PENN Entertainment, Inc. Common Stock 2026 Q2 Earnings Call

Good morning, everyone, thank you for joining PENN Entertainment's 2026 second quarter conference call and webcast. We'll get to management's comments and presentation momentarily, as well as your Q&A. During Q&A, we ask that everyone please limit themselves to one question and one follow-up. I'll briefly review the safe harbor disclosure, then we'll get right into the call. Please note that today's discussion contains forward-looking statements. Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please see our press release for details on specific risk factors. It's now my pleasure to turn the call over to PENN CEO Jay Snowden.

Jay, please go ahead. Thanks, Joe, good morning.

I'm joined here by Felicia Hendrix and Aaron LaBerge, as well as other members of the senior management team. As you'll see from our release and investor presentation, we continued to execute against our 2026 strategic priorities during the second quarter. We're on track to deliver more than 20% year-over-year adjusted EBITDA growth this year, driven by strong performance across our retail portfolio and significant adjusted EBITDA improvement in our interactive segment. This growth, combined with our corporate overhead optimization, is benefiting cash flow growth, which in turn is enabling us to de-lever our balance sheet this year faster than originally expected. PENN's best-in-class property-level management teams delivered impressive results for the retail segment, achieving record quarterly revenues in Q2. This performance was reflected across the portfolio, with nine properties setting Q2 records for both revenues and adjusted EBITDA.

We also saw another quarter of year-over-year growth in rated revenue, supported by meaningful contributions from mid and high worth customer segments, as well as growth in unrated revenue, which has now increased in five of the last seven quarters, underscoring broad-based consumer demand. This momentum continued through July. Slide eight in our investor presentation highlights the combination of internal growth drivers and external market tailwinds that support our longer-term retail growth outlook, including our PENN Play loyalty program and omni-channel strategy, our strategic investments in both gaming and non-gaming amenities, our ongoing retail development project pipeline, limited new competitive supply, third-party investments that are helping to drive economic growth in a few of our key markets.

The interactive segment delivered another quarter of meaningful adjusted EBITDA improvement year-over-year as we continue to execute on our strategy of focusing on growth in our U.S. iCasino and Canadian operations to improve profitability. Our U.S. Hollywood-branded standalone casino app generated quarter-over-quarter as well as year-over-year growth, achieving record revenues in Q2. Our Ontario gaming operations continued to gain momentum, supported by strong growth in OSB revenues, aided by solid World Cup engagement and cross-sell of the reactivated World Cup OSB user base into iCasino. Revenue in the quarter was negatively impacted by customer-friendly online sports book outcomes, particularly in June during the NBA finals and World Cup, as well as lower volumes, in part due to our reduced marketing spend on lower value and unprofitable customer segments.

Importantly, this shift is improving our marketing efficiency and is consistent with our disciplined approach to managing the interactive business that we outlined earlier this year. Notably, while our OSB hold rate was flat year-over-year to date, our OSB net win rate improved. We saw encouraging interactive engagement trends during the World Cup. Approximately 70% of our sports book users placed a World Cup wager, with approximately 45% of those World Cup bettors placing a soccer wager for the first time. This event served as a meaningful engagement and reactivation opportunity for us heading into the NFL season. On July 13th, we launched theScore Bet sports book and casino and our standalone iCasino apps, theScore Casino and Hollywood Casino in Alberta, Canada.

While still early, we are encouraged by our Alberta user and handle volumes on a per capita basis and believe our exclusive strategic partnership in Canada with the Toronto Blue Jays will complement the strength of theScore Bet brand there. Our expected investment in Alberta remains approximately $20 million for the year, and our 2026 interactive segment adjusted EBITDA guidance is unchanged at a loss of $20 million, which Felicia will discuss in more detail in a few minutes. First, I want to cover some updates on our exciting retail development projects. Hollywood Casino Joliet, which opened last August, continued to deliver strong results in Q2, and that momentum has continued into early Q3. Our team there is doing a great job. Meanwhile, M Resort continues to capture previously unmet demand and drive enhanced property performance following the opening of our new hotel tower last December.

