PENN Entertainment, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. PENN operated 43 properties in 20 states, online sports betting in 19 jurisdictions, and iCasino in five jurisdictions.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1,606.9 | $1,673.3 | Down 4.0% |
| Operating income (loss) | $(21.4) | $199.1 | Down $220.5 |
| Net income (loss) | $(114.9) | $514.4 | Down $629.3 |
| Diluted EPS | $(0.76) | $3.05 | — |
| Adjusted EBITDA (non-GAAP) | $101.4 | $332.2 | Margin 6.3% vs. 19.9% |
| Adjusted EBITDAR (non-GAAP) | $256.2 | $478.2 | Margin 15.9% vs. 28.6% |
| Net cash from (used in) operations | $(68.7) | $147.7 | Down $216.4 |
- Gaming revenue declined 5.0% to $1,258.3; food, beverage, hotel, and other revenue was essentially flat at $348.6.
- Gaming expenses increased 20.6% to $879.5, primarily reflecting ESPN BET marketing, higher marketing and promotional costs, and higher labor and other costs associated with increased sportsbook volumes.
- Cash and cash equivalents were $903.6 at quarter-end, down from $1,071.8 at December 31, 2023. The revolving credit facility was undrawn, with $979.3 of available capacity.
- Long-term debt, net of current maturities and issuance adjustments, was $2,718.1; aggregate principal indebtedness was approximately $2.8 billion. Total operating lease liabilities were $4,176.2, finance lease liabilities $2,090.7, and financing obligations $2,417.5.
- Capital expenditures were $41.4. Net cash used in investing activities was $47.3 and net cash used in financing activities was $50.1.
Material changes versus the prior comparable period
- The prior-year quarter included $83.4 of gains on the Barstool acquisition and $500.8 of gains on REIT transactions; neither recurred in Q1 2024. These items materially elevated prior-year reported earnings, so the GAAP net-income comparison is not indicative of underlying operating trends alone.
- Interactive segment revenue fell 11.0% to $207.7, while its Adjusted EBITDAR loss widened to $196.0 from $5.7. PENN cited promotional spending to acquire ESPN BET customers and unfavorable sportsbook hold rates. Interactive advertising expense was $136.0, compared with $23.6 a year earlier.
- Each of the four regional segments reported lower revenue and Adjusted EBITDAR. Management cited severe weather, increased competition and, in some areas, higher labor costs.
- Operating cash flow shifted from positive $147.7 to negative $68.7, attributed primarily to lower earnings and working-capital movements, including the timing of advance deposits.
Outlook, risks, and unusual items
- Outlook: No specific consolidated revenue or earnings guidance is provided in the filing. Management expects cash, operating cash flow and available credit to cover lease payments, debt service, capital expenditures and working capital for the foreseeable future, while cautioning that results and cash generation depend on factors outside its control.
- Capital plans: PENN estimated 2024 capital expenditures of approximately $225.0, plus $275.6 of anticipated 2024 project expenditures for the Aurora and other development projects. GLPI funding commitments are up to $225.0 for Aurora and, upon PENN’s request, up to $350.0 in aggregate for other projects, subject to terms and conditions. Projects were expected to open in late 2025 to early 2026.
- ESPN BET: The agreement has an initial 10-year term and calls for $150.0 per year in cash payments to ESPN, plus warrants. PENN recorded $18.7 of warrant-related expense in Q1. Either party may have a termination right after year three if specified market-share conditions are not met.
- Debt covenants: A February 2024 amendment provides a covenant relief period, during which specified Interactive Adjusted EBITDAR is excluded from certain leverage and interest-coverage calculations. The relief period ends earlier upon notice or after delivery of the compliance certificate for the quarter ending December 31, 2024. PENN reported covenant compliance at March 31 and expects to remain compliant for at least the next 12 months after filing.
- Indemnification: PENN expects $30.5 of settlement costs in Q2 2024 under its Barstool sale tax indemnity. The recorded liability was $70.0; the maximum potential future payment is not estimable, according to the filing.
- Other risks: Management identified competition, weather and consumer spending, inflation and interest rates, regulatory changes, execution and returns of ESPN BET and development projects, lease and debt obligations, and access to future financing as risks. The filing reports a $36.0 foreign-currency translation loss in comprehensive income.
Important facts for investors to verify
- Whether ESPN BET customer growth, market share, hold rates and promotional spending improve Interactive results, and how performance compares with the agreement’s termination conditions.
- Whether operating cash flow recovers from the Q1 outflow and whether the stated liquidity is sufficient alongside substantial lease commitments and planned investment.
- Progress on development costs, GLPI funding conditions, regulatory approvals and the late-2025-to-early-2026 project-opening expectations.
- How the covenant relief period’s expiration affects required financial ratios, particularly if Interactive losses persist.
- The timing and final amount of Barstool indemnity settlements, given the expected $30.5 Q2 payment and $70.0 recorded liability.