Earnings Call: Q3 2019

Oct 31, 2019

Quarterly report

Greetings, and welcome to the Penn National Gaming Third Quarter Earnings Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. I would now like to turn the conference over to Mr. Joe Jaffoni, Investor Relations. Please go ahead. Thank you, Kamika, and good morning, everyone, and thank you for joining Penn National Gaming's 2019 Q3 conference call. We'll will get to management's presentation and comments momentarily as well as your questions and answers, but first I will 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 terminology 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 ks and 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, Tim Wilmot. Tim? Thank you, Joe, and good morning, and welcome to our Q3 2019 earnings call. After I provide my introductory comments, it will be followed by our Chief Operating Officer, Jay Snowden and then our Chief Financial Officer, BJ Fair to provide their respective comments. And then we'll open up the call to questions. First, I'd like to talk about our Q3 performance. We delivered EBITDAR of $407,900,000 against guidance of $408,800,000 The $900,000 offset is primarily driven by the performance of our Plain Ridge Park license, Given the effect of heavy promotional spending we're seeing out of our new competitor in Boston, we had slightly less EBITDA results out of Plain Ridge Park than we expected when we provided guidance. Other than that, we had a very solid third quarter. And in fact, if you look at our EBITDA margins, we delivered a 100 basis point improvement year over year our profit results. I did want to highlight operationally, and Jay is going to give more color after me, that we certainly are seeing a trend that we've reflected now in our Q3 results and our Q4 guidance that we continue, especially in our newly acquired properties, to refine our marketing reinvestment at the lower end of our rated segment. And the result has been lower revenues than we expected, but improved profitability. So that's why we provided guidance in the Q4 on the net revenue side below what we previously provided, but maintained our EBITDAR number for the Q4 based on our continued refinement of our marketing reinvestment, which is in large part how we're delivering higher EBITDA margins. Moving on to an update on Pinnacle synergies, they remain unchanged. $120,000,000 in cost synergies, half be realized in 2019 and the other half in 2020. Revenue synergies of between $15,000,000 $20,000,000 to be realized in 2020 2021. I did want to highlight that in the 3rd quarter, we were successful in implementing our My Choice reward program among all of our newly acquired properties with the exception of Greektown, which will be in the Q1 of 2020. Update on sports betting. I'm pleased to report that we opened up prior to football season retail sports book operations in Council Bluffs, Iowa East Chicago, Indiana and Lawrenceburg, Indiana. And they've proven to be very successful openings in all three of those locations. A couple of weeks ago, we opened up our retail sports book at the Meadows Casino in Western Pennsylvania. And we also, in the 3rd quarter, launched our iCasino product, Real Money Gaming Internet product in Pennsylvania with encouraging early market share results. I would want to caution given the high tax rates in Pennsylvania that they'll have modest EBITDA results, but we did successfully launch that product in the Q3. Also in Pennsylvania, we continue on the Category 4 casino developments in Morgantown were under construction. Steel is up in the air and we'll begin construction in York, Pennsylvania very, very shortly. Both of those Category 4 developments are expected to open in the Q4 of 2020. And to remind everyone, the combined investment for Boat is about $230,000,000 and that's inclusive of the license fees we've already paid to state of Pennsylvania. Finally, I want to touch on, as we've mentioned in previous calls, our free cash flow generation and how we're utilizing that free cash flow. Pleased to report that we reduced traditional debt by almost $100,000,000 in the Q3 of this year. Our leverage on traditional net debt is now 2.5 at the end of the 3rd quarter, and our lease adjusted leverage is now 5.6 as we continue to work our way down to the low 5s, 5.0 by the end of 2020. I'll be back to answer questions the audience may have after we hear comments now from Jay and BJ. Jay? Thanks, Tim. Good morning, everyone. We're pleased to report 3rd quarter EBITDA results that were largely in line with consensus and guidance, this despite a couple of weather related headwinds in Council Bluffs and Lake Charles due to continued flooding as well as construction disruption at our Meadows property in Pennsylvania and as Tim mentioned an elevated promotional environment in Massachusetts initiated by a new entrant to the market. All of this was offset by solid performance from our best in class operators across the rest the portfolio and our hats are off to them once again. Moving to a couple of My Choice updates as well as database trends. My Choice, as Tim mentioned, is now live across all of our regional assets with the exception of Greektown, which is coming soon in 2020. MyChoice is also live and fully integrated all of our retail sportsbooks in West Virginia, Pennsylvania, Indiana and Iowa, as well as with our Real Money Gaming iCasino product in Pennsylvania, hollywoodcasino.com, and we believe this is helping to drive impressive early results in trial in all cases. Database trends in the Q3 were consistent with prior quarters. Spend per visit was higher year over year across all of our worth segments. Visitation was softer at the low end worth segments due to our continued focus on profitability, while solid everywhere else. Lastly and importantly, we