Earnings Call: Q1 2021

May 6, 2021

Greetings, and welcome to the Penn National Gaming First Quarter Conference Call. During the presentation, all participants will be in a listen only mode. Later, we will conduct a question and answer session. It is now my pleasure to turn the conference over to Joe Jaffoni. Please go ahead. Thank you, Tina, and good morning, everyone, and thank you again for joining Penn We'll get to management's presentation and comments momentarily as well as your questions and answers, but first 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 terminology such as expects, believes, 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 Form 10 Q. Penn National Gaming assumes no obligation to publicly update or revise any forward looking statements. Today's call and webcast will also include non GAAP financial measures within the meaning of SEC Regulation G. And when required, a reconciliation of all non GAAP financial measures 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. Thank you for your patience with that. And it's now my pleasure to turn the call over to Penn National's CEO, Jay Snowden. Jay, please go ahead. Thank you, Joe. Good morning, everyone, and thanks for joining us. Here with me and why I'm missing for her first official Penn earnings call, at least on this side, is our new CFO, So welcome, Felicia. We also have Todd George, our Head of Operations here to help answer questions about our core business as well as other members of my executive team who As we sit here in the Q2, meanwhile our new online and retail barstool sportsbooks and iCasino offerings in Michigan and Pennsylvania Further, we managed to fully integrate our industry leading My Choice player loyalty program across all of our retail and digital offerings In time to take advantage of this momentum, which has significantly bolstered our unique omni channel strategy and competitive advantages. At our land based operations, the momentum has continued following the rollout of vaccines and the ongoing relaxation of COVID-nineteen related restrictions across the country. Our record Q1 results highlight the robust recovery in our land based business. Benefiting from many actions taken in 2020, We generated adjusted EBITDAR growth of 7% on a revenue decline of 6% over 1Q 2019 Despite COVID related property closures in January at a handful of our Midwest and Northeast properties, nearly a full closure of Zia Park in New Mexico and some harsh winter weather in the South in February. More impressive is our performance in March April, which reflects the additional easing of And an increase in the percentage of people vaccinated. Revenues grew 8% over the same 2 month period in 2019, While adjusted EBITDAR accelerated 29 percent to $410,000,000 and EBITDAR margins increased 6.50 basis points to nearly 40%. We also note that spend per visit is much higher than it was pre COVID. In fact, our visitation is now at or near 2019 levels in most of our markets. Importantly, The younger demographic continues to view gaming as a compelling entertainment option, while the 55 and over age group has been steadily returning to our casinos. We illustrate this point in our slide deck on Page 7, where you can see that our 55 plus age segment continues to gain momentum, particularly in April, While growth from our younger age segments, 21 to 44, has accelerated since the beginning of the year. Further, unrated play is demonstrating unprecedented growth, which has provided us with the opportunity to convert these players to our My Choice loyalty program through new member programs and incentives. Our rated play trends continue to accelerate. This strong top line demand coupled with the structural changes we put in place At the start of the pandemic has resulted in remarkable and sustainable margin improvement even as our interactive business continues to scale. As it relates to our partners at Barstool Sports, they've been able to maintain their incredible momentum from 2020 into the New Year with strong financial Barstool's promotion of Penn National's retail sportsbooks has driven significant awareness and visitation to our land based properties. This is especially true of those properties that have introduced Barstool branded sportsbooks and we plan to open 6 more of them by the end of this year. In addition, progress continues on the development of several standalone Barstool branded sports bar locations. We're really excited about these projects We're providing much more information along with our partners at Barstool in the next couple of months. On March 11, we successfully launched the Barstool Sportsbook app in Illinois The initial results for the 1st 30 days of operations exceeded our expectations, thanks in large part to the loyal following of Stullys in the Chicagoland area, with better first time deposit conversions relative to what we had generated in Pennsylvania or Michigan. During this period, We registered 54,700 new customers and generated total handle and gaming revenue of 67 The power of Barstool's social media reach was on full display upon the reinstatement of the in person registration requirement in Illinois as they were able to help us drive an incredible 20,000 registrations Meanwhile, Barstow's creative promotions, exclusive bets, custom parlays have led to a leading position in Pennsylvania and Michigan based on handle, GGR and NGR life to date market share despite limited external marketing spend. We expect our low customer acquisition costs, strong retention rates, unique promotions, exclusive betting features and high adoption Among casual betters, we'll drive outsized profitability over the long term. We continue to over index a bit on GGR and NGR as compared to handle and we anticipate This continuing to be a trend in the aggregate over the long term. The power of our My Choice customer base combined with the fierce loyalty of Barstool's audience has Place a wager on our iCasino product during the month of March, which was above our initial expectations. As we highlight on Slide 17, Our experience in Michigan has shown that a customer's value increases significantly when they play on multiple channels, which highlights the benefits of our 100% owned and controlled omni channel strategy. With the introduction of online gaming, we've been able to generate twice as much combined revenue As we have traditionally generated at Greektown by engaging with consumers on our digital products in addition to the physical property, We are really excited