Next question from Ryan Sigdahl from Craig-Hallum. Please go ahead.
Ryan Sigdahl: Hey, good morning, guys. Just one on the player linking to follow up on that. Is there the potential to offer say ESPN plus memberships for free or if you have for linking it or if you have some status on ESPN? But you get that membership for free where you can really try and drive cross synergies from ESPN or is that I guess too difficult given Disney (NYSE:DIS) and PENN are two different companies?
Aaron LaBerge: Well, I think – I’ll let Todd take that one.
Todd George: Thanks, Aaron. Great question and thanks for teeing it up for us. It's a great timing. We actually are working with ESPN Disney on a -- an opportunity for our database to get ESPN Plus and that will be coming out shortly. It'll be a one month trial membership. And again it just shows the teamwork that we have between these companies and everything that we can do together to communicate and interact and engage with our fans.
Ryan Sigdahl: Excellent. Switching over to land base side. You're shutting down the Freehold raceway in New Jersey. I guess is there opportunity to further optimize non-core assets in the portfolio either sale, further closures et cetera or is that kind of a one off?
Jay Snowden: I would consider that one Ryan a one-off that was you know standalone horse racing. And so really if you look at our portfolio, we feel like we're in really good shape, all of our land based and -- you know barge, riverboat, casinos all of them are profitable both before and after rent not even close to being unprofitable any of them. So, there really wouldn't be any thoughts around any necessary closures or anything of that nature. And I think as you look at the rest of our horse racing portfolio, one, they're either at you know close or above break even on a standalone basis. And they're also we believe some of those are great development options for us down the road for potential land based casino legalization or expansion in some of those markets. Certainly Texas is top of mind there.
Ryan Sigdahl: Thanks Jay. And no hard feelings on your disrespect towards Minnesota loyal sports fans and not having OSB yet. Good luck guys.
Jay Snowden: Thanks Ryan.
Operator: The next question from Stephen Grambling of Morgan Stanley (NYSE:MS). Please go ahead.
Stephen Grambling: Hey, this is Steven. Wanted to touch on digital but with a focus on Toronto and Canada, specifically, I guess how does the customer spend in other aspects in that market compared to the U.S. as we think about ESPN BET customers? And is that segment EBIT positive on its own or even if you separate out kind of media and betting?
Jay Snowden: Yes, it's certainly contribution margin positive. It depends obviously on how you would allocate some of those shared expenses beyond that Ontario has been continues to be a really good story for us which is part of why we're pretty bold up on Alberta opportunity. Whenever that does present itself it certainly has moved into 2025. We'll wait on the government and the regulators there to tell us exactly when the Go Live launch would be. We've got a significant number of users. It's interesting because the makeup of our database in Ontario is quite similar to what we're seeing here in the U.S. with ESPN BET. Large mass market casual certainly have some VIP play, but the bulk of the users are more in that casual segment. Our parlay mix in Ontario, because we've been at it a bit longer there, is comfortably in the low 30s as a percentage of handle and that's up year-over-year from the mid to high 20s. So, we're already ahead in Ontario of what we're seeing here in the U.S. We're moving in the right direction here in the U.S., but we're still in that mid to high 20s parlays as a percentage of handle. So, we look at Ontario sort of being maybe a year or 18 months ahead of kind of where things are here in the U.S. from an ESPN BET perspective and everything that we saw in Ontario trend wise we're seeing as we go in in the U.S. as well.
Stephen Grambling: And then maybe a quick follow-up on that is the cross sell. And iGaming in Ontario, also similar to or would you think that that's generally going to be a little bit of a different animal just given differences in the retail business there?
Jay Snowden: It's really just -- it's grown over time again. We've been at it longer in Ontario than some of the markets here in the U.S. Our cross sell percentages are a little bit higher in Ontario. So, that tells us we've got opportunity not just on the land based cross sell that Todd and I talked about, but also on the on the OSB cross-sell in the States where you have both. So, it's a good template for us to look at as we think about what the opportunities in front of us here in the U.S. with ESPN BET given our experiences and what we've seen in the results in Ontario. Cindy if we can have one more question realizing that you know we had an investor event just a month ago and you know we're getting close to the end of the hour, but we'll do one more question.
Operator: Okay. Question from David Katz of Jefferies. Please go ahead.
Jay Snowden: David, are you on?
David Katz: Oh, sorry about that. I'm sitting here looking at your -- thank you for taking my question. I'm looking at your slide four, and I see your map with all the properties etcetera and the focus on building out the digital and doing it in a disciplined way with a land based business that's stable but not growing, any thought toward whether you might consider looking at some properties that aren't growing and maybe redeploying some of those resources by selling them toward digital. And the second part of my question which I'll put out up front is, I see you do have a presence in Texas. There's obviously events of the week that may refocus or change people's view about whether Texas might legalize some things. If Dan Patrick might move on, are you positioned and interested in participating in Texas. Should it move in a in a legalization direction that.
Jay Snowden: Yeah. Thanks David. I'll hit the second first. The answer is definitely yes. We think we're positioned actually very well. In Texas, we've got ownership of several standalone horse tracks in Texas. And Retama in San Antonio and Sam Houston in Greater Houston, MSA and those are two of the three Class 1 horse tracks in the state of Texas. We are have been and will continue to be engaged in conversations with the appropriate people in Texas and feel like horse racing is very likely to be involved in whatever happened down the road. I'm not going to make predictions on when and how that will happen. There's some new Senate positions that just got filled. And so we need to see how the dust settles in Texas and the new presidency and how that may or may not affect others in Texas in terms of potentially joining that administration. So I think more to come in Texas, but definitely well possession, extremely interested and engaged and will continue to be. With regard to your first question, look, we have liquidity is not an issue. We have $1.8 billion of liquidity and so we're going to spend where we feel like we should be spending and need to be spending across the portfolio both on the retail side as well as the digital side. We don't have a plan to sell any of our assets. None of those are on the market. Every once in a while there's something in that you read in the paper. And I don't even know where those rumors come from, but that's not the case. And we feel like we're strongly positioned. We've got some momentum in the business right now. We've got four growth projects that are going to be very exciting additions to our land based portfolio again, one at the end of 2025 which is not far away and the other three in early 2026. So we'll continue to invest where we feel like we're going to get the best returns and that becomes clearer and clearer for us every day on both the retail side as well as on the digital side.
David Katz: Thank you very much.
Jay Snowden: Yeah. Thank you, David. Thank you everyone for joining, especially if you also joined us in Las Vegas. Some of this was redundant, but hopefully you got some new information and takeaways. And we look forward to catching up with all of you again in a few months in February.
Operator: Ladies and gentlemen, this completes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.
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