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Penn National Gaming [PENN] Conference call transcript for 2022 q3

2022-11-03 13:50:03

Fiscal: 2022 q3

Operator: Greetings, and welcome to the PENN Entertainment Third Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead.

Joe Jaffoni: Thank you, Frank. Good morning, everyone, and thank you for joining PENN Entertainment’s 2022 third quarter conference call. We’ll get to management’s presentations and comments momentarily as well as your Q&A. During the Q&A, we ask that everyone please limit themselves to one question and one follow-up. Now, I’ll review the Safe Harbor disclosure. 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 terminologies 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 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 National assumes no obligation to publicly update or revise any forward-looking statements. Today’s call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today’s press release as well as on the company’s website. With that, it’s now my pleasure to turn the call over to the company’s CEO, Jay Snowden. Jay, please go ahead.

Jay Snowden: Thanks, Joe. Good morning, everyone. Joining me today is our CFO, Felicia Hendrix; and our Head of Operations, Todd George as well as other members of our executive team. We provided a link to our investor presentation in our earnings release, which we’ll be referring to in the prepared remarks, if you want to follow along. Pleased to report that despite continued economic headwinds, the competitive and promotional environment has largely remained stable, and we once again had another solid quarter with revenues of $1.625 billion and adjusted EBITDAR of $472 million. We saw revenue growth of 7.5% year-over-year, driven by our Interactive segment and strong results at our retail operations. Our leaders and team members across the company continue to do an outstanding job. As you’ll see on Slide 6, our Interactive results for the quarter included costs associated with the launch of Kansas, our first full football season in Ontario and Louisiana lobbying expense of $12.5 million for California that we account for above the EBITDA line and a payment processing fee adjustment of $7.9 million. Given our strong revenue growth, disciplined approach to marketing and the fact that our Interactive segment was profitable in October, we remain confident in our ability to deliver profitability in 2023. As we’ve highlighted in prior quarters, we’re continuing to see growth in our mychoice database with year-over-year increases in rates across all segments except for the 65 and older group. I would like to focus your attention in particular on Slides 8 and 9, which illustrates the strong recent growth in our 21 to 44-year-old segments. In just a few years, we’ve seen this group grow from just a bit over 10% of our total theoretical revenue to nearly 20%. We are continuing to re-imagine our properties to appeal to this demographic with dynamic retail sports books and sports bars, third-party F&B concepts, refreshed hotel products, new entertainment and best-in-class technology, which we believe will pay meaningful dividends in the quarters and years ahead. Speaking of technology, we recently introduced our industry-leading 3Cs in Kansas, making it our tenth property in four states that where we’re live. We expect to roll the technology out to several additional properties by the end of this year pending regulatory approvals. Our early experience with 3Cs is proving out that guests that adopt our digital wallet demonstrate both higher frequency visitation and greater gaming spend per trip, and we are excited about the long-term prospects for this innovation. Our newly rebranded Hollywood Casino at Greektown in Detroit on Slide 10 is a good example of our strategy to re-imagine our properties. As you may recall, the hotel had been unavailable for nearly two years due to water damage. This gave us the opportunity to completely remodel our standard rooms and hotel lobby to add updated offerings and new F&B concepts. With our renovation nearing completion, we think Greektown is well-positioned to improve performance as downtown Detroit continues to rebound. Turning to Slide 13. On September 1, we launched both retail and online sports betting in Kansas. Beginning with the Hollywood 400 presented by Barstool Sportsbook and continuing with coordinated joint marketing efforts, our omni-channel approach there has delivered one of our most successful launches to date when you combine both retail and online sports betting results. We saw our highest ever first – highest ever level of first-time deposits on a per capita basis in the state and over 45% of our online handle is being driven by our existing mychoice database. On October 21, Todd and I and some other members of our team attended the successful opening of our retail Barstool Sportsbook at L’Auberge Baton Rouge in Louisiana. We were joined by Dave Portnoy and Big Cat who were also in town for the Barstool College Football Tour at the Ole Miss LSU game right up the street. Great event overall and lots of excitement generated by Barstool at the Sportsbook and the events surrounding the game. Turning to Slide 14. In Ontario, we’re seeing meaningful benefits from our integrated media ecosystem with theScore media users contributing over 80% more GGR than non-media users. We believe this experience positions us for similar success in the U.S., following completion of the initial integration of the Barstool Sportsbook into theScore media app, which began on October 19. Our transition in Ontario to our proprietary tech platform has exceeded our expectations by performing seamlessly with increased utilization, new betting markets and other features. Notably, Ontario has already become our top market in North America for both online sports betting and iCasino, and we are seeing very nice momentum in both categories through our first football season. We remain on track to migrate the Barstool Sportsbook to our proprietary tech platform in mid-2023, after which we will begin to realize cost savings and improved marketing capabilities in the U.S. On the iCasino front, as highlighted on Slide 16, we are seeing continued momentum this quarter with the introduction of 226 new third-party games across all platforms. Meanwhile, PENN Game Studios recently launched Barstool Roulette and has developed our first in-house multi-line slot game, which is set to launch next month. We are particularly excited about our initial iCasino results and retention KPIs in Ontario. The advanced promotional capabilities of our player account management system have helped drive these results in Ontario, and we look forward to bringing these same capabilities to the Barstool Casino in the U.S. next year post migration. Turning to Slide 19. Despite some general industry softness in digital advertising, our media business has delivered solid results in Q3, as theScore grew year-over-year engagement and continued to build out our sports media presence with the addition of content from NFL Insider Jordan Schultz. Meanwhile, Barstool Sports also continues to add new content, new influencers and grow its audience, including the launch of a new NBA focused podcast featuring Barstool Sports Rone and Pat Beverley of the Los Angeles Lakers. Before turning it over to Felicia, I wanted to give a shout out to our General Manager, Maureen Wasloski and her entire team at Ameristar Vicksburg for their efforts and support of the nearby city of Jackson, Mississippi during this summer’s water crisis. Our team members delivered several pallets of much needed water and emergency supplies in addition to providing temporary housing to those in need. These are the type of actions that define our culture at PENN Entertainment, and I’m really proud of Maureen and her team for their efforts. In addition, as you’ll see on Slide 21, this quarter, we launched a Scope 1 and 2 carbon emissions assessment, which we expect to be completed by the end of the year. On the DE&I front, we were honored to have been named for the second year in a row as a champion of Board diversity by the form of executive women for having female members comprise 44% of our corporate Board of Directors. Finally, as part of our $4 million commitment to fund STEM scholarships at Historically Black Colleges and Universities, we’re proud to name Prairie View A&M in Texas and Jackson State in Mississippi as our fifth and sixth schools to enter the program. With that, I’ll hand it over to Felicia.