about yesterday's launch of the Barstow iCasino product in Pennsylvania, which we believe will greatly expand our penetration And aggregate revenue in the state, particularly in the Philadelphia MSA, where we currently do not have a land based presence. Although we are pleased with the initial results of our 1st generation Barstool iCasino product. We are really just scratching the surface of our potential in this space. Over the next few months, we will be adding significantly more third party content to our Barstool Sportsbook app, which will increase Help increase conversion of our My Choice database in both Michigan and Pennsylvania. In addition, we recently acquired Hit Point Studios, which will serve as the centerpiece of our newly formed Penn Game Studios and allow us to create customized barstool themed as well as casino branded content that we believe will lead to an even greater cross sell opportunities. Before I hand it over to Felicia for a summary of our Q1 results and a review of our financials, I wanted to call special attention to the continued strides we're making on the ESG front. As you know, this is a topic that's very personal to me and I know our Board of Directors and my executive team I'm taking care of our people, our host communities and our planet. Highlights from this quarter include the launch of a new $1,000,000 annual diversity scholarship program. We're looking forward to providing up to 65 2 4 year scholarships this year to the children of our team members, which reflects our commitment to equity in post secondary education. In addition, We implemented a supplier diversity initiative with the goal of developing new opportunities for minority owned businesses. And last month, we hosted company wide Days of learning days of listening excuse me to gather feedback from our team members on all matters of diversity and inclusion. Finally, on May 15, which is Armed Forces Day, we'll be launching a new initiative to honor our active duty military, veterans and first responders. We're calling it the My Heroes program, which is an exclusive fully integrated extension of our My Choice Rewards program and it's to provide our nation's heroes Access to exclusive discounts and offers at all of our properties across the country. With that, I'll pause and turn it over to Felicia. Thanks, Jay. It's great being here and being part of this tremendously talented team. Over the past few months, I've been asked by many of you what the biggest surprise was Having covered the company for over 20 years, I would say that there were more pleasant discoveries than surprises and 3 stand out. The first is the depth of the bench across the entire company. The level of talent, creativity and commitment to excellence at Penn is seen in every aspect of the company and at every level. The second is transparency. Jay's commitment to transparent communication is well known and respected by the investment community and that ethos is no different internally. And finally, Penn's commitment to diversity and inclusion and community service is certainly inspiring. So with that being said, we're very proud of our first quarter results, especially given COVID related closures in January and the late in the quarter reopening of Zia Park. Revenues of $1,270,000,000 and Adjusted EBITDAR of $447,000,000 after corporate overhead of $24,000,000 which as you know is reported in the other segment represented 94% of 2019 revenues and 107% of 2019 EBITDAR pro form a for a full quarter of Greektown, which is above our previously stated goal. Pro form a margins increased 4 34 basis points. Adjusting for the COVID related closures and excluding Penn Interactive, our EBITDAR flow through was even more impressive as our adjusted EBITDA increased 12% compared to the Q1 of 2019 on a 9% decline in revenues. On this adjusted basis, Pro form a EBITDA margins increased more than 700 basis points. Our Midwest and South regions reported record EBITDA and margins in the quarter Despite COVID related closures in January and uncharacteristically harsh weather in the South in February, our performance in the South segment was While cost savings, efficiencies and irrational marketing and promotional environment certainly benefited results, the less restricted COVID protocols drove revenue growth as compared to the Q1 of 2019, which bodes well for the remainder of our portfolio as regions continue to reduce restrictions and open back up. Last week, for example, Mississippi removed all mandatory restrictions in the state. In the Midwest, adjusting for our property closures in the Q1, That segment also reported an impressive EBITDA margin gain of nearly 900 basis points despite competitively unfavorable COVID restrictions in Our balance sheet remains a key strength for us. Total liquidity as of March 31, 2021 was $2,700,000,000 consisting of for $2,000,000,000 in cash and a fully undrawn revolver. Traditional net debt was $353,000,000 compared at $578,000,000 as of Twelvethirty Onetwenty twenty. Our lease adjusted net leverage was 4.5 times based on 2019 adjusted EBITDA. CapEx in the quarter was $25,700,000 of which $9,100,000 pertain to our Hollywood York project that we expect to open in August and $1,700,000 for our Hollywood Casino Morgantown development that we plan to open by the end of the year. Despite the ramp in vaccine The U. S. Remains in a pandemic, which creates uncertainty. As such, we will continue our pause on providing guidance, which we will reevaluate quarter to quarter. I'll now turn it back to Jay. Thanks, Alicia. In addition to these impressive results, we had many other notable accomplishments in the quarter, including being added to the S and P 500. And just last week, Moody's upgraded our senior secured rating 1 notch and moved our outlook to stable. As I look ahead, I remain excited about really every aspect of our business. The recovery is well underway at our land based casinos as evidenced The strong trends we saw in March, which continued into the Q2. Meanwhile, at Barstool, they remain focused on driving top of the funnel growth. Our differentiated strategy has earned us market leading positions in Michigan and Pennsylvania in terms of handle, GGR and NGR, and we remain on track to be live in 8 states by football season and 10 or more states before the end of this year. Further, we remain busy at work on a variety of growth initiatives, all with a focus My pleasure. One moment please for our first question. And that first question comes from Joe Greff of JPMorgan. Please