WYOMISSING, Pa. – It doesn’t pay to disappoint Wall Street.
Case in point: Penn Entertainment, the Wyomissing- based operator of racetracks, casinos, and interactive wagering systems, announced fourth quarter earnings today and it was not what the stock market expected. According to Zacks Investment Research, earnings were expected to be $0.33 per share. Instead, earnings came in at $0.13 per share.
That’s a big miss on a percentage basis and it sent Penn Entertainment’s stock down over 4% in early morning trading.
Revenues for the fourth quarter and the year came in right around expectations which means expenses exceeded projections. The culprit was interest expense, increasing $60 million in the quarter and $195.4 million for the year as the Federal Reserve raised interest rates multiple times to tame inflation.
CEO Comments
Although most financial measurements were down, management had a more positive outlook. In a statement, Jay Snowden, Chief Executive Officer and President, commented: “2022 was a solid year for PENN despite ongoing macroeconomic headwinds. I’m proud of PENN’s numerous financial and operational achievements in the past year as well as our continued progress on the ESG front. We remained focused on executing our leading omni-channel strategy, which drove database growth and further engagement with our expanding 21 to 44 year-old cohort.”
Operating Results
According to Penn Entertainment, fourth quarter revenues of $1.6 billion and Adjusted EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization and Rent) of $468.3 million were impacted by severe weather in certain parts of the country in December. The company also achieved profitability in its Interactive segment notwithstanding an unfavorable sports betting outcome in the World Series.
The quarter ended on a high note, said Penn Entertainment, with a strong performance between Christmas and New Year’s across the portfolio, which continued through January.
On December 6, 2022, the company’s Board of Directors authorized a new $750 million share repurchase program which expires on December 31, 2025, and is incremental to the company’s existing $750 million share repurchase program authorized in February 2022. During the fourth quarter of 2022, the company repurchased 2,870,894 shares of its common stock in open market transactions for $91.0 million at an average price of $31.69 per share. After the year ended December 31, 2022, the company repurchased 1,008,744 shares of its common stock at an average price of $31.20 per share for an aggregate amount of $31.5 million.
Omni-Channel, Tech-Forward Engagement
In fourth quarter 2022, the omni-channel business segment reported revenues of $1.4 billion; adjusted EBITDAR of $487.1 million; and adjusted EBITDAR margins of 35.2%.
Snowden noted, “Our focused marketing strategy, diverse product offerings and technology enhancements generated approximately 1.3 million new rated customers last year in our mychoice database. Approximately 300,000 of these guests signed up in the fourth quarter, representing a 15% year-over-year increase.”
Over 50% of the database growth in the quarter came from online offerings, and the company experienced a 25% increase in guests who engage with them across multiple channels. Penn Entertainment also saw positive momentum in its mychoice app downloads and the adoption of cashless, cardless and contactless technology, which is now deployed at twenty-one properties representing approximately 70% of retail EBITDAR.
Interactive Segment
Penn Entertainment reported Interactive Segment revenues of $208.0 million (including tax gross up of $82.9 million); and adjusted EBITDA of $5.2 million.
Snowden commented, “Our Interactive segment generated positive adjusted EBITDA for the quarter inclusive of expenses related to online sports betting launches in Maryland and Ohio and unfavorable hold driven by VVIP play. Following our successful playbook in Kansas and Maryland, our omni-channel marketing approach in Ohio led to one of our strongest launches to date of our Barstool Sportsbook.”
In Ontario, the company claimed, theScore Bet continues to experience strong momentum, achieving record gaming revenue in December for both sports betting and iCasino. According to Penn, the transition to its proprietary technology platform last summer has resulted in higher customer engagement and a noticeable increase in hold rates which is the percentage the company earns on wagers.
“Looking ahead, Snowden said, “we remain on-track to migrate the Barstool Sportsbook and Casino to our proprietary technology solution this summer. In addition to expected cost synergies, our Ontario success suggests that there is meaningful revenue potential post-migration once we are able to leverage our advanced trading and promotional tools.”
Digital Media
In the digital media space, Penn said theScore’s media business and Barstool Sports continue to produce impressive revenue and engagement results, driven by compelling content and an exceptional product experience. theScore’s mobile media audience is more engaged than ever, with both quarterly and annual user session growth.
In addition, the company completed the initial integration of the Barstool Sportsbook into theScore media app in October, highlighting what the company sees as the benefits of its owned media strategy. The company expects to acquire the remainder of Barstool Sports, which it expects will close February 17.
Barstool achieved record revenue in 2022, Penn said, while investing in and expanding into new verticals, including coverage of live sporting events such as the Barstool Invitational college basketball tournament on November 11 and the Arizona Bowl on December 30. Penn expects the combination of Barstool’s audience with theScore’s fully integrated media and betting platform will provide it with competitive advantages and organic cross-selling opportunities.
Looking Ahead
“In 2023, we have numerous near-term growth opportunities,” Snowden noted, “including the transition of the Barstool Sportsbook to our own proprietary technology platform in the U.S. this summer. For 2023, we are guiding to a revenue range of $6.15 billion to $6.58 billion and an adjusted EBITDAR range of $1.875 billion to $2.0 billion. This outlook reflects our momentum in both our Retail and Interactive segments and the potential for further economic headwinds as well as increased supply in a few of our markets.”
PENN Entertainment, Inc. (Nasdaq: PENN) is a provider of integrated entertainment, sports content and casino gaming experiences. PENN operates 44 properties in 20 states, online sports betting in 13 jurisdictions and iCasino in five under a portfolio of well-recognized brands including Hollywood Casino®, L’Auberge ®, Barstool Sportsbook® and theScore Bet®.