continue to see growth from the unrated segment of our database. Now transitioning to more detail on sports betting and the sports that we have been open now for over a year, such as our Charlestown property in West Virginia, we're seeing significant year over year growth over 50% in sports betting handle and win through the 1st 2 months of football season. Though I would note last night was not kind to us at Charlestown with the local Washington Nationals winning the World Series. The introduction of sportsbooks to no one's surprise has not had a noticeable impact on our slot business. However, the opposite is certainly true with regard to table games. Our properties that have been live with retail sportsbooks in the last 15 months have experienced an average of 15%, 15% year over year growth in table game revenue post launch. Food and beverage covers and revenues have also been positively impacted at the properties and perhaps most encouraging is how complementary and incremental this sports betting demographic has been to the profile of the vast majority of customers in our existing retail casino database. In fact, most of the table games and food and beverage growth at these properties has been driven by visitation and spend from new and reactivated guests to our properties. And finally, while still early, we are pleased with our initial market share results with our iCasino product in Pennsylvania. We were the 1st to go live and we are fully integrated with our player affinity program, My Choice, So you can now earn bank ports and redeem your points online or at our retail casinos across the country. Though the high tax rates in online casino business in Pennsylvania make it extremely difficult to generate profits, as Tim mentioned, we have been one of the early market share leaders while maintaining tremendous marketing, promotional and reinvestment discipline, which we will continue to do. With that, I'm going to turn it over to BJ. Thanks, Jay, and good morning, everyone. Before I provide an update to our guidance, I wanted to address an item that changed in our earnings presentation. We will no longer be utilizing the adjusted EBITDA after lease payments metric. This is primarily an internal performance metric utilized by the company. We are still providing and guiding to adjusted EBITDAR, which is consistent with our past practices and it's consistent with other gaming companies that have triple net leases. We will also continue to provide you with the total amount of cash payments made to our REIT landlords. There's been no change in the composition of the reporting segments in our EBITDA reporting and at the segment level, EBITDA reporting is consistent with past practices. So onto the guidance. The detailed Q4 guidance and updated full tune 2019 guidance is included in the release. The updated revenue guidance for the full year has been reduced to $5,311,000,000 The decrease reflects the refinements to our marketing reinvestment strategies targeted at the lower segments of our database discussed by Tim and Jay that result in lower revenues without impacting profitability. The adjusted EBITDAR for the full year is estimated to be $1,600,000,000 We are reaffirming our Q4 guidance outlined on our last call combined with our year to date results through the Q3. Our total lease payments for the year including 3 GLPI leases and the 2 VICI leases are forecast to be $870,000,000 As we previously reported, we expect to incur full escalation in November under the Penn master lease of which $900,000 will be incurred in 2019. With respect to the amended Pinnacle lease which completed its lease year on April 30, we've completed GLPI's audit review for the Pinnacle master lease properties. Under Penn's accounting policies, shared service expenses are allocated to the properties. Subsequent to the acquisition, we applied our accounting policies to the Pinnacle properties, which was different than how Pinnacle had historically addressed the allocations. The parties have come to an agreement on the treatment of these expenses for the prior lease year, which will result in an increase of the coverage ratio to 1.81, which will equate to an increase in the lease payment of just under $1,000,000 of which $650,000 will incur in 2019. As of the completion of the Meadows lease year on ninethirtynineteen, we incurred full escalator of $752,000 of which $188,000 will be realized in 2019. The implied trailing 12 month rent coverages as of ninethirtynineteen for the GLPI leases are as follows. The Penn master lease was 1.91, the amended Pinnacle master lease was 1.75 and the Meadows lease was 2.06. Free cash flow generation for the year is estimated to be $413,000,000 and net free cash flow after mandatory debt payments and other obligations is expected to be $324,000,000 The increase in our free cash flow from last period is almost entirely due to a reduction in maintenance CapEx expenses where completion or payment of some projects will just push to next year. Cash on hand as of ninethirtynineteen was $407,000,000 Our lease adjusted net leverage ratio as of ninethirtynineteen was 5.6. Our debt reduction efforts remain on pace to return to our target leverage ratio of 5.0 times EBITDA by the end of 2020. And with that, for the last time, I will turn it back to Mr. Tim Wilmon. Thanks, BJ. Operator, we're now ready to take questions from the audience. Thank Our first question is from the line of Carlo Santarelli with Deutsche Bank. Please proceed with your question. Hey, everybody. Good morning. I know you guys provided a little bit of color on kind of the marketing refinements and whatnot. But if we look at your combined results from last year and your results presented this quarter on an apples to apples basis and make some small adjustments for Casino Rama. It looks like your