Felicia Hendrix: Thanks, Jay. Given our solid third quarter results and our consistent performance into October, we’re reiterating our 2022 revenue and adjusted EBITDA guidance range of $6.15 billion to $6.55 billion and $1.875 billion to $2 billion, respectively, and we expect to be slightly above the midpoint for both the guided revenue and adjusted EBITDA ranges for the year. Our balance sheet remains very strong. We ended the quarter with a cash balance of $1.7 billion, liquidity of $2.7 billion and lease adjusted net leverage of 4.3 times. Further, 85% of our debt is fixed rate, inclusive of our capitalized rent payments, and our nearest debt maturity is not until 2026. Additionally, as we highlight on Slide 37 in the appendix of our earnings deck, our leased properties are subject to modest and cap annual escalators that are importantly not tied to CPI. I will speak in a moment about our new lease with GLPI, which is also subject to a modest and capped annual escalator. Given our strong financial positioning and our continued belief that there is significant dislocation between our stock price and our intrinsic valuation, we repurchased an incremental 5.35 million shares in the third quarter for $168 million or an average price of $31.40 per share. Subsequent to the end of the quarter, we repurchased an additional 1 million shares for $29.1 million at an average price of $28.95 per share. We currently have $211 million remaining under our $750 million authorization. Now moving on to some further details regarding the quarter. In the third quarter, corporate expense, inclusive of cash settled stock-based awards was $26.5 million. Our cash rent payments to our REIT landlords were $232 million, cash interest on traditional debt was $38.5 million, cash taxes net were $800,000 and total CapEx was $64 million, of which $1.9 million was project CapEx associated with our Category 4 Hollywood York and Morgan Town Casinos in Pennsylvania. Now regarding certain 2022 modeling items, we expect 2022 corporate expense of approximately $100 million, inclusive of our cash settled stock-based awards. Our total CapEx forecast remains roughly $300 million, of which $200 million remains maintenance CapEx and $100 million is return-generating discretionary projects, including the 3Cs our cashless, cardless, contactless technology, our Barstool retail sports book and hotel room renovations. As we’ve discussed in the past, we are continually evaluating our project pipeline and have many levers to pull to preserve free cash flow if we begin to experience the impacts of economic headwinds, while simultaneously maintaining the high-quality experience our guests have come to expect. For cash interest expense, we forecast $115 million for the full year 2022. Cash taxes will be roughly $60 million for the full year, net of refunds received. And for the fourth quarter, you should use approximately 173 million weighted average fully diluted shares which is before any incremental share repurchase we would make in the quarter. Finally, as it relates to the new growth projects we announced on October 10, PENN entered into an agreement with GLPI to create a new master lease, which would include the two new land-based facilities in Aurora and Joliet, Illinois in addition to Hollywood, Columbus and Hollywood, Toledo in Ohio, the M Resort in Las Vegas, the Meadows in Pennsylvania and Hollywood Perryville in Maryland. The new master lease will have a fixed annual escalator of 1.5% and the Columbus and Toledo properties will no longer be subject to the 20% variable rent structure. With that, I’ll turn it back to Jay.

