PENN Entertainment, Inc. (PENN) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlighted strong financial performance and optimistic guidance, especially regarding profitability in the Interactive division by Q4 2025. The company's plan to repurchase $350 million of shares suggests confidence in its financial health. However, there are concerns about competitive pressures and strategic uncertainties in the Interactive segment. Overall, the positive aspects, including share repurchase and profitability guidance, outweigh the negatives, suggesting a likely positive stock price movement.

Key Financial Performance

North America iCasino business quarterly gaming revenue Achieved its highest quarterly gaming revenue to date, an improvement of nearly 40% year-over-year, driven by record cross-sell from OSB of 62% and strong growth from stand-alone Hollywood and theScore Bet iCasino apps.

iCasino Monthly Active Users (MAUs) Increased by 79% during the third quarter, attributed to the introduction of a stand-alone app and improved cross-sell from online sports betting.

Retail segment revenues Generated $1.4 billion, with adjusted EBITDAR of $465.8 million and segment adjusted EBITDA margins of 32.8%. Stable core demand was noted, particularly at properties not impacted by new supply and increased competitor promotional activity.

Interactive segment revenues Generated $297.7 million, including a tax gross-up of $139.5 million, with an adjusted EBITDA loss of $76.6 million. Gaming revenues and adjusted EBITDA were below expectations due to customer-friendly hold across digital operations and lower-than-anticipated OSB volumes.

Share repurchases Repurchased $154.1 million of shares at an average price of $19.34 per share in Q3. Since September 30, an additional $85 million of shares were repurchased at an average price of $17.44 per share, totaling $354 million of shares repurchased in 2025.

Liquidity Ended the third quarter with total liquidity of $1.1 billion, inclusive of $660 million in cash and cash equivalents.

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Operating Highlights

Transition to theScore Bet: PENN Entertainment is transitioning its U.S. and Canadian online sports betting brands to theScore Bet, effective December 1, 2025. This includes seamless app updates and automatic transfer of account information.

iCasino Growth: The North America iCasino business achieved its highest quarterly gaming revenue to date, with a 40% year-over-year improvement. Cross-sell from online sports betting reached 62%, and monthly active users (MAUs) increased by 79% in Q3.

Expansion in Canada: The company plans to invest more in Canadian markets, particularly with the anticipated opening of Alberta in 2026.

New Regional Casino Openings: Hollywood Casino Joliet opened with strong results, including a 42% increase in its active database. Other projects include the second hotel tower at M Resort (opening December 1, 2025) and new developments in Columbus, Aurora, and Council Bluffs.

Operational Efficiency in Digital Business: The transition to theScore Bet will optimize the digital business by replacing fixed media spends with performance-based, regionally targeted marketing.

Retail Segment Performance: The retail segment generated $1.4 billion in revenue with stable demand across gaming and non-gaming amenities. Properties in Ohio, St. Louis, and Illinois performed particularly well.

Realignment of Digital Focus: PENN Entertainment ended its partnership with ESPN to focus on its digital assets in Canada and Hollywood iCasino, emphasizing cross-sell opportunities and profitability.

Omnichannel Strategy: The company is leveraging its 33 million-plus customer database to integrate digital and retail operations, focusing on high-margin markets and customer cohorts.

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Risk or Challenges

Early termination of ESPN partnership: The decision to terminate the ESPN partnership early highlights challenges in scaling ESPN BET as a competitive player in the online sports betting (OSB) market. This could lead to transitional risks, including customer retention issues and potential revenue loss during the rebranding process.

Rebranding to theScore Bet: The transition to theScore Bet involves operational risks, such as ensuring a seamless customer experience and maintaining customer loyalty. There is also uncertainty around customer retention following the rebranding.

Interactive segment losses: The Interactive segment reported an adjusted EBITDA loss of $76.6 million, driven by customer-friendly hold and lower-than-expected OSB volumes. This indicates ongoing financial challenges in the digital business.

Competitive pressures in retail properties: Some retail properties are facing increased competition and promotional activity, which could impact revenue and market share in those regions.

Dependence on regulatory approvals: Future projects and expansions, such as the Hollywood Columbus Hotel Tower and Hollywood Aurora Casino relocation, are subject to regulatory approvals, which could delay timelines and impact financial projections.

Customer-friendly sports outcomes: Customer-friendly sports outcomes in October negatively impacted gaming revenues, highlighting the volatility and unpredictability of the OSB market.

High marketing and operational costs: The company has incurred significant marketing and operational costs, including $38.1 million in cash payments to ESPN in Q4 2025, which could strain financial resources.