margins improved about 180 basis points year over year. I was wondering if maybe you could talk a little bit about how much of that has to do with some of the other things that you have going on and relative to kind of the marketing refinements that you're making and maybe how much Meadows in the quarter and the headwinds that you're seeing there kind of weighed on the aggregate margins? Sure thing, Carlo. The majority of what you're seeing on the margin improvement and the incremental EBITDA year over year is certainly due to the synergies that we've been working on. There is a portion beyond the synergies that has been completely related to our efforts on continuing to refine our marketing reinvestment and drive more profitable visitation to our properties at those less than $100 average daily theoretical worth segments. So it's really those are the 2 components and certainly more skewed towards synergies, but both are certainly having a positive impact on overall margin improvement on a year over year basis when you look apples to apples. With regard to some of the headwinds, I called them out during my introductory comments, Meadows construction disruption, and we probably should have mentioned it previously. We're investing over the course of this year about $10,000,000 in casino and food and beverage entertainment as well as a retail sports book additions to the property there. And it just ended up culminating in August, September, October with more disruption than we anticipated. So the Meadows, the flooding with in regard to tropical storm Imelda in Houston impacted our Lake Charles property, continued flooding impact at Council Bluffs and then of course the impact at Plain Ridge. Each one of those run-in the range of $1,500,000 to $2,500,000 of impact. Most of those are one time specific to the Q3. Plain Ridge is a TBD as we continue to see what adjustments on core makes as we move forward. Sorry, Jay. I said Meadows, I'd actually meant Plain Ridge and you just addressed it anyway. Furthering on kind of the Plain Ridge stuff, have you seen obviously in the 3Q there were challenges and quite a bit of promotional activity. Have you seen that start to dissipate a little bit here more recently or does that remain pretty steady? It's been steady unfortunately, Karl. I wish the answer was different and we're optimistic that it will be different soon. It's hard to imagine that these are reinvestment levels that are sustainable when you're focused on driving profits. So but that's what I have today. Certainly, what we've seen since they've opened is they've really elevated the levels of marketing reinvestment in the marketplace. And we'll see what happens in the Q4 and as we head into 2020. Great. Thanks, Jay. And Tim and BJ, congratulations. Thanks, Carlo. Thank you. Our next question is from the line of Harry Curtis with Instinet. Please proceed with your question. Two quick questions. Following up on Carla's question, what percentage of Plainridge's customers are really from a location perspective should remain your customers given the amount of time it would take to negotiate Boston traffic? Well, I'll answer that question a little bit differently here. I think getting to the same point, we had anticipated that the impact from Oncor to our Plain Ridge facility would be somewhere in the range of 10% to low teen percentage on the top line. It's been closer to 20% as you've seen from the publicly reported numbers. And we've actually done quite well in terms of retention with our known database customers. The customers that we have lost in a more significant percentage have been the customers that were unrated, and that is largely due to the significant offers that I think are being flooded in the market right now to visit Encore in its 1st few months. So we'll see how that unrated business settles out over the coming quarters. But we're actually quite pleased with our retention on the database side. But overall, the impact has been more significant than we anticipated. Do you think that it's reached a stabilized level? Well, we have not seen that level of reinvestment increase, to answer your question, over the last couple of months, but we have also not seen it decline. So at this point, we're just we're sort of looking at the reinvestment levels month by month. We have not seen any noticeable material change in approach since opening. Okay. And my second question was focused on the balance sheet and free cash flow. Given the amount of given your focus on paying down traditional debt, I mean, assuming no recession, it's conceivable you could be you could have no net debt by year end 2021 or very little. Is that a fair estimate? I mean, yes, I think once we obviously continue to pay down past our 5.0, we'll be at a sub-two on a traditional debt, just a little over 1.5. And I think at that point, we would have to make a determination based upon exactly what the stock price is and what else what the appropriate use for capital is. But the answer is yes from our free cash flow generation, we could literally if we applied all of our free cash flow to that we could get down to that low. I think the message, Harry, is we know what we want to do between now and the end of 2020. And that will give us an opportunity at that point to make a determination and provide some direction on at that time where we think best use of our free cash flow will be. So far be it for me to lead the witness, but your free cash flow yield is over 15%. Do you have any preference as to how best to increase shareholder value given that your free cash flow per share could be approaching $4 a share by the time we get to 2021? Well, we hope Harry that through our deleveraging activities over the next 4 or 5 quarters that, that will be recognized by the investment community and our share price