Core Insights - PENN Entertainment, Inc. announced a new corporate organizational structure to align with its strategic priorities, focusing on digital assets in Canada and the Hollywood iCasino product in the U.S. [1] Group 1: Corporate Strategy - The restructuring aims to leverage the core retail casino business and enhance the overall omnichannel business model [1]

Core Insights - The U.S. online betting industry is transitioning from growth to profitability, with investors focusing on execution and balance-sheet discipline, highlighting a competitive landscape between DraftKings Inc. (DKNG) and PENN Entertainment, Inc. (PENN) [1][2] DraftKings (DKNG) - DraftKings operates as a pure-play digital operator, emphasizing scale, technology, and customer engagement to enhance long-term earnings potential [2][3] - The company is experiencing improving momentum with accelerating handle growth, stronger customer retention, and increased parlay mix, which are expected to support higher sportsbook margins over time [3] - DraftKings is expanding media partnerships and product initiatives while maintaining disciplined capital allocation, including a larger share repurchase authorization [4] - The company continues to invest in new initiatives and technology, which may affect near-term profitability, leading to uneven margins compared to peers [6] - DraftKings faces inherent volatility in sportsbook results, which can significantly impact revenue and EBITDA, creating challenges for earnings visibility [5] PENN Entertainment (PENN) - PENN has strategically reset its digital operations by exiting the ESPN BET partnership and focusing on owned assets like theScore Bet and Hollywood iCasino, which simplifies the business and reduces marketing costs [7] - The company is witnessing strong momentum in iCasino, which is increasingly viewed as a profit engine, with record revenue driven by cross-selling from online sports betting [8][9] - PENN's regional casino business provides stable cash flow and differentiates it from digital-only competitors, with strong performance in several markets and a visible development pipeline [10] - Execution risk in the Interactive segment remains a concern, particularly with the transition away from ESPN BET, which introduces uncertainty around customer retention [11] - PENN's diversified structure and focus on profitability position it favorably compared to DraftKings, especially as the industry matures [24] Stock Performance & Valuation - DraftKings shares have underperformed compared to PENN over the past six months [12] - DraftKings is trading at a premium on a forward 12-month price-to-sales (P/S) ratio compared to PENN [16] - The Zacks Consensus Estimate for DKNG's 2026 earnings implies a year-over-year improvement of 100.4%, while PENN's estimate suggests a 116.4% improvement [18][21] Conclusion - PENN Entertainment is currently better positioned than DraftKings due to its balanced business model, digital reset, and stable cash flow from regional casinos, while DraftKings remains more exposed to sportsbook volatility and investment needs [24]

Financial Data and Key Metrics Changes - The retail segment generated revenues of $1.4 billion with adjusted EBITDA of $465.8 million, resulting in segment-adjusted EBITDA margins of 32.8% [13] - The interactive segment reported revenues of $297.7 million, including a tax gross-up of $139.5 million, and an adjusted EBITDA loss of $76.6 million [14] - Total liquidity at the end of Q3 was $1.1 billion, including $660 million in cash and cash equivalents [16] Business Line Data and Key Metrics Changes - The North America iCasino business achieved its highest quarterly gaming revenue to date, with a nearly 40% year-over-year improvement driven by record cross-sell from OSB of 62% [6][7] - iCasino monthly active users (MAUs) increased by 79% during Q3, with new all-time records for MAUs, gross gaming revenue (GGR), and net gaming revenue (NGR) set in October [7] - The transition to theScore Bet is expected to enhance digital business efficiency and profitability, with a focus on high-margin markets [5][8] Market Data and Key Metrics Changes - The company noted stable demand across gaming and non-gaming amenities, particularly in regions not impacted by new supply and increased competitor promotional activity [9] - The new Hollywood Casino in Joliet has driven impressive volumes and database growth, with a 42% increase in the active database since opening [10] Company Strategy and Development Direction - The company is realigning its interactive focus to prioritize digital assets in Canada and the Hollywood iCasino product, leveraging cross-sell opportunities across its ecosystem [4][5] - The early termination of the ESPN agreement will cease cash payments and marketing obligations, allowing for a more flexible marketing strategy focused on high-return markets [12][23] - The company plans to continue investing in growth capital while managing share repurchases as a key component of its capital allocation strategy [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate increased competition and promotional activity, emphasizing the importance of maintaining a strong value proposition [36] - The company is focused on achieving profitability in its digital segment by 2026, with a clear plan for retention and marketing strategies post-rebranding [8][43] - Management highlighted the importance of controlling the business's cost structure and marketing budget to enhance profitability moving forward [8][23] Other Important Information - The company repurchased $154.1 million of shares at an average price of $19.34 per share in Q3, with a total of $354 million repurchased as of November 5 [17] - The total CapEx for 2025 is now projected at $685 million, reflecting a shift of some project costs into the next year [20] Q&A Session Summary Question: Impact of ESPN exit on near-term and long-term profitability - Management discussed the strategic investments made in digital business and the importance of cross-selling to the retail segment, emphasizing the younger customer demographic acquired through digital channels [27][30] Question: Increased competition and promotional activity - Management acknowledged the impact of new competition and promotional activity on operations, noting that while there may be temporary increases in costs, the company remains committed to delivering best-in-market offerings [34][36] Question: Customer retention strategies post-rebranding - Management expressed confidence in retaining customers during the transition to theScore Bet, highlighting improvements in product quality and user experience [70][71] Question: Future growth opportunities in Canada - Management indicated that while there are limited retail property options in Canada, they remain open to opportunistic acquisitions that align with their omnichannel strategy [61] Question: Leverage targets for the business - Management stated that the optimal leverage level is below five times, with a focus on balancing share repurchases, growth investments, and debt reduction [62]