go ahead. Good morning. Jay, on the digital side, maybe you can just kind of start with maybe what you have learned over the last Several months here, in the states in which you've launched with respect to customer engagement, acquisition and promotion, What have you learned about the technology component side of things and any views of acquiring or bringing that technology in house? Sure thing, Joe. Good morning. Thank you for the question. Look, there's been a lot of learnings. We just went live, as you know, in September. And so we got through our 1st football season, our 1st March Madness, and we're now live in 3 states. We're going to be live in Indiana here in a couple of weeks in time for the Indy 500 and for the NBA playoffs, which we're really excited about and total of 8 states by football So we're going to be in a much different position by the time we get to football season 2021 versus where we were in September of 2020. Some of the learnings that come to mind, we know that based on our differentiated approach and our fully integrated media partnership with Barstool, We have the best CPAs in the industry and it's not even close. Our CPAs are running well under $100 right now across all three states that we operate in, which Set you up so well for the long term as it relates to having dry powder. And we're going to be a lot more aggressive in terms of Spending to acquire customers as we head into football season 2021 than we were in football season 2020 because we now have scale. We were launching in one state In one state, a year ago, football season starts September, and this year, we're going to be in 8 states. So we're going to take advantage That great margin profile that we have, I think, sometimes it gets lost with all the noise. I think all of the focus right now is Monthly handle, and I think the focus should be much more focused on what is the real strategic differentiation between these approaches, What does that margin profile look like in the short term, medium term and long term? We've scaled our business up. We have hundreds of people on Penn Interactive and we're live in 3 states. And you look at our Q1 results and We generated obviously nice revenue growth in Interactive from Q4 to Q1 and we broke even. Nobody else can say that and I'm not saying that we're going to breakeven every quarter. It's going to be quarter to quarter and certainly we're going to be Opportunistic as it relates to what we want to do, especially come football season in terms of spending more money to drive more acquisition. So TBD, but the fact that we're live in 3 d and have ramped up our staff the way that we have and all the expense That come with launching in states and you can still breakeven in an entire quarter when every other major competitor is burning 100 of 1,000,000 of dollars, I think says a lot. We have a very different customer mix. If you look at the online offerings, our customer mix is a lot younger. The lion's share of our audience is 21 to 27 years old. I think that bodes really well for the future prospects of Penn, both online as well as in our Brick and mortar casinos. I highlighted earlier some of the success that Barstool branded retail sportsbooks. You see what it's doing, not just in terms of driving market share as it relates to the retail sports book, where Indiana, as an example, we have the top 2 retail sports books in the state, But we're also picking up casino market share. And so just bringing in all of these younger customers, we provided a slide that shows age segment growth and we're really thrilled about what we see there. One of the things that we've obviously learned as well is that we have a very differentiated As it relates to unique promotions and content and the way that we engage and focus on retention It's different than others in the space and I think that's great for us long term. We've done a lot of work at Penn looking at the UK Because it's been around for a long time. And you look at what Sky Bet was able to do from kind of 2,008, 2010 that range to where they are today. And they had a very differentiated approach that probably wasn't As appreciated in the early days as it turned out to be, and I think that their approach and our approach are quite similar. We've spent a lot of time on that and we're really modeling ourselves on Sky Bet and what they were able to do over time in the UK and that approach was Being different. And then last but not least, we're very focused on product improvement and our tech stack. I think we have Two really good B2B partners, in Canby and WhiteHat Gaming. I don't envy B2B businesses. It's always tough because you don't own it, but I think there are certain aspects of our tech stack that we definitely want to have more control over, over the long term. That doesn't mean something is imminent. It just means that we're learning a lot as we're still in the infancy and there are certain things that make more sense to have Control and ownership of, especially as it relates to anything that touches the end user. And we're very active right now. Part of why you see the growth in corporate expense from Q4 to Q1 is that I've got Chris Rogers and our business development folks Really busy looking at potential opportunities as it relates to M and A and partnerships. And We also, of course, I guess, as it relates to the corporate overhead growth from Q4 to Q1, we're very busy lobbying right now in states like New York and Florida to make sure that we have an opportunity to operate, when all is said and done and the dust settles. So I think at a high level, Joe, it's Kind of a simple question with a long answer, but we have a differentiated approach. I think it's going to really prove out here as time goes and the fact that We're able to have low teen market share in the states that we've launched in and we're not losing money and we're still scaling the business, I think bodes really well for the future. Great. Thank you. And then just a follow-up. You have $2,700,000,000 of liquidity, incredibly low leverage. How do you use that to your advantage? Are there larger scale acquisitions? I mean, Not things like Perryville, but something that's more needle moving. In which areas are there potential external growth opportunities driven by M and A? Yes. I am and Felicia, feel free to jump in here as well. I love the position that we're in right now as it relates to the balance sheet. We've never been in a position like this, certainly since we spun off our real estate. And to have net