will reflect that deleveraged balance sheet and our free cash flow yield will be below 15% what it is today. Okay, very good. Thanks very much guys. Thanks, Jerry. Thank you. Our next question is from the line of Jared Shojaian with Wolfe Research. Please proceed with your question. Hey, good morning, everyone. Thanks for taking my question. So first question just on G and A, stepped up a decent amount sequentially. Can you talk about what's driving that? And I guess going forward, do you think there's any cost opportunities on the G and A side? Can you repeat the question, Jared? It was broken up a little bit at the beginning. Sure. Sorry. Yes, the question is on the G and A in the quarter, stepped up a little bit sequentially. Can you talk about what's driving that? And going forward, do you see any opportunities to reduce this? Jared, I think our corporate G and A, if you take a look on a pro form a basis on a combined between the two companies, I think that we actually are down a little bit. Sequentially. Sequentially on a quarter over quarter basis. Okay. Yes, I'll follow-up offline. So I want to ask then about the South segment, which was really strong despite some of the weather that you talked about. Can you just talk about that? And then specifically, as you look at, I guess, Louisiana and Mississippi in that segment, right now, Mississippi, I think, is performing quite well. Can you talk about what you're seeing in Louisiana? Do you think Mississippi is taking market share because of sports betting right now? It's a good question, Jared. We're seeing improved results in both states. So I would lean toward that's not what's occurring here. If you look at the South region property by property in the Q3 with the exception of Lake Charles, which as you know has been impacted by the I-two anniversaried, as you know, the smoking ban in Baton Rouge. Baton Rouge results have been very good for us. Margaritaville acquisition has been terrific. And our properties in Mississippi, even some of the more legacy Penn properties that have been in markets that have not been growing, we've been taking profitably taking market share. Tunica probably being the best example. As you know, we unfortunately had to close one of our 3 properties there, but the other 2 have really picked up that business and then some. So we're pleased with the results across Louisiana and Mississippi. All right. Thank you. Thank you. Our next question is from the line of Joe Greff with JPMorgan. Please proceed with your question. Good morning, everybody. Two quick questions. 1, Jay, you've talked for a while now about the lower net worth, that $100 ADT player and reducing those unprofitable visits to the mid teens level from 22% and potentially go into the high single digit. I was just hoping if you continue to make progress there and you go to that sort of high single digit percentage, what does that mean in terms of incremental EBITDA? And then my second question relates to balance sheet and then maybe taking advantage of the Trop and PSG and maybe looking at some one or both as means to further reduce balance sheet leverage outside of just taking internally generated free cash flow to pay down debt. Can you update us your thinking on those 2 specific areas and maybe a timetable in which that thinking may have evolved to the point where you take action? That's all for me. Thank you. Sure. Thanks, Joe. Good questions. Look, I hesitate impact of taking those percentages down to the high single digits simply because it's a continued work in progress and I don't have an exact time line for when that will occur. We're setting goals at this point. And as you just recounted, we were at the low 20% in terms of unprofitability for visitation at those low worth segments. We've got that now down into the mid teens and we certainly set goals to get into the high single digits. We continue to make progress, but it's a process and every market is a bit different and the tweaks that you're making to reinvestment and promotional spend are different in different parts of our portfolio. So I don't want to place a value or a time line on that other than to say we're working on it and you're going to continue to see progress, continuous improvement in that area. With regards to the balance sheet and potentially accelerating this deleverage story that Tim and I have been talking about now for the last couple of quarters, Look, we have a couple of wholly owned, very valuable assets in our portfolio that we believe are not appropriately valued in our share price today. And there have been recent transactions both in Las Vegas on the Strip as well as in the route operation business in Illinois at very attractive multiples in both cases. And so we continue to receive some unsolicited interest in Prairie State Gaming as well as some of the land holdings that have in Las Vegas at Tropicana. And so we're continuing to engage in those conversations. We'll see where they take us. We're encouraged by some of those conversations, but nothing's done until it's done. And but we would certainly consider if anything were to materialize in either of those cases to continue to delever faster than what we've laid out getting our leverage down to 5 times on a lease adjusted basis by the end of 2020. And Joe, given the validity of these discussions, it's impossible to put any kind of timetable on this. If something does obviously come to a conclusion, we'll certainly get that information out as quickly as we can. But it's, as I said, a fluid process. Understood. Thanks guys. Thank you. Our next question is from the line of Felicia Hendrix with Barclays. Please proceed with your question. Hi, good morning. BJ, since this is one of your if this is your last one, I'll start with you. And just on the topic of leverage, and if I'm