Jay Snowden: Thanks, Felicia. Before I open it up to questions, Felicia referenced our exciting plans to relocate our riverboat casino licenses in Aurora and Joliet, Illinois a superior locations, where we’ll construct new land-based facilities in addition to building a hotel at Hollywood Columbus and adding a second tower at the M Resort in Las Vegas. We provided a good bit of detail on each of these projects in Slides 22 through 29, and we’re happy to provide more color, if you like, during Q&A. Suffice it to say, our casino properties remain at the core of our omnichannel approach to entertainment and these projects are consistent with our strategy to reinvest in and reimagine our properties. As I have noted, we are seeing our strongest results from properties that offer upgraded amenities that appeal to both the VIP segment and the younger segments of our database. And we are really excited about introducing brand-new land-based offerings in to Chicago land and an expanded footprint to capitalize on strong demand in Columbus and at the M Resort. We’re also grateful to have the ability to access attractive financing from our longstanding partners at GLPI of up to $575 million of the $850 million anticipated budget, and I also want to thank the city of Aurora, once again for committing $50 million toward the relocation project there. All four projects are expected to begin construction in late 2023, with the bulk of the spend in 2024 and early 2025. We are in a great position to be able to pursue these high-growth projects while preserving our cash position and overall leverage profile. And I’d like to conclude by talking a bit more about our interactive strategy and outlook. We have remained very consistent in our approach to this nascent opportunity, emphasizing products and organic customer acquisition over aggressive external marketing spend. But we’ve also learned a lot over the last couple of years and are constantly refining our strategy based on the latest data and of course, our experiences. While our third quarter results were noisy for the reasons we noted, we are very encouraged by the recent performance of our Interactive segment, which includes a profitable month in October, which, by the way, was an average hold month for us in online sports betting. I would specifically like to highlight our momentum with theScore Bet in Ontario, as you can see on Slide 18, which is one of the most competitive and valuable markets in North America. As we continue to invest in that market, we are seeing strong returns based on attractive customer acquisition costs and very compelling retention metrics. We attribute that success to several things, but certainly the most significant relates to the enhanced capabilities of our wholly-owned tech stack, which is generating tangible benefits to both our sports betting and iCasino offerings. As our product has improved, in particular, the advanced promotional features and bonusing features provided by our player account management system, we are seeing lower CPAs, more loyal customers and greater returns on our marketing spend and investments, something we think we can replicate in other markets here in the U.S. Through our experience in Ontario, we’ve identified some real opportunities to build market share once we migrate to our own tech stack in the U.S. in Q3, and of course, we’ll do that profitably. And we will be prepared to invest in those markets where we see attractive returns while maintaining a disciplined approach. We are also excited about our omnichannel advantages, which have been highlighted by our success in Kansas, driven by strong adoption from our mychoice database. This success positions us very favorably for Ohio, where we have a robust database from our four leading casinos and still plan to go live on January 1, as well as in Massachusetts, where our mychoice database will help supplement the very loyal Barstool audience in the state, and pending regulatory approval will be live in Q1 of 2023 in Massachusetts. All of this leads us to be very optimistic about our future. And with that, we’ll open it up to questions, Frank.

Operator: Thank you. Our first question comes from Joe Greff with JPMorgan. Please proceed.

Omer Sander: Hi, Jay and Felicia, Omar Sander on for Joe. Thanks for taking our questions. Relative to our estimates on the land-based front, the midwest, West and South were really strong, but the Northeast was maybe a little bit weaker. Is there anything specific to that market that stands out to you relative to your others? Is this more Pennsylvania? Or is it something else?

Jay Snowden: Yes. I think Pennsylvania is going to be the one thing to keep in mind. We’ve got two longstanding properties there, and we have two newer facilities there. So there’s some – a little bit of noise in Pennsylvania, but Todd, I’m happy to hand it over to you to answer that one.

Todd George: Thanks, Jay. Yes, you’re exactly right. It’s more from Pennsylvania, seeing some of the impact from some new competition coming in with the satellite casinos just kind of settling in. We’ve been fortunate in our new properties opening up in New York and Morgantown, being able to pick up some of that, but our existing properties at the Meadows and PNRC, we did lose some share there. So it’s pretty much isolated to those areas.

Omer Sander: Great. And one of your peers talked about higher labor cost pressure. I was wondering what you’re seeing across your portfolio, anything similar to any other markets as well that you’d call out?

Todd George: So it’s – it really comes down to what we’ve seen. The pipeline is back open now. More people are looking for jobs, so that has helped out. So there was a bit of a bump, I would say, early in the quarter. That’s really kind of settled in now. And then a lot of what we’ve been able to do with kind of you heard Jay talk about reimagining our properties. So we become a little more labor efficient just out of necessity. So we expect to carry that through as we move forward.

Jay Snowden: Yes. And I would just add one comment, which is we’ve been talking about what we believe our property level margins will likely settle in at. And we said at the beginning of this year that we felt like 37% over the course of the year was a good target. And Todd and our regionals and our property leaders have done a fantastic job. It’s been very consistent this year, which I think shows you that we’re managing all of these dynamics, in many cases, headwinds, though they’re not as significant as they were earlier in the year, but we’re managing those very effectively. Q1 margins were a little north of 37%, I think 37.1%. Q2 was 37.2%, Q3 was 37.3%. You will naturally see, I would ask everybody to keep in mind, you’ll see some natural seasonality into Q4, the margins will likely be down a little bit from 37%. But when you blend it all together for the year, we think 37% remains a good target for us.

Operator: Our next question comes from Shaun Kelley with Bank of America. Please proceed.

Shaun Kelley: Hi, good morning, everyone. Jay, I wanted to ask about sort of following up on online and digital. You mentioned the lower CPAs and seeing some opportunities to build market share once you get the tech platform stood up. My question is, sort of just as we sit here today, there’s been a lot of discussion about promotional rationalization in the online environment. You’ve obviously stayed the course thus far have been extraordinarily disciplined. And so the question is, is the product in a place where you can lean in today? Or do you really want to get the tech stack and maybe the iGaming offering a little bit further along before you push further on the marketing, maybe on the direct marketing side?

