PENN Entertainment, Inc. (NASDAQ:PENN) is North America's leading provider of integrated entertainment, sports content, and casino gaming experiences. The company operates 43 properties in 20 states, online sports betting in 19 jurisdictions, and iCasino in five jurisdictions, under a portfolio of well-recognized brands including Hollywood Casino®, L'Auberge®, ESPN BET™, and theScore BET Sportsbook and Casino®.
Financials
In 2023, PENN reported annual revenue of $6,362.9 million and a net loss of $490.0 million. The company generated annual operating cash flow of $455.9 million and annual free cash flow of $74.0 million. For the first quarter of 2024, PENN reported revenues of $1,606.9 million, a net loss of $114.9 million, operating cash flow of -$68.7 million, and free cash flow of -$47.3 million.
Business Overview
PENN's diversified portfolio of regional gaming facilities has provided a solid foundation for future growth opportunities. The company's focus on organic cross-sell opportunities is reinforced by its market-leading retail casinos, sports media assets, and technology, including a proprietary state-of-the-art, fully integrated digital sports and iCasino betting platform and an in-house iCasino content studio.
In August 2023, PENN entered into a transformative, exclusive long-term strategic alliance with ESPN, Inc. and ESPN Enterprises, Inc. (together, "ESPN") relating to online sports betting within the United States. This partnership allows PENN to leverage the leading sports media brands in the United States (ESPN) and Canada (theScore) to expand its footprint and efficiently grow its customer ecosystem.
PENN's ability to integrate its retail gaming, online sports betting, and iCasino businesses is central to its highly differentiated omnichannel strategy. The company's industry-leading PENN Play™ customer loyalty program, which offers over 30 million members a unique set of rewards and experiences across business channels, further strengthens this strategy.
The majority of PENN's real estate assets are subject to triple net master leases with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI), a real estate investment trust (REIT). These leases, including the AR PENN Master Lease, 2023 Master Lease, and Pinnacle Master Lease, provide the company with a stable and predictable occupancy cost structure.
PENN's geographic diversification is evident in its reportable segments: Northeast, South, West, Midwest, and Interactive. In the first quarter of 2024, the Northeast segment contributed $684.7 million in revenue, the South segment contributed $298.5 million, the West segment contributed $128.8 million, the Midwest segment contributed $291.2 million, and the Interactive segment contributed $207.7 million.
The company's gaming revenues are primarily derived from slot machines, which represented approximately 85% of gaming revenue in the first quarter of 2024, with the remainder coming from table games, online sports betting, and iCasino. Food, beverage, hotel, and other revenues accounted for $348.6 million in the first quarter of 2024.
Recent Developments
During the first quarter of 2024, PENN's gaming revenues decreased by $66.3 million compared to the prior year period, primarily due to a decrease in slots and table games revenues within the South and Northeast segments, as well as a decrease in online gaming revenue at the Interactive segment. The decrease in online gaming revenues was due to unfavorable sports betting hold rates and increased promotional expense related to ESPN BET.
Food, beverage, hotel, and other revenues remained flat in the first quarter of 2024 compared to the prior year period, as increases in hotel and other revenue were offset by decreases in advertising and retail revenue.
PENN's operating expenses increased by $154.1 million in the first quarter of 2024 compared to the prior year period, primarily due to increased marketing expense within the Interactive segment related to ESPN and higher labor and other gaming costs driven by increased ESPN BET volumes. These increases were partially offset by decreases in gaming expenses at the company's retail properties due to the decline in gaming revenues.
The company's net loss of $114.9 million in the first quarter of 2024 was primarily driven by the decrease in revenues and the increase in operating expenses. PENN's effective tax rate for the quarter was 14.8%, lower than the statutory federal tax rate of 21%, due to non-deductible executive compensation, tax credit utilization, and a decrease in the company's valuation allowance.
Outlook
Looking ahead, PENN expects its Retail segment to generate revenues of $5.61 billion to $5.76 billion and adjusted EBITDAR of $1.88 billion to $2.0 billion for the full year of 2024. For the Interactive segment, the company expects revenues of $1.02 billion to $1.07 billion and an adjusted EBITDA loss of $475 million to $525 million in 2024, which includes the launch of the company's operations in New York prior to the start of the football season.
Liquidity
PENN's balance sheet remains strong, with $903.6 million in cash and cash equivalents as of March 31, 2024, and a fully undrawn $1.0 billion revolving credit facility. The company's long-term debt, net of current maturities, debt discount, and debt issuance costs, stood at $2.7 billion as of the same date.
The company's capital expenditures for the first quarter of 2024 were $41.4 million, with $19 million allocated to project-related CapEx, primarily for the company's four development projects. For the full year 2024, PENN expects total CapEx of approximately $500 million, including $275 million in project-related CapEx.
Conclusion
PENN's strategic focus on the convergence of sports media and sports betting, coupled with its diversified portfolio of regional gaming assets and industry-leading customer loyalty program, positions the company well for long-term growth and value creation. The company's partnership with ESPN and its ongoing investments in technology and product enhancements are expected to drive improved financial performance and market share gains in the coming years.