traditional leverage of like $300,000,000 It's amazing and to have our leverage levels at 4.5 times. So we have we're busy right Joe, and I think that there's a few boxes that we'd still like to check, as it relates to technology stack. There There are some opportunities that could be small, medium or large depending on what you're looking at. We're looking at all right now. There could potentially be something That comes along with that technology approach that could be compelling over the long term. And we're going to continue to look at If there's any other potential sort of widening, broadening of the funnel opportunities as it relates to acquisition, the Barstool partnership has Paid in spades for us. And I think there's some other potential media organizations and offerings that could make a lot of sense if Connected to us with what we're doing and just make that moat that we've built a little wider. We're actively kicking tires on a lot of things. I think you should And if I may add, and thanks for the question On our balance sheet, because I mentioned in my prepared remarks some things that were pleasant discoveries, and I Do want to comment on one other that's been really evident to me in the short time that I've been here. And I just I also don't think it's something that Conversion, which is only going to get stronger as we grow revenues and EBITDA. So if you think about it based on our minimal and stable cash needs Today, as increasing revenue drives higher EBITDA, our free cash flow should grow even faster and that further bolsters Our balance sheet puts us in an even stronger position to both reinvest in our business and then to pursue the strategic growth opportunities that Jay just talked about. Thank you. The next question comes from Bernie MacKearnan of Needham and Co. Please go ahead. Good morning. Thanks for taking the question. Just a follow-up. And Jay, you mentioned being more aggressive to Acquire customers in the upcoming NFL season. I was wondering if you could just provide any color on what you expect this to mean? You mentioned the virtual I'm going to take a look at the sports book early on in your prepared remarks, but does this mean more promo, TV spots, other external marketing, or something else? Sure thing, Bernie. Look, I think less traditional is what you should have continued to expect from us. I think there are, For us, unorthodox but only effective ways, we talked about the barcode books in the casino, we talked about Standalone sports bars in key markets, TBD, we're going to have more to share on that very soon, investing at Barstool in new talent, Potentially new verticals and potential media partnerships and or acquisitions, I think we're going to be More aggressive in how we think about locking up more influencers and affiliates. And I think there's some sponsorship and ownership opportunities out there that can make a lot of sense for us As it relates to both digital and our core business, that's the nice thing about having this omnichannel approach where you Control and own 100 percent of it because once we just want to get people into the ecosystem. And so you can invest in your core business, you can invest in Standalone on prem, you can invest in digital media and as long as it widens the funnel and brings more people into the ecosystem, We just want to keep them there and we're confident we're going to be able to drive really healthy margins in all aspects of our business. So we really don't care where people decide to I would not, Bernie, expect us to be the linear TV and radio competitor I'm in Pennsylvania this week and when I'm here I listen to sports talk radio and I'm a sucker so I watch the Sixers even though they let me down every year in the playoffs. And I will tell you that every commercial is noise about sports betting. I mean, it's overwhelming. You don't even know Who's advertising to you? We're not going to play in that space. I think that is very low ROI return And I'm a big believer that that creates 0 loyalty. I think you're moving promiscuous customers around who are chasing the next promo. And The switching costs, this is actually something I know I'm going on a bit of a tangent, Bernie, but I think it's important to bring up. Lifetime value is something that's thrown around a lot. And it's interesting because people are calculating lifetime value as if This is not like switching cell phone. This is not going from your Apple phone to Android and Apple touches every element of your life. Like I'm stuck with Forever, I can't switch. Switching costs with sports betting apps takes about 3 minutes. You download the app, you register, You deposit and then you gamble. And I think what's going to happen over time is that the winners that have a real strategic Structural advantages and media integration and loyal audiences, whether that's some combination of Daily Fantasy Sports database or a casino database or a very strong following of a media asset like Barstool, I Those are the ones that are going to have sort of bulletproof market share as time goes. And all of this really aggressive spend on commercials and linear, I don't think that's going to be, the business that sticks around. I think that's going to be the business that continues to jump from app to app. So that's my perspective. But yes, we're going to be more aggressive. We finally have scale As we head into football season, but we'll be doing it in different ways. Great. I appreciate that. And I do think this is the year the Sixers will probably get the better of my Celtics Thanks for what it's worth. And then just a follow-up on iGaming. Do you think there's the same opportunity to kind of, Let's call it Barstool Eyes, iGaming. If we think about sports betting in Illinois, 54% of betters using the Barstool exclusive, So showing the content driven acquisition strategy is working in sports betting. Is there that same opportunity in iGaming? Like I'd imagine some sort of live dealer with barstool personalities could be pretty interesting or is the opportunity really about converting the My Choice customers? Yes. Well, Bernie, you could have been sitting in our boardroom as we had these conversations and you saw late last week that we announced the formation of Sorry, I think it was Monday actually, the formation of Penn Studios and our acquisition of Hit Point, that's exactly what we have in mind. And we've been actually working with Hit Point while we were working on getting the deal done on developing really bespoke content with our