Jay Snowden: Yes. Great question, Shaun. This is something that we talk about internally all the time. And the answer is, it’s a bit bifurcated, right? Because in Ontario, we are currently live on our own player account management platform as well as now our own trading services, risk management platform. And we’re seeing the benefits of that. And so we’ve had an opportunity because we’re seeing such high retention levels in Ontario to continue to spend into that. And the cost per acquisition has been, I think, better the way, I would describe it, in Ontario than what we saw early in the U.S. And I think this year, even in the U.S., it’s better than it was a year ago. And we’ve been very consistent in our messaging that our strategy was to lean entirely on organic marketing, and database acquisition and feeding the funnel from our owned assets and our own brands and our own databases. And we’ve been doing that 100% in the U.S. In Ontario, we’ve been doing that, but we’ve also supplemented that with some additional marketing spend because we’re seeing really good results, as I just mentioned. So I would say, what you should expect from us is that we’re going to make continued investments for as long as we’re seeing those dynamics in Ontario. We believe we can grow market share profitably. We believe we’ve been doing that. It’s already our number one market. And we certainly stand to benefit, Shaun, next summer when we go live across the U.S. with that same tech stack and if the CPAs are attractive, and I think we would anticipate even higher retention value in the U.S. once we’re on our own tech platforms that you should expect to see something similar from us the second half of next year and into 2024. We’ll do all of this in a thoughtful way. We’ll be judicious in how much we spend and where we spend. We’re not looking to grow market share if we can’t do it profitably, but we’re seeing in Ontario that we believe we can once we’re on our own tech stack and have great promotional and bonus engine capabilities that we didn’t have previously that we can acquire customers, retain them and continue to grow our market share.

Shaun Kelley: Thank you very much.

Operator: Our next question comes from Barry Jonas with Truist Securities. Please proceed.

Barry Jonas: Great. We’re getting closer to when you could potentially – or when you could acquire 100% of Barstool. Just curious if we should expect to see any major changes once you do reach 100%.

Jay Snowden: Yes. We’re – we’ve already publicly made – we’ve committed to that purchase in February of next year, Barry, and there’s no changes in that plan. We’re very excited about owning all the Barstool. They’ve been amazing partners for us over the course of the last 2.5, almost three years now. And what I would say is from a media perspective, we’ll have a lot more to share once we close on that transaction, both with regard to how we’re thinking about opportunities to create synergies with our media assets. We’ve had a lot of really, really exciting meetings here of late, talking about advertising partnerships. And we do historically, on the casino side, we have done – and this is really an industry statement. Certainly, I’ll say it’s true for PENN. We have not done a great job of monetizing all the foot traffic and the eyeballs that are moving in and out of our properties and driving by our properties every day. We have a database now of over 25 million people in mychoice. We’ve never really partnered with any third parties on monetization opportunities and partnership opportunities. And the folks at Barstool and theScore, we have some of the best sales people in the sports media industry, and we think there’s great opportunities for us to grow that advertising and partnership revenue. And more to come, I would say, probably in the beginning of next year, we’re talking about guidance for 2023, there’ll be something in there for media assumptions. And throughout 2023, we’ll be sharing more and more of our plans, many of which we just haven’t publicized yet, but we’re working on hard behind the scenes.

Barry Jonas: That sounds great. And then just for a follow-up, I wanted to ask about the 3Cs as you continue the rollout, can you maybe talk more about the benefits you’re seeing or rather expect to see, Jay, is it more about driving volumes? Or is it really better analytics for marketing purposes?

Jay Snowden: Yes. I’ll let Todd – the answer is yes. I’ll let Todd answer that one.

Todd George: Tax, Barry, and thanks, Jay. Really, we could not be more excited about what we’re seeing to date with some big states here on the horizon. So as Jay said, it’s yes to both. The real winner in all of this is truly the guest, the customer, removing friction from their experience, not having to wait in line, just being able to kind of traverse through the property as they wish is really the overall driver. But then the analytics that we do pick up with behaviors and being able to engage with them more real time than waiting to hit them back in the mail after they depart the property. This provides us such a real opportunity to engage in the moment, which I think will benefit us as we move forward.

Operator: Our next question comes from Steve Wieczynski with Stifel. Please proceed.

Steve Wieczynski: Hey, guys. Good morning. Jay, so I wanted to ask about these the new growth projects? And maybe if you could help us or just remind us what the return metrics you’re targeting on those? And are those return hurdles the same pretty much for all four? Or are they somewhat different across the new projects that are out there? And then could you also help us think about are there more of these what we would call kind of add-on growth projects out there across your existing portfolio that could be explored moving forward?

Jay Snowden: Yes, all great questions. And these four that we announced about a month ago, these are projects that we’ve been looking at internally for years, in some cases, and there were a number of reasons, not worth getting into for why it didn’t make sense or we couldn’t pull the trigger in the past years. And it all came together for us for four that we are really excited about. And some look at Illinois and say, wow, there’s been a lot of supply addition there. Is that the right place? And what we’ve seen is that everywhere – I’ve mentioned this before, even in this current economic environment, the properties we have in the portfolio that are quality assets with best-in-class offerings and entertainment offerings that we don’t have at many of our smaller, older properties, we performed very well, and we’re not really seeing any softness from a database perspective. So for us, Illinois, we think both of these projects are going to be terrific in that they’re going to be new facilities, but not only are they new, but we’re moving those licenses from their current locations in both cases to much more attractive that are – locations that are right off the interstate and have visibility in the case of Joliet, part of a mixed-use development that’s going to include commercial and residential, we’ll be obviously one of the anchors there. And in the case of Aurora, we’ve just had tremendous partnership with the city. We’ve got a great location next to Simon Premium Outlet malls, one of their most successful malls in the country, a tremendous amount of foot traffic. There’s a very strong Asian business that goes into that premium outlet mall as well. And so we believe those two are going to be terrific projects for us, definitely more offensive than defensive, a little bit defensive, but certainly more offensive as the way to think about it. Columbus is one of our top-performing properties has been for years. We should have opened that property with a hotel, but we didn’t. But here we are. And there were some lease dynamics both with Columbus and Toledo that Felicia mentioned on rev share mechanisms that we now have resolved with the new lease with GLPI that allow us to think about growing those two properties and our database is there and growing our revenues and our EBITDA as well. So feel really good about that. And then M Resort, we’ve needed more rooms there for years. That part of the Las Vegas Valley is growing like crazy when you fly in, you just see all the rooftops continuing to go up surrounding the property there. So all four, we feel really good about the return profile individually, Steve, to your question. We also feel collectively that these four projects will deliver a free cash flow return that’s higher than where our stock is currently trading. And that’s sort of the way we think about it is if we can deliver a better return, do you continue to buy back shares, do you invest in growth projects. In this case, we can do both because our balance sheet and free cash flow generation allows us to. And so it was a great opportunity for us to grow the – what’s really the core of our omnichannel strategy, our retail casinos and to upgrade two of our facilities that are tired and dated and to expand at two of our properties that are high-growth markets and high-growth assets for us. I would say – yes, sorry. And then the last part you said is more to come. I would say, yes, stay tuned where we have a number of other properties that are high growth, where we’ve just really maxed out on the hotel side. We could use more rooms. And then we’ll continue to invest on the gaming floor and the nongaming amenities and 3Cs and hotel renovations. But I think in terms of hotel expansion, there’s probably a couple of others that we could potentially pursue in the coming quarters or years.