correct, it looks like you've changed the objective, you've improved it because from 5 to 5.5 and now it's 5. So that's not an insignificant change. I was just wondering if you could just walk through that, walk through your confidence to get to that level. And then especially just given some of the commitments that you have, particularly growth CapEx vis a in Pennsylvania, things like that? I should highlight Felicia that this is my last call, but BJ, you're going to have the pleasure of hearing one more call in the Q1 from Mr. Fair. I did have the opportunity the last call to say nice things. So it all goes around, right? Thanks, Alicia. Now the I'm sorry. I was you caught me off and I was looking something else. The confidence of going from 5.5 down to 5.0, I think we remain confident. We've always said that that's been our target goal that's been out there. And as we continue to look at and we've been focusing on the delevering, we do feel very confident to be able to get down to the 5.0 level. We're at 5.6 right now. As we continue on with the next few quarters of continued delevering, we'll be well below that. And so I think we just really wanted to be targeting to the Street that we're very serious about the delevering, getting our balance sheet in order. And the 5.0 is something we feel very achievable about getting by the end of 2020. And it's consistent with, as Jay just said, all the things we've been talking about previously. I think, Felicia, we continue to get feedback from investors and potential investors about the concerns about potential recessionary pressures on our operating model. And that's why we're now very specific that we want to get down by the end of 2020 to 5.0 to continue to de risk our balance sheet in light of those investor concerns. Okay. That's fair and helpful. Thank you. And Tim, the next one is for you. Just on the guidance, I think you said in your prepared remarks that the reduction in revenues is due to refining your marketing and that you've been very clear on that. But I'm just wondering, I think that's probably something you were already doing in July. So when you gave prior guidance, I'm just wondering what's changed between now and then? I think we probably should have said something previously because we saw those trends and we should have signaled that there was going to be change in the net revenue numbers and we didn't. We're now absolutely certain This is the direction, but we certainly should have considered that back on our prior call 3 months ago. Okay. All right. Helpful. Thank you and good luck to both of you. Thanks, Felicia. Thank you. Our next question is from the line of Steve Wieczynski with Stifel. Please proceed with your question. Yes. Hey, good morning, guys. I want to follow-up to that to the last question that Felicia just had. But in terms of your marketing reinvestments, and I understand you're not going to give any type of 2020 guidance at this point. But just wondering if you could give some high level thoughts heading into next year. And I assume you guys aren't expecting any material changes one way or the other around your core customer. But should we think about your top line a little bit more conservatively next year because of these changes around your marketing reinvestments? Steve, it's a great question. We're continuing to learn as we go and work through our models. This is something that has been a significant focus of ours, as you know, for most of 2019. And I do anticipate it will continue into 2020. So I feel comfortable that 2020 EBITDAR will not be impacted by these efforts in a negative way. But in terms of what you may have modeled from a revenue standpoint, you'll probably see a continuation of what you have seen the last 3 or 4 quarters from Penn National Gaming. Okay, got you. Thanks, Jay. And then want to go back to your commentary around the Trop and you talked about a possible monetization of the land or even an outright sale. But I guess the question would be, just want to get a better sense of how you guys think you would fare without a strip asset under your umbrella. And I guess what I'm getting at is your narrative a couple of years ago was all around needing a strip asset and this new strategy just seems like a little bit of a different approach. Sure, Steve. I would call it an evolution of our thought process. It doesn't mean that the pub and spoke model Las Vegas Strip with regional assets across the country is flawed. We don't think it's flawed. We think that it does still make sense. That said, given this convergence of interactive between sports betting and iCasino, which is quickly proliferating across the country, we think that it's going to be even more important for us to have a very localized omni channel approach, where you're engaging with guests both digitally as well as in brick and mortar casinos. So it doesn't mean that the Las Vegas hub and spoke won't work or isn't working. It just means that we believe that we are going to be very focused on moving customers around our network and that's going to happen at a more local level across our 40 properties in 19 different states and across the interactive activities that we're offering our customers in the markets where it's legal. Okay, got you. Thanks for the color. Appreciate it, guys. Thank you. Our next question is from the line of David Katz with Jefferies. Please proceed with your question. Hi. This is Cassandra Lee at Jefferies asking for David. Can you help me paint a picture of the kind of investments in sports betting, iGaming technology? What is it looking like going forward? And maybe talk about how you see yourself positioned given how competitive sports betting is getting? Sure. I don't have much to share in terms of color of on investments that we have or will be making in our interactive