partners at Barstool. So yes, You should anticipate Dave Portnoy, Blackjack Games and Big Cat craps and roulette and their dealers and their players and their Interacting and talking with you and there's all sorts of fun stuff that we have planned. And I think the other thing to keep in mind is that We launched iCasino in Michigan, because we don't want to miss out and we want to make sure that we're giving people an opportunity to convert from sports into casino. We will be the first to say our iCasino product is not today where it needs to be. It's a little bit bare bones. I think we have 60 Different titles and slot and table games that we offer is like 1 5th to 1 10th of what our competitors offer. And we're going to get that ramped up, I think by football season this upcoming, call it September of this year, you're going to see the Barstool iCasino is going to be not just offering More well known content from the Cygames and IGTs of the world, but you're going to see some content that we created ourselves through our studio. And I think case in point, if you heard BetMGM talk about how much what percentage of their sports betting audience they've converted over to Hyatt Casino, We're not there yet. We're at 50%. I think they're at like 70% or 80% or 90% or so. It's a very high percentage and we need to have better content That's what we're working on. But yes, you should expect us to do much like on the sports betting side. We're going to do things differently and really Take advantage of tapping into that loyalty that comes with the Barstool names. Got it. Thanks Jay. Thanks for taking the questions. Thanks, Bernie. Thank you. The next question comes from Shaun Kelley of Bank of America. Please go ahead. Hi, good morning everyone and welcome Felicia. Good to hear your voice. Thanks John. So Jay, 2 things I wanted to touch on. 1st, just to stick with online and digital. You talked about the low teen And I think we've all been kind of staring at some of the sequential market share patterns. And I just wanted to get your kind of thoughts Son, when you guys launch in some of these in some of the new markets, you seem to do exceptionally well given the barstool We tend to see things kind of level out a little bit over time just given that where you are in market versus not and probably some of the follow through there. Just how are you kind of thinking about that pattern as it Moves over time as you start to gain a little bit more scale across markets. And what should investors as you look at it, what KPIs are you watching to really judge How your assets are performing? Yes. No, it's a great question, Sean. We obviously, are we talk about this every day and there's a couple of things to keep in One, take Michigan as an example. It's uber, uber expensive from a marketing Right now, everybody is just it's a gold rush, for how much you can spend to drive the more promiscuous customers around from app to app. And we're not playing in that game right now. And we obviously headed into football season 2021 are going to have more scale as I mentioned earlier. And so It's a lot more sense for us to spend more and be more aggressive when you have scale and you can work on more regional and national marketing approaches as opposed to very localized, very With very little long term ROI. So that's 1. Number 2, I think every market If you look at our results in Pennsylvania, they've been remarkably consistent. We've been in that low teen 12% to 15% market share, whether you're looking at handle, GGR, NGR, pretty much every month since we launched in September. And so we really don't see the volatility in Pennsylvania. It's been pretty much clockwork month to month for the most part. And the other thing that I would mention is that and I don't think this will surprise anybody, but the Barstow folks, especially when you're talking about Portnoy and Big Cat, Their top sport is football. And I think that what hurt us in Michigan is we launched right at the very end of football season. We got basically the AFC, NFC Championship weekend, a little bit in Super Bowl and then we headed into basketball and hockey, which is going to be I think we're going to be competitive, but I think we're probably Most competitive during the September through January months because of football season. And so the drop off in Michigan, I think you're going See that start to self correct as you get back into football season, especially with some more marketing spend and efforts to get it ramped up Once we have more scale. So, we're not I continue to go back to what matters over the long term, and I think that There seems to be an overreaction to monthly handle and I think you need to take a step back and really look at the Strategy, the margin profile, the business model and what does it look like over a period of much more than a month or 2. And let's get through another football season, give us a second full season to get through. We've learned a lot and we're confident with where things are going to shake out. And maybe just to switch gears, but we've made it, I think, this far without talking too much about the kind of core brick and mortar business. I think What investors are asking us a lot about is just trying to understand how much of what we're seeing in March April is Truly sustainable in our eyes versus a lack of entertainment options, some of the stimulus funding, Possibly some sort of one time pent up demand. You guys seem to have a lot of data around that. You've broken it out by cohorts for us. So I just want to hear your thoughts and if you kind of tailor it to both a little revenues and a little bit on the margin front too, just trying to kind of get our arms around what's real and repeating versus what's one time? Yes. Todd, you want to grab that one? Thanks, Jeff. Thanks, Sean. Great question. And I think it's what everyone has been asked in our industry as we've kind of gone through this. So Obviously, we're encouraged by the revenue and the EBITDA performance trends. Revenue, it's a combination of many things. There is obviously But I would also point to we're seeing it across all different groups and that's everyone from unrated all the way to the high end Which are more core gamers, Q1 and definitely March April, the trends are Even more encouraging, in the South Mississippi as they removed, really any restrictions, we're seeing Volumes visitation handle drop well over 100% of 2019 numbers. And similar in Louisiana, there was a group of us last week that went to Louisiana