Steve Wieczynski: Okay. That’s great color, Jay. And then you talked a lot about that younger demographic that you’re seeing kind of coming into the properties and whatnot. I don’t know if you have the data or not, but is there any way to help us think about what that spend level looks like for that younger demographic versus the rest of your traditional database. And I assume what you’re trying to do here is just get that younger demographic in your ecosystem, let them kind of grow from there, let them mature and watch their spending ability move higher and just try to capture that person over time? Is that kind of the right way to think about this?

Jay Snowden: It’s exactly the right way. And I’ll let Todd answer your question. I was just – as you’re thinking about – and we try to share this with some real color and visibility for all of you on a quarterly basis because – it’s very exciting. All the things that we talk about and what’s going on in the business right now, the one that we are most positive and encouraged by at PENN is that, that 21 to 44-year-old age segment, just a few years ago, it was a little over 10% of our revenues, and now it’s approaching 20%. And that’s moving the titanic quickly. And so you think about the LTV associated with those customers, if they might be lower spend today than the older age segment, but getting them into the ecosystem, really working on the relation, cultivating the relationship, generating a loyalty factor and then continuing to stay close to them on the relationship side through the years is where the real value is. Todd, anything you want to add?

Todd George: Thanks, Jay. Yes, just in response to your question, I look at it a little bit looking on a per-trip basis. So when you think about our overall database, we are seeing increased visitation in this 21 to 44 group. But where we’re really starting to close the gap. And traditionally, that 21 to 44 and then the 45 to 54, 55 and above, it just goes up sequentially. They all spend a little more per trip. And there used to be a pretty decent delta between that younger group and then the older groups. We’ve been able to close that delta. So on a per-trip basis, they’ve been coming in, a lot of that relates to their level of engagement with our properties and the offerings that we have. So it’s not only the gaming experience, it’s also the way they’re looking at dining, the way they’re looking at lodging. So that will be the focus as we move forward. It’s seeing decent growth on a trip basis, but the spend per trip is where we’re really making significant headway.

Operator: Our next question comes from Ryan Sigdahl with Craig-Hallum Capital. Please proceed.

Ryan Sigdahl: Good morning, Jay, Felicia. I want to start with Interactive, so I think I cut it right that you said positive in October and Q4, but can you confirm that? And then also kind of your confidence in that inflection in Q4 and for 2023 relative to maybe where you were three months ago?

Jay Snowden: Yes, happy to – we did mention in the release in our prepared remarks that we were profitable in October. And that – and I’ll reiterate again that was with an average hold percentage that wasn’t over holding. We actually got beat up pretty good the last Sunday of the month. So it was not hold driven, which is, I think, encouraging. We anticipate being profitable in Q4. I would say that there’s a couple of factors to keep in mind for Q4. One is we’re going to have – very likely, we don’t have a date yet, but we’re going to have a Maryland state launch in Q4. It’s looking like sometime in November. That hurts a little bit on the EBITDA side as you’re continuing to see the initial dollars, the deposit match dollars work their way through the system. There’s usually 1.5 months to two months period of time where they’re working through that. So that will impact a little bit to the downside. But obviously, we’re going to invest in state launches. Ohio is going to go live on Jan 1. There will be some spend in December leading up to that go-live date of Jan 1. So there’s two factors that will hit Q4 a little bit in the last two months of the quarter. And then the other factor is, and we haven’t publicized this, but I think others have noted it. We’re part of the Mattress Mack World Series bet. So you’ve got a couple of million on the line with us that would pay up $10 million. So go fills for sure. And I think if Mattress Mack doesn’t hit, we’ll be profitable Q4 if he does, then it will probably be closer to breakeven-ish somewhere in that range.

Ryan Sigdahl: Great. Then just one follow-up on – so it’s seen some nice early positive player metrics from your CCC initiatives. Curious what else is in the pipeline kind of in the near-term than over the next several years that you’re excited about to kind of greater integrate the online and land-based experiences. One that comes to mind is shared wallet across online and land, but maybe talk to that and then anything else that you’re excited about? Thanks.