Economic uncertainties: Economic conditions and potential changes in consumer spending could impact both the retail and digital segments, particularly in discretionary spending areas like gaming and entertainment.

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Guidance & Outlook

Digital Realignment: The company will transition its U.S. and Canadian online sports betting (OSB) brands to theScore Bet starting December 1, 2025, pending regulatory approvals. This move aims to optimize digital business operations, enhance unit economics, and profitability by focusing on high-return North American markets and customer cohorts.

iCasino Growth: The North America iCasino business achieved its highest quarterly gaming revenue to date, with a 40% year-over-year improvement. The company plans to continue leveraging OSB as a customer acquisition driver for Hollywood iCasino and expects further growth in this segment.

Interactive Financial Goals: The company aims for its interactive segment to achieve breakeven or better financial performance by 2026. Marketing and cost structures will focus on high-margin markets and customer cohorts.

Retail Segment Projections: For Q4 2025, the company expects retail segment revenues to range from $1.41 billion to $1.43 billion and adjusted EBITDAR to range from $455 million to $475 million. The new Hollywood Casino Joliet is showing promising early trends, with significant database growth and customer activation.

Development Projects: Several development projects are on track, including the second hotel tower at M Resort (opening December 1, 2025), Hollywood Columbus Hotel Tower and Hollywood Aurora Casino relocation (late Q2 2026), and Hollywood Council Bluffs relocation (late 2027 or early 2028).

Capital Expenditures: The company has updated its 2025 CapEx forecast to $685 million, down from $730 million, reflecting a shift of some project costs into 2026. Project CapEx for 2025 is now expected to be $430 million.

Share Repurchase Authorization: The Board of Directors has authorized a new 3-year $750 million share repurchase program starting January 1, 2026, as part of the company's capital allocation strategy.

New Market Opportunities: The company is preparing for potential new market openings, such as Alberta, anticipated in late 2026, and is focusing on iCasino legalization in U.S. states with PENN retail properties.

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Shareholder Return Plan

Share Repurchase Program: In the third quarter of 2025, PENN Entertainment repurchased $154.1 million of shares at an average price of $19.34 per share. Since September 30, an additional $85 million of shares were repurchased at an average price of $17.44 per share. This totals $354 million of shares repurchased as of November 5, 2025, at an average price of $17.64 per share. Since the beginning of 2022, the company has repurchased $1.1 billion of shares, representing 25% of its shares outstanding. There is $395 million remaining under the current share repurchase authorization, which expires at the end of 2025. Additionally, the Board of Directors has authorized a new 3-year $750 million share repurchase program commencing on January 1, 2026.

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Key Q&A

Q:With the ESPN exit, can you talk about the near-term and longer-term profitability for Interactive and omnichannel's contribution to retail?

A:Jay Snowden explained that the company had four primary goals for their digital investments: attracting younger customers, cross-selling to land-based casinos, preparing for the future, and achieving profitability. While they have succeeded in the first three goals, profitability is the focus for 2026 and beyond. More details will be shared in February.

Q:How has increased competition and promotional activity impacted your operations, and how are you responding?

A:Todd George noted that new competition in key markets has led to increased promotional reinvestment and labor costs, but these are temporary. Jay Snowden added that customers tend to return to properties offering the best value and experiences, and the company continues to invest in its properties to maintain competitiveness.

Q:Can you discuss the cost side of digital profitability, particularly the fixed cost removal for ESPN and marketing for theScore?

A:Jay Snowden stated that marketing costs for theScore will be significantly below what was paid to ESPN. Savings from ESPN will be redeployed to high-return markets like Canada and iCasino hybrid states in the U.S. The company will adjust cost structures and marketing spend based on retention and revenue projections.

Q:Can you bifurcate the EBITDAR guide down between competition in supply-impacted markets and increased promotional activity in non-supply-impacted markets?

A:Todd George explained that the competition and promotional activity are primarily in markets with new competition, which also impacts labor costs. In non-supply-impacted markets, the promotional environment is less intense, and the focus remains on reinvesting in properties to attract customers.

Q:What is the updated share of theScore Bet in Ontario, and how is the U.S. customer database distributed?

A:Jay Snowden shared that theScore has 4 million monthly active users, with 2/3 in the U.S. and 1/3 in Canada. In Canada, theScore is popular across all provinces, and in the U.S., 2/3 of users are in online sports betting legal states. The company plans to leverage this database for growth.

Q:Do you own all the customer data associated with ESPN BET, and what is the expiration on the 8 million warrants ESPN will own?