offerings. Stay tuned and to be determined nothing to share at this point in time. We do recognize that we have an opportunity obviously having kept that primary scanner license in each of the 19 states where we operate under our own control. And one thing that we also recognize at Penn is that we don't have a sports brand to lead with. We have great casino brands, but we don't have a sports relevant brand today. And so we've been in conversations continue to be in conversations with a number of potential sports media partners. And we're encouraged by where some of those conversations are going. Nothing to share at this point. As Tim mentioned, those conversations are fluid as they are with Tropicana and Prairie State Gaming. So more to come potentially in the future, but we do envision having partners potentially that we will be thinking about how we can engage with their customers who are sports enthusiasts at this point. And then of course, once they become part of our sports betting database to introduce them to our casino products as well. All right. Thank you very much. Thank you. Our next question is from the line of Thomas Allen with Morgan Stanley. Please proceed with your question. Hey, thanks. So just thinking through 2020 and respecting that you typically don't give guidance till next quarter. Can you just help us with some of the puts and takes, the more idiosyncratic things that are happening? So for example, I know you can have some road closure issues around Charlestown. Can you just highlight that and then anything else that we should be thinking about that could be potentially impacting the growth in 2020? Thank you. The only two notable worth mentioning, I think, at this point, Thomas, and again, we'll come with a lot more detail in February when we're providing guidance for 2020, would be the introduction of the new Monarch expansion in the Black Hawk market and continued impacts. It's difficult at this point to gauge what that impact is going to be in Massachusetts with Encore's current approach in the marketplace. I'm not sure what you were referencing about road construction. There's some minor road construction from Northern Virginia to the south of the property, But we have not gotten any indication that that is going to be extremely disruptive. Maybe more to come, but nothing at this point. We also have the completion of the I-two ten bridge down in the Lake Charles market, which should be a positive for us going into 2020. And as Jay mentioned before, we'll have completed all of the work at the Meadows in early part of November. So the level of construction disruption that we've seen in the Q3 should be a positive impact with all the improvements we're making at The Meadows. I said, that will be finished very, very shortly. The only thing that is added to that, which again, we did not include in our Q4 guidance because we just don't know yet is the barge hitting the bridge work down in coming out of the I-ten San Jacinto coming out of Houston. So that was something that we just don't know what potential impact of that would be. The only other thing, Thomas, I'll say about 2020 is, I don't think for most cases, we're not going to be absorbing any new competitive supply other than the Monarch improvements in Colorado. Everything else should be a fairly stable supply situation in the markets we operate in. Thanks. And just a follow-up on that. I mean, there's obviously some expansion on historical racing. Anything that we should think about risk from that? Not in any of our key markets at this point. I know that Churchill has announced potentially doing something outside of Cincinnati on the Kentucky side of the state line. But I don't have any indication as to whether that would be a 2020 opening or impact. You may know more about that than we do at this point. All helpful. Thank you. Thank you. Our next question is from the line of Barry Jonas with SunTrust. Please proceed with your question. Hi, guys. Just for starters, a clarification on the implied well, on the Q4 guidance, You removed wording around an impact from the Monarch expansion given that project's delay. So is there upside from that delay relative to your guidance? And is that somewhat offset by maybe continued softness at Plain Ridge? I think, Barry, that's the right way to think about it. We now have latest information is that the Monarch expansion will open sometime in late Q1. So that's why we took it out of our guidance detail for Q4 2019. But yes, at this point, we're still trying to really get our hands around what the impact long term longer term is going to be at Plain Ridge with ENCORE's current spending levels. Great. And then just you talked a little bit about potential media partnerships for that first skin. We've seen some competitors use various partnership structures. I'm guessing this is fluid, but does Penn have any preference in terms of how to structure this potential partnership? Yes. Great question, Barry. We've been we're students on this as well. We've been reading about these other partnerships. The devil is always in the details and some you can learn more about than others from press releases. I would tell you that the way we're thinking about a potential Sports Media relationship is that we want it to be fully integrated. And in an ideal scenario, you've got aligned incentives and mutual skin in the game to drive long term success. So you can take from that what you will, but we're not looking to just announce an advertising deal with a big media company. That's not our preferred route. Great. And then just lastly, conceptually, clearly, we see some states legalize retail, but also mobile and a lot of states only retail for the time being. How do you think about that mobile about the mobile sports betting opportunity? Can it help drive players