and visited 4 of our properties in Louisiana. And It was amazing to see. It was there's in a big way, you wouldn't even realize that there was a pandemic going on. So It was really encouraging to see people out there enjoying themselves, having a great time being at the pool, spending time at tables, dining Restaurant, so it was really where we see the rest of the country going. To your point on margin, In the past, we've kind of provided a framework of 9,100 and with a goal of saying That on 90% of 2019 volumes, we could get to 100% of 2019 EBITDA, which really when you do the math equates to about a 3.50 Margin Improvement. We obviously feel that that was now a little conservative. This has been discussed Internally, maybe more than any other performance metric coming out of the Q1, I think we all got to a point where we feel the margin performance will continue to be driven by volumes. And as we're holding on to the younger demographic, as we're seeing the 55 plus come in after vaccines, Those volumes remain steady and through the first now 5 days of May, the trend continues from April. So very optimistic, very encouraged as we move into the rest of the year. Yes. Well said, Todd. One thing I would add and Todd sort of highlighted it is You should anticipate our margin profile looking a lot like it does right now as long as the revenues continue to be what they've been in the last couple of months. And That's what we're seeing right now. It's tough to predict what's going to be in this environment 3 months, 6 months, 12 months, 15 months from now. But the margin profile, thanks Todd and the operations team out in the field, we feel great about how sustainable it is as well as long as the volumes are there. Thank you very much. Thank you. The next question comes from John DeCree of Union Gaming. Please go ahead. Good morning, everyone. Thanks for taking my question and congratulations Felicia for hopping on the other side of this conference call. Jay, there is a slide in your deck that talks about your GGR market share at a couple of properties where you have a rebranded Barstool Sportsbook. And I was wondering If you could talk a little bit about if you've seen anything early on, the crossover play from retail sports betting to online sports betting, Places where you have a rebranded sports bet. Are you seeing those customers play in the retail location and then go home and play online? Or are they 2 very different customers? I know it's early, but I was wondering if you could kind of talk about the value of that retail sportsbook presence? Yes. And Todd, you can help me with this one. Here's what we're seeing is that Customers that are coming in to bet in these Barstool branded retail sportsbooks, many of them, most of them have never been to the property. And while they're on property, they're engaging in table games mostly, a little bit in slot size and a lot in food and beverage, not surprisingly. I think what's most interesting for us is that one of the things we have not been able to do really at all since we acquired Barstool And this is something that Dave and Erica and Big Cat and others at Barstow are the most excited about as are we is this on activation of their audience. So even though we've opened these Barstow branded sportsbooks, it's still with very limited capacity, Blackjack games that are every other seat and slots are every other slot and bars are half shut down or entirely shut down. So when you think about We're seeing early results that are very encouraging, but I get a lot more excited thinking about how much stronger those volumes can be when we can really activate the audience. Yes, well said, Jay. The only thing I would add, John, really the stickiness to your question, now that everybody is in the MyChoice So whether you're spending time with us online or actually at the property, you're earning loyalty, you're earning rewards. So we've seen a nice uptick from there. So obviously the brand loyalty, I think as people find their way back into the casinos, They are over indexing if they're gambling with us online as well as in the sports book. So it's a really encouraging trend and Definitely saw a nice increase after everything was pulled into the loyalty program. That's great helpful color. If I could ask one more Jay and Felicia on a high level, going back to One of Felicia's comments before is revenue ticks up in a recovery, EBITDAR will tick up and ultimately your free cash flow accelerate and where The balance sheet is today in a position that it hasn't been as long as we can remember. Jay, I think you were pretty clear in The big picture, the amount of cash flow that we see you guys being able to generate in our model, how do you think about uses of cash and deploying that cash, The different buckets, I mean is there an opportunity to continue to grow and invest in your digital business and Perhaps think about shareholder returns or dividends or even pay down a little bit of debt you have. Just want to kind of get your sense as cash Accelerate here, how you would look to deploy it in addition to reinvesting in the digital business? Yes. Thanks, John. I think for now, you've all heard Jay talk many times and also today inclusive of growing our online channel and solving for our tech stack. So that's really where we are today. Our cash balance certainly gives us A lot of dry powder to pursue a number of different growth strategies. But over time, Regarding return of capital, that's definitely something we'll consider down the road. It's something discussed, but right now, we're very much focused on our growth. Mean, if you look at John, if you look at we don't provide this level of detail month by month, but the March, April results we sort of provided a slide. You're looking at roughly a little over $200,000,000 at the corporate level of EBITDAR and close to $100,000,000 of Cash flow each of those 2 months. I'm not saying you should run rate all that because March is a strong month and we don't know how long what we're seeing now. But The operating leverage of this business is tremendous. And the EBITDAR to Felicia's point Earlier, EBITDAR to free cash flow conversion, I think, is going to be maybe tops or close to tops in the industry. Thanks, Jay. Thanks, Felicia. Thank you. The next question comes from Stephen Grambling of Goldman Sachs. Please go ahead. Thanks. Jay, you gave the Sky Bet analogy on the online sports book. As you look at your metrics In that segment across things like size of that frequency and customer