Penn National Gaming Reports Third Quarter Revenues of $1.5 Billion

WYOMISSING, Pa.–(BUSINESS WIRE)–Nov. 4, 2021– Penn National Gaming, Inc. (NASDAQ: PENN) (“Penn National” or the “Company”) today reported financial results for the three and nine months ended September 30, 2021.

2021 Third Quarter Financial Highlights:

Revenues of $1.5 billion, an increase of $382.1 million year over year and $157.3 million versus 2019;
Net income of $86.1 million and net income margin of 5.7%, as compared to $141.2 million and 12.5%, respectively, in the prior year and net income of $43.7 million and net margin of 3.2% in 2019;
Adjusted EBITDA of $364.3 million, an increase of $20.7 million year over year and $52.7 million versus 2019;
Adjusted EBITDAR of $480.3 million, an increase of $27.7 million year over year and $72.4 million versus 2019; and
Adjusted EBITDAR margins of 31.8%, as compared to 40.1% in the prior year and 30.1% in 2019.

For further information, we have posted a presentation to our website regarding the third quarter highlights and accomplishments, which can be found here.

Jay Snowden, President and Chief Executive Officer, commented: “We achieved many significant milestones in the third quarter. We successfully launched the Barstool Sportsbook mobile app in five states (Colorado, New Jersey, Tennessee, Virginia, and Arizona), which more than doubled our footprint. In addition, we opened Hollywood Casino York to strong initial results, began to roll out our market leading cashless, cardless, and contactless (“3Cs”) technology across the portfolio and continued to derive multiple tangible benefits from our highly differentiated omni-channel strategy. We also continued to generate revenues and EBITDAR significantly above 2019 levels, despite exogenous events that had a one-time impact on our quarter. While July was a record month, the second half of August and September was impacted by Hurricane Ida and regional flare-ups of the Delta variant, which reduced property Adjusted EBITDAR and Adjusted EBITDAR margins by an estimated $30 million and 85 basis points, respectively. As the operating environment has normalized, we have seen improved results in October. Further, Other Segment results included a $12.5 million lobbying expense to support the California sports betting initiative and $7.5 million in expenses related to new state launches of our Barstool Sportsbook app.

“In addition to the five new launches of our Barstool mobile sportsbook betting app, all of which occurred before the start of the football season, earlier this week, we launched our mobile sports betting app in Iowa, which expands our footprint to 10 states. Overall, we are benefiting from our increased scale and are driving higher handle and revenue market share across the board while remaining disciplined with our marketing and promotional spend. These results underscore our commitment to our business model, which remains focused on near term profitability rather than aggressive marketing aimed at generating short term increases in handle.

“We achieved an important milestone with the closing of our acquisition of Score Media and Gaming, Inc. (“theScore”) on October 19. Combined with the power of Barstool Sports, we are now well positioned to be North America’s leading digital, entertainment, sports content, gaming, and technology company. Barstool’s wide, top-of-funnel audience reach is highly complementary to the news, scores and stats available on theScore’s best in class media app, which will create a one-stop destination for the sports fan that does not exist today. Further, we are excited to bring theScore’s cutting-edge technology in house, which will provide us with a fully integrated media and betting solution as well as full ownership of our product roadmap.

“As the most popular sports media app in Canada, theScore is uniquely positioned to capitalize on the legalization of single event sports wagering in Ontario when the province is ready for launch. Consistent with our previously disclosed strategy, we anticipate theScore Bet will be our leading brand in Canada while we will continue to lead with Barstool Sportsbook in the U.S. Most importantly, we expect that both brands will benefit from the marketing support of Barstool Sports and integration with theScore’s media app. We are excited to welcome theScore’s rapidly growing team into the Penn National Gaming family and are looking forward to leveraging Canada’s world class talent pool of engineering and technology expertise.