Jay Snowden: Yes. Thanks, Ryan. Yes, look, shared wallet, I’ve mentioned before, I think on our last call, that is – that’s a huge piece for us. Likely a 2024-ish event. We’re really focused right now on tech migration, bringing that back to the – bringing the tech platforms that we’re live on in Ontario back to the U.S., going live next summer, really thinking about how we want to leverage that to profitably grow our market share in the second half of 2023 and into early 2024. Behind the scenes, we are already working collectively between our land-based operators and technology folks and engineers along with the team we have at Interactive in theScore to plan for the future. So we’re not making decisions now that will hurt us in our quest to get into one consolidated wallet across all of our offerings. So that’s probably the one that I think is nearest, Ryan, after you think about tech migration. But as it relates to omnichannel, I think – look, from my perspective, it’s sort of a must, it’s table stakes that you have to be able to offer your customers one wallet and then they can move seamlessly throughout your ecosystem, whether those are online offerings, those are retail offerings. And so a high priority for us and we got some other things that we’re talking about internally that I think we’ll be ready to share in early 2023 and on from there.

Operator: Our next question comes from David Katz with Jefferies. Please proceed.

David Katz: Hi, good morning, everyone. Thanks for taking our questions. Interested in the demographic dynamic that you’ve been talking about in today. Have you indicated like what catalyzed that or what started it? Like where did it come from? Because that seems to be not coming – not something we’re hearing much of from your peers?

Jay Snowden: Yes. David, I would say a couple of things about that. And Todd and Felicia please jump in anything that I missed or you want to add in color. I think we’ve been really focused on this for the last several years. Two things obviously helped a lot. One is COVID. And the way that COVID helped certainly was that when we reopened – so we closed all the casinos, as you know, in March of 2020. We started reopening them in May, June, July time frame of 2020. And when we did, we were one of the very few entertainment destinations that was open at that time. And so we saw an influx of younger demographics come in. Of course, our focus at the time was we got to get them into our loyalty program, we have to build relationships. And so we worked very, very hard to do that. Otherwise, they come in, if they don’t have – they’re not in your loyalty program, they leave and you don’t know how to contact them on the back end. So I think our property teams did a great job of getting people signed up into our loyalty program. And that was a big opportunity for us, but we want to make sure we didn’t lose them. And as I’ve mentioned previously, with all the growth that we saw in those younger segments in 2020 and 2021, you see in the slides that we provided, we’re showing now growth – on top of growth here in 2022, which I think is very exciting and showing that we’re not losing these customers. We’re actually continuing to grow the relationship and grow that segment in quantity as well. The other factor, of course, is online sports betting legalization in May of 2018, and we ended up going live in the fall of 2020 and we were actually looking at this the other day, which is, I think, really fascinating that if you look at the number of customers that we have been able to grow, we’ve been able to bring into the database from our interactive offerings. Our online casino, we have 80%-plus of our total revenues are coming from people between 21 and 44 years old. And if you look at online sports betting, it’s 90% between 21 and 44 years old. So we’re obviously bringing in younger customers through our interactive offerings, particularly online sports betting, but no doubt post-COVID being able to bring customers into our casinos and building relationships with them was another contributing factor. And of course, the big opportunity is what does that loyalty look like when you look 2 years, 5 years, 10 years down the road that we’re most excited about.

Todd George: Yes. Jay, the only thing I would add is to your point, when everything else was closed and we were the one that was open, we did see this inflection that it became more a – the problem we were solving is how to retain them. And in the past, maybe we looked at sports and concerts and everything else is kind of competition for that entertainment budget, that discretionary budget. Then we start to view them more as a partner. So then it became how do we offer better entertainment, how do we unlock experiences with professional sporting events. And I think that all led to people viewing the casino experience more as an entertainment experience. And then to Jay’s point, this year, our growth in people that engage with us across multiple channels. So a casino experience and then an online experience is up over 25%. So we’re seeing more people engage with us across multiple channels, which really helps us create royalty as we move forward.

David Katz: Understood. And if I can follow that up, Jay, when we last talked to the group at G2E, there was discussion about cultivating the rebranding of PENN and reimagining the loyalty program and that obviously comes on the heels of what you’re doing technology-wise. I assume that this younger demographic is a part of that re-imagination of all of this stuff and repositioning of all of this, and you’re comfortable that it’s something that’s durable over the long-term.

Jay Snowden: That’s exactly right, David, and we’ll have more to share on the loyalty program, evolution and rebranding in early 2023. We’re hard at work right now on what that is. And we are definitely thinking about it. We’re whiteboarding what a loyalty program should be in the gaming and interactive and entertainment business as opposed to starting with what has it been. And I think we’re – you should expect to hear more from us on that, but you should also expect to hear some new things even in how we’re thinking about the program and what it’s called and the vernacular around the points that you have and what you can use them for. And we’re really trying to deconstruct and then build this up the way that it should be for the long-term, keeping not just younger folks in mine, but all of the demographics and how we can appeal to customers that we don’t currently have within our ecosystem.

Operator: Our next question comes from Jason Tilchen with Canaccord Genuity. Please proceed.

Jason Tilchen: Yes. Good morning, and thanks for taking the questions. In the prepared remarks, Jay, you talked about the average hold rate for digital in October. I’m just wondering if you maybe comment on Q3. How much of the growth in digital was driven by favorable outcomes. And in terms of in Ontario, you talked about the really strong performance there, the partly mix or the in-game mix was any different in Ontario than versus the U.S. due to the tech stack being in-house versus outsourced?