concentration, now perhaps disclosing those stats specifically, how do you think you compare To peers in the market and can you provide any color on how you think about how fragmented your customer base is, as we think about mass market customer versus Perhaps peers more concentrated. Yes. Great question. And I sort of know what I know just based on what we have visibility and What we hear from our competitors, Stephen, so some of this would just be speculation. But in terms of what we know ourselves is that I mentioned earlier, we know that the lion's share of the sports betters in our ecosystem are young. They're younger than 30, call it 21 to 29. They over index there more than what I'm hearing competitors say about where their average age is, maybe more in the 30 to 35, ours is 25 as an average age. And the average bet size, not surprisingly for us, is a bit lower, Especially in Michigan, we're seeing there it's Illinois and Pennsylvania, it's sort of where we thought it would be. Michigan, the average bet size has been lower. But you're seeing our hold rates in Michigan higher. And so we're getting a lot of parlay bets in Michigan, a lot of casual betting, Recreational betting, and I think that's great. That's what Sky Bet has been doing in the UK for a long time. And If you look at Sky Bet's hold percentage over the last 7 or 8 years, they tend to over index On hold and GGR versus handle, it's still early to say exactly how that's all going to play out for us, but based on sort of life to date In the states that we've been in and now including Illinois, our hold rates are higher than the competition. And I That's because we have a younger, more casual, better. And when you think about lifetime value, I'd rather have an average better at 25 than anything older than 25 They're in the ecosystem. So I don't know exactly how that compares to everybody else, but just based on what I've heard, what I've read From our competitive set and then what we've seen internally, that's what I think the difference is and how we really do line up quite well to the Sky Bet model in the UK. Yes, that's helpful. And then as a follow-up, this is perhaps asking Sean's question on the sustainability of results in a different way. I think you had previously talked about achieving 2019 levels of EBITDA at 10% lower revenues. Is that still how we should think about maybe Sustainable levels of margin improvement or has your view changed longer term given what you've seen in the business? I think Todd said it pretty well, Stephen, earlier, that now feels conservative based on what we're seeing in the business. And if revenue levels are sort of at where they're at now and that's sustained, I think you're going to see us pumping out margins like we're pumping out now. That's the way you should think about The next question comes from Barry Jonas of Truist. Please go ahead. Hey, guys. Thanks for all the color. I had a question about Vegas with the sale of Tropicana to another operator. How do you think about the need to be back in that market longer term, specifically the Strip? Yes. We I think Vegas Strip is a great market. And I think when you look at the Penn story, Could you envision down the road there being a sort of hub and spoke as it relates to our on prem retail strategy? Absolutely. It has to be the right asset at the right location and it has to be an asset that we feel like is representative of a destination that we want to We have some struggles with trough and that's in the rearview mirror and it wasn't for a lack of Trying and database conversion and all of that, I think we actually executed quite well. But at the end of the day, you need to have a property that's at location and is competitive from an amenity standpoint. So I would say based on everything that we have going on as a company, it's not imperative. It's It's not something that we feel like has to be done and we have a time line associated with that, but we will absolutely be taking a look if there's quality assets So in Vegas and with our balance sheet and with our database, I think we feel very comfortable making an investment if it was the right opportunity for us. But not something that is imminent. We're not out there making offers to people, but if there's a good asset on the market, we'll definitely be taking a look. Okay, great. And then just as a follow-up, I think a few quarters ago, you mentioned live game betting was lagging Actually, I think it was Felicia's question, but curious where that is now? I didn't make that out, Barry. I'm sorry. Can you repeat that? Yes. I said a few quarters ago, you mentioned live in game betting lagging your internal goals. I'm just curious where you think that stands now. Yes. So I think probably for the market as you look at how popular in game betting is over in Europe, and I don't think we get to those levels The U. S. And part of why in game is so popular there is because soccer is the most popular sport, which is lends itself to in game betting. Basketball would blow your head off trying to do endgame and football with hurry up offense can be more challenging as well. But I do think that you're probably going to end up somewhere north of 50% in game and we're not there. We're more in that 35% Right now, which is a little higher than the last time we reported, but I think it's going to take a little bit of time. And honestly, I think it's going to take Having great content and great product and we talked about creating more specialized So content both within Icasino and sports now that we have created a studio. And so that's going to be very focused on Thank you. The next question comes from Ryan Sigdahl of Craig Hallum Group. Please go ahead. Good morning. Thanks for taking our questions. Jay, you mentioned sub-one hundred CPA, very impressive there relative I guess just want to break that down. I know we've talked a lot about this, so be very clear, I guess, because there's a lot of misinformation, I think, about promotions reported by States on a monthly basis versus external marketing. So how do you think about spend between those two promotions and external marketing? And then has your strategy changed there versus your initial expectations kind of from your early learnings in Pennsylvania, Michigan, Illinois, etcetera? Yes. No, happy to share that. I mean, look, I view those 2 as very different. I mean, by definition, CPA is cost per acquisition. And so That's very much focused on how much did you have to spend to get that customer to download