Core Business Expansion

“The results from our core businesses continue to impress,” continued Mr. Snowden. “As stated above, excluding the impact of Hurricane Ida and the Delta variant in the quarter, we saw a continuation of the trends from prior quarters including growth in our VIP segments and our younger demographics. Our VIP segment grew by 33% compared to Q3 2019, fueled by increases in both the number of guests playing at higher levels and the frequency of their visitation. Additionally, we are experiencing continued engagement with our younger customers, who are generating new growth, and more than offset any declines in Q3 of our older core gaming customers due to the Delta variant. Importantly, October reflects more of what we saw in the first half of the third quarter with strong property level performance across our segments somewhat offset by new competition in Colorado and Indiana as well as the residual impact of gaming expansion in Pennsylvania. Meanwhile, our retail Barstool Sportsbook concepts have stimulated database growth and increased frequency of visitation in the younger segments, while boosting gaming and food and beverage spend. Following the recent passage of legalized sports betting in Louisiana, we opened retail sportsbooks at L’Auberge Casino Baton Rouge and Boomtown New Orleans, and we are looking forward to expanding into our remaining Louisiana properties pending regulatory approval.

“New technology is also driving demand. Downloads of our mychoice app, which enhances the customer experience, increases engagement, and improves marketing capabilities, increased 22% in the quarter while utilization is also higher. Additionally, our 3Cs technology provides a digitally integrated experience by offering a touchless, engaging, efficient, and convenient experience for our guests. This new technology removes friction from transactions and reduces wait times and lines. It also positions our properties for the future by fulfilling the expectations of younger consumers who expect cashless options at hospitality and entertainment venues. The 3Cs are now live at three properties in Pennsylvania and four in Ohio, and we plan to roll out the 3Cs to additional properties throughout this year and into next, pending regulatory approvals.

“On August 12th, we celebrated the opening of Hollywood Casino York, which is our third casino in the Commonwealth of Pennsylvania. This casino is built for the future, with new technologies and customer conveniences, including the 3Cs and a Barstool Sportsbook. While still early, we have been encouraged by the combined performance of Hollywood York and Hollywood Casino at Penn National Race Course. We are confident in our ability to grow the overall market due to the positioning of our properties in the region, particularly with the anticipated opening of Hollywood Casino Morgantown later this year, pending regulatory approvals. We recently opened a career center and are accepting applications for approximately 375 new positions at Hollywood Casino Morgantown, which will feature approximately 750 slot machines and 30 table games, a Barstool Sportsbook and multiple food and beverage outlets.

Barstool Sportsbook Gaining Momentum Through Our Highly Differentiated Strategy

Mr. Snowden continued, “With the return of football season, we have seen strong momentum with the Barstool Sportsbook in the states in which we operate, while maintaining our disciplined approach to marketing. Our results reinforce our confidence that the long-term winners in the space will be defined by broad market access, relevant sports brands, organic customer acquisition strategies and best-in-class products – all of which we are uniquely positioned to deliver.

“As evidenced by the September results in our most mature states, Pennsylvania and Michigan, the Barstool Sportsbook has gained meaningful handle market share through creative marketing and exclusive offerings, without relying on heavy promotional spending or paid media. In addition, we are beginning to see very encouraging retention numbers from our initial cohort of customers, reflecting the strong loyalty and brand affinity of the Barstool audience. We believe these trends will lead to sustainable revenue growth as we continue to leverage the structural advantages of our fully integrated media and omni-channel strategy. The benefits of this strategy were recently on full display in Illinois, where state regulations currently require in-person registration for mobile sports betting. In late-August, Dave Portnoy, Dan Katz and other Barstool personalities attended an on-premises event at Hollywood Casino Aurora in connection with a special promotion, leading to nearly 10,000 first-time depositors over a five-day period, with minimal paid media.

“We have also made significant improvements to our sports betting product, including the introduction of Parlay+ (same-game parlay) and shareable bet slips. Nearly 50% of our customers bet with Barstool exclusives and participate in merchandise promotions, odds boosts and opportunities to bet with or against popular Barstool talent. As a result, the Barstool Sportsbook is currently tied for the highest-rated sports betting app in North America in the Apple app store with a 4.8 user rating out of 5.0. We believe we will make even more meaningful improvements as we move to integrate our sportsbook with theScore’s best-in-class sports media app and betting technology which will provide us with a highly customizable and fully integrated technology solution. Meanwhile, we are continuing to bolster our iCasino offerings, including the recent launch of our Barstool-branded live dealer studio in New Jersey. We now operate iCasino across three states (Pennsylvania, Michigan, and New Jersey) and are positioned to gain additional market share with the launch last week of our first in-house developed, Barstool-branded digital iCasino game in New Jersey, ’Barstool Blackjack.’