A:Jay Snowden confirmed that PENN owns all customer data associated with ESPN BET due to regulatory requirements. Felicia Kantor Hendrix clarified that the 8 million warrants expire at the end of the 10-year deal.

Q:Does it make sense to buy retail properties in Canada to cross-sell and expand the customer database?

A:Jay Snowden stated that while acquiring retail properties in Canada remains on the radar, it is not a high priority. Opportunities would be considered if they arise at the right time and price.

Q:What is the leverage target for the business as you clean up online losses?

A:Felicia Kantor Hendrix mentioned that the optimal lease-adjusted leverage level is below 5x, and the company aims to achieve this over the next several years while balancing stock buybacks and growth investments.

Q:What are your expectations for customer retention in the digital channel when rebranding to theScore?

A:Jay Snowden and Aaron LaBerge emphasized that the rebrand will not require users to download a new app or reregister, ensuring a seamless transition. The company has a robust marketing and CRM plan to retain customers and expects retention to remain strong.

Q:What are your plans for financing the Columbus project?

A:Felicia Kantor Hendrix stated that it is too early to make a decision on financing for the Columbus project, and the company will decide closer to the opening.

Q:Should the outlook for 2026 profitability be better today than it was 2-3 months ago?

A:Jay Snowden indicated that the target for 2026 remains the same, but exiting the ESPN deal early provides a clearer path to achieving breakeven or better profitability.

Q:What led to the decision to exit the ESPN deal, and how was the process handled?

A:Jay Snowden explained that the decision was based on not meeting market share goals. The process was handled professionally, and both companies agreed on a path forward that was in their best interests.

Q:Are there more strategic changes expected for the Interactive business, or is the current strategy set?

A:Jay Snowden stated that the current strategy is set, focusing on Canada, iCasino, and OSB. The company will continue to monitor opportunities but is focused on executing the current plan.

Q:What is your view on prediction markets and their impact on the industry?

A:Jay Snowden expressed concern about prediction markets, viewing them as a major threat to the industry. He emphasized the need for the industry to play offense and work with regulators and lawmakers to address the issue.

Q:What is your appetite for entering non-North American markets for iCasino?

A:Jay Snowden stated that while the company has the capability to compete globally, the focus remains on North America for now. Opportunities in other markets may be considered in the future.

Q:Have you seen repeat visitation at the new Joliet property, and how is it performing?

A:Todd George reported strong repeat visitation and growth in the database at the new Joliet property. The property is performing at or above expectations in key metrics like guest count, frequency, and daily spend.

Q:How did margins trend for assets not impacted by new supply, and what were the key drivers?

A:Todd George noted that margins in non-supply-impacted markets were healthy, with some impact from payroll-related expenses and bad debt. October trends were strong, and the company expects continued positive performance.

Q:What opportunities do you see for product development and marketing in the Interactive business?

A:Aaron LaBerge highlighted that the company will focus on targeted marketing and improving the iCasino product. Freed-up resources from the ESPN deal will be used to enhance product quality and marketing precision, particularly in high-value markets.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on customer retention rates post-rebrand and the exact financial impact of exiting the ESPN deal. They also did not elaborate on potential strategic changes for the Interactive business beyond the current plan.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

PENN Transcript

PENN Entertainment, Inc. (PENN) Q3 2025 Earnings Call Transcript

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The earnings call summary shows strong financial performance with significant growth in theoretical play and strategic partnerships, like the ESPN-NFL deal, indicating positive future prospects. The Q&A highlighted management's confidence in ongoing projects and strategies, despite some lack of clarity on specifics. The market cap suggests a moderate reaction, leading to a positive sentiment prediction.

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The earnings call shows positive financial performance with growth in retail revenue and adjusted EBITDA despite weather impacts. The interactive segment improved significantly year-over-year. The Q&A highlighted optimism in digital growth, particularly iCasino, and positive sentiment towards new products like ESPN DTC. Share repurchase plans and a strong liquidity position further support a positive outlook. While there are some uncertainties, such as skill-based gaming impacts, the overall sentiment is positive, with potential catalysts in new product launches and market strategies.

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The earnings call presents a mixed outlook: strong retail revenue and EBITDA, optimistic guidance, and a significant share repurchase program are positive. However, the digital segment's ongoing losses, potential delays in growth projects, and economic sensitivity are concerns. The Q&A reveals management's reluctance to provide specifics on financing and tax impacts, adding uncertainty. Given the market cap and these mixed signals, the stock is likely to remain stable, resulting in a neutral prediction.

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