your app and to place a bet. And I think that from our standpoint, The promotional spend is much more about retention. We are laser focused on retention and That's why I think you'll see us maybe spend a little bit more on promos as it relates to a percentage of GGR. It's also very tax sufficient in a number of these markets. And as you're looking at spending hard cash on paid media that maybe is attracting a little bit more of a promiscuous customer Versus investing in somebody who's already in your ecosystem and making sure they have compelling reasons and compelling content and compelling promotions To stay within the ecosystem, we view those two things very differently. So CPA for us, obviously, being as low as it is, Begs the question of well, what should it be? I think it should be higher, but we just want to make sure that we're being thoughtful around what we spend, where we spend it and that it's going to create Long term ROI, we'll be as aggressive as we need to be as long as we believe we're attracting customers that we can keep within our ecosystem. Great. And then just on New York, mobile sports betting, a fairly complex and confusing licensing structure there, Also expensive, I guess, do you think there's an ROI opportunity for a competitive bid in the state? I You said it well, Ryan. We view it the same way. It's a conundrum, and we'll have to see how this We're very active right now in talking to a number of our comps that because the way that this was structured, I think money can be made, but the tax rate obviously is going to be hugely important and we'll have to see how that plays out. I would say that if anybody can sort of monetize in an environment like that, I think that We're set up better than anybody because of our low CPAs and the fact that we have such a loyal audience that we don't have to Spend money attracting to get into our ecosystem. So I don't want a high tax rate, trust me, and I don't think a high tax rate benefits the state at all. But if it's a higher than average tax rate, I think that is an environment we know we can still create long term value and profitability. Thanks Jay. Good luck guys. Thanks, Ryan. Let's go with Tina, one more question please. Perfect. Our final question comes from Steve Wieczynski of Stifel. Please go ahead. Yes. Hey, guys. Thanks. Good morning. Thanks for squeezing me in. Felicia, welcome. I mean, I'm shocked you don't want to talk about cruise operators anymore in this environment. So anyway, Jay, I want to ask a bigger picture question around sports betting. And there's obviously TAM estimates out there that are I mean, they're all over the map. And My question is specifically around the gray market money. My question actually is, how do you guys think about attacking That gray market and converting those folks from a gray market type of setup into a legal entity like yourselves or somebody else. And do you see this as a risk Longer term, the converting those folks might be more difficult than originally expected. It's a great question. And I think that's an industry question even more than it is a Penn question. And I think that Certainly, our competitors are doing their part by advertising all day every day in the markets that are legal to make sure people understand that it is now Legal and pretty easy. As I mentioned, it's a 3 minute transaction. So I think we all have to some of those illegal operators have Really good products. They've had them out there for decades. And so we all collectively have to continue to create a really good UI, UX And make sure that we have features and functionality that are as good if not better than some of those offshore operators. And I think when you pull people, AGA has done this, we've done it internally at Penn as well. And you ask people, would you That was legal versus illegal. It's not like people want to bet. A lot of people don't know. And so I think some of this over time is Bovada, is that an option? And I think people over time are I realize that which ones are legal and regulated and which ones aren't, but it's not going to happen overnight. I just think what you're going to see is Our ability to convert sort of gray market betters into black market, you're going to see that Just continue to grow and get better over time, especially as more states legalize, we have more scale, the industry has more scale and it becomes more sort of Common knowledge as to where it's legal and where it's not. But I think that's an industry effort more so than it is even necessarily a Penn effort. Got it. And then Jay, I thought it was and if you talked about this earlier, I apologize if I missed it. But I thought it was interesting you talked about or you guys wrote in the release about being you talked about Being a disruptor to the gaming industry and to me that almost sounds like a threat. So I guess can you expand a little bit more about what guys actually meant by that statement? Well, I don't view it as a threat, so I'll be clear on that. I view it as the way that we look at the space. And we were a 1st mover in a lot of areas. We were a 1st mover in creating the industry's first We were a 1st mover on investing in social casino businesses. We were a 1st mover in pursuing route operations when it was at its infancy. When we acquired Barstool, that raised a lot of eyebrows of, wow, is that going to work? And so I think what we're saying, Steve, or attempting to say is that we've been disruptive. We're going to continue to be disruptive. And I think this current environment Convergence of different industries and verticals is a very comfortable place for us. We like when it's sort of Chaotic and somebody's got to step through the chaos and figure out how to create a compelling strategy and vision. We think we're set up really well as a team to do that. We live and breathe this every day. And when I say this, it's not just gaming, it's sports, It's media, it's tech. It's all of the adjacent industries that we see coming together. And we think we're set up really well and We've got some ideas on how we can really, like I said, sort of make the moat that we've built wider and deeper and you should be expecting to hear more from us on that. Okay, great. Thanks guys. Appreciate it. Thanks Steve. Thank you. I'll turn the call back over to you for any closing remarks. That's all I have. Really appreciate everybody taking the time to join us this morning and we'll be in touch with All of you soon. Thank you. Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.