“Meanwhile, Barstool Sports has continued its rapid ascent into one of the premier entertainment and lifestyle brands for Millennials and Generation Z. With a highly diversified revenue mix of advertising, brand licenses and commerce, Barstool is on track to once again meaningfully grow revenues year over year. Equally important, Barstool continues to aggressively pursue opportunities to unlock new channels for future growth. For example, Barstool recently announced its intent to support collegiate athletes in pursuing NIL (name, image, and likeness) sponsorship arrangements. In just a few months, Barstool has signed 135,000 collegiate athletes to serve as Barstool Athletes, demonstrating the incredible power of the brand across the younger demographic. In addition, One Bite frozen pizza was recently introduced exclusively at Walmart stores across the country, with initial sales exceeding expectations. Finally, we anticipate launching the first two stand-alone Barstool-branded sports bars in the coming months in Philadelphia and Chicago, which will represent an extension of our omni-channel strategy to more targeted, flexible, and highly valued locations.

Continuing to Care for our People, our Communities, and the Planet

“On August 29, Hurricane Ida hit Louisiana as one of the most devastating storms to strike the United States. The response from our team members across the country in the aftermath once again demonstrated the compassion and dedication our Penn family has for one another and the communities we serve. With limited supplies available in New Orleans, and basic utilities completely disabled, our sister properties helped to provide temporary housing and much needed provisions. In addition, our Penn National Gaming Foundation established the ‘Hurricane Ida Emergency Relief Fund’ for team members to apply for financial assistance for immediate needs.

“Additionally, with female members comprising 44% of our Corporate Board of Directors, we are proud to be both an honoree at the Women’s Forum of New York’s Annual Breakfast of Champions for ‘Leading the Way to Gender Balance on Corporate Boards’ as well as a ‘Champion of Board Diversity’ by The Forum of Executive Women, the Greater Philadelphia Region’s premier women’s organization, which annually honors the top public companies in the Philadelphia region with 30% or more women on their respective boards.

“Further we continue our strong support for our nation’s heroes, through new partnerships with the Concussion Legacy Foundation, which launched a special project focused on CTE & PTSD research on veterans. We are also offering financial support to the ‘No One Left Behind,’ organization, which provides funds to help Afghan special immigration visa recipients (SIVs) with food, housing, clothing and a no-interest loan program which helps immigrant families become self-sufficient.

“Finally, we are continuing our sustainability efforts. We are reducing carbon emissions by adding electric vehicle (EV) charging stations at our properties. We have installed EV charging stations at 24% of our properties, with an additional 32% on schedule for roll-out over the next 12 months. We remain focused on reducing plastic waste as 75% of our hotel properties are now utilizing bulk amenity dispensers for shampoo, conditioner, and body wash. We also prioritize sustainable food production and supply chains through fair trade, hormone-free and reduced-antibiotic F&B procurement.”

Strong Balance Sheet and Liquidity

On July 1, 2021, we closed on our private offering of $400 million aggregate principal amount of 4.125% senior notes due 2029. Traditional net debt as of September 30, 2021 was $45 million, a decrease of $71 million during the quarter, principally due to repayments under our senior secured credit facilities. Our lease-adjusted net leverage was 3.9x based on Adjusted EBITDAR through the trailing 12 months ended September 30, 2021. Our balance sheet cash as of September 30, 2021 was $2.7 billion and our total liquidity inclusive of our undrawn revolver was $3.4 billion, providing us with ample capacity to pursue additional growth initiatives. Subsequent to quarter end, on October 19, we completed the acquisition of Score Media and Gaming Inc. for total consideration of approximately $1.9 billion, of which approximately $923 million was paid in cash.

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