PENN Entertainment Inc (PENN) Q2 2024 Earnings Call Highlights: Strong Market Share Growth and ...

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  • Retail Revenue: $1.4 billion for the second quarter.

  • Adjusted EBITDAR: $497 million for the second quarter.

  • Interactive Segment Revenue: $151 million, a 65% sequential improvement over the first quarter.

  • Interactive Adjusted EBITDA: Loss of $103 million, improved by $93 million quarter over quarter.

  • CapEx: Total of $88 million for the quarter, with $43 million allocated to project CapEx.

  • Total Liquidity: $1.9 billion, including $878 million in cash and cash equivalents.

  • Retail Revenue Growth: Over 6.5% year-over-year increase at Hollywood Casino at Greektown.

  • Market Share Growth: 90 basis point increase year-over-year at Greektown.

  • PENN Play Database: Over 31 million members, with 3.8 million in the digital database.

  • Monthly Active Users: 138% year-over-year increase.

  • Parlay Mix: 24.2% of total handle in Illinois for ESPN BET.

  • Cash Interest Expense: Projected at approximately $175 million for full year 2024.

  • CapEx for 2024: Approximately $500 million, including $275 million for project CapEx.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • PENN Entertainment Inc (NASDAQ:PENN) reported strong market share growth in several markets, including Ohio, Maryland, and Iowa.

  • The company saw a 90 basis point increase in year-over-year market share growth at its Greektown property, driven by recent renovations and the introduction of an ESPN BET retail sportsbook.

  • PENN's interactive segment achieved record quarterly net gaming revenue (NGR), with a 65% increase compared to the first quarter.

  • The PENN Play database expanded to over 31 million members, with a significant increase in digital users since the launch of ESPN BET.

  • PENN Entertainment Inc (NASDAQ:PENN) is making progress on new growth projects, all on budget and on track to open by the first half of 2026.

Negative Points

  • The interactive segment reported an adjusted EBITDA loss of $103 million, despite improvements from the previous quarter.

  • PENN Entertainment Inc (NASDAQ:PENN) faces challenges in key feature categories such as parlays and player props, which they are working to improve.

  • The company anticipates a peak in lease-adjusted net leverage in the third quarter of 2024 due to past interactive segment losses.

  • PENN's guidance reflects the impact of higher online sports betting gaming taxes in Illinois and severance charges from recent workforce reductions.

  • The company is navigating ongoing competition and new supply in the retail sector, which could impact future performance.

Q & A Highlights

Q: How is PENN Entertainment approaching customer acquisition for the upcoming college football season, and how does it plan to leverage its partnership with ESPN? A: Jay Snowden, CEO, explained that PENN's customer acquisition strategy is built into their guidance for the year. The company plans to focus on top-of-funnel growth through its partnership with ESPN, leveraging deep integrations in ESPN's media app and Fantasy products. This approach is expected to drive engagement and reactivation of existing users, particularly those who bet on football.

Q: Can you provide insights into the performance and margin expectations for PENN's brick-and-mortar operations for the remainder of the year and into 2025? A: Todd George, EVP of Operations, noted that margins have stabilized in the 34% to 35% range. Despite some disruptions, the company expects stable margins for the rest of the year and into 2025, supported by technology initiatives that offset payroll increases and revenue growth from property improvements.

Q: What is the status of the Pennsylvania Supreme Court case regarding skill-based games, and how might it impact PENN's operations? A: Jay Snowden, CEO, stated that PENN is actively opposing the expansion of skill-based games, which resemble slot machines. The company believes it has a strong position in the court case and is aligned with the industry in fighting against these games' expansion. However, there is no specific timeline for a ruling.

Q: How is PENN Entertainment planning to enhance its ESPN BET product, and what role will ESPN's new NBA deal play in this strategy? A: Aaron LaBerge, CTO, highlighted that PENN is focused on integrating ESPN BET with ESPN's digital platforms to create a seamless user experience. The new NBA deal allows ESPN to incorporate more betting content, which PENN plans to leverage for deeper user engagement and personalized betting experiences.

Q: What are the expectations for PENN's interactive segment, particularly regarding promotional spending and hold rates? A: Jay Snowden, CEO, mentioned that promotional spending as a percentage of handle decreased from Q1 to Q2, contributing to improved hold rates. The company aims to maintain a mid-market promotional reinvestment rate of 2% to 3% of handle, with potential for further improvement as product enhancements are rolled out.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.