to your land based casinos? Or is it really just a separate business model altogether? Well, look, I would point to what's happened in the state of New Jersey where online casinos well, online casino has now been legal for close to 5 years and online sports has been legal for about 15 or 16 months. And what you see over the course of the 1st 5 years of online casino in New Jersey is that, though it started off with a lower base, around $175,000,000 in the 1st year of revenue, it's been growing at about 20% per year. And the commentary from the operators in Atlantic City is that, that growth has not come at the expense of their brick and mortar casinos. It's been incremental. And then what you've seen over the last 15 months since sports betting was legalized, both retail and mobile in New Jersey is that there was a positive impact to online casino as well and that 20% compounded annual growth rate moved to 55%, almost 60% over the last 12 months. So I think what that would tell you is that mobile sports betting is a great opportunity in terms of it being an acquisition tool. You can certainly make money if the tax rate and the license fees are reasonable, but it also becomes an acquisition tool. And then you're in the process, introducing those newer customers that tend to skew younger and more male than maybe your typical casino retail database customer. And they're engaging with table game products for the most part, blackjack, roulette, craps, both online as well as back in the brick and mortar casinos. And that New Jersey model is the one that we are certainly most excited about because if you extrapolate what you've seen from New Jersey and again, you have to make a lot of assumptions around which states legalize sports betting, is it retail only, online and retail? And then eventually, is there an online casino legalization? But I think you see what the potential could be if you have the right sports betting, both retail and mobile product and strategy and how that can positively impact your casino results as well. Great. Thank you so much. Thank you. Our next question is from the line of Shaun Kelley with Bank of America. Please proceed with your question. Hi, good morning everyone. I just wanted to go back to sort of maybe the broader shift in some of the promotional activity. So if we look at maybe one way to think about this is if we looked at the change in revenue guidance for kind of the full year estimate that you guys gave before, It sounds like there are some pluses and minuses for the last question on what your expectations were for Monarch relative to the incremental softness in Planaridge. So is it fair to assume that most of the revenue change or revenue delta that you made in the full year revenue guidance is really just from this kind of promotional tweaking and obviously sacrificing or changing revenue for margin. I think that's the way you characterized it. You're exactly right, Sean. So then Jay, the real question is this. If we kind of do the math on that, it would imply something like maybe a 1% to 2% type GGR impact. Could it be that significant? Is that the type of level we're seeing across the portfolio at this stage? Because really what I'm trying to get my arms around is why let's call it core same store sales at this point in the kind of consumer cycle aren't actually a bit better in across the regional gaming landscape? And if it was a 1% to 2% headwind, that would sort of bridge a lot for me and probably for some other investors as well, but trying to kind of put a number around that? Yes. I think your range is probably pretty good, Sean, probably more toward the lower end of that range, meaning maybe a 1 closer to a one percent impact to same store sales growth. And what I would continue to ask everyone to focus on is that when you look at the database results, we're continuing to see growth in both visitation and spend per visit in the segments where the whole eightytwenty rule where you make the majority of your profits. Visitation and overall behavior has been very positive and consistent over the last several years. And what's impacting this same store sales growth figure that you're referencing a potential impact is really at the low end worth segments where we just generated too many unprofitable visits. And I think we've been talking about this for several quarters. I think you're starting to hear some of our competitors talk about this as well. There's an opportunity and we're in the middle innings here, this is not towards the late innings, to continue to move those visits to either become profitable visits or in some cases to eliminate some of those visits. We're not in the business of firing customers if they're unprofitable. That's our fault. And so we just we're continuing to look at how we delay our offers and maybe a customer that was coming 3 times a month, but 2 of those visits were unprofitable. We'd much prefer that customer visit once or twice a month knowing that they're going to be profitable visits when they do come and that there's still offers we can send them that were really the ones that 1st place and maybe peel back on the ones that were less motivating but were certainly hurting and eroding the margins. So I think you're going to continue to hear this story from us and likely our competitors in regional gaming. Great. Thanks, Jay. And then last thing for me would be you kind of did a little bit of a supply overview. One area that's obviously influx is what's going on in Illinois. And so can we just get an update on, I think some of the jurisdictions are starting to do RFPs at least, but I think the ones that are most impactful to Penn's portfolio may not be at that stage yet. Can you just give us kind of a quick update and time line on what your expectations are in Illinois for new supply? Sean, this