Jay Snowden: Yes. Happy to Jason. Q3, I think it’s been well noted football season. We had a good – I think it was three weeks in the month for NFL and four weeks for college football. So hold work in our favor. July and August, I don’t recall really being noisy one direction or the other. So probably average-ish hold. So sort of take that for what it’s worth. I don’t have in front of me what the impact was. It wasn’t really material for us, given it was really just three weeks of the quarter. I do think that when you’re looking at Ontario, and the fact that October – and again, this is still early. We’ve been on our own tech stack now for just really for football season for all intents and purposes. But we are seeing really, really strong parlay play. We’re starting to build out our in-game parlay offerings. So you’ll see more from us on the parlay side where we’re launching several in-game parlay features here in November, and going to have all the major sports covered before the end of the year. So as good as the results have been in Ontario, that’s with us sort of fighting with one arm tied behind the back. We don’t have all the same offerings that everyone else has, but we are continuing to grow daily active users, monthly active users, handle and our GGR as we show on Slide 18. We’ve got great momentum in the business there, and you should assume that that’s all happening, that that market share is continuing to grow and that we’re doing that in a profitable way. And we are seeing a slightly – again, it’s early, a slightly higher hold percentage in Ontario as it relates to online sports betting than we are here in the U.S. given that we’re on our own tech stack, and we can really think about how we target parlay betters versus money line betters differently in Ontario, and we’ll be doing obviously more of that in the U.S. once we migrate over next summer.

Jason Tilchen: Great. That’s really helpful. And just one quick follow-up on Kansas. You talked about the really strong customer acquisition there and depositors. Is there anything you can call out that you did differently in terms of marketing tactics or anything – and anything that you can take from learnings from there and apply those in Maryland or Ohio or Massachusetts?

Jay Snowden: Yes, for sure. And Todd will speak to this. I mean, Kansas is a smaller population state, so we prefaced all of our comments with it’s on a per capita basis. But when you look at what we’ve been able to do there in terms of sign-ups and deposits and then cross-selling to our casino mychoice database, it’s been our best launch to date when you combine retail and online sports betting. So for sure, there’s learnings there that Todd can cover that will apply to Ohio, Maryland, Massachusetts and elsewhere.

Todd George: Thanks, Jay. Yes. So we jumped out a little bit earlier and we’re able to mobilize our mychoice database. You see that called out on one of the slides and in the comments where a lot of the people that have been engaging with us through the sports book have come right from our mychoice database. So getting that out there early, creating that education process, working through how to download the app, how to engage with us, helped out a tremendous amount. And then I would say the other real big impact for us and it really goes back to that omni-channel opportunity that we’ve created, almost 27% of our new accounts at our Kansas property have been created since the launch of the Sportsbook. So total new accounts for the property have jumped significantly just since launching the Sportsbook and then finding new ways to engage with them, whether it’s online or coming into our property. We’ve seen great results doing that, which, again, as Jay mentioned, the population base and the size of our database for Ohio, we feel very optimistic as we go in there, applying these learnings to that state.

Jay Snowden: And last comment and I know everyone is aware of this, but the fact that Barstool started in Massachusetts, we think that’s going to give us a huge advantage in addition to our casino database in the state there in Q1 when we go live. And Ohio is another state that Barstool has always over-indexed. And so we anticipate between our four assets and the database that Todd referenced in addition to the Barstool sports strength of the brand there. These are going to be very good states for us.

Operator: Our next question comes from Bernie McTernan with Needham & Company. Please proceed.

Bernie McTernan: Great. Thanks for taking the question. Just wanted to double check if that $50 million for interactive losses still made sense for the year. I don’t think so given the prior commentary, but I just wanted to double check. And then as other competitors reporting better-than-expected profitability, I’m not sure if it’s too early to call this U.S. sports betting 2.0, but do you think there’s any broader industry implications or implications for your relative positioning in the industry?

Jay Snowden: Very good questions. With regard to the 50, I think just based on the payment processing fee of $8 million, which was not anticipated going into the quarter, in addition to a couple of state launches, I think that number is probably not the right number to use. But as Felicia mentioned in her prepared remarks, if you look at the mid-point of our guidance, we expect to come in a little bit ahead of mid-point for both revenues and EBITDA for the fourth quarter and for the remainder of the year when you look at the total year results. So I think if you do the math there, you’re looking at interactive probably coming in slightly positive in the fourth quarter, add that to where we are Q1 through Q3, and that’s probably where you should be for the year and where you should be for the fourth quarter. I think as it relates to the industry sort of 2.0, it’s a good way of putting it, I think. There is a lot more focus right now on profitability, which I think is great for the industry, all of us. And we’ve always said that we’ve been focused on a profitable model from day one. We’ve really leaned hard on organic marketing and tapping into this great ecosystem that we have and moving people throughout that ecosystem through cross-sell. That’s the magic of what we’re doing at PENN, termed omni-channel. It’s an overused term today, but I think we have the ability to really execute on that well from a technology, from an owned database perspective and from partnerships that have proven to work so far. I think as the rest of the industry continues to focus more and more on profitability, that’s probably going to open the door for us as we’re starting to see even already in Ontario that CPAs will likely continue to look more attractive. And we have the ability to lean into that when and where it makes sense. We will not do that in the U.S. until we’re live on our own tech stack. So you shouldn’t expect to see us pushing forward with that strategy. We will support state launches, of course, three coming up here in the coming months, and we’ll continue to push forward and lean into what is attractive CPA and retention results in Ontario and eventually the second half of 2023 in the U.S. as well, which will be great for us, continuing to grow our market share profitably over time.

