PENN Entertainment, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided filing text does not give clear standalone fourth-quarter financial results.
Business context
PENN operated 43 gaming and racing properties in 20 states, with online sports betting in 18 jurisdictions and iCasino in five. Its five reportable segments are Northeast, South, West, Midwest, and Interactive. The company’s strategy emphasizes an omni-channel business spanning retail casinos, sports media, online sports betting, and iCasino.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $6.363 billion | $6.402 billion |
| Net income (loss) | $(491.4) million | $221.7 million |
| Adjusted EBITDA (non-GAAP) | $921.5 million | $1.790 billion |
| Adjusted EBITDA margin (non-GAAP) | 14.5% | 28.0% |
| Adjusted EBITDAR (non-GAAP) | $1.513 billion | $1.939 billion |
| Operating cash flow | $455.9 million | $878.2 million |
| Capital expenditures | $360.0 million | $263.4 million |
| Cash and cash equivalents at year-end | $1.072 billion | $1.624 billion |
Revenue declined 0.6%. Gaming revenue fell 5.7% to $4.906 billion, while food, beverage, hotel, and other revenue rose 21.4% to $1.457 billion. Net loss included a $923.2 million pre-tax loss on the Barstool disposal and $130.6 million of impairment charges. Results also included an $83.4 million gain on the Barstool acquisition and a $500.8 million gain from REIT lease transactions. These unusual items and the lease-related accounting changes materially affect year-over-year comparisons.
At December 31, 2023, reported long-term debt and other long-term obligations totaled approximately $2.8 billion in principal; $1.5 billion was outstanding under the credit facilities. The $1.0 billion revolving facility was undrawn, with $978.3 million available after letters of credit. Total liabilities also included substantial lease obligations. Triple-net lease payments were $937.8 million in 2023; annual minimum rent obligations were $962.7 million at year-end, including $943.6 million for triple-net leases. Management said cash from operations, cash on hand, and credit availability should cover expected obligations for the foreseeable future, subject to business and market conditions.
Operating cash flow fell 48.1%, which management attributed principally to lower pre-tax income and higher payments associated with operating lease components. Investing cash use was $742.6 million, including $314.6 million for the Barstool acquisition and $360.0 million of capital expenditures. Financing cash use was $262.6 million, including $149.8 million of share repurchases. The company repurchased no shares in the fourth quarter.
Changes versus 2022
- Interactive weakened materially: segment revenue increased 8.4% to $718.8 million, but Adjusted EBITDAR was a loss of $402.5 million versus a $74.9 million loss. Management cited higher promotional and marketing spending around ESPN BET’s November launch and unfavorable sports betting hold.
- Regional retail results were mixed: South revenue fell 7.4% to $1.216 billion, primarily on lower visitation, competition, and inclement weather. Northeast revenue rose 1.6%, while West revenue fell 9.2%, including the absence of Tropicana Las Vegas after its 2022 sale. Midwest revenue rose 1.1%.
- Lease accounting changed significantly: new and amended GLPI master leases shifted major lease components to operating-lease accounting. Rent expense recognized in general and administrative expenses rose, while depreciation and interest expense declined. The resulting $500.8 million REIT transaction gain was non-cash.
- Cash returns moderated: share repurchases were $149.8 million versus $601.1 million in 2022. The remaining authorization was $749.5 million at February 22, 2024.
Outlook, commentary, and risks
PENN expects 2024 maintenance capital expenditures of approximately $225.0 million and project expenditures of $275.6 million for the Aurora and other development projects. GLPI may fund up to $225 million for Aurora and, at PENN’s request, up to $350 million for other projects, subject to contractual terms and approvals. The filing does not provide a consolidated 2024 revenue or earnings forecast.
The ESPN Sportsbook Agreement has an initial 10-year term. PENN agreed to pay ESPN $150 million annually in cash and issued warrants to purchase approximately 31.8 million PENN shares, with potential additional warrants tied to performance. ESPN BET launched in 17 states by year-end. Its ability to attract and retain customers and earn adequate returns remains uncertain; the agreement also contains performance-based termination provisions.
On February 15, 2024, PENN amended its credit facilities to provide a covenant relief period through no later than delivery of the compliance certificate for the quarter ending December 31, 2024. During that period, specified Interactive Adjusted EBITDAR amounts are excluded from certain leverage and interest-coverage calculations. PENN reported covenant compliance at December 31, 2023 and expected to remain compliant for at least 12 months from the filing date.
Key risks include the cost and scale of lease and debt commitments, variable-rate interest exposure, competition and uncertain online-gaming returns, dependence on ESPN and third-party technology providers, gaming regulation and taxes, and economic pressures on discretionary spending. Louisiana, Ohio, and Missouri together accounted for 37.1% of 2023 revenue from retail properties, creating regional concentration. Twelve collective bargaining agreements were scheduled to expire in 2024. The company reported no material cybersecurity impact to date. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether ESPN BET customer growth, retention, market share, and promotional spending support the economics of the $150 million annual ESPN payment and associated equity warrants.
- How much of the year-over-year decline in cash generation reflects ongoing operations versus lease-accounting and timing effects, and whether cash flow can sustain rent, debt service, and planned investment.
- The terms, approvals, funding, additional rent, and projected returns for the Aurora and other GLPI-funded development projects.
- How covenant compliance will be assessed during and after the relief period, particularly if Interactive losses persist.
- Whether further impairment charges or tax-indemnity payments arise; the filing records a $70.0 million Barstool tax indemnification liability, with the maximum potential payment not estimable.