Financial Data and Key Metrics Changes - The Retail segment generated revenues of $1.4 billion with adjusted EBITDAR of $465.8 million, resulting in segment adjusted EBITDAR margins of 32.8% [16] - The Interactive segment reported revenues of $297.7 million, including a tax gross-up of $139.5 million, and an adjusted EBITDA loss of $76.6 million [18] - Total liquidity at the end of 2025 was $1.1 billion, including $660 million in cash and cash equivalents [20] Business Line Data and Key Metrics Changes - The North America iCasino business achieved its highest quarterly gaming revenue to date, improving nearly 40% year over year, driven by record cross-sell from OSB of 62% [8] - The introduction of a standalone app and improved cross-sell from online sports betting led to a 79% increase in iCasino monthly active users (MAUs) during the third quarter [9] - The company expects fourth quarter 2025 revenues for the Retail segment to range from $1.41 billion to $1.43 billion, with adjusted EBITDAR ranging from $455 million to $475 million [18] Market Data and Key Metrics Changes - The company noted stable demand across gaming and non-gaming amenities, particularly in markets not impacted by new supply and increased competitor promotional activity [11] - The new Hollywood Casino in Joliet has seen a 42% increase in its active database since opening, with over 50% of that growth coming from previously inactive customers [12] Company Strategy and Development Direction - The company is shifting its interactive focus to prioritize digital assets in Canada and Hollywood iCasino products, emphasizing cross-sell opportunities across its ecosystem [5] - The transition to the Score Bet brand is expected to optimize the digital business and operate more efficiently, including replacing fixed media spends with performance-based marketing [7] - The company plans to continue investing in growth capital while also focusing on share repurchases and deleveraging [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning to compete effectively in the evolving industry landscape, highlighting the importance of an omnichannel strategy [28] - The company aims to achieve breakeven or better in its interactive segment by 2026, with a focus on profitability and operational efficiency [10][96] - Management acknowledged the challenges posed by increased competition and promotional activity but remains optimistic about the company's ability to maintain its market position [41][44] Other Important Information - The company announced an early termination of its exclusive online sports betting marketing agreement with ESPN, ceasing cash payments at the end of 2025 [15] - A total of $38.1 million will be paid to ESPN for marketing services incurred through December 1, with an additional $5 million for traditional media support [15] - The company has repurchased $354 million of shares as of November 5, with a new three-year $750 million share repurchase authorization commencing on January 1, 2026 [21] Q&A Session Summary Question: Can you talk about the near-term and long-term profitability for interactive following the ESPN exit? - Management highlighted that the digital investments aimed to attract younger customers and cross-sell to retail businesses, with a focus on profitability moving forward [32][34][38] Question: How has increased competition and promotional activity impacted operations? - Management noted that while new competition has led to increased marketing costs, properties not impacted by new supply are performing well [41][44] Question: Can you clarify the expected marketing costs post-ESPN? - Management indicated that marketing costs will be significantly lower than those previously paid to ESPN, allowing for more targeted spending in high-return markets [48][49] Question: What are the strategies for customer retention during the rebranding to Score Bet? - Management expressed confidence in retaining customers due to improved user experience and a comprehensive marketing plan, emphasizing that the app experience will remain unchanged [84][90] Question: What is the company's leverage target moving forward? - Management stated that the optimal lease-adjusted leverage level is below five times, with a focus on deleveraging while remaining opportunistic in capital allocation [76][78]

Digital Focus Realignment - The company is realigning its digital focus to leverage the strength of U.S iCasino and Canadian operations, emphasizing omnichannel benefits[7, 9] - The company will rebrand U S OSB product to theScore Bet on December 1, 2025, retaining a database of 2.9 million digital users[8] - The company's iCasino business achieved its highest quarterly gaming revenue to date, driven by record cross-sell from OSB and growth from standalone apps[7] Share Repurchase and Capital Allocation - The company repurchased $354 million of shares through November 5, 2025, and the board authorized a new three-year $750 million share repurchase program effective January 1, 2026[7] Omnichannel Strategy and Database Growth - 37% of digitally acquired customers are within 50 miles of one or more retail properties[13] - 64% of PENN Play database growth since 2019 is from digital customers[15] - Omnichannel customers have 6x the value and 3x the retention compared to single-channel customers[15] iCasino Growth and Retail Customer Engagement - Q3 2025 iCasino NGR growth was +41% year-over-year, with MAU growth of +79% year-over-year[18] - In Q3 2025, the record cross-sell percentage in iCasino was 62%[18] - The percentage of the active retail database also active online in states with retail, OSB, and iCasino (PA, MI, WV) reached 14.4% in September 2025[20] Canadian Market Opportunity - Ontario OSB & iCasino growth was +7% year-over-year (September 2025 YTD)[22] - The company expects to launch in Alberta in 2026 for OSB & iCasino, covering approximately 12% of the Canadian population[10, 23] Product Improvements and Retention - Enhanced OSB product features led to a +410 bps increase in SGP % Mix of Handle and a +800 bps increase in % of MAUs Live Betting (Y/Y in Oct-25)[25] - Improved retention efforts resulted in a +32% increase in M/M Retained Users (Y/Y in Oct-25) and a +1,000 bps increase in M/M Retention % (Y/Y in Sep-Oct 2025)[25] Retail Business Stability - The total retail portfolio saw revenue growth of +1.5% and EBITDAR growth of +3.5% year-over-year in Q3[28] - Excluding certain properties, revenue grew by +1.2% and EBITDAR grew by +2.3%[28] Hollywood Casino Joliet Performance - Hollywood Casino Joliet saw a +42% growth in active database (Q3-25 vs Q2-25)[35]