M Resort generated record net revenue and adjusted EBITDA in Q2, and notably, we hosted three of our top five largest groups by revenue ever during the quarter. We recently opened our new hotel tower at Hollywood Columbus on June 12th, strengthening our position as the leading regional gaming destination in the state of Ohio. The property generated an all-time net revenue record in July, the first full month with the hotel open. Over the hotel's first month and a half of operations, we have seen outer market guests account for 85% of hotel cash revenue, which again speaks to it being a regional gaming destination. Additionally, over that same timeframe, rated guests have increased their average daily worth by 10% when staying at the hotel.

Our final of the four growth projects, Hollywood Aurora, opened on June 24th, and while still early, has been showing strong growth KPIs, approximately doubling admissions Slot volumes, table volumes, and non-gaming revenues versus prior year levels. Our hotel is also attracting higher worth customers, with our rated guests generating 21% higher average daily worth when staying at the property. The property is also driving trial and expanding our reach in the market as 20% of our guests since opening have been new to Hollywood Aurora. Additionally, 25% of our guests since opening were reactivated customers. Up next in the pipeline will be the relocation of Hollywood Council Bluffs, which is expected to open in 2028. This project will convert a first-generation riverboat casino license into a modern and more efficient land-based facility that will connect seamlessly with our existing 444-room hotel.

We believe the new property will greatly enhance our competitive positioning in the greater Omaha market. The project has an anticipated construction budget of $180 million-$200 million. That budget, the programming, and the design will be very similar to the new Hollywood Joliet in Illinois. With that, I'll turn it over to Felicia.

Thanks, Jay. Our Retail segment generated record quarterly revenues of $1.5 billion and adjusted EBITDA of $517.2 million, which reflects year-over-year growth of approximately 4% in revenues and 6% in adjusted EBITDA respectively. Adjusted EBITDA margins were 34.4% and flow-through improved quarter-over-quarter and year-over-year, reflecting our property team's efforts to manage costs across the board, including labor, marketing, and G&A efficiencies. Importantly, we saw strong performance across the portfolio, including, but not limited to, contributions from our four recently completed development projects. Underscoring this point, same-store revenues and adjusted EBITDA grew approximately 2% and 4% respectively in the quarter. We're raising our full year 2026 retail revenue and adjusted EBITDA guidance to reflect the better-than-expected results in the second quarter and an increase in our prior assumptions for the second half of the year.

The midpoint of our revised 2026 revenue guidance is $5.87 billion, and for adjusted EBITDA, our new guidance is $1.963 billion at the midpoint, which implies a 50 basis point year-over-year improvement in adjusted EBITDA margins for the second half of the year at the midpoint. Our new guidance implies the continued expectation for retail adjusted EBITDA to grow year-over-year in the mid-single digits, more specifically at a rate similar to the 5.6% growth we just reported for the second quarter. We expect normalized seasonality in the second half of the year. Our Interactive segment generated revenues of $349.4 million in the second quarter, including a skin tax gross-up of $185.5 million and adjusted EBITDA loss of $9.5 million. On the revenue side, we experienced solid growth across our key focus areas, U.S.

iCasino and our Canadian operations, which was somewhat offset by customer-friendly online sportsbook outcomes and lower volumes, as Jay touched on earlier. On the adjusted EBITDA side, we delivered another quarter of meaningful improvement year-over-year, reflecting disciplined execution of our strategy to drive profitability. We are fine-tuning our 2026 Interactive segment revenue guidance to $1.57 billion from our prior $1.6 billion to reflect recent and current operating trends. Our new guidance includes a skin tax gross-up of roughly $830 million, up from $820 million prior, and assumes modest year-over-year growth in both OSB and iCasino for the second half, with iCasino growth higher than OSB growth. We continue to expect an adjusted EBITDA loss of $20 million in our Interactive segment for 2026, inclusive of a $20 million investment for our Alberta launch.