is Tim. The communities are now in the process of providing their preferred developers to the Illinois Gaming Board right now. And the Gaming Board, from what I understand, has a fair amount of time to make decisions on where the licenses are going to go and to whom. So we don't expect any of this new potential supply in the Illinois Chicagoland market to affect us in 20 20. We'll likelihood it will be 2021 beyond. We'll know more, I think, probably in 6 months from now. And as you know, there's been some discussion that they have to go back in Springfield to amend the economic model that they messed up in the city of Chicago. And that's probably going to occur sometime next year as well. So the Chicago Casino, I think, is going to be far more in the distance than these potential additional riverboat licenses or slots at racetracks. So that's our least read on it now that it's going to be post-twenty 20. Great. Thank you, everyone. Thank you. Our next question is from the line of John DeCree with Union Gaming. Please proceed with your question. Good morning, everyone. Thanks for taking my question. Jay, I think you've probably talked about your marketing reinvestment program at length, but I was hoping to ask from a different angle. When we talk with investors, there's certainly some concern that the cutback on these unprofitable customers are just marketing reinvestment could ultimately have a lasting or negative impact in the long run. I was wondering if you could talk a little bit about what you're seeing from the customers at the lower tiers of your database when you do cut back. I mean, are those customers still coming? Are they going away for a while and then coming back on their own merits? I was wondering maybe it's too soon to have any consistent data, but just your thoughts on that idea. Yes. Look, John, it's a good question, and I understand the concern from the outside looking in. I would tell you that there's 2 things that we continue to look at as very important metrics or leading indicators as we make these marketing refinements. 1 is, are we losing customers? And the answer to that is generally no. We're not losing customers. We're just we're seeing declines visitation, but they're still visiting. When they visit, they're coming with less offers because we've made some tweaks in our overall promotional and reinvestment strategy with them. And when they come, that trip tends to be more profitable than it was historically. So that's important is to continue to look at are you losing customers from your database or are you just changing the visitation patterns? And then number 2, we're continuing to see healthy growth in our unrated segments. So some of the customers who maybe have decided that going from 2 or 3 offers down to 1, maybe they're not redeeming the offer that we're sending them. So we're obviously working on making sure we've got the right offer in their hand that motivates the visit. But we also are seeing some of that low end rated business transition into unrated. And so that would tell you that they still do they look at that as a form of entertainment and they're still frequenting the casinos and that unrated segment growth is something that I share on these calls every quarter and we look at because it's very important, I think, to speak to the general health of the business as well as the consumers that you're moving from maybe lower worth rated into unrated. That's really helpful. Additional color. Thanks, Jay. And one follow-up on the volumes you're seeing from the retail sportsbooks. I think you've mentioned in your prepared remarks the uplift in tables F and B. Given that sports is rather new, I was curious if you could comment a little bit about the profitability of those new customers, those reactivated customers. I mean, we kind of look at the market as early days and probably needs a bit of marketing to get people aware about the sports book. So I was wondering if you could talk a little bit about you're seeing good revenue uplift in some segments. Is that coming in at some level of profitability right now? Well, sorry for the nuanced answer, but as you know, we have differing tax rates from one market to the next. And in some markets, the slot and table game tax rate is the same. Markets like West Virginia or Pennsylvania, there's a significant delta between the slot tax and the table game tax. So it's kind of a mixed bag. To answer your question, I would tell you that we're not spending aggressively to bring these customers in. And therefore, when they engage with us in our casino product that's unprofitable, it's largely incremental. So there's some obviously some awareness efforts in advertising you're doing to make sure that you're distributing the news that you offer a sports betting product. But for us, we're seeing that when they come in to bet on sports, they're eating in the restaurants, they're engaging with us in table games, sometimes there's a hotel stay. And there's largely very little reinvestment against that behavior. That answered my questions. Thanks a lot, Jay. Thanks, guys. Thanks, Chad. Thank you. Mr. Wilmot, there are no further questions at this time. I will now turn the call back to you for your closing remarks. Thank you, operator. Again, thanks for your attention this morning on our Q3 earnings call. I think you'll continue to hear consistent results in what we're using with our free cash flow as we've talked about. I look forward into 2020 to being in the audience, listening to Jay and the team speak about our Q4 year end results for 2019 and the outlook for 2020. Again, thanks for your attention and have a great day. Bye. That does conclude the conference call for today. We thank you all for your participation and we ask that you disconnect your lines. Thank you and have a great day.