Bernie McTernan: Got it. And then Jay, given the strength of the media integration in Canada and your strong financial position. Are you strategically complete with your media assets with theScore and Barstool? Or could you look to expand either through M&A or partnerships? And if so, what kinds of assets could be interesting for you guys?

Jay Snowden: Yes. I would say we don’t have – we don’t feel like we’re missing anything currently. There’s no hole in the game, so to speak. So nothing that I’d really share with you today that we say it’s on the radar. We’re always – we’re a very curious bunch at PENN. So we’re always looking and engaging with media companies, whether they’re for sale or not, but thinking about interesting partnerships potentially. We do the same thing in other areas of entertainment and live music. And so we’re going to – I don’t know where that takes us long-term. I do know that our strategy overall is really focused on the broader entertainment area, and that’s not just sports betting, it’s not just retail casinos. There’s a lot that we can do with our fan base and audiences and databases across the casinos in our media assets. So I would say stay tuned, nothing missing today, but we’re always looking for opportunities to create value as we look down the road over the next three, five years.

Operator: Our next question comes from Jordan Bender with JMP Securities. Please proceed.

Jordan Bender: Great. Thanks for taking my questions. Kind of to piggyback on that last question. It’s pretty well understood that the casino database is a pretty good cross-sell for online. I think in Canada, can you see yourself buying land-based Canadian assets to kind of bolster that omni-channel presence up there?

Jay Snowden: Who knows? Who knows? I – we’re not – there’s nothing imminent. We’re not going to comment on – we’re not looking at anything right now. So I guess I can comment on that. But what I rule out that we would look at land-based assets in Canada. There’s two large Canadian-based companies up there. We would never rule that out. I wouldn’t rule much out as you talk about the future and there’s always maybe is around these types of questions. So could that help overall in the strategy given how important and effective omni-channel has been for us in the U.S.? Sure. I think that could make some sense for us. But we’re not engaged in any conversations right now. There’s nothing imminent. It could be interesting if the right opportunity presented itself at the right price at the right time.

Jordan Bender: Great. And then just my follow-up. You’ve talked about your in-house content and the impressive growth that you’ve seen over the last couple of quarters. Can you just kind of talk about how your in-house games are performing or metrics versus maybe some of the third-party content on your platform?

Jay Snowden: Yes. We’ve shared a little bit in the slides here that just show you the continued growth in handle on our homegrown proprietary games. And we’re seeing – and I don’t have the stats in front of me, but the last time we looked, we were seeing in New Jersey that over 20% of our total handle was coming from games that we created, particularly the digital Blackjack games. We now have side bets. We have those branded with the different IP collection that we have at PENN. So we’re really encouraged by that. It’s interesting because as an industry, we’ve tried in the past, have come up with proprietary game themes working with third-party manufacturers for the land-based casinos and they always failed, like 100% of the time. So it’s encouraging to see that we can create games and that we can actually do this in some cases better than some of the third-party content providers. So that keeps us pretty encouraged for what we’ll be able to do down the road. We just launched a new Roulette product that I – we mentioned in our slides, we’re now developing multi-line video slot content. And so more to come, but the early impression that we’re getting is that we can be successful at doing this, and we think we can create more games more rapidly down the road.

Operator: Our next question comes from Joe Stauff with Susquehanna. Please proceed.

Joe Stauff: Good morning, Jay, Felicia. I just had two questions. I guess, one, and I apologize if you answered this, I didn’t hear it, but can you provide maybe like a quarter-to-date kind of trends and what you’ve been seeing certainly in some of your markets? Has there been naturally any change in terms of where the quarter came in? And then secondarily to that, I’m curious to another question on Slide 9 and the customer segments, I think based on your commentary, it’s fair to conclude that most of the increase in these younger customers has naturally come from online sports betting, which skews very male-oriented. And I was wondering kind of where you are in the strategy to maybe attract the digital slots customer or the traditional kind of retail slots customer within that younger demographic?

Jay Snowden: Yes. Great question. This is the second one in particular, I’ll quickly answer the first one, which is that quarter-to-date, which is really October. I mean we’re at day three of November here. Trends are very consistent with what we saw in Q3. Again, I’ll highlight that there is seasonality. Just remember that as you’re looking historically at what gaming revenues and EBITDA and margins look like they’re usually as a bit of a drop off from the first three quarter average to the fourth quarter. That will likely happen again here in 2022. But the trends have been very, very consistent. We’re very happy with our October results on the interactive side. We’ve already covered that. So feeling good, honestly, as we sit here today, and we get asked the question, it seems like daily from some constituencies around what’s happening in the business. And the answer is things look good and things look consistent. They’re stable promotional environment as rational, competitive environment is predictable, but everybody’s got their own narrative on what it’s going to happen soon. So I don’t really know what you even do with our answer, but that is the answer. With regard to the younger segment, a lot of that growth, as you highlight, is younger men who are coming into the system through online sports betting, but there are also a large number. It’s not the majority, but there are a large number of younger women coming through as well with online casino. We obviously are getting better and better, both with regard to third-party content as well as starting to develop our own slot content. And I think as we get better and we have a broader library of games, you’ll continue to see that demographic for us grow. But as good as these results are, they’re definitely more male skewed today. So as we get, I think, better at what we do on the slot side, we think this growth can really continue from both the male audiences and the female audiences.

Joe Stauff: Thank you.

Jay Snowden: And Frank, I think we’re out of time. So I’m going to thank everybody for joining us this morning. I know it’s busy a lot of companies have earnings calls this morning. Great catching up with everybody. We look forward to speaking with you next quarter.

Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.